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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-19506
UNITED WISCONSIN SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1431799
(State of incorporation) (I.R.S. Employer Identification No.)
401 WEST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53203-2896
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 226-6900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, no par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. x
---
As of February 28, 1998, there were issued and outstanding 16,517,644
shares of Common Stock; the aggregate market value of the shares of such
stock held by non-affiliates of the registrant was $317,949,807 as of the
same date, assuming solely for purposes of this calculation that all
directors and executive officers of the Registrant are "affiliates." This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of United Wisconsin Services, Inc. Proxy Statement dated
April 15, 1998 (Part III)
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UNITED WISCONSIN SERVICES, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1997
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PAGE
<S> <C>
Cover. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index to Annual Report on Form 10-K. . . . . . . . . . . . . . . . . . 2
PART I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 16
Item 4 Submission of Matters to a Vote of Security Holders . . . . 16
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 16
PART II
Item 5 Market for Registrant's Common Equity . . . . . . . . . . . 18
Item 6 Selected Consolidated Financial Data. . . . . . . . . . . . 18
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 20
Item 8 Financial Statements and Supplementary Data . . . . . . . . 27
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . 57
PART III
Item 10 Directors and Executive Officers of the Registrant. . . . . 57
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . . . 57
Item 12 Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 57
Item 13 Certain Relationships and Related Transactions. . . . . . . 57
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 58
Schedule II - Condensed Financial Information of
Registrant . . . . . . . . . . . . . . . . . . . . . . . . 59
Schedule IV - Reinsurance . . . . . . . . . . . . . . . . . 62
Schedule V - Valuation and Qualifying Accounts. . . . . . . 63
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
United Wisconsin Services, Inc. is a Wisconsin corporation organized in
1983. Its principal executive offices are located at 401 West Michigan
Street, Milwaukee, Wisconsin 53203 and its telephone number at that address
is (414) 226-6900. As used herein, the terms "the Company" or "UWS" include
United Wisconsin Services, Inc. and its subsidiaries. This Annual Report on
Form 10-K contains both historical and forward looking information. The
forward looking statements may be significantly impacted by risks and
uncertainties and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. There can be no assurance
that the Company can duplicate its past performance or that expected future
results will be achieved. Readers are cautioned that a number of factors,
which are described herein, could adversely affect the Company's ability to
achieve these results, including the effects of health care reform, the
continuation and renewal of the Company's joint ventures, and the effects of
other general business conditions, including but not limited to, competition,
medical cost trends, changes in reserve estimates, terms of provider
contracts, premium rate changes, government regulation, capital requirements,
administrative costs, general economic conditions and the retention of key
employees.
The Company is a leading managed care and employee benefits company
serving markets in more than 45 states. The products and services offered by
the Company comprise a broad range of group medical and related benefit
products which provide employers with cost effective solutions to their
employee benefits needs. The medical products are delivered through health
maintenance organizations ("HMO") and preferred provider organizations
("PPO") that encourage or require use of contracting providers. HMOs and
PPOs help control health care costs by various means, including utilization
controls such as pre-admission approval for hospital inpatient services,
pre-authorization of outpatient surgical procedures, and capitated or
discounted fee arrangements. The Company also offers various specialty
products and services including group life, dental, disability income,
workers' compensation, and electronic claim transmission services.
Since its acquisition by the Company in 1992, Valley Health Plan, Inc.
("Valley"), an HMO in Northwestern Wisconsin, has operated as a joint venture
with Midelfort Clinic, Ltd., Mayo Health System ("Midelfort"), its main
provider. The joint venture and related agreements define terms of the
relationship among the Company, Valley and Midelfort including payment for
services and buyback rights among the joint venture partners. The current
term of the joint venture agreement runs through December 31, 1999. Unity
Health Plans Insurance Corporation ("Unity"), an HMO serving Southwestern and
Central Wisconsin, was formed by the combination of HMO of Wisconsin Health
Insurance Corporation and the business of U-Care HMO, Inc. which were
purchased by the Company effective October 1, 1994. Unity is operated as a
joint venture among the Company, Community Health Systems, LLC ("CHS") and
University Health Care, Inc. ("UHC") which through their affiliates,
Community Physicians' Network, Inc. ("CPN") and the University of
Wisconsin-Madison Medical Center, constitute the provider networks for Unity.
The joint venture agreement has an initial term which extends through
October 1, 2004 and, along with related agreements, defines the payment terms
and buyback provisions of the joint venture partners. Buyback rights for a
portion of the business are exercisable by CHS and UHC as of November 1, 1999
and October 1, 2004.
From 1988 through November 1996, the Company's small group business was
marketed and administered under a joint venture arrangement with American
Medical Security Group, Inc. ("AMSG"). Under this arrangement, the premiums and
earnings on small group business underwritten by United Wisconsin Life Insurance
Company ("UWLIC") were generally split between the Company and AMSG with each
party reporting fifty percent of premium and earnings. In addition, the
Company's investment of 12% of the outstanding common stock of AMSG was reported
on a cost basis.
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On December 3, 1996, the Company acquired via merger the 88% of AMSG
which it did not previously own. Consideration paid in the acquisition was
$71.8 million in cash and 3.7 million newly issued shares of UWS common
stock. American Medical Security Holdings, Inc. ("AMS") was established as a
holding company replacing AMSG for the coordination of the small group
business. Beginning in December 1996, 100% of the AMS small group results of
operations are reflected in the Company's financial statements.
In October 1997, AMS acquired, via assumption reinsurance, all of the
small group health insurance underwritten by Pan American Life Insurance
Company ("Pan American") of New Orleans, Louisiana. The acquired business
was administered and supported through National Insurance Services ("NIS") a
wholly-owned subsidiary of Pan American located in Tampa, Florida. This
block of business, when acquired, totaled $125 million in annualized
premiums, concentrated primarily in Florida, Texas, Louisiana and Tennessee.
All facets of administration for the Pan American business were
transferred to AMS in early November 1997. AMS retained approximately 15 of
the NIS employees to create a telemarketing sales operation in Tampa,
Florida. Renewal of the Pan American cases has been integrated into AMS's
traditional underwriting and sales functions. Improvement in the overall
profitability of this block is expected as the Pan American business is
transitioned to AMS's more disciplined claims payment system, deeper PPO
discounts, integrated managed care policies and better underwriting practices.
The Company's HMO products are sold primarily by a salaried sales force
to employers and other groups including Medicaid-eligible individuals
throughout Wisconsin. The small group PPO and complementary products are
sold by an agency sales force to employer groups with an average size of less
than ten employees in 34 states largely in the Midwest and South. Specialty
products and services are sold through a variety of distribution channels to
employer groups and providers in Wisconsin and throughout the United States.
Blue Cross & Blue Shield United of Wisconsin ("BCBSU"), which holds
37.9% of the outstanding common stock of UWS, is the Company's largest
shareholder. The Company provides services to and purchases services from
BCBSU under various service agreements ("Service Agreements"). Under the
Service Agreements, parties are charged for services used at rates which are
approximate market.
HMO PRODUCTS
PRODUCTS
Compcare Health Services Insurance Corporation ("Compcare") offers a
variety of HMO and point-of-service ("POS") products throughout Wisconsin.
POS products have become the coverage of choice for a number of employers as
they provide a complete replacement for programs which include a PPO plan or
both traditional indemnity and HMO coverages. Compcare offers its members a
broad network of providers which include all three of the major physician
hospital organizations in Southeastern Wisconsin.
Valley offers the following plans: (i) the Group Plan, a comprehensive
HMO plan; (ii) the Partner Plan, a traditional HMO plan which incorporates
co-payments; (iii) POS products, which combined a traditional HMO plan with
an out-of-network benefit with deductible and coinsurance; (iv) AgriHealth,
an individual plan offered to farmers; (v) a second AgriHealth product, an
individual product with front-end deductible and coinsurance; (vi) a Medicare
Supplement product, an individual product designed to close the gap between
health care costs incurred and government programs allowed payments; (vii) a
small group product, combining managed care with deductibles and co-payments;
and (viii) an HMO Medicaid plan, which is a comprehensive HMO plan for
Medicaid recipients.
Unity offers a comprehensive group plan which incorporates some
co-payments and deductibles and a modified comprehensive group plan which
incorporates co-payments and deductibles as well as coinsurance on certain
benefits such as hospitalization and specialty care. Unity also offers an
individual plan, including an in-area conversion plan, and a Medicare
Supplement plan. In addition, Unity markets POS products with a wide variety
of benefit options.
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The POS plans provide significant incentives for their members to
utilize the plans' managed care benefits and provide reduced benefits and
increased deductibles and co-payments when services are rendered by providers
outside of the HMO networks. In order to receive the higher level of
benefits available within the network, a member must receive care from a
primary care physician or be referred to a specialist by the primary care
physician. These incentives lower the overall premium for the group, even
though the POS premiums tend to be slightly higher than comparable
traditional HMO products. POS plans provide a greater level of health care
cost control than a traditional HMO and an indemnity plan. POS plans are
sold generally as a complete replacement for an employer's HMO and indemnity
offerings.
MARKETING
Marketing HMO products generally is a two-step process. Presentations
are made first to employers. Once selected by an employer, the Company then
directly solicits members from the employee base. During periodic "open
enrollments", when employees are permitted to change health care programs,
the Company uses advertising and work site presentations to attract new
members. Virtually all of the HMO employer group contracts are renewable
annually.
As of December 31, 1997, HMO membership consisted of the following:
<TABLE>
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Commercial
HMO POS Medicaid Total
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<S> <C> <C> <C> <C>
Compcare 108,625 34,010 30,606 173,241
Valley 22,762 11,258 3,886 37,906
Unity 63,554 16,083 5,480 85,117
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194,941 61,351 39,972 296,264
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</TABLE>
Significant factors in HMO selection by employers and employees include
the composition of provider networks, quality of services, price, choice and
scope of benefits and market presence. To the extent permitted by the Office
of the Commissioner of Insurance for the State of Wisconsin ("OCI") and the
federal government, the Company can offer an employer a wide spectrum of
benefit options, including federally qualified and non-federally qualified
products. To address rising health care costs, some employers now consider a
variety of health care options to encourage employees to use the most
cost-effective form of health care services. These options, which include
HMOs, POS and PPO plans, may either be self-funded or provided by third
parties.
Compcare's operations in the seven counties in Southeastern Wisconsin
account for more than 90% of its medical membership. The remainder of
Compcare's membership is spread throughout Wisconsin. Valley operates in a
15 county area in Western Wisconsin, and Unity operates in a 31 county area
in Southwestern and Central Wisconsin. During 1996, the Company entered into
two strategic partnerships to offer HMO products in Northern Wisconsin.
Compcare Northwest is a partnership with the Duluth Clinic to bring managed
care operations to the underserved rural market. Northwoods Health Plans,
LLC is a joint venture formed with Howard Young Health Care, Inc., a leading
provider of health care services in North Central Wisconsin. The Company
believes that expansion efforts should contribute to increased enrollment by
attracting new employer groups, by increasing penetration in existing
employer groups, and by broadening the Company's access to the Medicaid
population.
Through one of the Service Agreements, the Company utilizes BCBSUW's
salaried sales force, consisting of 20 account representatives and customer
relations personnel, 36 account executives, one agency manager, four agency
consultants, and five sales directors, to market HMO products as of December 31,
1997. The Company directly employs a sales staff of seven account executives,
one sales director, one agency manager and two agency consultants who market
products for Unity as well as BCBSUW.
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PROVIDERS
Compcare, Valley and Unity contract with physicians and hospitals to
provide medical services to their members. Members designate one physician
in the network as their primary care provider and are required to seek
non-emergency care from this physician.
Compcare has an extensive provider network in Southeastern Wisconsin,
which included 2,702 physicians, as of December 31, 1997. Compcare is the
only HMO that contracts with all eight of the largest multi-specialty clinics
in Milwaukee for the provision of health care services to its members. This
network is augmented by individual physicians, hospitals and IPAs affiliated
with Milwaukee's large hospitals. Providers outside of Milwaukee consist of
multi-specialty clinics and hospitals. Ancillary services are provided under
capitated arrangements through sub-networks including chiropractic, mental
health, oral surgery, home care, durable medical equipment and vision.
Approximately 86% of Valley's physician services are provided under an
arrangement with Midelfort which the Company believes is the leading medical
clinic in Eau Claire, Wisconsin. Arrangements with three smaller area clinics
comprise the majority of the other Valley physician services provided. As of
December 31, 1997, Valley's provider network consisted of 321 physicians.
Valley has contracts with six hospitals which have accounted for the majority
of Valley's hospital services.
Unity contracts with CPN, an Independent Physician Association ("IPA"),
and UHC, an affiliate of the University of Wisconsin Hospital and Clinics,
which together provide 100% of the physician services for Unity's membership
throughout its 31 county service area. CPN and UHC collectively contract
with approximately 400 primary care providers and 2,100 specialists and
ancillary health care providers. In addition, Unity contracts directly with
approximately 50 acute care and specialty care hospitals.
Compcare, Valley and Unity manage the cost of health care provided to
their members through the method of payment and risk-sharing programs with
physician groups and hospitals and with their utilization management program.
The method of payment consists of a mixture of capitation, fee schedules and
discounted fee-for-service arrangements. Capitation allows the payment of a
fixed amount per member per month to providers, regardless of services
provided, which stabilizes medical and dental costs. Capitation encourages
providers to avoid unnecessary utilization of hospital, physician and
ancillary health care services. For the year ended December 31, 1997,
approximately 34%, 24% and 100% of Compcare's, Valley's and Unity's medical
benefits, respectively, were provided under capitated arrangements.
For certain medical providers, compensation for services is calculated
on a discounted fee-for-service basis. Under this arrangement, the Company
will reimburse physician groups for services rendered based upon negotiated
fee schedules or usual and customary charges less an agreed upon discount.
Hospitals may be reimbursed at a set per diem rate for each inpatient day, on
a flat rate per procedure basis, or on a discounted charge basis. In
fee-for-service arrangements, risks associated with utilization are retained
by Compcare and Valley. However, such arrangements provide Compcare and
Valley with greater pricing flexibility and opportunities to benefit by
application of underwriting on a group specific or individual basis.
Furthermore, fee schedule-based compensation allows Compcare and Valley to
better target improvement in loss ratios through product development and
benefit modification. Such changes are more difficult in a capitated system
since capitation levels must be renegotiated before any effective changes can
be made to benefits or products.
Some of the capitated physician groups and hospitals in Compcare's provider
network elect to participate in stop-loss arrangements with the Company. These
arrangements limit the facility's or group's claim liability to a fixed amount
per member per year. Claim costs in excess of stop-loss limits are reimbursed by
Compcare.
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COST CONTAINMENT
The majority of medical management and cost containment services for
Compcare are provided by Meridian Managed Care, Inc. (see "Specialty Managed
Care Products and Services - MANAGED CARE CONSULTING"). Services for Valley
and Unity are coordinated by medical directors in conjunction with the
medical staffs of their joint venture partners.
MANAGEMENT INFORMATION SERVICES
Each of the Company's HMOs utilizes information systems developed and/or
customized specifically to meet the needs of the HMO. The information
systems support marketing, sales, underwriting, contract administration,
billing, financial and other administrative functions as well as provider
capitation and claims administration, provider management, quality management
and utilization review.
The Company continually evaluates, upgrades and enhances the information
systems which support its operations. Information systems utilized by
Compcare and Valley are outsourced to a third party. Compcare is in the
process of changing its outsourcing vendor to upgrade its capabilities.
SMALL GROUP PRODUCTS
PRODUCTS
AMS markets to individuals and small employers through a diverse
offering of fully insured and self-insured PPO and traditional indemnity
benefit plans covering approximately 623,000 members as of December 31, 1997.
The target market for AMS is groups with 1-99 employees. AMS can customize
employee benefit packages for individuals and businesses through IT'S YOUR
CHOICE, a benefit option which allows businesses to offer employees multiple
medical plans in a single package. CUSTOM PLUS is a voluntary program that
allows employees to elect optional benefits such as life, dental, and
short-term disability benefits with no minimum participation or employer
contribution. LIFESTYLE CHOICE$ is a voluntary health awareness program
designed to identify health risks and encourage positive lifestyle choices to
reduce those risks. AMS helps employers assess their wellness programs,
makes recommendations for improvement and supplies any needed resources for
wellness program development.
Other AMS services include Nurse Healthline, Inc. ("Nurse Healthline"),
a confidential telephonic health advisory service providing information about
health conditions, medications, cost-effective treatments and the location of
a network provider. It is available 24 hours a day, 365 days a year and is
included with every health benefit plan.
AMS offers a full line of ancillary products to individuals and groups
in conjunction with health care products including dental, employee and
dependent term life, accidental death and dismemberment ("AD&D"), and
short-term disability.
The Premium Savings Plan, a section 125 cafeteria plan, is offered at no
cost to fully insured groups of two or more and permits pre-tax contribution
for employee health care premiums thereby reducing payroll taxes for the
employer. The Advantage Plan is another plan also available to groups and
their employees as a mechanism to fund unreimbursed medical, dental, or
dependent care expenses on a pre-tax basis. This feature also reduces the
amount employers pay in payroll taxes.
MARKETING
Small group products are marketed through licensed independent agents in
33 states and the District of Columbia. AMS has divided its sales territory
into three regions, each of which is the responsibility of a Regional Vice
President ("RVP"). The RVPs work with a number of regional sales managers
located in 30 offices throughout the United States in coordinating the sales
and marketing efforts.
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As of December 31, 1997, AMS marketed products through approximately
37,500 independent agents. The leading states with respect to premium during
1997 were Florida, Texas, Illinois, Michigan and Wisconsin, which accounted
for 48.6% of AMS premium. For the year ended December 31, 1997, the top ten
employer groups accounted for approximately 1% of the premium on business
sold by AMS.
Independent agents are paid commissions on new and renewal sales. AMS
offers an attractive benefit and service package for agents, creating an
environment as an "agent friendly" company.
Significant factors influencing an employer's selection of the Company's
small group products include price, flexibility of plan design, choice and
scope of benefits, quality of service, reputation and quality of
relationships with agents.
PROVIDERS
AMS utilizes over 80 commercial provider networks in 34 states for its
managed care products. A master "payer" agreement is in place for each
provider network that allows AMS to access the provider contracts for its PPO
and exclusive provider organization products. These networks are made
available to both fully insured products as well as AMS's self-insured
product offerings.
AMS also directly owns or controls commercial PPO networks in Texas,
Florida, Iowa, Nebraska, Wisconsin, Arizona, North Dakota and South Dakota.
These networks not only service AMS business but are offered to other
insurers and third party administrators as a secondary source of income to
AMS and to assure adequate volumes of business to support the provider
contract pricing concessions which are largely volume related. AMS believes
there is great value in owning provider networks in select markets as a way
to directly interact with the provider networks as well as to effectively
conduct its medical management initiatives.
COST CONTAINMENT
AMS obtains medical management services through both external and
internal programs. Traditional utilization review for its managed care
products is purchased from commercial PPO networks, including those owned or
controlled by AMS. Case management is performed by AMS staff through a
combination of internally developed and commercially purchased software
packages to prompt, guide and record medical management decisions. In
addition, AMS has developed a series of programs to enhance its medical
management effort and to offer preventative services.
First, AMS has created LifestyleChoice$, an annual screening and evaluation
of health care status available to covered employees and their dependents. This
"wellness" screening program, along with individualized recommendations and a
periodic newsletter, guides members to ways for improving their health. Second,
AMS has developed a disease management program for insured members with chronic
medical conditions such as asthma and diabetes. Disease management staff
members frequently contact these "at risk" members to promote education and
understanding of their medical condition and how to obtain and use resources
efficiently. Third, AMS has developed a demand management telephonic service
entitled Nurse Healthline. AMS insureds and families can access Nurse
Healthline nurses 24 hours a day, seven days a week. By using a computerized
algorithm based system, the nurses are able to determine the severity of the
problem and assist the insured in making an informed healthcare decision.
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MANAGEMENT INFORMATION SYSTEMS
AMS's health, dental, life, and short-term disability products use
custom built management information systems for all administrative processing
tasks. These systems include underwriting, billing, enrollment, claims
processing, utilization management, sales reporting, network analysis and
service and status reporting. These systems support all products and
provider arrangements. The management information systems handle electronic
receipt of claims, referrals and eligibility with networks and providers.
The systems support both fully insured and self-insured administrative needs.
AMS's management information systems are state of the art and modular.
Evaluation and upgrades occur continuously. An artificial intelligence
system is used for claims processing, eligibility and enrollment tasks. The
systems are flexible which allow quick new product introduction and
legislative updates. In addition to electronic receipt of information, AMS
systems can also electronically scan and image documents. AMS uses extensive
personal computer-based network and software solutions that are integrated
with its mainframe system which allows for its continuous enhancement with
technology upgrades and other software solutions.
Implementation of a data warehouse that will provide eligibility, sales,
billing, claims, provider and financial data for AMS is scheduled for the
second quarter of 1998.
SPECIALTY MANAGED CARE PRODUCTS AND SERVICES
The Company has been focusing on the growth of the specialty products
and services it offers. Such products and services include prepaid dental
care, life and disability insurance, workers' compensation, managed
behavioral health, managed care consulting, electronic claims processing,
pharmaceutical services and other medical benefits.
DENTAL
At year end 1997, a separate corporate entity, Heartland Dental Plan,
Inc. ("Heartland Dental") was established to operate the Company's dental HMO
previously known as Dentacare. Prepaid dental services are provided to
169,823 members which makes Heartland Dental the largest dental HMO in
Wisconsin. Premium revenues attributable to Heartland Dental were $27.8
million for the year ended December 31, 1997. Heartland Dental contracts with
group dental practices on a capitated basis throughout Wisconsin and Northern
Illinois. Members receive services through their selected dental center. In
addition, Heartland Dental offers POS and out-of-area products. The
Heartland Dental provider network had 245 dental providers as of December 31,
1997.
Heartland Dental offers ten different products with varying benefit
options, most of which cover 100% of preventive and diagnostic services.
Other services are offered at various levels of coverage. All products cover
pre-existing conditions and the full range of dental services, including
orthodontics. Heartland Dental was established as a separate entity to
facilitate growth of prepaid dental business outside of Wisconsin.
LIFE AND DISABILITY
The Company offers group term life and AD&D coverages as well as
dependent life and accelerated death benefits. Short and long-term disability
products have been designed to provide income replacement for an employee who
becomes disabled through a non-work related situation. The Company's Rapid
Pay plan is a unique short-term disability product by which claimants receive
benefits on a timely basis with minimal up-front paperwork. As of December
31, 1997, the Company had a total of 214,011 life and disability
certificates. Premium revenue related to life and disability products was
$34.0 million for the year ended December 31, 1997. Life products are sold
through UWLIC, which is licensed to do business in 39 states and the District
of Columbia and ceded to United Heartland Life Insurance Company ("UHLIC")
which is licensed in Ohio and Wisconsin. United Wisconsin Insurance Company
("UWIC"), which sells disability products, is licensed in 35 states and the
District of Columbia.
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An insurance company's rating is an important factor in establishing its
competitive position. In 1997, UWIC, UWLIC and UHLIC were assigned ratings of
"A- (Excellent)" by A.M. Best Company, Inc. ("Best"). The "A-" "(Excellent)"
rating is the fourth highest ratings given to insurance companies.
MANAGED CARE WORKERS' COMPENSATION
Through United Heartland, Inc. ("United Heartland"), the Company applies
managed care techniques to the workers' compensation market in Wisconsin.
United Heartland is a managing general agent that until January 1, 1995 was
owned equally by the Company and Aon Corporation ("Aon"). On January 1,
1995, the Company exercised its option to acquire Aon's interest in United
Heartland, thereby making United Heartland a wholly owned subsidiary of the
Company. The workers' compensation coverage sold through United Heartland is
underwritten by UWIC in those states where UWIC is licensed to provide such
coverage. A reinsurance partner underwrites risk for coverage in those states
where UWIC is not licensed to provide workers' compensation coverage. Premium
revenue produced by United Heartland approximated $21.0 million during 1997.
During 1997 the Company retained 60% of the workers' compensation risk and
ceded the other 40% to a reinsurance partner.
The Company believes the key elements to success in the workers'
compensation insurance business are service to employers and control of
workers' compensation costs through comprehensive loss control and claims
management procedures. As part of its underwriting process, United Heartland
performs a loss control review of each prospective insured prior to making a
commitment to provide coverage. It also scrutinizes the employer's commitment
toward developing or improving light duty/return to work programs, safety
awareness programs, supervisor training in accident investigation and
enforcement of safety in the workplace. United Heartland also reviews the
financial resources of the employers to verify an ability to follow through
on any commitments made that may require a capital expenditure.
In claims management, United Heartland utilizes medical management
resources to assist in the adjustment of its claims, which include: (i)
access to BCBSUW's usual and customary charges database; (ii) the PPO network
established by the Company for United Heartland clients; and (iii) access to
the hospital bill audit and medical staff of the Company as needed in claims
handling. The Company believes this managed care capability, combined with a
commitment to communicating with employers, employees and medical providers,
assists United Heartland in monitoring the major cost factors of workers'
compensation claims. Cost savings have been demonstrated as United
Heartland's customers over the six year period ended December 31, 1997 have
experienced a 16 percent drop in the cost of their workers' compensation
claims.
MANAGED CARE CONSULTING
Through Meridian Resource Corporation ("Meridian"), the Company
specializes in providing consulting and technical services to insurance
companies, employers, providers, government agencies, coalitions and other
organizations to make sound decisions regarding health care benefits and more
effective health care delivery. Consulting services include: health care
data analysis, hospital cost indexing and analysis, feasibility studies and
economic analysis. Technical services include: hospital bill audit, data
analysis and reporting, claims audit, and subrogation recovery services.
Meridian has also established a niche for itself in collecting salvage and
subrogation recoveries for self-insured groups and other health insurers.
In order to promote team work, collaboration and increased effectiveness
of its managed care programs, the Company has consolidated its medical
management functions into its wholly owned subsidiary Meridian Managed Care,
Inc. ("MMC"). MMC primarily serves the population of Compcare and BCBSUW but
also markets its programs to non-affiliated organizations.
MMC controls costs by promoting quality and efficiency, on behalf of
enrolled individuals and populations, across the continuum of care. This broad
based program allows MMC to effectively manage care within diverse products,
networks and geography. Central to its effectiveness is promoting and
developing partnerships with providers. Physicians play an active role in MMC
programs. MMC's full time Medical Director, along with a panel
10
<PAGE>
of practicing community physicians serving as Consulting Medical Directors
are involved in all aspects of planning, implementation and administration of
MMC processes.
Meridian's utilization management program provides comprehensive,
custom-designed strategies which protect its members and control costs by
ensuring cost-effective, quality care. Meridian's traditional utilization
management program offers inpatient prior authorization, admission review,
continued stay review, discharge planning, patient education, appropriateness
review, and outpatient procedure review. The Company's focused review
program uses outcomes analysis to measure and shape health care delivery by
working with hospitals and affiliated physicians. Case management identifies
high risk and/or high cost care. By focusing on these cases, case managers
can negotiate cost effective alternatives to care, decrease hospitalization,
and reduce health care costs.
MMC's nurseline triage programs is designed to reduce an expensive
inefficiency in today's health care delivery system. Nurses are available 24
hours a day, seven days a week, to help make informed health care decisions.
The nurses use clinically developed algorithms to provide primary care
assessment, decision counseling, self-care information and referrals.
The Company's disease management programs are designed to limit or slow
the progression of the disease process while improving or maintaining the
patient's health. Such programs include asthma, diabetes, congestive heart
failure and prenatal programs. MMC has been able to demonstrate significant
cost savings, improved satisfaction and improved outcomes in these small,
high cost, vulnerable populations.
Pharmacy management services promote appropriate and cost-effective
pharmaceutical utilization through formulary development, pharmacy network
management, pharmacy and therapeutic committees, and concurrent and
retrospective drug utilization review. Central to the program is the
pharmacy benefit management company, The Right Rx, which performs rebate
management for Compcare, BCBSUW and non-affiliated clients, representing
approximately 0.7 million lives.
Revenues from managed care consulting services amounted to $10.7 million
for the year ended December 31, 1997.
ELECTRONIC CLAIM SUBMISSION
United Wisconsin Proservices, Inc. ("Proservices") provides software and
claim submission services and has created the largest provider/insurer
network for such services in Wisconsin, extending to 103 hospitals and 75
clinics in Wisconsin, and 530 home health agencies nationwide. Proservices
electronically transmits more than seven million medical claims annually for
such clients as Medicare, Medicaid, private insurers, TPAs and re-pricers.
During 1997, Proservices acquired the Clinical One record and outcome
software from Beacon Health Corporation.
MANAGED BEHAVIORAL HEALTH
CNR Health, Inc. ("CNR") is a multifaceted managed care organization that
provide cost-effective behavioral health care management solutions to a variety
of customers. In December 1997, the Company increased its ownership of CNR from
53% to 100%. CNR's primary products include behavioral health management,
provider networks, employee assistance programs, medical management, 24-hour
triage, disability management, claims administration and Health Additions, its
prenatal program. Additionally, in 1997 CNR introduced its Cavion behavioral
health management software product to the market and formed a partnership with
two local organizations to become one of the entities managing the Wisconsin
Works ("W-2") program. W-2 is a new program that replaced Aid to Families with
Dependent Children with programs to prepare individuals for the job market and
help them find and keep those jobs.
11
<PAGE>
Through this array of products, CNR customers include insurance
companies, self-funded employers, third party administrators, Medicaid, and
other governmental entities. Through its managed care programs, CNR managed
over 850,000 lives while its revenues for the year ended December 31, 1997
were $18.8 million.
COMPETITION
The managed care industry is highly competitive. During the past few
years, the managed care industry in Wisconsin and the upper Midwest has
experienced consolidation. The Company believes the principal competitive
features affecting its ability to retain and increase membership include the
price of benefit plans offered, the composition of provider networks, quality
of service, responsiveness to user demands, financial stability,
comprehensiveness of coverage, diversity of product offerings and market
presence and reputation. Although the Company is a leading provider of
managed care services in Wisconsin, the Company may experience increased
competition in the future. Many of the Company's competitors are larger,
have considerably greater financial resources and distribution capabilities
and offer more diversified types of insurance coverage than the Company. In
addition, because most of the Company's products are marketed to some extent
through independent agencies, most of which represent more than one company,
the Company experiences competition within each agency.
Since 1988, a number of large national multiline insurers have exited
the small group health insurance market. The major competition for the
Company's small group health care products sold by AMS comes from national
and regional firms with a specific focus on the small group market. The small
group, agency-controlled market is price sensitive, and the business is put
out for bid more frequently than larger group business. Insurers in the small
group health care product market compete primarily on the basis of price,
responsiveness to user demands, diversity of product offerings, quality of
service, reputation and quality of agency relations.
REINSURANCE
The Company maintains in force both "quota share" and "excess of loss"
reinsurance treaties. Quota share reinsurance is a contractual arrangement
whereby the reinsurer assumes an agreed percentage of certain risks insured
by the ceding insurer and shares premium revenue and losses proportionately.
The Company's quota share reinsurance treaties allocate the total amount of
business subject to the treaties between the Company and the respective
parties to the treaties. Except for affiliates of the Company, all
reinsurers with which the Company contracts are rated "A- (Excellent)" or
better by Best.
INVESTMENTS
The Company attempts to minimize its business risk through conservative
investment policies. Investment guidelines set quality, concentration and
return parameters. Individual fixed income issues must carry an investment
grade rating at the time of purchase, with an ongoing average portfolio
rating of "A-" or better, based on ratings of Standard & Poor's Corporation
or another nationally recognized securities rating organization. The Company
invests in securities authorized by applicable state laws and regulations and
follows investment policies designed to maximize yield, preserve principal
and provide liquidity. The Company's portfolio contains no investments in
mortgage loans or non-publicly traded securities except for investments in
affiliates.
With the exception of short-term investments and securities on deposit
with various state regulators, investment responsibilities have been
delegated to external investment managers. Such investment responsibilities,
however, must be carried out within the investment parameters established by
the Company, which are amended from time to time.
Securities which may be sold prior to maturity to support the Company's
investment strategies, such as in response to changes in interest rates, the
yield curve concentration or sector concentration, are classified as available
for sale and are stated at market value with unrealized holding gains and losses
reported as a component of shareholders' equity in accordance with Statement of
Financial Accounting Standard No. 115. Securities for which the Company has
both the positive intent and ability to hold to maturity are recorded at
amortized cost. Bonds which are held to meet
12
<PAGE>
deposit requirements of the various states are classified as held to
maturity. All other bonds are classified as available for sale.
The table below reflects investment results for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---- ---- ----
(in thousands, except percentages)
<S> <C> <C> <C>
Average invested assets (1) $479,885 $523,066 $496,541
Net investment income (2) 27,278 30,918 31,734
Average yield 5.68% 5.91% 6.39%
Net realized gains (losses) $12,915 $12,996 $14,292
Net unrealized gains (losses) on stocks and bonds 20,649 10,101 8,756
</TABLE>
__________________
(1) Average of aggregate investment amounts at the beginning of each year
and at the end of each month.
(2) Amounts are calculated net of investment expenses, but prior to
adjusting for other interest income and expense. Includes interest
expense on surplus note of $196,000 and $1,228,000 in 1995 and 1996,
respectively.
REGULATION
Government regulation of employee benefit plans, including health care
coverage, health plans and the Company's specialty managed care products, is
a changing area of law that varies from jurisdiction to jurisdiction and
generally gives responsible administrative agencies broad discretion. The
Company believes that it is in compliance in all material respects with the
various federal and state regulations applicable to its current operations.
To maintain such compliance, it may be necessary for the Company or a
subsidiary to make changes from time to time in its services, products,
structure or operations. Additional governmental regulation or future
interpretation of existing regulations could increase the cost of the
Company's compliance or otherwise affect the Company's operations, products,
profitability or business prospects.
The Company is unable to predict what additional government regulations,
if any, affecting its business may be enacted in the future or how existing
or future regulations might be interpreted. A number of jurisdictions have
enacted small group insurance and rating reforms which generally limit the
ability of insurers and health plans to use risk selection as a method of
controlling costs for small group business. These laws may generally limit
or eliminate use of pre-existing conditions exclusions, experience rating and
industry class rating and limit the amount of rate increases from year to
year. Under these laws, cost control through provider contracting and
managing care may become more important, and the Company believes its
experience in these areas will allow it to compete effectively.
Recently, federal legislation significantly expanded federal regulation
of group health plans and health care coverage. The new laws place
restrictions on the use of pre-existing conditions and eligibility
restrictions based upon health status and prohibit cancellation of coverage
due to claims experience or health status. Federal reform also prohibits
insurance companies from declining coverage to small employers. Additional
federal laws which take effect in 1998 include prohibitions against separate,
lower, dollar maximums for mental health benefits and requirements relating
to minimum coverage for maternity inpatient hospitalization. The Company
does not anticipate that these new laws will affect its profitability or
business prospects because all insurance companies across the country are
subject to the same requirements. Furthermore, many requirements of the
federal legislation are similar to small group reforms that have been in
place for many years. The Company will be able to utilize and expand upon
the cost control measures initiated as a result of a small group reform.
13
<PAGE>
Increasingly, states are considering various health care reform measures
and are adopting laws or regulations, which may limit the Company's health
plans' and insurance operations' ability to control which providers are part
of their networks and may hinder their ability to effectively manage
utilization and cost. The Company is unable to predict what reforms, if any,
may be enacted or how these reforms would affect the Company's operations.
HMOs. Wisconsin and the other states in which the Company offers HMO
products have enacted statutes regulating the activities of those health
plans. Most states require periodic financial reports from HMOs licensed to
operate in their states and impose minimum capital or reserve requirements.
In addition, certain of the Company's subsidiaries are required by state
regulatory agencies to maintain restricted cash reserves represented by
interest-bearing instruments which are held by trustees or state regulatory
agencies to ensure that adequate financial resources are maintained or to act
as a fund for insolvencies of other HMOs in the state.
As a federally qualified HMO, Compcare must file periodic reports with,
and is subject to periodic review by, the Department of Health and Human
Services, the Health Care Financing Administration and the Office of Prepaid
Health Care. The Company's other HMOs are only subject to state regulation
because they are not federally qualified HMOs.
The Company's HMOs which have Medicaid contracts are subject to both
federal and state regulation regarding services to be provided to Medicaid
enrollees, payment for those services and other aspects of the Medicaid
program. Medicaid has in force and/or has proposed regulations relating to
fraud and abuse, physician incentive plans and provider referrals which may
affect the Company's operations.
Several of the Company's health plans have contracts with the Federal
Employees Health Benefit Plan ("FEHBP"). These contracts are subject to
extensive regulation, including complex rules relating to the premiums
charged. FEHBP has the authority to retroactively audit the rates charged and
may seek premium refunds and other sanctions against health plans
participating in the program. The Company's health plans which have
contracted with FEHBP are subject to such audits and may be requested to make
such refunds.
INSURANCE REGULATION. The Company's insurance subsidiaries are subject
to regulation by the Department of Insurance in each state in which the
entity is licensed. Regulatory authorities exercise extensive supervisory
power over insurance companies in regard to the licensing of insurance
companies; the amount of reserves which must be maintained; the approval of
forms and insurance policies used; the nature of, and limitation on, an
insurance company's investments; periodic examination of the operations of
insurance companies; the form and content of annual statements and other
reports required to be filed on the financial condition of insurance
companies; and the establishment of capital requirements for insurance
companies. The Company's insurance company subsidiaries are required to file
periodic statutory financial statements in each jurisdiction in which they
are licensed. Additionally, such companies are periodically examined by the
insurance departments of the jurisdiction in which they are licensed to do
business.
The National Association of Insurance Commissioners ("NAIC") adopted the
Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act ("RBC
Model Act"), effective December 31, 1993, to evaluate the adequacy of
statutory capital and surplus in relation to investment and insurance risks
associated with: (i) asset quality; (ii) mortality and morbidity; (iii)
asset and liability matching; and (v) other business factors. The RBC Model
Act formula is used by the states to monitor trends in statutory capital and
surplus for the purpose of initiating regulatory action. The NAIC adopted
similar RBC requirements for property and casualty insurance companies
effective December 31, 1994 and currently is developing RBC requirements for
health organizations including HMOs. The Company has calculated the
risk-based capital for its life and property and casualty subsidiaries as of
December 31, 1997 using the applicable RBC formula. These calculations
produced risk-based capital levels which exceed the levels at which the RBC
formulas recommends intervention by regulatory authorities. The proposed RBC
requirements for HMOs are not expected to have a significant effect on the
Company's capital requirements.
Under the Wisconsin Statutes, insurance companies must provide the OCI
with advance notice of any dividend that is more than 15% larger than any
dividend for the corresponding period of the previous year. In addition, the
OCI may disapprove any "extraordinary" dividend; that is, any dividend which,
together with other dividends paid by an insurance company in the prior
twelve months, exceeds the lesser of: (i) 10% of statutory capital and
surplus as of the
14
<PAGE>
preceding December 31; or (ii) with respect to a life insurer, net income
less realized gains for the calendar year preceding the date of the dividend;
or (iii) with respect to a non-life insurer, the greater of (ii) above or the
aggregate net income less realized gains for the three calendar years
preceding the date of the dividend less distributions made within the first
two of those three years.
Based upon the financial results of the Company's insurance subsidiaries
for the year ended December 31, 1997, $22.4 million is available for 1998
dividend payments to the Company from its insurance subsidiaries without
regulatory approval.
INSURANCE HOLDING COMPANY REGULATIONS. The Company is a holding company
which conducts all of its business through subsidiaries and is subject to
insurance holding company laws and regulations. Under Wisconsin law,
acquisition of control of the Company, and thereby indirect control of its
insurance subsidiaries, requires the prior approval of the OCI. "Control" is
defined as the direct or indirect power to direct or cause the direction of
the management and policies of a person. Any purchaser of 10% or more of the
outstanding voting stock of a corporation is presumed to have acquired
control of the corporation and its subsidiaries unless the OCI, upon
application, determines otherwise.
Each of the Company's insurance subsidiaries is subject to regulation
under state insurance holding company regulations. Such insurance holding
company laws and regulations generally require registration with the state
Department of Insurance and the filing of certain reports describing capital
structure, ownership, financial condition, certain intercompany transactions
and general business operations. Various notice and reporting requirements
generally apply to transactions between companies within an insurance holding
company system, depending on the size and nature of the transactions.
Certain state insurance holding company laws and regulations require prior
regulatory approval or, in certain circumstances, prior notice of, certain
material intercompany transfers of assets as well as certain transactions
between the regulated companies, their parent holding companies and
affiliates, and acquisitions.
TPAs. Certain subsidiaries of the Company are also licensed as
third-party administrators ("TPAs") in states where such licensing is
required for their activities. TPA regulations, although differing greatly
from state to state, generally contain certain required administrative
procedures, periodic reporting obligations and minimum financial requirements.
PPOs. Certain of the Company's subsidiaries' operations may be subject
to PPO regulation in certain states. PPO regulations generally contain
certain network, contracting, financial and reporting requirements which vary
from state to state.
UTILIZATION REVIEW REGULATIONS. A number of states have enacted law
and/or adopted regulations governing the provision of utilization review
activities. Generally, these laws and regulations require compliance with
specific standards for the delivery of services, confidentiality, staffing,
and policies and procedures of private review entities, including the
credentials required of personnel. Some of these laws and regulations may
affect certain operations of the Company's business units.
A few jurisdictions have enacted laws which hold managed care
organizations liable for damages resulting from wrongful denial of care or
payment for care. The Company provides utilization review services through
CNR in at least one state that has passed such legislation. The liability
law encompasses entities which do not provide insurance coverage, but merely
provide utilization review services. CNR is developing risk management
procedures and believes that it will be able to minimize potential liability
for coverage decisions.
ERISA. The provision of goods and services to or through certain types
of employee health benefit plans is subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"). ERISA is a complex set of laws and
regulations that are subject to periodic interpretation by the United States
Department of Labor. ERISA places certain controls on how UWS's business
units may do business with employers covered by ERISA, particularly employers
that maintain self-funded plans. The Department of Labor is engaged in an
ongoing ERISA enforcement program which may result in additional constraints
on how ERISA-governed benefit plans conduct their activities. There recently
have
15
<PAGE>
been legislative attempts to limit ERISA's preemptive effect on state laws.
If such limitations were to be enacted, they might increase UWS's liability
exposure under state law-based suits relating to employee health benefits
offered by UWS's health plans and specialty businesses and may permit greater
state regulation of other aspects of those businesses' operations.
EMPLOYEES
As of December 31, 1997, the Company had 3,276 full-time and 176
part-time employees, of whom 499 were managerial and supervisory personnel.
Of these employees, 131 were represented by a union. The Company considers
its relations with its employees to be good.
TRADEMARKS
"Compcare" is a federally registered service mark of the Company. The
Company has filed for and maintains various other trademarks and trade names
at the federal level and in the State of Wisconsin. Although the Company
considers its registered service marks, trademarks and trade names important
in the operation of its business, the business of the Company is not
dependent on any individual service mark, trademark or tradesman.
ITEM 2. PROPERTIES
The Company owns a 380,000 square foot office building in Green Bay,
Wisconsin which houses employees who service the small group business. The
Company also occupies common facilities with BCBSUW and is charged a
proportionate share of the cost of such facilities under the Service
Agreement. The Company's corporate headquarters are located in Milwaukee,
Wisconsin in a 235,000 square foot building leased by BCBSUW. The Company
also utilizes space in a Milwaukee regional office leased by BCBSUW, which
has approximately 299,000 square feet of office and warehouse space. In
addition, the Company's business is sold and serviced in four other Wisconsin
regional offices leased by BCBSUW and a 40,000 square foot facility in Sauk
City, Wisconsin owned by Unity.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 10, 1998, the executive officers of the Company are as follows:
<TABLE>
Name Age Title
<S> <C> <C>
Thomas R. Hefty 50 Chairman of the Board, President, Chief
Executive Officer and Director
Stephen E. Bablitch 44 Vice President, General Counsel and Secretary
Devon W. Barrix 55 Vice President
Roger A. Formisano 49 Executive Vice President and Chief Operating
Officer and President of Compcare and
Meridian
Mark H. Granoff 51 Vice President and President of UWIC and
UHLIC
Gail L. Hanson 42 Vice President and Treasurer
Samuel V. Miller 52 Executive Vice President and President of
UWLIC and President and
Chief Operating Officer of AMS
16
<PAGE>
C. Edward Mordy 54 Vice President and Chief Financial Officer
Emil E. Pfenninger 46 Vice President and President of United
Heartland
Penny J. Siewert 41 Vice President of Regional Services
Mary Traver 47 Vice President
</TABLE>
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. There are no family
relationships among any of the directors and/or executive officers of the
Company.
Thomas R. Hefty has been a director of the Company since 1983, and was
elected President in December 1986 and Chairman of the Board in July 1991.
Since 1987, he has served in various capacities with the Company's
subsidiaries and joint ventures. Mr. Hefty has been Chairman of the Board
and a director of BCBSUW since 1988, having joined BCBSUW in 1982 and later
serving as President. From 1979 to 1982, Mr. Hefty was Deputy Insurance
Commissioner for the State of Wisconsin.
Stephen E. Bablitch joined the Company in October 1996 as General
Counsel, Vice President and Secretary. Mr. Bablitch has been General
Counsel, Vice President and Secretary of BCBSUW since October 1996 as well.
Prior to joining the Company and BCBSUW, Mr. Bablitch was an attorney with
Dewitt, Ross and Stevens in Madison, Wisconsin from 1991 to 1996.
Devon W. Barrix was elected a Vice President of the Company on December
14, 1994 following the Company's acquisition of Unity and its parent, HMO-W,
Incorporated. Mr. Barrix was the Chief Executive Officer of Unity (formerly
HMO of Wisconsin Insurance Corporation) from 1985 until November 1994 and was
the President of Unity until August 1996. He now serves as Vice President of
Business Development.
Roger A. Formisano was elected Executive Vice President and Chief
Operating Officer of the Company in August 1995. Mr. Formisano had been a
Vice President of the Company since February 1992. He serves as President of
Compcare and Meridian. Mr. Formisano was a Professor in the School of
Business of the University of Wisconsin-Madison from 1978 to 1993. He also
serves in various capacities with the Company's subsidiaries and joint
ventures, and is a director of Integrity Mutual Insurance Company and
Wisconsin Sports Authority, Inc., both privately held companies.
Mark H. Granoff was elected a Vice President of the Company in April 1991
and was elected President and Chief Operating Officer of UWIC in July 1991
and UHLIC in December 1997. He served as President of UWLIC from July 1991
through March 1997 and as Executive Vice President since March 1998. He has
served in various capacities with some of the Company's other subsidiaries
since April 1991. Mr. Granoff has been a Vice President of BCBSUW since
1990. Prior to joining BCBSUW, from 1988 to 1990 Mr. Granoff served as
Employee Benefits Marketing Vice President for Business Men's Assurance
Company of America, an insurance company.
Gail L. Hanson has been Treasurer of the Company since 1987 and was
elected Vice President in August 1996. She has served in various capacities
with the Company's subsidiaries since 1984. Ms. Hanson was elected Vice
President and Treasurer of BCBSUW in August 1996 and had been Assistant Vice
President and Treasurer since 1987, having joined BCBSUW in 1984 as the
Controller of UWIC.
Samuel V. Miller was elected Executive Vice President of the Company in
December 1995. He was elected President and Chief Operating Officer of AMS
in October 1996. He has served as President of UWLIC since March 1997.
Prior to joining the Company, Mr. Miller was Senior Vice President and a
member of the planning group for the Travelers Group from 1994 to 1995. From
1987 to 1994, Mr. Miller served as President and Chief Executive Officer of
Amex Life Assurance Co., a subsidiary of the American Express Company.
C. Edward Mordy has been a Vice President of the Company since 1987 and
the Chief Financial Officer of the Company since 1991. He has served in
various capacities with the Company's subsidiaries since 1987. Mr. Mordy has
been a Vice President of BCBSUW since 1986.
17
<PAGE>
Emil E. Pfenninger was elected a Vice President of the Company in
February 1995 and President and Chief Operating Officer of United Heartland
in September 1990. Mr. Pfenninger was the Underwriting Manager with CNA
Insurance Companies from December 1987 to September 1990.
Penny J. Siewert was elected Vice President of Regional Services of the
Company in August 1995. Ms. Siewert joined BCBSUW in 1977 and has served in
various capacities. Ms. Siewert was elected Vice President of Operations for
BCBSUW in 1990, Vice President of Special Markets for BCBSUW in 1992 and Vice
President of Regional Services for BCBSUW in 1995.
Mary Traver is a Vice President of the Company. Ms. Traver was Vice
President and General Counsel of the Company from 1988 to 1996 and Secretary
from January 1992 to 1996. She has served in various capacities with some of
the Company's subsidiaries and joint ventures since 1987. Ms. Traver was
General Counsel of BCBSUW from 1987 to 1996, Secretary of BCBSUW from 1992 to
1996, and a Vice President of BCBSUW since 1988. She assumed the position of
Regional Vice President for BCBSUW in 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY.
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "UWZ". The following table sets forth the per share high and low
sale prices for the Common Stock as reported on the NYSE for the periods
indicated and the cash dividends paid per share for those periods.
<TABLE>
<CAPTION>
High Low Cash Dividends Paid
---- --- -------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter $26.75 $21.25 $0.12
Second Quarter 37.88 24.63 0.12
Third Quarter 36.63 28.81 0.12
Fourth Quarter 31.94 24.25 0.12
High Low Cash Dividends Paid
---- --- -------------------
YEAR ENDED DECEMBER 31, 1996:
First Quarter $23.88 $19.63 $0.12
Second Quarter 26.00 19.38 0.12
Third Quarter 29.25 21.13 0.12
Fourth Quarter 29.25 23.50 0.12
</TABLE>
The dividend for the fourth quarter of 1997 of $0.12 per share was paid on
March 25, 1998 to shareholders of record at the close of business on March
11, 1998.
As of March 9, 1998, there were 264 shareholders of record of Common Stock.
Based on information obtained from the Company's Transfer Agent and from
participants in security position listings and otherwise, the Company has
reason to believe there are more than 2,900 beneficial owners of shares of
Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected financial data as of and for each of the five
years in the period ended December 31, 1997 have been derived from the
Company's consolidated financial statements, which have been audited by Ernst
& Young LLP, independent auditors. The following data should be read in
conjunction with the Company's consolidated financial statements, the related
notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
18
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING STATISTICS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Health services revenues:
Premium revenue $ 554,135 $ 730,980 $ 973,279 $1,089,134 $1,518,886
Other revenue 7,955 15,997 24,191 30,567 50,088
Investment results 20,626 23,761 40,847 43,610 46,308
--------- --------- --------- ---------- ----------
Total revenues 582,716 770,738 1,038,317 1,163,311 1,615,282
Expenses:
Medical and other benefits 428,316 556,090 815,616 897,582 1,220,052
Selling, general and administrative expenses (2) 105,654 154,002 194,016 229,238 344,650
Profit sharing on joint ventures 5,727 7,638 15,170 13,606 3,381
Interest expense 1,560 3,487 3,483 4,325 9,311
Amortization of goodwill and other intangibles 80 195 678 1,511 8,793
--------- --------- --------- ---------- ----------
Total expenses 541,337 721,412 1,028,963 1,146,262 1,586,187
--------- --------- --------- ---------- ----------
Income before income tax expense and
cumulative effect of accounting changes 41,379 49,326 9,354 17,049 29,095
Income tax expense 14,536 16,563 2,981 6,846 10,945
--------- --------- --------- ---------- ----------
Income before cumulative effect of accounting changes 26,843 32,763 6,373 10,203 18,150
Cumulative effect of accounting changes 98 - - - -
--------- --------- --------- ---------- ----------
Net income $ 26,941 $ 32,763 $ 6,373 $ 10,203 $ 18,150
========= ========= ========= ========== ==========
Earnings per common share:
Basic $ 2.43 $ 2.81 $ 0.50 $ 0.79 $ 1.11
Diluted $ 2.43 $ 2.81 $ 0.50 $ 0.79 $ 1.10
Weighted average common shares outstanding 11,070 11,601 12,551 12,892 16,423
Cash dividends per common share $ 0.48 $ 0.48 $ 0.48 $ 0.48 $ 0.48
OPERATING STATISTICS:
Medical loss ratio(1) 78.5% 77.1% 85.4% 84.4% 82.1%
Selling, general and administrative expense ratio(1) 15.1% 16.8% 15.9% 16.1% 16.5%
BALANCE SHEET DATA:
Cash and investments $ 353,983 $ 455,886 $ 581,637 $ 518,269 $ 493,438
Total assets 416,203 556,171 721,289 833,695 795,662
Long-term debt:
Affiliates - - 65,000 70,000 70,000
Other 45,000 44,960 44,898 54,588 53,378
Total shareholders' equity 125,387 171,705 212,411 313,655 326,377
</TABLE>
(1) Ratios are based on premium revenues and related expenses for HMO products
and AMS medical products.
(2) Includes dividends on preferred stock of subsidiary of $2,449,000 in 1993
and 1994, and $204,000 in 1996.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
United Wisconsin Services, Inc. (the Company) is a leading provider of
managed health care services and employee benefit products. The Company's three
primary product lines are (i) Health Maintenance Organization (HMO) products,
including Compcare Health Services Insurance Corporation (Compcare), Valley
Health Plan, Inc. (Valley), Unity Health Plans Insurance Corporation (Unity) and
certain point-of-service (POS) and other related products managed by Compcare,
Valley and Unity; (ii) small group managed care and life products sold through
American Medical Security Holdings, Inc. (AMS), which owns United Wisconsin
Life Insurance Company (UWLIC) and the companies owned by the Company's former
joint venture partner, American Medical Security Group, Inc. (AMSG), and (iii)
specialty managed care products and services, including dental, life, disability
and workers' compensation products, managed care consulting, electronic claim
submission, pharmaceutical management and managed behavioral health services.
Operating results and statistics for these product groups are presented below
for the periods noted.
SUMMARY OF OPERATING RESULTS AND STATISTICS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Membership at end of year:
HMO products 296,264 262,217 260,097
AMS medical products 623,730 822,714 969,676
--------- --------- ---------
Total medical products 919,994 1,084,931 1,229,773
AMS life products 271,759 396,637 475,645
Specialty managed care
products and services 1,315,422 1,246,642 1,060,851
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
Health services revenues (as a percentage of
the total):
HMO products 30.5% 37.6% 40.3%
AMS products 62.5 52.5 49.7
Specialty managed care
products and services 8.0 11.1 10.8
Intercompany eliminations (1.0) (1.2) (0.8)
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating statistics:
HMO products:
Medical loss ratio (1) 90.1% 89.8% 91.1%
Selling, general and administrative expense ratio (2) 9.3 9.3 9.2
AMS products
Medical:
Medical loss ratio (1) 78.0 80.3 80.5
Selling, general and administrative expense ratio (2) 22.3 23.6 24.1
Life:
Loss ratio (1) 35.1 32.8 30.3
Selling, general and administrative expense ratio (2) 29.8 32.0 32.8
Specialty managed care products and services:
Loss ratio (1) 71.8 73.8 80.6
Consolidated:
Loss ratio (1) 80.3 82.4 83.8
Net income margin (3) 1.1 0.9 0.6
</TABLE>
(1) Medical and other benefits as a percentage of premium revenue. The AMS
medical loss ratios exclude non-recurring charges in 1997 and 1996.
(2) Selling, general and administrative expenses as a percentage of premium
revenue.
(3) Net income as a percentage of total revenues.
The Company's revenues are derived primarily from premiums, while
medical benefits constitute the majority of expenses. Profitability is
directly affected by many factors including, among others, premium rate
adequacy, estimates of medical benefits, health care utilization, effective
administration of benefit payments, operating efficiency, investment returns
and federal and state laws and regulations.
RESULTS OF OPERATIONS
TOTAL REVENUES
Total revenues in 1997 increased 38.9% to $1.6 billion from $1.2 billion
in 1996. Total revenues in 1996 increased 12.0% from $1.0 billion in 1995.
These increases were due primarily to increased health services revenues
(premium and other revenue) as a result of the AMS Merger, as discussed
further below.
HEALTH SERVICES REVENUES -- HMO health services revenues in 1997
increased 13.7% to $479.2 million from $421.3 million in 1996. HMO health
services revenues in 1996 increased 4.9% from $401.7 million in 1995. Average
HMO medical premium per member in 1997 increased 2.2% from 1996. Average HMO
medical premium per member in 1996 increased 2.9% from 1995. The average
number of HMO medical members in 1997 increased 10.8% to 287,534 from 259,507
in 1996. The average number of HMO medical members in 1996 increased 1.6%
from 255,471 in 1995.
Health services revenues for AMS products in 1997 increased 66.8% to
$981.3 million from $588.3 million in 1996, which followed an 18.8% increase
from $495.3 million in 1995. The increase in AMS health services revenues
for 1997 was due primarily to the acquisition of the 88% of AMSG that the
Company did not already own through the merger of the Company and AMS
effective December 3, 1996 (the AMS Merger). Prior to the AMS Merger, the
Company retained 50% of the premium revenue and 50% of the profit (loss) on
small group managed care and life
21
<PAGE>
business sold by AMS. Following the AMS Merger, the Company retained 100% of
the health services revenues and 100% of the profit (loss) on small group
managed care and life business sold by AMS. The additional health services
revenues due to the AMS Merger accounted for $475.0 million of the increase
in health services revenues in 1997. Excluding the effects of the AMS
Merger, AMS health services revenues for 1997 decreased 12.4% to $474.6
million from $541.5 million for 1996. While average medical premium per
member increased 20.8% for 1997 compared to 1996, the average number of small
group medical members outstanding decreased 27.0% for 1997 to 655,515 from
897,544 for 1996. Average medical premium per member increased 12.4% for 1996
compared to 1995. The average number of small group medical members
outstanding decreased 2.2% for 1996 to 897,544 from 917,588 for 1995. Much of
this membership decline was the result of AMS's efforts to return this block
of business to profitability. These steps included exiting certain
unprofitable markets in Texas and Kentucky and implementing substantial rate
increases for certain product lines which resulted in membership losses but
improved profitability on renewed business. Initiatives continue to be
pursued by AMS to reverse this membership decline, including new agency sales
relationships, expansion into new geographic areas, and acquisitions of
blocks of business. On September 30, 1997 the Company announced that it had
acquired substantially all of the small group health insurance business of
Pan-American Life Insurance Company, which represents at the date of
acquisition $125 million in annualized premium revenue. The Company expects
to retain approximately $80 million of this business on an annualized premium
basis after exiting certain unprofitable markets.
Health services revenues for specialty managed care products and
services in 1997 increased 0.6% to $124.9 million from $124.1 million in
1996. Health services revenues in 1996 increased 14.8% from $108.1 million
in 1995. The increased premiums from ongoing operations in 1997 were offset
by a decrease of $9.5 million in premiums assumed under certain federal and
state reinsurance programs. While participation in these programs added
premium revenue to the financial statements of the Company, their
contribution to net income was nominal. Excluding the impact of the
withdrawal from these government-sponsored reinsurance programs, health
services revenues for specialty managed care products and services for 1997
increased 9.0% to $123.6 million from $113.3 million in 1996. This increase
was due primarily to an increase of $1.9 million in workers' compensation
premiums, an increase of $2.7 million in dental premiums, an increase of $2.7
million in disability premiums, and an increase of $2.3 million in managed
behavioral health revenues. The increases in dental, disability and managed
behavioral health premiums were driven by membership increases, while the
increase in workers' compensation premium was due primarily to a change in
the reinsurance agreement related to this business. In 1996, the Company
ceded 50% of the workers' compensation premiums written by United Heartland,
Inc. to a third-party reinsurer. In 1997, the percentage ceded to the
outside reinsurer was reduced to 40%. The increase in 1996 was due to an
increase in premium revenues of $6.4 million, including an increase of $2.2
million for life and disability products and an increase of $3.6 million for
dental products, driven by increases in contracts, and an increase in other
revenues of $9.6 million due primarily to increased managed care and
consulting services and a gain on the sale of the vision line of business.
INVESTMENT RESULTS -- Investment results include investment income and
realized gains (losses) on investments. Investment results in 1997 increased
6.2% to $46.3 million from $43.6 million in 1996. Investment results in 1996
increased 6.8% from $40.8 million in 1995. Average annual investment yields,
excluding net realized gains, were 6.4%, 5.9% and 5.7% for 1997, 1996 and
1995, respectively. Investment results in 1997 included $1.8 million of
mutual fund distributions which were favorably impacted by currency hedging
and were recorded as investment income in December 1997. Investment gains
are realized in the normal investment process in response to market
opportunities. Average invested assets in 1997 decreased 5.1% to $496.5
million from $523.1 million in 1996. The decrease in average invested assets
is due primarily to the decrease in medical and other benefits payable
resulting from the membership decline for AMS products over the past year.
Average invested assets in 1996 increased 9.0% from $479.9 million in 1995.
22
<PAGE>
EXPENSE RATIOS
LOSS RATIO - The consolidated loss ratio represents the ratio of medical
and other benefits to premium revenue for the Company on a consolidated
basis, and is therefore a blended ratio for medical, life, dental, disability
and other product lines. The consolidated loss ratio was 80.3% in 1997
compared with 82.4% in 1996 and 83.8% in 1995. The consolidated loss ratio
is influenced by the component loss ratio for each of the Company's primary
product lines, as discussed below.
The medical loss ratio for HMO products in 1997 was 90.1%, compared with
89.8% in 1996 and 91.1% in 1995. The increase in the medical loss ratio in
1997 for HMO products is due primarily to higher loss experience in the
southeastern Wisconsin HMO market, due in part to certain high-cost claims,
an increase in the drug cost component and an increase in outpatient
utilization. The higher loss ratio in 1995 is attributed to the competitive
market conditions in southeastern Wisconsin where pricing pressures coupled
with increased utilization had an adverse impact on Compcare's loss ratio.
The medical loss ratio for AMS products in 1997 was 78.0%, compared with
80.3% in 1996 and 80.5% in 1995. The lower loss ratio in 1997 reflects
improvements in medical cost trends and pricing changes achieved by AMS since
the first quarter of 1996. AMS continues to reprice its products and
eliminate unprofitable business. During the fourth quarter of 1997, a
pre-tax charge of $3.5 million was recorded related to the acquisition of the
group health business of Pan-American Life Insurance Company. During the
fourth quarter of 1996, as part of the Company's state-by-state review of
market profitability, a pre-tax charge of $2.0 million was recorded for the
accelerated recognition of losses on two discontinued blocks of business in
Texas and Kentucky. These one-time charges are not included in the reported
medical loss ratio for AMS products for 1997 and 1996. The 1997 medical loss
ratio would have shown stronger improvement except for unfavorable results in
the one-life dental business. One-life dental policies are no longer being
offered. The loss ratio for AMS life products in 1997 was 35.1%, compared
with 32.8% in 1996 and 30.3% in 1995.
The loss ratio for specialty managed care products and services in 1997
was 71.8%, compared with 73.8% in 1996 and 80.6% in 1995. The lower loss
ratio in 1997 is due primarily to the Company's withdrawal from the
government-sponsored reinsurance programs discussed previously, which were
recorded at a near-100% loss ratio. The higher loss ratio in 1995 was due
primarily to higher loss experience on the life and disability products
marketed by United Wisconsin Group.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE RATIO -- The selling,
general and administrative (SGA) expense ratio includes commissions,
administrative expenses, and premium taxes and other assessments. The SGA
expense ratio for HMO products in 1997 was 9.3%, compared with 9.3% in 1996
and 9.2% in 1995.
The SGA expense ratio for AMS medical products in 1997 was 22.3%,
compared with 23.6% in 1996 and 24.1% in 1995. The SGA expense ratio for AMS
life products in 1997 was 29.8%, compared with 32.0% in 1996 and 32.8% in
1995. AMS products are sold exclusively through independent agents who are
compensated through commissions. Over time, renewal business has gradually
represented a larger proportion of the total AMS medical and life business.
Since renewal commissions are typically lower than commissions on new sales,
this has contributed to the decrease in the expense ratios. AMS also
continues to focus on efforts to improve operating efficiency through process
re-engineering and to align staff commensurate with gross premium revenue.
SGA expenses related to specialty managed care products and services
increased 14.6% in 1997 to $19.6 million from $17.1 million in 1996. SGA
expenses related to specialty managed care products and services increased
13.7% in 1996 to $17.1 million from $15.0 million in 1995. Increases in SGA
expenses are tied to health services revenues which increased 9.0% in 1997
compared with 1996 and increased 16.7% in 1996 compared with 1995, excluding
the impact of the decrease in assumed premiums related to certain federal and
state reinsurance programs.
23
<PAGE>
OTHER EXPENSES
Profit sharing on joint ventures was $3.4 million in 1997, compared with
$13.6 million in 1996 and $15.2 million in 1995. Of these balances, $3.6
million, $2.8 million and $2.6 million in 1997, 1996 and 1995, respectively,
represent profit sharing expenses related primarily to the Unity and Valley
joint ventures, and $10.7 million and $12.4 million in 1996 and 1995,
respectively, were due to investment income and realized investment gains on
funds held by the Company on behalf of an insurance subsidiary of AMS.
Following the AMS Merger, the reinsurance agreement, which gave rise to this
funds held balance, was terminated effective December 31, 1996.
Interest expense increased to $9.3 million in 1997 from $4.3 million in
1996 and $3.5 million in 1995. The increase is due primarily to interest
expense on the $70.0 million of borrowings from Blue Cross & Blue Shield
United of Wisconsin (BCBSUW) to fund the cash portion of the consideration
for the AMS Merger. In conjunction with the AMS Merger, the Company also
recorded $150.0 million of goodwill and other intangibles and $22.2 million
of related deferred taxes. Amortization of goodwill and other intangibles
totaled $8.8 million in 1997, including $8.4 million related to the AMS
Merger, compared with $1.5 million and $0.7 million of amortization expense
in 1996 and 1995, respectively.
In 1995, the Company granted an executive officer of the Company an
option to purchase 7,113 shares of common stock of AMSG owned by the Company
which, upon completion of the AMS Merger, were converted into options to
purchase shares of Common Stock. Upon conversion, the Company recorded
compensation expense of $2.1 million.
NET INCOME
Consolidated net income in 1997 increased 77.9% to $18.2 million or
$1.11 per share from $10.2 million or $0.79 per share in 1996. Consolidated
net income in 1996 increased 60.1% from $6.4 million or $0.50 per share in
1995. The results for 1997 and December 1996 reflect 100% of the profit on
the small group managed care and life business sold by AMS, compared with 50%
in the first eleven months of 1996 and all of 1995. The 1997 earnings per
share calculation also reflects the new shares issued in conjunction with the
AMS Merger of approximately 3.7 million shares.
The Company's effective tax rate was 37.6% in 1997, compared with 40.2%
in 1996 and 31.9% in 1995. Excluding the impact of non-deductible goodwill
related to the AMS Merger and other acquisitions, the Company's effective tax
rate was 34.6% in 1997, compared with 38.7% in 1996 and 30.3% in 1995. The
Company's effective tax rate fluctuates based upon the relative profitability
of the Company's three product lines and the differing effective tax rates
for each of those product lines. The higher effective tax rate in 1996 was
due primarily to a higher proportion of the Company's income being generated
by its HMO subsidiaries, which record higher effective tax rates than the
Company's other subsidiaries due to state tax implications.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow consist primarily of health services
revenues and investment income. The primary uses of cash include medical and
other benefits and operating expense payments. Positive cash flows are
invested pending future payments of medical and other benefits and other
operating expenses. The Company's investment policies are designed to
maximize yield, preserve principal and provide liquidity to meet anticipated
payment obligations.
Historically, the Company has generated positive cash flow from operations.
For 1997, however, net cash provided by or used in operating activities amounted
to a use of $32.9 million, compared with $8.1 million used in 1996 and $49.1
million provided in 1995. The decrease in cash flow from operations in 1997 and
1996 was due primarily to the decrease in medical and other benefits payable
resulting from the membership decline for AMS products over the past year. Due
to periodic cash flow requirements of certain subsidiaries, the Company made
24
<PAGE>
borrowings under its bank line of credit ranging up to $8.5 million during
1997 to meet short-term cash needs. No balance was outstanding at December
31, 1997.
The Company's investment portfolio consists primarily of investment
grade bonds and has a limited exposure to equity securities. At December 31,
1997, $398.6 million or 92.5% of the Company's total investment portfolio was
invested in bonds. At December 31, 1996, $407.4 million or 87.2% of the
Company's total investment portfolio was invested in bonds. The bond
portfolio had an average quality rating of Aa3 at both December 31, 1997 and
December 31, 1996 by Moody's Investor Service, and the majority of the bond
portfolio was classified as available for sale. In accordance with Statement
of Financial Accounting Standards No. 115, bonds classified as available for
sale are recorded on the Company's balance sheet at market value. The market
value of the total investment portfolio, which includes stocks and bonds,
exceeded amortized cost by $8.8 million and $10.1 million at December 31,
1997 and 1996, respectively. Unrealized holding gains and losses on bonds
classified as available for sale are included as a component of shareholders'
equity, net of applicable deferred taxes. The Company has no investments in
mortgage loans, non-publicly traded securities (except for principal only
strips of U. S. Government securities), real estate held for investment or
financial derivatives.
From time to time, the Company makes capital contributions to its
subsidiaries to assist them in maintaining appropriate levels of capital and
surplus for regulatory and rating purposes. Insurance subsidiaries are
required to maintain certain levels of statutory capital and surplus. In
Wisconsin, where a large percentage of the Company's premium is written,
these levels are based upon the amount and type of premiums written and are
calculated separately for each subsidiary. As of the balance sheet date
presented, statutory capital and surplus for each of these insurance
subsidiaries exceeded required levels.
In addition to internally generated funds and periodic borrowings on its
bank line of credit, the Company believes that additional financing to
facilitate long-term growth could be obtained through equity offerings, debt
offerings, financings from BCBSUW or bank borrowings, as market conditions
may permit or dictate.
INFLATION
Health care costs have been rising and are expected to continue to rise
at a rate that exceeds the consumer price index. The Company's cost control
measures, risk-sharing incentive arrangements with medical care providers,
and premium rate increases are designed to reduce the adverse effect of
medical cost inflation on its operations. In addition, the Company utilizes
its ability to apply appropriate underwriting criteria in selecting groups
and individuals and in controlling the utilization of health care services.
However, there can be no assurance that the Company's efforts will fully
offset the impact of inflation or that premium revenue increases will equal
or exceed increasing health care costs.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) recently issued the
following accounting standards. A brief description of the standards
follows, along with a discussion of the estimated impact of adopting the
standards on the Company's consolidated financial statements.
ACCOUNTING FOR STOCK-BASED COMPENSATION - In October 1995, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-based Compensation", which became effective for the Company in 1996. As
allowed by SFAS No. 123, the Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its employee stock options. Under APB
25, when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The required pro forma information regarding net income
and earnings per share has been included in Note 12 of the Notes to Consolidated
Financial Statements.
25
<PAGE>
EARNINGS PER SHARE - In February 1997, the FASB issued SFAS No. 128,
"Earnings per Share", which became effective for the Company in 1997. The
new pronouncement replaces the presentation of primary and fully diluted
earnings per share (EPS) with a presentation of basic and diluted EPS. The
required disclosures have been included in Note 1 of the Notes to
Consolidated Financial Statements.
REPORTING COMPREHENSIVE INCOME - In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income", which establishes new rules for the
reporting and display of comprehensive income and its components in a
complete set of general-purpose financial statements and interim period
financial statements. The Company will adopt SFAS No. 130 in 1998.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - In
June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for public
companies to report financial and descriptive information about their
operating segments in annual financial statements and interim financial
reports. The Company will adopt SFAS No. 131 in 1998.
YEAR 2000 SOFTWARE COMPATIBILITY
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will
not pose significant operational problems for its computer systems. However,
if such modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the operations of
the Company.
The Company has initiated formal communications with its systems
processing vendor and all large customers using electronic interfaces to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 Issues.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for the Year 2000 modifications.
The Company anticipates completing the Year 2000 project within one year but
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. A number of repairs to current systems are covered by
existing maintenance agreements and by normal operational upgrades and do not
present incremental additional expense. Costs related to modification of
existing computer hardware and software are expensed as incurred. Purchases
of new hardware or software in replacement of non-compliant hardware or
software is being capitalized in accordance with the Company's standard
accounting practices.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
FORM 10-K
PAGE NUMBER
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Balance Sheets at December 31, 1997 and 1996. . . . . . . . . . . . . . . . 29
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Wisconsin Services, Inc.
We have audited the accompanying consolidated balance sheets of United
Wisconsin Services, Inc. (the Company) as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedules listed in the index at item
14(a). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Milwaukee, Wisconsin
February 13, 1998
28
<PAGE>
United Wisconsin Services, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,324 $ 51,146
Investments -- available for sale 419,417 454,300
Due from affiliates 5,510 2,641
Other receivables 66,306 59,243
Prepaid and other current assets 19,441 22,664
-----------------------
Total current assets 572,998 589,994
Investments - held to maturity 11,697 12,823
Property and equipment, net 44,147 53,103
Goodwill and other intangibles, net 142,801 155,458
Other noncurrent assets 24,019 22,317
----------------------
Total assets $795,662 $833,695
======================
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
United Wisconsin Services, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical and other benefits payable $ 187,053 $ 214,353
Advance premiums 44,045 51,514
Due to affiliates 3,345 4,005
Payables and accrued expenses 49,856 50,879
Other current liabilities 23,862 36,096
----------------------
Total current liabilities 308,161 356,847
Long-term debt:
Affiliates 70,000 70,000
Other 53,378 54,588
Other noncurrent liabilities 37,746 38,605
----------------------
Total liabilities 469,285 520,040
Redeemable preferred stock -
Series A adjustable rate nonconvertible,
$1,000 stated value, 25,000 shares - -
authorized
Shareholders' equity:
Preferred stock (no par value, 475,000 shares - -
authorized)
Common stock (no par value, $1 stated value,
50,000,000 shares authorized, 16,509,578 and
16,293,995 shares issued and outstanding at
December 31, 1997 and 1996, respectively) 16,510 16,294
Paid-in capital 186,768 184,019
Retained earnings 117,331 107,073
Unrealized gains on investments 5,768 6,269
----------------------
Total shareholders' equity 326,377 313,655
----------------------
Total liabilities and shareholders' equity $795,662 $833,695
----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
30
<PAGE>
United Wisconsin Services, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Health services revenues:
Premium revenue $1,518,886 $1,089,134 $ 973,279
Other revenue 50,088 30,567 24,191
Investment results 46,308 43,610 40,847
--------------------------------------
Total revenues 1,615,282 1,163,311 1,038,317
Expenses:
Medical and other benefits 1,220,052 897,582 815,616
Selling, general and administrative
expenses 344,650 229,238 194,016
Profit sharing on joint ventures 3,381 13,606 15,170
Interest expense 9,311 4,325 3,483
Amortization of goodwill and other
intangibles 8,793 1,511 678
--------------------------------------
Total expenses 1,586,187 1,146,262 1,028,963
--------------------------------------
Income before income tax expense 29,095 17,049 9,354
Income tax expense 10,945 6,846 2,981
--------------------------------------
Net income $ 18,150 $ 10,203 $ 6,373
======================================
Earnings per common share:
Basic $ 1.11 $ 0.79 $ 0.50
Diluted 1.10 0.79 0.50
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE>
United Wisconsin Services, Inc.
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Common Gain Total
Shares Common Paid-In Retained (Losses) Shareholders'
Outstanding Stock Capital Earnings Investments Equity
-----------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 12,115,215 $12,115 $ 70,043 $103,020 $ (13,473) $171,705
Net income - - - 6,373 - 6,373
Capital contribution - - 716 - - 716
Cash dividends paid on common stock ($.48 per - - - (6,032) - (6,032)
share)
Issuance of common stock through public offering 484,500 485 16,143 - - 16,628
Change in unrealized gains (losses) on
investments - - - - 23,021 23,021
-----------------------------------------------------------------------------
Balance at December 31, 1995 12,599,715 12,600 86,902 103,361 9,548 212,411
Net income - - - 10,203 - 10,203
Cash dividends paid on common stock ($.48 per
share) - - - (6,491) - (6,491)
Issuance of common stock and options related
to acquisition of subsidiary 3,694,280 3,694 97,117 - - 100,811
Change in unrealized gains (losses) on
investments - - - - (3,279) (3,279)
-----------------------------------------------------------------------------
Balance at December 31, 1996 16,293,995 16,294 184,019 107,073 6,269 313,655
Net income - - - 18,150 - 18,150
Cash dividends paid on common stock ($.48 per
share) - - - (7,892) - (7,892)
Issuances of common stock 215,583 216 2,749 - - 2,965
Change in unrealized gains (losses) on
investments - - - - (501) (501)
-----------------------------------------------------------------------------
Balance at December 31, 1997 16,509,578 $16,510 $186,768 $117,331 $ 5,768 $326,377
=============================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
32
<PAGE>
United Wisconsin Services, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
--------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,150 $ 10,203 $ 6,373
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 20,142 4,446 2,379
Realized investment gains (14,292) (12,996) (12,915)
Deferred income tax benefit (2,251) (158) (1,063)
Changes in other operating accounts, net of
acquisition in 1996:
Other receivables (7,708) 1,206 (34,165)
Medical and other benefits payable (24,230) (7,084) 82,185
Advance premiums (7,454) (3,730) (236)
Due to/from affiliates (3,600) 12,078 13,988
Funds held on behalf of affiliated reinsurers - (20,735) (7,970)
Other, net (11,625) 8,633 517
--------------------------------------------
Net cash provided by (used in) operating activities (32,868) (8,137) 49,093
INVESTING ACTIVITIES
Acquisition of subsidiary (net of cash and cash
equivalents acquired of $14,793,000 in 1996) - (56,837) -
Purchases of available for sale investments (487,676) (542,031) (666,031)
Proceeds from sale of available for sale investments 497,715 564,926 481,667
Proceeds from maturity of available for sale
investments 39,370 66,725 63,235
Purchases of held to maturity investments (3,326) (3,989) (4,765)
Proceeds from maturity of held to maturity investments 4,100 3,366 3,470
Change in other investments - (399) (16,493)
--------------------------------------------
Net cash provided by (used in) investing activities 50,183 31,761 (138,917)
FINANCING ACTIVITIES
Cash dividends paid (7,892) (6,491) (6,162)
Redemption of preferred stocks - - (32,007)
Issuances of common stock 2,965 - 16,628
Repayment of debt (1,210) (9,277) (62)
Proceeds from notes with affiliate - 70,000 65,000
Repayment of note with affiliate - (65,000) -
--------------------------------------------
Net cash provided by (used in) financing activities (6,137) (10,768) 43,397
--------------------------------------------
Cash and cash equivalents:
Increase (decrease) during year 11,178 12,856 (46,427)
Balance at beginning of year 51,146 38,290 84,717
--------------------------------------------
Balance at end of year $ 62,324 $ 51,146 $ 38,290
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
33
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
United Wisconsin Services, Inc. (the Company) is a leading provider of
managed health care services and employee benefit products. The Company's
three primary product lines are (i) Health Maintenance Organization (HMO)
products, sold primarily in Wisconsin; (ii) American Medical Security (AMS)
products, including small group preferred provider organization (PPO)
products and life products, sold throughout the United States; and (iii)
specialty managed care products and services, including dental, life,
disability, workers' compensation, managed care consulting, electronic claims
processing, pharmaceutical services and managed mental health services, sold
throughout the United States.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
all of its majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. The Company is affiliated with Blue Cross
& Blue Shield United of Wisconsin (BCBSUW) through certain common officers
and directors. At December 31, 1997, BCBSUW owns approximately 38% of the
Company's common stock.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include operating cash and short-term investments
with original maturities of three months or less. These amounts are recorded
at cost, which approximates market.
34
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments are classified as either held to maturity or available for sale.
Investments which the Company has the intent and ability to hold to maturity
are designated as held to maturity and are stated at amortized cost. All
other investments are classified as available for sale and are stated at fair
value based on quoted market prices, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity, net of income tax effects. In 1995, unrealized gains and losses are
also net of amounts attributable to funds held on behalf of an affiliated
reinsurer. Realized gains and losses from the sale of available for sale debt
securities and equity securities are based on the first-in, first-out basis.
OTHER RECEIVABLES
Receivables are stated at net realizable value, net of allowances of $394,000
and $284,000 at December 31, 1997 and 1996, respectively, based upon
historical collection trends and management's judgment of the ultimate
collectibility.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of cost over the fair market value of net
assets acquired. Goodwill and other intangible assets are being amortized on
a straight-line basis over a period of 40 years or less. Accumulated
amortization was $14,465,000 and $2,397,000 at December 31, 1997 and 1996,
respectively.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of
the remaining balance of its intangibles. At December 31, 1997, the Company's
management believed that no material impairment of goodwill or other
intangible assets existed.
REVENUE RECOGNITION
Health services premiums are recognized as revenue in the period in which
enrollees are entitled to care.
35
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MEDICAL AND OTHER BENEFITS
Medical and other benefits expense consists principally of capitation
expenses, health and disability claims and life insurance benefits. In
addition to actual paid claims and capitation, these expenses include the
change in estimates of reported and unreported claims and accrued capitation
fees and adjustments, which are unpaid as of the balance sheet date.
Processing costs are accrued as operating expenses based on an estimate of
the costs necessary to process these claims. These unpaid claim estimates are
based on historical payment patterns using actuarial techniques. The
Company's year-end claim liabilities are substantially satisfied through
claim payments in the subsequent year. Any adjustments to prior period
estimates are reflected in the current period. The liability for non-HMO
medical and other benefits payable, excluding reinsurance recoverables, of
$177,773,000 and $104,962,000 at December 31, 1996 and 1995, developed
favorably in the subsequent year by $4,147,000 and $13,970,000, respectively,
due primarily to lower than anticipated medical costs and utilization. The
liability for non-HMO medical and other benefits payable, excluding
reinsurance recoverables, of $67,172,000 at December 31, 1994, developed
unfavorably in the subsequent year by $6,255,000 due to higher than expected
medical inflation. Capitation represents monthly fees to participating
physicians and other medical specialists as compensation for providing
comprehensive health or dental care services. In addition, certain
subsidiaries have risk-sharing and bonus arrangements with certain providers.
The long-term portion of medical and other benefits payable pertaining to
long-term disability, workers' compensation and certain life insurance
products of $21,471,000 and $20,933,000 at December 31, 1997 and 1996,
respectively, is included in other noncurrent liabilities.
REINSURANCE
The Company limits the maximum net loss that can arise from certain lines of
business by reinsuring (ceding) a portion of these risks with other insurance
organizations (reinsurers) on an excess of loss or quota share basis. The ceding
company is contingently liable on reinsurance ceded in the event that the
reinsurers do not meet their contractual obligations.
36
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives,
which are 20 to 30 years for land improvements, 10 to 40 years for buildings
and building improvements, 3 to 5 years for computer equipment and software
and 3 to 10 years for furniture and other equipment.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes. A valuation
allowance is recorded on deferred tax assets that more likely than not will
not be realized.
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which replaces
the presentation of primary and fully diluted earnings per share (EPS) with a
presentation of basic and diluted EPS.
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-----------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Consolidated net income $18,150 $10,203 $6,373
Discount on redeemable preferred stock - - (114)
-----------------------------------------------
Net income allocable to common shareholders $18,150 $10,203 $6,259
===============================================
Denominator:
Denominator for basic EPS - weighted average shares 16,423,270 12,892,431 12,550,601
Effect of dilutive securities - employee stock options 147,715 16,688 6,570
-----------------------------------------------
Denominator for diluted EPS 16,570,985 12,909,119 12,557,171
===============================================
Basic EPS $1.11 $0.79 $0.50
Diluted EPS 1.10 0.79 0.50
</TABLE>
37
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for 1996 and 1995 to conform with the 1997 presentation.
2. ACQUISITIONS
AMERICAN MEDICAL SECURITY GROUP, INC.
At December 31, 1995, the Company owned 15,000 shares of preferred stock and
12% of the common stock of American Medical Security Group, Inc., which were
recorded at cost of $16,330,000 and were included in other assets. The
Company also had a joint venture agreement with American Medical Security
Group, Inc. and its subsidiaries (AMSG) and was a party to related
reinsurance agreements.
Effective December 3, 1996, the Company acquired the remaining 88% of AMSG.
The acquisition was accomplished through the merger of AMSG with and into the
Company pursuant to the terms of an Agreement and Plan of Merger dated July
31, 1996, by and between AMSG, BCBSUW, the Company and the two primary
shareholders of AMSG. The Company is the surviving corporation in the merger.
The aggregate consideration for the merger was cash of $71,800,000, including
expenses, and $98,719,000 representing the market value of 3,694,280 newly
issued shares of the Company's common stock and options to purchase the
Company's common stock. Most of the cash came from $70,000,000 borrowed from
BCBSUW (see Note 6). The merger agreement provided that $8,000,000 of the
cash consideration be deposited in escrow to indemnify the Company for
breaches of certain representations, warranties, covenants and other
agreements contained in the merger agreement. The escrow was reduced during
1997 to a balance of $4,000,000 at December 31, 1997.
In conjunction with the merger, $150,018,000 of goodwill and other
intangibles and $22,173,000 of related deferred tax liabilities were recorded
in the consolidated balance sheet and are being amortized over 3 to 40 years
using the straight-line method. Upon merger, the U&C Real Estate Partnership
(the U&C Partnership), a partnership between the Company and AMSG, became
wholly owned by the Company and is consolidated.
38
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
Upon merger, the AMSG preferred stock owned by the Company was canceled and
the AMSG stock options were converted into options to purchase 305,696 shares
of the Company's common stock at $4.66 per share. The Company also granted
options to purchase 1,000,000 shares of the Company's common stock at $32.83
per share to two of the previous shareholders of AMSG.
In 1995, the Company granted an executive officer of the Company an option to
purchase 7,113 shares of common stock of AMSG owned by the Company at $703
per share. In 1996, upon the merger of AMSG and the Company, these stock
options were converted into options to purchase 275,833 shares of the
Company's common stock at $18.13 per share. Upon conversion, the Company
recorded compensation expense of $2,137,000.
The above merger has been accounted for using the purchase method of
accounting, and the accompanying consolidated financial statements include
the results of operations from the date of merger.
The following unaudited pro forma information presents the consolidated
results of operations for 1996 and 1995, assuming the 1996 merger had
occurred on January 1, 1995, after giving effect to certain adjustments
arising from the recording of the transaction, including amortization of
goodwill and other intangibles, reduction of investment income due to cash
payments, interest expense on debt and intercompany eliminations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues $1,701,096 $1,566,116
Net income (loss) (10,195) (7,284)
Earnings (loss) per common share (0.63) (0.45)
</TABLE>
These pro forma results are not necessarily indicative of those that would have
occurred had the merger taken place on January 1, 1995, or future results of
operations for the combined companies.
39
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
OTHER ACQUISITIONS
The Company has included profit-sharing and repurchase provisions in certain
acquisition agreements. Profit-sharing expense related to these acquisitions
totaled $3,639,000, $2,827,000 and $2,625,000 in 1997, 1996 and 1995,
respectively. Total revenues subject to repurchase options, pursuant to the
various acquisition agreements, totaled $191,688,000, $191,342,000 and
$160,003,000 for 1997, 1996 and 1995, respectively. Total assets and total
net assets subject to repurchase options were $49,802,000 and $20,632,000,
respectively, at December 31, 1997, and $56,281,000 and $22,475,000,
respectively, at December 31, 1996.
3. INVESTMENTS
Investment results comprise the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
-----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on bonds $28,112 $28,986 $23,736
Dividends on equity securities 3,472 1,841 2,058
Realized gains 18,364 20,876 18,999
Realized losses (4,072) (7,880) (6,084)
Interest on cash equivalents and other
investment income 1,483 2,669 2,443
------------------------------
Gross investment results 47,359 46,492 41,152
Investment expenses (1,333) (1,350) (763)
Other interest income (expense) 282 (1,532) 458
------------------------------
$46,308 $43,610 $40,847
==============================
</TABLE>
Unrealized gains (losses) are computed as the difference between estimated
fair value and amortized cost for debt securities or cost for equity
securities. A summary of the net increase (decrease) in unrealized gains,
less deferred income taxes, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 4,534 $(9,070) $27,715
Equity securities (5,963) (1,299) 9,530
Provision for deferred income taxes 928 3,579 (7,132)
Funds held on behalf of affiliated
reinsurer, net of deferred income
taxes - 3,511 (7,092)
------------------------------
$ (501) $(3,279) $23,021
==============================
</TABLE>
40
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair values of investments are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997: (IN THOUSANDS)
Available for sale:
U.S. Treasury securities $ 89,656 $ 955 $ (2) $ 90,609
State and municipal securities 2,486 67 - 2,553
Foreign government securities 23,119 306 (409) 23,016
Corporate debt securities 201,982 4,189 (249) 205,922
Government agency mortgage-backed securities 63,845 993 (33) 64,805
Equity securities 29,765 3,771 (1,024) 32,512
------------------------------------------------------------------
410,853 10,281 (1,717) 419,417
Held to maturity:
U.S. Treasury securities 11,697 201 (9) 11,889
------------------------------------------------------------------
$422,550 $10,482 $(1,726) $431,306
==================================================================
At December 31, 1996:
Available for sale:
U.S. Treasury securities $ 87,170 $ 966 $ (651) 87,485
State and municipal securities 4,614 43 (14) 4,643
Foreign government securities 16,249 259 (121) 16,387
Corporate debt securities 189,822 2,120 (1,061) 190,881
Government agency mortgage-backed securities 95,478 608 (867) 95,219
Equity securities 50,975 9,638 (928) 59,685
------------------------------------------------------------------
444,308 13,634 (3,642) 454,300
Held to maturity:
U.S. Treasury securities 12,623 122 (13) 12,732
Corporate securities 200 - - 200
------------------------------------------------------------------
12,823 122 (13) 12,932
------------------------------------------------------------------
$457,131 $13,756 $(3,655) $467,232
==================================================================
</TABLE>
41
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair values of debt securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Available for sale:
Due in one year or less $ 7,749 $ 7,773
Due after one through five years 138,229 139,809
Due after five through ten years 124,910 127,115
Due after ten years 46,355 47,403
-----------------------
317,243 322,100
Government agency mortgage-backed securities 63,845 64,805
-----------------------
$ 381,088 $ 386,905
=======================
Held to maturity:
Due in one year or less $ 1,509 $ 1,519
Due after one through five years 10,188 10,370
-----------------------
$ 11,697 $ 11,889
=======================
</TABLE>
At December 31, 1997, the insurance subsidiaries had debt securities and cash
equivalents on deposit with various state insurance departments with carrying
values of approximately $11,248,000, which are included in investments held to
maturity on the balance sheet.
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements $ 4,271 $ 4,271
Building and building improvements 26,464 26,787
Computer equipment and software 17,231 16,854
Furniture and other equipment 16,766 18,163
-----------------------
64,732 66,075
Less accumulated depreciation (20,585) (12,972)
-----------------------
$ 44,147 $ 53,103
=======================
</TABLE>
42
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. DEBT
SUBORDINATED NOTES
The Company has subordinated notes (Notes) outstanding of $44,878,000 bearing
interest at a rate of 7.75%. The Notes will mature on July 1, 2000, and are
currently redeemable at the option of the Company at 100% of the principal
amount, plus accrued interest. The Notes are subordinated in right of payment
to all existing and future Senior Indebtedness of the Company and are junior
to the claims of any secured obligations on specific assets of the Company's
subsidiaries. Certain covenants exist which, among other matters, restrict
the ability of the Company to incur additional indebtedness, limit future
cash dividends and transfers of assets and require the maintenance of a
minimum consolidated tangible net worth.
Interest expense on the Notes totaled $3,479,000, $3,479,000 and $3,483,000
in 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996, the fair
value of the Notes approximated the Notes carrying value.
MORTGAGE PAYABLE
The Company had two mortgages on an office building. Prior to the merger of
AMSG and the Company in December 1996, these mortgages were a liability of
the U&C Partnership. In December 1996, the Company repaid the outstanding
balance of $9,083,000 on one of the mortgages.
The remaining mortgage balance of $9,700,000 at December 31, 1997 requires
monthly principal payments of $100,000 plus interest through December 1,
2003. On January 1, 2004, the outstanding principal balance and any unpaid
interest are due. The mortgage bears interest at a fixed rate of 9.05%.
Interest expense on these mortgages totaled $940,000 and $282,000 in 1997 and
1996, respectively.
LINE OF CREDIT
The Company and several subsidiaries participate with BCBSUW in a bank line
of credit, which permits aggregate borrowings to $30,000,000. Periodic
borrowings have been made on this line of credit. The outstanding line of
credit balance was $1,200,000 at December 31, 1996 and is included in other
current liabilities. There was no balance outstanding at December 31, 1997.
43
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
6. RELATED-PARTY TRANSACTIONS
On October 30, 1996, the Company borrowed $70,000,000 from BCBSUW to fund the
AMSG merger. The Company pledged the common stock of certain subsidiaries as
collateral for the loan. Interest is payable quarterly at a rate equal to the
London Interbank Offered Rate plus 1.25%, adjusted quarterly. The principal
balance, included in long-term debt, is due on October 30, 1999. Interest
expense on this note totaled $4,892,000 and $564,000 in 1997 and 1996,
respectively.
On December 15, 1995, a subsidiary of the Company borrowed $65,000,000 from
BCBSUW under a Surplus Note Agreement (Surplus Note). The Surplus Note was
repaid in 1996. Interest expense on the Surplus Note totaled $1,228,000 and
$196,000 in 1996 and 1995, respectively, and is reflected as an offset to
investment results on the consolidated statements of income.
The Company provides marketing, underwriting, actuarial and certain
administrative services for BCBSUW. In addition, BCBSUW provides health
insurance to the employees of the Company and provides office space to the
Company. These activities are reimbursed at amounts approximating cost, which
resulted in receipts to the Company of $14,564,000, $13,315,000 and
$10,028,000 in 1997, 1996 and 1995, respectively, and payments to BCBSUW of
$9,278,000, $7,474,000 and $4,368,000 in 1997, 1996 and 1995, respectively.
These amounts are included in selling, general and administrative expenses.
Certain subsidiaries of the Company provide health, life and other insurance
benefits to the employees of BCBSUW. Premium revenue received from BCBSUW
totaled $4,537,000, $4,370,000 and $4,568,000 in 1997, 1996 and 1995,
respectively.
The Company has loans and advances receivable from employees, agents and
joint venture partners of $2,376,000 and $2,639,000 at December 31, 1997 and
1996, respectively.
44
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
6. RELATED-PARTY TRANSACTIONS (CONTINUED)
Prior to December 3, 1996, the Company had a joint venture agreement with AMSG
whereby the Company underwrote all of the small group health care products and
life, dental, drug and disability business sold by AMSG. Amounts related to this
agreement, prior to ceded reinsurance, are as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1996 1995
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
Premium revenue $997,818 $990,077
Medical and other benefits 800,224 777,440
Selling, general and administrative
expenses 235,542 237,802
</TABLE>
Prior to the merger of the Company and AMSG on December 3, 1996, the Company
ceded to AMSG, on a quota share basis, approximately 50% of the premium revenue
on small group health care and life business sold by AMSG. As a result, the
Company retained 50% of the premium revenue and 50% of the profit (loss) on the
products sold by AMSG. The Company held funds on behalf of AMSG equivalent to
the medical and other benefits payable and the undistributed net profit. The
Company credited investment income on the funds retained for AMSG at the
Company's average portfolio rate.
The Company reports assets and liabilities related to reinsured contracts on a
gross basis.
A summary of amounts deducted from (added to) financial statement captions on
the statements of income for reinsurance ceded to AMSG is as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1996 1995
-------------------------------
(IN THOUSANDS)
<S> <C> <C>
Premium revenue $497,941 $494,107
Medical and other benefits 397,877 388,310
Selling, general and administrative
expenses 116,444 118,280
Profit sharing on joint ventures (8,669) (12,436)
</TABLE>
45
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES
Since July 1, 1994, the Company and most of its subsidiaries file a consolidated
federal income tax return. AMS is included in the Company's consolidated federal
income tax return from the date of acquisition. Certain subsidiaries of the
Company file separate federal income tax returns. The Company and its
subsidiaries file separate state franchise, income and premium tax returns as
applicable. Prior to July 1, 1994, the Company was included in the consolidated
federal income tax return of BCBSUW.
The Company had a net federal income tax payable of $409,000 and a net federal
income tax receivable of $4,858,000 at December 31, 1997 and 1996, respectively.
These amounts include $1,887,000 due to BCBSUW for taxes incurred while the
Company was included in BCBSUW's consolidated federal income tax return. This
amount will be settled in full upon final IRS examination of the consolidated
federal income tax returns. The Company and its subsidiaries have federal net
operating loss carryforwards totaling $789,000 which expire in the year 2011.
The Company and its subsidiaries have state net business loss carryforwards
totaling $44,837,000 at December 31, 1997, which expire in the years 2006
through 2012. Federal and state income tax payments, net of refunds, totaled
$6,999,000, $8,935,000 and $2,472,00 in 1997, 1996 and 1995, respectively.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $11,258 $5,072 $ 3,684
State 1,938 1,932 360
---------------------------------
13,196 7,004 4,044
Deferred:
Federal (789) 740 (1,144)
State (1,462) (898) 81
---------------------------------
(2,251) (158) (1,063)
---------------------------------
$10,945 $6,846 $ 2,981
=================================
</TABLE>
46
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The differences between taxes computed at the federal statutory rate and
recorded income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate $10,183 $ 5,967 $ 3,274
Goodwill amortization 829 350 221
Tax-exempt interest and dividends received
deduction (234) (522) (1,013)
State income and franchise taxes, net of
federal benefit 268 680 247
Other, net (101) 371 252
------------------------------
$10,945 $ 6,846 $ 2,981
==============================
</TABLE>
The components of deferred income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization $(1,536) $(2,844) $ 107
Net operating loss carryforwards (1,268) 2,248 (2,419)
Other, net 553 438 1,249
------------------------------
$(2,251) $ (158) $(1,063)
==============================
</TABLE>
47
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Significant components of the Company's federal and state deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-----------------------------------------------------
Federal State Federal State
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Claims-based receivables $ (574) $ (130) $ (574) $ (130)
Intangibles (18,262) (4,475) (19,137) (4,319)
Pension accrual (2,158) (412) (1,835) (347)
Unrealized gains on investments (3,529) (13) (4,637) (454)
Other, net (6,029) (420) (6,683) (534)
-----------------------------------------------------
(30,552) (5,450) (32,866) (5,784)
Deferred tax assets:
Intangibles 3,976 894 3,264 732
Unrealized losses on investments 590 157 1,321 47
Postretirement benefits other than pensions
1,387 295 1,294 278
Advance premium discounting 2,434 217 2,653 228
Basis in minority-owned subsidiaries 1,031 249 2,131 485
Deferred compensation 871 194 2,888 581
Medical and other benefits payable
discounting 2,243 88 2,511 74
State net business loss carryforwards - 3,159 - 1,673
Other, net 9,387 1,897 8,213 1,056
-----------------------------------------------------
21,919 7,150 24,275 5,154
Valuation allowance - (1,277) - (636)
-----------------------------------------------------
21,919 5,873 24,275 4,518
-----------------------------------------------------
Net deferred tax assets (liabilities) $ (8,633) $ 423 $ (8,591) $(1,266)
=====================================================
</TABLE>
The federal deferred benefit arising from the deductibility of state deferred
tax is included as a component of other federal deferred taxes. The net deferred
tax assets and liabilities are included in other current or other noncurrent
assets and liabilities, as applicable.
8. CONTINGENCIES
The Company is involved in various legal actions occurring in the normal course
of its business. In the opinion of management, adequate provision has been made
for losses which may result from these actions and, accordingly, the outcome of
these proceedings is not expected to have a material adverse effect on the
consolidated financial statements.
48
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
9. PREFERRED STOCK OF SUBSIDIARY
On January 26, 1990, a subsidiary of the Company issued $30,000,000 of preferred
stock in a private placement transaction with an institutional investor. The
preferred stock was redeemed on January 25, 1995 for $30,000,000.
10. REDEEMABLE PREFERRED STOCK
In 1992, the Board of Directors designated 25,000 shares of the Company's
authorized but unissued preferred stock as Series A Adjustable Rate
Nonconvertible Preferred Stock to be used as the employers' matching
contribution under the 401(k) plan covering salaried and nonunion hourly
employees of the Company and BCBSUW. On January 3, 1995, the Company redeemed
all of the outstanding shares of Series A Preferred Stock and discontinued its
use as the employer's matching contribution to the 401(k) plan.
11. SHAREHOLDERS' EQUITY
STATUTORY FINANCIAL INFORMATION
Insurance companies are subject to regulation by the Office of the Commissioner
of Insurance of the State of Wisconsin and certain other state insurance
regulators. These regulations require, among other matters, the filing of
financial statements prepared in accordance with statutory accounting practices
prescribed or permitted for insurance companies. The combined statutory surplus
of insurance subsidiaries at December 31, 1997 and 1996 was $277,149,000 and
$268,250,000, respectively. The combined statutory net income of insurance
subsidiaries was $37,153,000, $11,847,000 and $8,437,000 in 1997, 1996 and 1995,
respectively.
State insurance regulations also require the maintenance of a minimum compulsory
surplus based on a percentage of premiums written. At December 31, 1997, the
Company's insurance subsidiaries were in compliance with these compulsory
regulatory requirements.
RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES
Dividends paid by the insurance subsidiaries to the Company are limited by state
insurance regulations. The insurance regulator in the state of domicile may
disapprove any dividend which, together with other dividends paid by an
insurance company in the prior twelve months, exceeds the regulatory maximum as
computed for the insurance company based on its statutory surplus and net
income.
49
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
11. SHAREHOLDERS' EQUITY (CONTINUED)
Based upon the financial statements of the Company's insurance subsidiaries as
of December 31, 1997, as filed with the insurance regulators, the aggregate
amount available for dividends in 1998 without regulatory approval is
$22,388,000.
12. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company and certain of its subsidiaries participate with BCBSUW in two
multiple-employer defined benefit pension plans. The salaried plan, covering
salaried employees, provides benefits based on compensation, years of service,
year of birth and date of retirement. The hourly plan, covering hourly
employees, provides for benefit payments of stated amounts, based on number of
hours worked and years of credited service. Since both plans were overfunded, no
contributions were made in 1997, 1996 or 1995, and a pension credit was recorded
in each year.
Effective January 1, 1997, the Company amended the salaried pension plan and the
hourly pension plan with respect to non-union participants, which include
expansion of the lump-sum payment provisions and changes in the methods and
formulae used for the calculation of benefit accruals (a "Cash Balance"
formula). The resulting reduction in the projected benefit obligation is
included in the funded status of the pension plans at December 31, 1997 and
1996, and was also considered in the calculation of the 1996 pension credit.
The following table summarizes the combined funding status of the defined
benefit pension plans of the Company and the amounts recorded in the
consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(15,644) $(12,806)
Nonvested benefits (1,870) (2,923)
---------------------
Total accumulated benefit obligations (17,514) (15,729)
Adjustment for projected benefit obligations (54) (52)
---------------------
Projected benefit obligations (17,568) (15,781)
Assets, at fair market value 36,082 29,309
---------------------
Excess of assets over projected benefit obligations 18,514 13,528
Unrecognized net gains (5,151) (122)
Unrecognized net asset (1,051) (1,326)
Unrecognized prior service cost (6,146) (6,836)
---------------------
Prepaid pension expense in consolidated balance
sheets $ 6,166 $ 5,244
=====================
</TABLE>
50
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
The pension plans' assets are comprised primarily of debt, equity and other
marketable securities.
Assumptions used in developing the projected benefit obligation are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------------
<S> <C> <C>
Discount rate 8.00% 8.00%
Rate of increase in compensation 4.75 4.75
Rate of return on plan assets 9.00 9.00
</TABLE>
The unrecognized net asset is being amortized over the remaining estimated
service lives of participating employees at January 1, 1986: 15.4 years for
salaried employees and 16.9 years for hourly employees.
The components of the pension credit, which is included in selling, general and
administrative expenses, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 1,335 $ 829 $ 1,117
Interest cost on benefit obligations 1,259 1,034 1,116
Actual return on plan assets (7,475) (2,866) (4,136)
Net amortization and deferrals 3,958 (432) 1,503
---------------------------------
$ (923) $ (1,435) $ (400)
=================================
</TABLE>
After giving effect to all administrative expense allocations between the
Company and BCBSUW, the pension credit was $945,000, $1,288,000 and $435,000 in
1997, 1996 and 1995, respectively.
51
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
POST-RETIREMENT BENEFITS
The Company and certain of its subsidiaries participate with BCBSUW in
postretirement benefit plans to provide certain medical, dental and vision
benefits and life insurance for certain groups of retired employees. Such plans
were amended in 1997 to limit the Company's financial contribution in future
periods. No benefit will be provided for individuals hired after the effective
dates of these amendments.
The Company funds the plans' costs principally on a pay-as-you-go basis.
After giving effect to all administrative expense allocations between the
Company and BCBSUW, plan expense, including amortization of the transition
obligation and interest cost, was $261,000, $224,000 and $351,000 in 1997, 1996
and 1995, respectively. The unfunded accrued postretirement benefit liability at
December 31, 1997 and 1996 was $3,994,000 and $3,728,000, respectively.
DEFINED CONTRIBUTION AND BONUS PLANS
The Company and certain of its subsidiaries participate in defined contribution
plans whereby the employer contributes a percentage of participants' qualifying
compensation up to certain limits, as defined by the plans. The Company also
participates with BCBSUW in various other profit sharing and bonus programs.
Expenses related to all of these plans, after giving effect to all
administrative expense allocations between the Company and BCBSUW, totaled
$2,042,000, $2,932,000 and $1,838,000 in 1997, 1996 and 1995, respectively.
STOCK-BASED COMPENSATION PLANS
The Company has stock-based compensation plans (Stock Plans) for the benefit of
eligible employees of the Company and its subsidiaries. As of December 31, 1997,
the Stock Plans allow for the future granting of up to 437,000 shares as
incentive or nonqualified stock options (NQSOs), stock appreciation rights,
restricted stock awards and performance awards to employees of the Company.
52
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
In May 1995, the shareholders of the Company approved the 1995 Director Stock
Option Plan which permits the grant of NQSOs. As of December 31, 1997, 42,000
shares are available for grant.
Stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------------
<S> <C> <C>
TOTAL NUMBER OF NQSOs
Outstanding at beginning of year 2,244,459 394,404
Granted 184,500 1,863,259
Exercised (204,152) -
Forfeited (7,500) (13,204)
------------------------
Outstanding at end of year 2,217,307 2,244,459
========================
Exercisable at end of year 1,908,449 2,029,557
Available for grant at end of year 403,541 580,541
WEIGHTED AVERAGE EXERCISE PRICE OF NQSOs
Outstanding at beginning of year $25.00 $26.36
Granted - Exercise price equals market price on grant date 27.32 24.26
Granted - Exercise price is less than market price on grant date - 11.05
Granted - Exercise price exceeds market price on grant date - 32.83
Exercised 4.95 0.00
Forfeited 32.67 27.78
Outstanding at end of year 27.02 25.00
Exercisable at end of year 27.16 25.02
NQSOS BY EXERCISE PRICE RANGE
Exercise price $4.66 $ 4.66
Weighted average exercise price $4.66 $ 4.66
Weighted average remaining contractual life 4.93 5.93
Exercisable at end of year 104,044 305,696
Weighted average exercise price of options exercisable at end of year $4.66 $ 4.66
</TABLE>
53
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
----------------------------------
<S> <C> <C>
Range of exercise prices $18.13 - $26.63 $18.13 - $26.00
Weighted average exercise price $22.91 $22.33
Weighted average remaining contractual life 10.24 11.07
Exercisable at end of year 708,582 657,895
Weighted average exercise price of options exercisable at end of year $22.30 $22.25
Range of exercise prices $28.00 - $37.13 $28.00 - $35.00
Weighted average exercise price $32.39 $32.29
Weighted average remaining contractual life 4.64 5.52
Exercisable at end of year 1,095,823 1,065,966
Weighted average exercise price of options exercisable at end of year $32.44 $32.56
</TABLE>
Accrued benefits for all plans represented an expense of $44,000 and $176,000 in
1997 and 1996, respectively, and a credit of $635,000 in 1995.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Since the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
54
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company follows Accounting Principles Board Opinion No. 25 under which no
compensation expense is recorded when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant. The Company's pro forma information, as if these options had
been expensed in accordance with Financial Accounting Standards No. 123
(FAS No. 123), is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro forma net income $17,719 $8,862
Pro forma earnings per common share:
Basic 1.08 0.69
Diluted 1.06 0.67
</TABLE>
In determining compensation cost pursuant to FAS No. 123, the fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1997 and 1996,
respectively: risk-free interest rates of 5.71% and 5.66%; dividend yields of
1.78% and 5.14%; volatility factors of the expected market price of the
Company's common stock of 0.38 and 0.34; and a weighted average expected life of
the options of 6.03 and 3.61 years. As calculated using the Black-Scholes model,
the weighted average, grant-date fair value of options granted in which the
exercise price equaled the market price on the date of the grant was $10.66 per
share for 1997 and $7.77 per share for 1996. The weighted average, grant-date
fair value of options granted in which the exercise price was less than the
market price on the date of the grant was $1.29 per share for 1996.
55
<PAGE>
United Wisconsin Services, Inc.
Notes to Consolidated Financial Statements (continued)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
Quarter
-----------------------------------------------------
First Second Third Fourth Total
------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997
Total revenues $ 412,398 $ 404,494 $ 388,580 $ 409,810 $1,615,282
Income before income tax expense 6,030 9,251 10,023 3,791 29,095
Net income 3,370 5,563 6,411 2,806 18,150
Earnings per common share (1):
Basic 0.21 0.34 0.39 0.17 1.11
Diluted 0.21 0.33 0.38 0.17 1.10
1996
Total revenues $281,404 $280,712 $277,656 $323,539 $1,163,311
Income before income tax expense 839 5,061 7,051 4,098 17,049
Net income 292 3,195 4,291 2,425 10,203
Earnings per common share (1):
Basic 0.02 0.26 0.34 0.18 0.79
Diluted 0.02 0.25 0.34 0.18 0.79
</TABLE>
(1) The sum of the four quarters does not equal the earnings (loss) per common
share for the year due to the change in the number of shares outstanding
during the year.
56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item with respect to directors is included
under the heading "Election of Directors" in the Company's definitive Proxy
Statement, to be dated April 15, 1998 relating to the 1998 Annual Meeting of
Shareholders currently scheduled for May 27, 1998, (the "1998 Proxy
Statement") which will be filed with the Commission separately pursuant to
Rule 14a-6 under the 1934 Act and in accordance with General Instruction G(3)
to Form 10-K, not later than 120 days after the end of the Company's fiscal
year, and which section is hereby incorporated by reference. Information
with respect to executive officers of the Company appears at the end of Part
I, Pages [17 through 19] of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this item is included under the heading
"Executive Compensation" in the 1998 Proxy Statement, which section is hereby
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this item is included under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the 1998
Proxy Statement, which section is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this item is included under the heading "Certain
Transactions" in the 1998 Proxy Statement, which section is hereby
incorporated by reference.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE(S) IN
FORM 10-K
REPORT
The following consolidated financial statements of United
Wisconsin Services, Inc. and subsidiaries are included
in Item 8:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . 28
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . 29
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . 31
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 . . . . . 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . 34
The following financial statement schedules of United Wisconsin
Services, Inc. and subsidiaries are included in Item 14(d):
Schedule II - Condensed Financial Information of Registrant . . 59
Schedule IV - Reinsurance . . . . . . . . . . . . . . . . . . . 62
Schedule V - Valuation and Qualifying Accounts . . . . . . . . 63
All other schedules for which provision is made in applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. EXHIBITS
Reference is made to the separate Exhibit Index contained on Pages 65 through
69 hereof.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1997.
(c) EXHIBITS
Reference is made to the separate Exhibit Index contained on Pages 65 through
69 hereof.
(d) FINANCIAL STATEMENT SCHEDULES
Reference is made to the financial statement schedules contained on Pages 59
through 63 hereof.
58
<PAGE>
SCHEDULE II
UNITED WISCONSIN SERVICES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed balance sheets of United Wisconsin Services, Inc. (the
Company) (parent company only) as of December 31, 1997 and 1996, and the
condensed statements of income and cash flows for the years ended December
31, 1997, 1996, and 1995 are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $ 3,669 $ 936
Investments 5,790 9,617
Investment in and advances to affiliates 442,288 429,313
Note receivable - 1,000
Other assets 8,417 7,295
-------- --------
Total assets $460,164 $448,161
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 72,246 $ 71,666
Payables, accrued expenses and other liabilities 16,663 17,952
Debt 44,878 44,888
-------- --------
Total liabilities 133,787 134,506
Shareholders' equity:
Common stock 16,510 16,294
Paid-in capital 186,768 184,019
Retained earnings 117,331 107,073
Unrealized gains (losses) on investments 5,768 6,269
-------- --------
Total shareholders' equity 326,377 313,655
-------- --------
Total liabilities and shareholders' equity $460,164 $448,161
======== ========
</TABLE>
59
<PAGE>
SCHEDULE II
UNITED WISCONSIN SERVICES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Dividends from consolidated subsidiaries $ 20,676 $ 20,682 $ 81,872
Investment income 791 2,399 917
Other revenue (expense) 2,302 213 (1,534)
--------- -------- --------
Total revenues 23,769 23,294 81,255
Expenses:
Administrative expenses 1,340 3,443 1,506
Net amortization of purchase premiums and intangibles 3,997 862 545
Interest expense on debt 3,479 3,479 3,483
Interest expense with affiliate 4,892 564 -
--------- -------- --------
Total expenses 13,708 8,348 5,534
--------- -------- --------
Income before income tax benefit and equity in the
undistributed net income (loss) of subsidiaries 10,061 14,946 75,721
Income tax benefit (4,085) (1,795) (1,974)
--------- -------- --------
Income before equity in the undistributed net income
(loss) of subsidiaries 14,146 16,741 77,695
Equity in the undistributed net income (loss)
of subsidiaries 4,004 (6,538) (71,322)
--------- -------- --------
Net income $ 18,150 $ 10,203 $ 6,373
========= ======== ========
</TABLE>
60
<PAGE>
SCHEDULE II
UNITED WISCONSIN SERVICES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
-------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income $ 18,150 $ 10,203 $ 6,373
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in the undistributed net (income)
loss of subsidiaries (4,004) 6,538 71,322
Depreciation and amortization 4,105 1,703 599
Deferred income tax benefit (1,374) (196) (624)
Changes in other operating accounts:
Due to affiliates 580 265 (11,033)
Payables and accrued expenses 1,403 1,612 1,842
Other - net (973) 5,767 (979)
-------- ------- -------
Net cash provided by operating activities 17,887 25,892 67,500
Investing activities:
Acquisitions of subsidiaries (673) (195,751) (3,565)
Purchases of available for sale investments (36,283) (41,277) (121,346)
Proceeds from sale of available for sale investments 13,557 116,715 29,029
Proceeds from maturity of available for sale investments 26,735 675 16,800
Investment in and advances to consolidated affiliates (13,553) (75,093) (3,726)
-------- ------- -------
Net cash used in investing activities (10,217) (194,731) (82,808)
Financing activities:
Capital contributions - - 716
Cash dividends paid (7,892) (6,491) (6,162)
Redeemable preferred stock issuance - - -
Redemption of redeemable preferred stock - - (2,007)
Issuances of common stock and options 2,965 98,720 16,628
Repayment of subordinated notes (10) (10) (62)
Net borrowings under line of credit agreement - (550) 550
Proceeds from notes with affiliate - 70,000 -
-------- ------- -------
Net cash provided by (used in) financing
activities (4,937) 161,669 9,663
-------- ------- -------
Cash and cash equivalents:
Increase (decrease) during year 2,733 (7,170) (5,645)
Balance at beginning of year 936 8,106 13,751
-------- ------- -------
Balance at end of year $ 3,669 $ 936 $ 8,106
======== ======= =======
</TABLE>
61
<PAGE>
SCHEDULE IV
UNITED WISCONSIN SERVICES, INC.
REINSURANCE
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other assumed to
amount companies companies Net amount net
------- --------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 15,485,831 $ 6,072,710 $ 5,625,751 $ 15,038,872 37.4%
========== ========= ========= ========== =====
Premiums:
Health and disability $ 1,419,413 $ 495,390 $ 779 $ 924,802 0.1%
Life 55,211 23,368 16,634 48,477 34.3%
---------- --------- --------- ---------- -----
Total premiums $ 1,474,624 $ 518,758 $ 17,413 $ 973,279 1.8%
========== ========= ========= ========== =====
Year ended December 31, 1996:
Life insurance in force $ 13,785,741 $ 321,528 $ 3,401,690 $ 16,865,903 20.2%
========== ========= ========= ========== =====
Premiums:
Health and disability $ 1,537,899 $ 499,209 $ 563 $ 1,039,253 0.1%
Life 57,085 21,557 14,353 49,881 28.8%
---------- --------- --------- ---------- -----
Total premiums $ 1,594,984 $ 520,766 $ 14,916 $ 1,089,134 1.4%
========== ========= ========= ========== =====
Year ended December 31, 1997:
Life insurance in force $ 17,378,222 $ 1,310,520 $ 2,027,424 $ 18,095,126 11.2%
========== ========= ========= ========== =====
Premiums:
Health and disability $ 1,488,652 $ 19,726 $ 116 $ 1,469,042 0.0%
Life 44,555 1,901 7,190 49,844 14.4%
---------- --------- --------- ---------- -----
Total premiums $ 1,533,207 $ 21,627 $ 7,306 $ 1,518,886 0.5%
========== ========= ========= ========== =====
</TABLE>
62
<PAGE>
SCHEDULE V
UNITED WISCONSIN SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Net
charges
Balance (credits) Write-offs Balance
beginning to net against end of
of period income allowance period
----------- ----------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for possible losses on:
Premium receivables $ 354 $ (94) $ - $ 260
Other - (3) 17 14
------ ------ ------- ------
Total allowance $ 354 $ (97) $ 17 $ 274
====== ====== ======= ======
Year ended December 31, 1996:
Allowance for possible losses on:
Premium receivables $ 260 $ (28) $ - $ 232
Other 14 50 (12) 52
------ ------ ------- ------
Total allowance $ 274 $ 22 $ (12) $ 284
====== ====== ======= ======
Year ended December 31, 1997:
Allowance for possible losses on:
Premium receivables $ 232 $ 77 $ - $ 309
Other 52 (5) 38 85
------ ------ ------- ------
Total allowance $ 284 $ 72 $ 38 $ 394
====== ====== ======= ======
</TABLE>
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED WISCONSIN SERVICES, INC.
By: /s/ Thomas R. Hefty
_____________________________
Thomas R. Hefty, President and
Chief Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas R. Hefty Chairman, President and Chief March 27, 1998
--------------- Executive Officer (Principal
Thomas R. Hefty Executive Officer) and Director
/s/ C. Edward Mordy Vice President and Chief March 27, 1998
--------------- Financial Officer
C. Edward Mordy (Principal Financial and
Accounting Officer)
/s/ Richard A. Abdoo Director March 27, 1998
----------------
Richard A. Abdoo
/s/ Michael D. Dunham Director March 27, 1998
-----------------
Michael D. Dunham
/s/ James L. Forbes Director March 27, 1998
---------------
James L. Forbes
/s/ James C. Hickman Director March 27, 1998
----------------
James C. Hickman
/s/ William R. Johnson Director March 27, 1998
------------------
William R. Johnson
/s/ Eugene A. Menden Director March 27, 1998
----------------
Eugene A. Menden
/s/ William C. Rupp Director March 27, 1998
---------------
William C. Rupp
/s/ Carol N. Skornicka Director March 27, 1998
------------------
Carol N. Skornicka
64
<PAGE>
UNITED WISCONSIN SERVICES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
3.1 (a) Restated and Amended Articles of Incorporation of Registrant, dated
July 31, 1991(1). As amended by Articles of Amendment dated
December 11, 1991. As subsequently amended by Articles of
Amendment dated August 26, 1992.
3.1 (b) Restated and Amended Bylaws of Registrant dated May 28, 1997.
4.1 Specimen Common Stock Certificate (5).
4.2 Form of Indenture between Registrant and Firstar Trust Company (3).
4.3 Form of Subordinated Note issued pursuant to the above-referenced
Indenture (3).
4.4 Registrant's Dividend Reinvestment and Direct Stock Purchase Plan
(15).
10.1 Employment Contract between American Medical Security Holdings,
Inc. and Wallace J. Hilliard (10).
10.2 Employment Contract between American Medical Security Holdings,
Inc. and Ronald A. Weyers (10).
10.3 Joint Venture and Shareholders Agreement among Aon Corporation
(subsequently assigned to Aon Captive Management, Inc.), BCBSUW
(subsequently assigned to the Registrant) and United Heartland,
Inc. (1). As amended by Amendment dated October 1, 1991 (3). As
subsequently amended by Amendment dated December 31, 1994 (7).
10.4 Underwriting Management Agreement between United Heartland, Inc.
and Virginia Surety Company, Inc. (1).
10.5 Agreement for Electronic Data Processing Services between BCBSUW
and EDS Federal Corporation (as amended) (1). As amended by
Settlement Agreement and Amendment No. 5, dated October 19, 1992
(3).
10.6 Consolidated Federal Income Tax Agreement among BCBSUW, UWIC, the
Registrant, United Wisconsin Proservices, Inc., Leasing Unlimited,
Inc., UWLIC, Compcare Health Services Insurance Corporation
("Compcare"), ProHealth, Inc. and Take Control, Inc. (1). As
amended by Amendment dated August 6, 1993 (4). As subsequently
amended by Amendment dated May 9, 1994 (7).
10.7 Comprehensive Tax Allocation Agreement dated July 1, 1994 among
BCBSUW, the Registrant and various subsidiaries thereof (7).
10.8 Federal Income Tax Allocation Agreement among BCBSUW, the
Registrant, UWIC, UWLIC, United Wisconsin Proservices, Inc.,
Compcare, Take Control, Inc., Meridian Resource Corporation, Valley
Health Plan, Inc. and United Wisconsin Capital Corporation for the
period commencing January 1, 1993 (4). As amended by Amendment
dated May 9, 1994 (7).
10.9 Executive Reimbursement Group Insurance Policy (1).*
65
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
10.10 1992 Stock Appreciation Rights Plan, as amended February 15, 1995.*
10.11 Purchase and Sale Agreement of Midelfort Health Plan, Inc. between
Registrant and Midelfort Clinic, Ltd. (2).
10.12 Amended and Restated Joint Venture Agreement among BCBSUW,
Registrant, Midelfort Health Plan, Inc. and Midelfort Clinic, Ltd.
(10).
10.13 Intercompany Service Agreement between BCBSUW and Registrant and
UWIC, effective January 1, 1998.
10.14 Intercompany Service Agreement among BCBSUW, Registrant and UHI,
effective January 1, 1998.
10.15 Intercompany Service Agreement among BCBSUW, Registrant and MMC,
effective January 1, 1998.
10.16 Intercompany Service Agreement among BCBSUW, Registrant and UWIC,
effective January 1, 1998.
10.17 Intercompany Service Agreement among BCBSUW, Registrant, MMC,
Compcare and Compcare Pharmacy, effective January 1, 1998.
10.18 Intercompany Service Agreement among BCBSUW, Registrant, MMC,
Compcare and Compcare RxCel, effective January 1, 1998.
10.19 Intercompany Service Agreement among BCBSUW, Registrant, MMC and
Compcare, effective January 1, 1998.
10.20 Intercompany Service Agreement among BCBSUW, Registrant, Meridian
Corp and Meridian IRS, effective January 1, 1998.
10.21 Intercompany Service Agreement among BCBSUW, Registrant, Meridian
Corp and Meridian Consulting, effective January 1, 1998.
10.22 Intercompany Service Agreement among BCBSUW, Registrant, Meridian
Corp and Meridian Audit, effective January 1, 1998.
10.23 Intercompany Service Agreement among BCBSUW, Registrant and
Proservices, effective January 1, 1998.
10.24 Service Agreement between BCBSUW and Valley Health Plan, Inc.,
effective January 1, 1993 (6).
10.25 Service Agreement between the Registrant and Community Health
Systems, LLC dated November 1, 1994 (5).
10.26 Amended and Restated Joint Venture Agreement among BCBSUW, the
Registrant, UHC, U-Care, HPI and HPW dated October 31, 1994 (5).
10.27 Service Agreement between the Registrant and HPI dated November 1,
1994 (5).
66
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
10.28 License Agreement between the Registrant and U-Care dated November
1, 1994 (5).
10.29 Joint Venture Agreement among Registrant, BCBSUW, Compcare and
Northwoods Health Care, LLC (9).
10.30 Employment Agreement between the Company and Samuel V. Miller dated
October 30, 1995 (2).*
10.31 Amendment to Purchase and Sale Agreement between the Registrant and
Midelfort (13).
10.32 Amendment to Joint Venture Agreement among Registrant, BCBSUW,
Compcare and Northwoods Health Care, LLC.
10.33 Information System Services Agreement among Blue Cross Blue Shield
of South Carolina and Blue Cross & Blue Shield United of Wisconsin,
effective date August 23, 1996. As amended by Amendment No.1 dated
effective January 1, 1997.
10.34 Supplemental Compensation Agreement (a portion of the exhibit has
been omitted pursuant to a request for confidential treatment filed
with the Securities and Exchange Commission. The omitted portion
has been filed separately with the Commission) (13).
10.35 License Agreement between Registrant and Electronic Data Systems
Corporation, dated March 7, 1997. As amended by the First
Amendment dated July 16, 1997.
10.36 1997 Management Incentive Plan (10).
10.37 Registrant's Equity Incentive Plan (3). As amended as of August
15, 1996 (14). As subsequently amended as of September 1, 1997.*
10.38 1995 Director Stock Option Plan (8).*
10.39 Registrant's Deferred Compensation Plan for Directors (11).
10.40 UWSI/BCBSUW 401(k) Plan (as amended and restated effective January
1, 1997 (12).
10.41 UWSI/BCBSUW Union Employees 401 (k) Plan (as amended and restated
effective January 1, 1997) (12).
10.42 UWSI/Unity Health Plans Insurance Corp. 1997 Profit Sharing Plan.
10.43 Registrant's and BCBSUW's 1997 Profit Sharing Plan.
10.44 BCBSUW/UWS Long Term Incentive Plan (1997-1999).
10.45 BCBSUW/UWS Long Term Incentive Plan (1996-1998) (10).
10.46 BCBSUW/UWS Long Term Incentive Plan (1995-1997) (2).
10.47 UWSI Voluntary Deferred Compensation Plan.
10.48 UWSI Deferred Compensation Trust.
67
<PAGE>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
10.49 UWSI/BCBSUW Hourly Pension Plan (As Amended and Restated Effective
January 1, 1997).
10.50 UWSI/BCBSUW Salaried Pension Plan (As Amended and Restated
Effective January 1, 1997).
10.51 UWSI/BCBSUW Supplemental Executive Retirement Plan, as Amended and
Restated Effective January 1, 1997.
11 Statement regarding computation of per share earnings. (See Note 1
of Notes to Consolidated Financial Statements).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
- -----------------
(1) Incorporated by reference to exhibits filed with Registrant's Form
S-1 Registration Statement declared effective on October 24, 1991
(Registration Number 33-42571).
(2) Incorporated by reference to exhibits filed with Registrant's Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference to exhibits filed with Registrant's Form
S-1 Registration Statement declared effective on July 13, 1993
(Registration Number 33-59798).
(4) Incorporated by reference to exhibits filed with Registrant's Form
10-Q for the period ended September 30, 1993.
(5) Incorporated by reference to exhibits filed with the Registrant's
Form 10-Q for the period ended September 30, 1994.
(6) Incorporated by reference to exhibits filed with the Registrant's
Form S-1 Registration Statement declared effective on June 30, 1994
(Registration Number 33-76768).
(7) Incorporated by reference to exhibits filed with the Registrant's
Form 10-K for the year ended December 31, 1994.
(8) Incorporated by reference to exhibits filed with the Registrant's
Form 10-Q for the period ended June 30, 1995.
(9) Incorporated by reference to exhibits filed with the Registrant's
Form 10-Q for the quarter ended June 30, 1996.
(10) Incorporated by reference to exhibits filed with the Registrant's
Form 10-K for the year ended December 31, 1996.
(11) Incorporated by reference to exhibits filed with the Registrant's
From 10-Q for the quarter ended March 31, 1997.
(12) Incorporated by reference to exhibits filed with the Registrant's
Form 10-Q for the quarter ended June 30, 1997.
68
<PAGE>
Exhibit
Number Document Description
- ------- --------------------
(13) Incorporated by reference to exhibits filed with the Registrant's
Form 10-Q for the quarter ended September 30, 1997.
(14) Incorporated by reference to exhibits filed with The Registrant's
Form S-8 Registration Statement filed with the Securities and
Exchange Commission on February 14, 1997 (Registration Numbers 333-
21857).
(15) Incorporated by reference to exhibits filed with The Registrant's
Form S-3 Registration Statement filed with the Securities and
Exchange Commission on June 16, 1997 (Registration Numbers 333-
29425).
* Indicates Compensatory Agreement.
69
<PAGE>
Exhibit 3.1A
ARTICLES OF AMENDMENT
TO THE
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
UNITED WISCONSIN SERVICES, INC.
By action of the Board of Directors of United Wisconsin Services, Inc.
in accordance with Section 180.0602 and Section 180.1002 of the Wisconsin
Statutes at a meeting duly convened pursuant to the provisions of the
Wisconsin Business Corporation Law, the following Articles of Amendment to
the Restated and Amended Articles of Incorporation of United Wisconsin
Services, Inc. were duly adopted:
FIRST: The name of the corporation is United Wisconsin Services, Inc.
SECOND: The amendment to the Restated and Amended Articles of
Incorporation so adopted is as follows:
Pursuant to the authority expressly granted and vested in the Board of
Directors of the Corporation and in accordance with the provisions of the
Restated and Amended Articles of Incorporation, as amended as of July 31,
1991, the Board of Directors hereby designates 25,000 shares of the
Corporation's authorized and unissued preferred stock, no par value per
share, as Series A Adjustable Rate Nonconvertible Preferred Stock, $1,000
stated value per share, which shall have the following powers, designations,
preferences and relative participating, optional or other special rights and
qualifications, limitations or restrictions:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as the "Series A Adjustable Rate Nonconvertible Preferred Stock"
and the number of shares constituting such series shall be Twenty Five
Thousand (25,000), which number, subject to the Restated and Amended Articles
of Incorporation, may be increased or decreased by the Board of Directors
without a vote of the shareholders; PROVIDED, HOWEVER, such number may not be
decreased below the number of the then currently outstanding shares of Series
A Adjustable Rate Nonconvertible Preferred Stock plus the number of shares
that may be reserved for issuance upon the exercise of any options, warrants,
or rights or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Adjustable Rate Nonconvertible
Preferred Stock. Upon the issuance of any shares of Series A Adjustable Rate
Nonconvertible Preferred Stock, an amount equal to the aggregate stated value
of the shares so issued will be assigned to the capital of the Corporation
representing such shares.
<PAGE>
Section 2. FRACTIONAL SHARES. The Corporation may issue fractions and
certificates representing fractions of a share of Series A Adjustable Rate
Nonconvertible Preferred Stock in integral multiples of one one-thousandth
(1/1000) of a share of Series A Adjustable Rate Nonconvertible Preferred
Stock. In the event that fractional shares of Series A Adjustable Rate
Nonconvertible Preferred Stock are issued, the holders thereof shall have all
the rights provided herein for holders of full shares of Series A Adjustable
Rate Nonconvertible Preferred Stock in the proportion which such fraction
bears to a full share.
Section 3. VOTING RIGHTS. Except as required by law, holders of shares
of Series A Adjustable Rate Nonconvertible Preferred Stock shall have no
right to vote.
Section 4. CONVERSION OR EXCHANGE. The holders of shares of Series A
Adjustable Rate Nonconvertible Preferred Stock shall not have any right to
convert such shares into or exchange such shares for shares of any other
class or classes or any other series of any class or classes of capital stock
of the Corporation.
Section 5. DIVIDENDS.
A. When and as declared by the Board of Directors, the Corporation
shall pay, out of any funds legally available for the payment of
dividends, cumulative cash dividends to the holders of the shares
of Series A Adjustable Rate Nonconvertible Preferred Stock from
the date of issuance as provided in this paragraph. The dividend
rate on the shares of Series A Adjustable Rate Nonconvertible
Preferred Stock shall be fixed on a yearly basis ("Yearly Dividend
Period") and shall be payable quarterly, out of any funds legally
available for the payment of dividends, in cash on March 31, June
30, September 30 and December 31 in each year ("Quarterly Dividend
Period"). The dividend rate for each Yearly Dividend Period,
payable each Quarterly Dividend Period in that year, shall be at a
rate per annum equal to the Applicable Rate (as defined in Section
5(B)). Such dividends shall be cumulative from the date of
original issuance of such shares of Series A Adjustable Rate
Nonconvertible Preferred Stock and shall be payable out of funds
legally available therefor, when and as declared by the Board of
Directors in March, June, September and December of each year.
Such dividends will accrue whether or not they have been declared
and whether or not there are funds of the Corporation legally
available for the payment of dividends. Each of such dividends
shall be paid to the holders of record of shares of Series A
Adjustable Rate Nonconvertible Preferred Stock as they appear on
the stock register of the Corporation on such record date as shall
be fixed by the Board of Directors or a committee
-2-
<PAGE>
of the Board of Directors duly authorized to fix such date.
Dividends on account of arrears (accrued but not declared) for any
past Quarterly Dividend Period may be declared and paid at any
time, without reference to any regular dividend payment date, to
holders of record on such date as may be fixed by the Board of
Directors or a committee of the Board of Directors duly authorized
to fix such date. If at any time the Corporation pays less than
the total amount of dividends then accrued with respect to the
shares of Series A Adjustable Rate Nonconvertible Preferred Stock,
such payment shall be distributed ratably among the holders of
Series A Adjustable Rate Nonconvertible Preferred Stock based upon
the aggregate accrued but unpaid dividends on the shares held by
each such holder.
B. The "Applicable Rate" for any Yearly Dividend Period shall be the
Treasury Bill Rate plus 150 basis points. The "Treasury Bill
Rate" for each Yearly Dividend Period shall be the weekly per
annum market discount rate for one-year U.S. Treasury bills, as
published weekly by the Federal Reserve Board, during the last
full week in the month of September in the year prior to the
Yearly Dividend Period for which the Applicable Rate is being
determined. In the event the Federal Reserve Board does not
publish such a weekly per annum market discount rate for one-year
U.S. Treasury bills during the last full week in the month of
September in the year prior to the Yearly Dividend Period for
which the Applicable Rate is being determined, then the Applicable
Rate shall mean the weekly per annum market discount rate for
one-year U.S. Treasury bills as published weekly by any Federal
Reserve Bank or by any U.S. Government department or agency
selected by the Corporation, during the last full week in the
month of September in the year prior to the Yearly Dividend Period
for which the Applicable Rate is being determined. In the event
the Corporation determines in good faith that for any reason no
such U.S. Treasury bill rates are published as provided above
during the last full week in the month of September in the year
prior to the Yearly Dividend Period for which the Applicable Rate
is being determined, then the Applicable Rate shall be the average
weekly per annum market discount rate for one-year U.S. Treasury
bills, as quoted to the Corporation by a recognized U.S.
Government securities dealer selected by the Corporation. Anything
herein to the contrary notwithstanding, the Applicable Rate for
any Yearly Dividend Period shall in no event be less than 7.00% or
greater than 10.00% per annum.
C. The Applicable Rate shall be rounded to the nearest one thousandth
(1/1000) of a percentage point.
-3-
<PAGE>
D. Dividends payable on the Series A Adjustable Rate Nonconvertible
Preferred Stock for each full Quarterly Dividend Period shall be
computed by annualizing the Applicable Rate and dividing by four
and multiplying the quotient so obtained by the stated value per
share of the Series A Adjustable Rate Nonconvertible Preferred
Stock. Dividends payable on the Series A Adjustable Rate
Nonconvertible Preferred Stock for any period less than a full
Quarterly Dividend Period shall be computed on the basis of a
360-day year of 30-day months and the actual number of days
elapsed in the period for which dividends are payable.
E. Holders of shares of Series A Adjustable Rate Nonconvertible
Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative
dividends on the Series A Adjustable Rate Nonconvertible Preferred
Stock as provided in this Section 5. Accrued but unpaid dividends
shall not bear interest, and no interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment
or payments on the Series A Adjustable Rate Nonconvertible
Preferred Stock which may be in arrears.
F. Anything herein to the contrary notwithstanding, dividends may be
declared and paid upon any of the equity securities of the
Corporation even if all accrued dividends on the Series A
Adjustable Rate Nonconvertible Preferred Stock have not yet been
declared and/or paid in full.
Section 6. LIQUIDATION. Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Series A Adjustable Rate Nonconvertible Preferred Stock will be entitled to
be paid, whether from capital or surplus, before any distribution or payment
is made upon the then outstanding shares of Common Stock or any other class
of stock of the Corporation ranking junior to the Series A Adjustable Rate
Nonconvertible Preferred Stock upon liquidation, an amount in cash equal to
the stated value of, together with all accrued but unpaid dividends on, the
Series A Adjustable Rate Nonconvertible Preferred Stock (the "Liquidation
Price"). To the extent any accrued dividends have not been paid by the
Corporation as of the date the Corporation pays to the holders of the shares
of Series A Adjustable Rate Nonconvertible Preferred Stock the Liquidation
Price hereunder, and to the extent the Corporation has at that time funds
legally available for the payment of dividends, the Board of Directors shall,
prior to the payment of the Liquidation Price, declare and cause such
dividends to be paid. If upon any such liquidation, dissolution, or winding
up of the Corporation, the Corporation's assets to be distributed among the
holders of the
-4-
<PAGE>
shares of Series A Adjustable Rate Nonconvertible Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets to be distributed will
be distributed ratably among such holders based upon the aggregate
Liquidation Price of the shares of Series A Adjustable Rate Nonconvertible
Preferred Stock held by each such holder. Upon receipt of the aggregate
Liquidation Price for each share of Series A Adjustable Rate Nonconvertible
Preferred Stock, holders of shares of Series A Adjustable Rate Nonconvertible
Preferred Stock shall have no further rights to participate in any
liquidation, dissolution or winding up of the Corporation.
Section 7. RANKING OF CLASSES OF STOCK. The Series A Adjustable Rate
Nonconvertible Preferred Stock shall rank junior to all other series of the
Corporation's preferred stock as to the payment of dividends and the
distribution of assets in liquidation, unless the terms of any such series
shall provide otherwise. Nothing contained herein shall be deemed to
restrict the ability of the Corporation to create and issue additional
classes or series of its preferred stock or other capital stock ranking
senior or junior to, or on a parity with, the Series A Adjustable Rate
Nonconvertible Preferred Stock as to the payment of dividends or the
distribution of assets upon liquidation, or both. Specifically, any stock of
any class or classes of the Corporation shall be deemed to rank:
i. prior to the shares of Series A Adjustable Rate Nonconvertible
Preferred Stock, either as to dividends or upon liquidation,
if the holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference of or in priority to the
holders of shares of Series A Adjustable Rate Nonconvertible
Preferred Stock;
ii. on a parity with shares of Series A Adjustable Rate
Nonconvertible Preferred Stock, either as to dividends or upon
liquidation, whether or not the dividend rates, dividend
payment rates or redemption or liquidation prices per share or
sinking fund provisions, if any, are different from those of
the Series A Adjustable Rate Nonconvertible Preferred Stock,
if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority, one over
the other, as between the holders of such stock and
-5-
<PAGE>
the holders of shares of Series A Adjustable Rate
Nonconvertible Preferred Stock; and
iii. junior to shares of Series A Adjustable Rate Nonconvertible
Preferred Stock, either as to dividends or upon liquidation,
if such class shall be Common Stock or if the holders of
shares of Series A Adjustable Rate Nonconvertible Preferred
Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of
the Corporation, as the case may be, in preference of or
priority to the holders of shares of such class or classes.
Section 8. REDEMPTION OF SHARES.
A. The shares of Series A Adjustable Rate Nonconvertible Preferred Stock
shall be subject to the following redemption rights:
i. At any time or from time to time following issuance, the
Corporation, at its option, may redeem shares of Series A
Adjustable Rate Nonconvertible Preferred Stock in whole or in
part. The redemption price per share in such event shall be
paid in cash and shall be equal to the greater of the
following: (aa) $1,000, plus in each case an amount equal to
accrued (whether or not declared) and unpaid dividends to the
redemption date (out of funds legally available therefor); or
(bb) the fair market value per share as of the end of the
quarter preceding the quarter during which the redemption is
to occur, as determined in good faith by the Board of
Directors in accordance with a written appraisal which is
prepared by an independent appraiser selected by the Board and
which meets the requirements of applicable law. Upon the date
of notice to the holder of shares of Series A Adjustable Rate
Nonconvertible Preferred Stock of the Corporation's election
to redeem shares, notwithstanding that any certificates for
such shares have not been surrendered for cancellation, the
shares of Series A Adjustable Rate Nonconvertible Preferred
Stock represented thereby shall no longer be deemed
outstanding, the rights to receive dividends thereon shall
cease to accrue from and after the date of notice and all
rights of the holder of shares so redeemed shall cease and
terminate, excepting only the right to receive the redemption
price therefor; and
-6-
<PAGE>
ii. The Corporation shall redeem shares of Series A Adjustable
Rate Nonconvertible Preferred Stock which are beneficially
owned by any of its employees, or employees of any of the
Corporation's Affiliates, pursuant to the Corporation's or any
of its Affilitates' employees pre-tax savings plans (the
"401(k) Plans"), immediately prior to any distribution or
withdrawal of shares of Series A Adjustable Rate
Nonconvertible Preferred Stock from any of the 401(k) Plans
for any reason. For purposes of this Section 8, an
"Affiliate" of the Corporation means a "person" that directly,
or through one or more intermediaries, controls, or is
controlled by, or is under common control with, the
Corporation, and a "person" means an individual, a
corporation, a partnership, an associate, a joint-stock
company, a business trust or an unincorporated organization.
The redemption price per share in such event shall be paid in
cash and shall be equal to the greater of the following: (aa)
$1,000, plus in each case an amount equal to accrued (whether
or not declared) and unpaid dividends to the redemption date
(out of funds legally available therefor); or (bb) the fair
market value per share as of the end of the quarter preceding
the quarter during which the redemption is to occur, as
determined in good faith by the Board of Directors in
accordance with a written appraisal which is prepared by an
independent appraiser selected by the Board and which meets
the requirements of applicable law. Upon such attempted
withdrawal, notwithstanding that any certificates for such
shares have not been surrendered for cancellation, the shares
of Series A Adjustable Rate Nonconvertible Preferred Stock
represented thereby shall no longer be deemed outstanding, the
rights to receive dividends thereon shall cease to accrue from
and after the date of attempted withdrawal and all rights of
the employee as a holder shall cease and terminate, excepting
only the right to receive the redemption price therefor. In
the event the Corporation is unable to redeem all such shares
of Series A Adjustable Rate Nonconvertible Preferred Stock
upon the occurrence of such an attempted withdrawal, the
obligation of the Corporation to so redeem pursuant to this
subparagraph (ii) shall continue and funds legally available
therefor shall be applied for such purpose until such
obligation is discharged.
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<PAGE>
B. Anything herein to the contrary notwithstanding, in accordance with
Section 180.0640 of the Wisconsin Business Corporation Law, the
Corporation may not redeem shares of Series A Adjustable Rate
Nonconvertible Preferred Stock pursuant to Section 8(A) (i) or (ii)
if, after giving effect to the redemption, either of the following
would occur:
i. The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
ii. The Corporation's total assets would be less than the sum of
its total liabilities plus the amount that would be needed, if
the Corporation were to be dissolved at the time of the
redemption, to satisfy the preferential rights upon
dissolution to shareholders whose preferential rights are
superior to those of the holders of the Series A Adjustable
Rate Nonconvertible Preferred Stock.
Section 9. REACQUIRED SHARES. Any shares of Series A Adjustable Rate
Nonconvertible Preferred Stock redeemed or otherwise acquired by the
Corporation in any manner whatsoever shall be retained and cancelled promptly
after the redemption or acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock
and may be reissued as part of a new series of preferred stock which may be
created by resolutions of the Board of Directors.
Section 10. NO SINKING FUND. The shares of Series A Adjustable Rate
Nonconvertible Preferred Stock are not subject or entitled to the operation
of a retirement or sinking fund.
THIRD: The date of adoption of the amendment to the Restated and
Amended Articles of Incorporation by the Board of Directors was December 11,
1991, in accordance with Section 180.0602 and Section 180.1002 of the
Wisconsin Statutes.
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<PAGE>
IN WITNESS WHEREOF, the undersigned officers of United Wisconsin
Services, Inc. have hereunto set their hands this 13th day of December, 1991.
UNITED WISCONSIN SERVICES, INC.
[CORPORATE SEAL]
United Wisconsin Services, Inc. BY: /s/ Thomas R. Hefty
CORPORATE SEAL -------------------------------------
WISCONSIN Thomas R. Hefty, Chairman of the
Board and President
BY: /s/ Laurel S. Barnes
-------------------------------------
Laurel S. Barnes, Secretary
This document was drafted by:
FRANK J. PELISEK, ESQ.
MICHAEL BEST & FRIEDRICH
100 EAST WISCONSIN AVENUE
MILWAUKEE, WI 53202 STATE OF WISCONSIN
FILED
DEC 20 1991
DOUGLAS LA FOLLETTE
SECRETARY OF STATE
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<PAGE>
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The undersigned, Thomas R. Hefty, Chairman of the Board and President,
and Laurel S. Barnes, Secretary, of United Wisconsin Services, Inc., being
duly sworn, depose and say that they are the persons described in and who
executed the foregoing Articles of Amendment, and they have read the same and
know the contents thereof and the statements contained therein are true.
/s/ Thomas R. Hefty
-------------------------------------
Thomas R. Hefty, Chairman of the
Board and President
[SEAL] /s/ Laurel S. Barnes
LANA K. HERTEL -------------------------------------
NOTARY PUBLIC Laurel S. Barnes, Secretary
WISCONSIN
Sworn to before me this
13th day of December, 1991.
/s/ Lana K. Hertel
- ------------------------------------
Notary Public, State of Wisconsin
My commission expires 5/14/95. STATE OF WISCONSIN
FILED
DEC 20 1991
DOUGLAS LA FOLLETTE
SECRETARY OF STATE
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<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
UNITED WISCONSIN SERVICES, INC.
By action of the Board of Directors and the Shareholders of United
Wisconsin Services, Inc., in accordance with Section 180.1003 of the
Wisconsin Statutes, at a Special Meeting of Shareholders duly held on August
26, 1992, the following Articles of Amendment to the Restated and Amended
Articles of Incorporation of United Wisconsin Services, Inc. were adopted:
FIRST: The name of the corporation is United Wisconsin Services,
Inc.
SECOND: The amendment to the Restated and Amendment to the Restated and
Amended Articles of Incorporation to increase the number of authorized shares
of Common Stock from ten million (10,000,000) having no par value per share
to fifty million (50,000,000) having no par value per share so adopted is as
follows:
ARTICLE III (a) is amended in its entirety to read as follows: "the
aggregate number of authorized shares of Common Stock of the corporation
shall be fifty million (50,000,000) shares, designated as " Common Stock,"
and having no par value per share."
IN WITNESS WHEREOF, the undersigned officers of United Wisconsin
Services, Inc. have hereunto set their hands this 26th day of August, 1992.
STATE OF WISCONSIN UNITED WISCONSIN SERVICES, INC.
FILED
SEP 9 1992 By: /s/ Thomas R. Hefty
DOUGLAS LA FOLLETTE -------------------------------------
SECRETARY OF STATE Thomas R. Hefty, Chairman
of the Board and President
[Corporate Seal]
By: /s/ Mary Traver
-------------------------------------
Mary Traver, Vice President
and Secretary
<PAGE>
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
The undersigned, Thomas R. Hefty, Chairman of the Board and President,
and Mary Traver, Vice President and Secretary, of United Wisconsin Services,
Inc., being duly sworn, depose and say that they are the persons described in
and who executed the foregoing Articles of Amendment, and they have read the
same and know the contents thereof and the statements contained therein are
true.
/s/ Thomas R. Hefty
-------------------------------------
Thomas R. Hefty, Chairman of the
Board and President
/s/ Mary Traver
-------------------------------------
Mary Traver, Vice President and
Secretary
Subscribed and sworn to before me STATE OF WISCONSIN
this 26th day of August, 1992. FILED
SEP 9 1992
DOUGLAS LA FOLLETTE
SECRETARY OF STATE
/s/ Lisa Paragamian-Malnke
- ------------------------------------
Notary Public, State of Wisconsin
My Commission: 6-2-96
This document was drafted by and is returnable to:
Sarah C. Skebba
United Wisconsin Services, Inc.
401 West Michigan Street
Milwaukee, Wisconsin 53201-2025
(414) 226-6900
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<PAGE>
Exhibit 3.1b
RESTATED AND AMENDED
BYLAWS OF
UNITED WISCONSIN SERVICES, INC.
MAY 28, 1997
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL AND BUSINESS OFFICES. The Corporation may have
such principal and other business offices, either within or without the State
of Wisconsin, as the Board of Directors may designate or as the business of
the Corporation may require from time to time.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation
required by the Wisconsin Business Corporation Law to be maintained in the
State of Wisconsin may be, but need not be, identical to the principal office
in the state of Wisconsin; and the address of the registered office may be
changed from time to time by the Board of Directors or by the registered
agent. The business office of the registered agent of the Corporation shall
be identical to the registered office.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The Annual Meeting of the Shareholders
shall be held at the principal office of the Corporation in the City of
Milwaukee, Milwaukee County, Wisconsin, unless the Board of Directors shall
designate another location either within or without the State of Wisconsin.
The Annual Meeting shall take place on the last Wednesday of May each year or
at such other time and date within thirty days before or after said date as
may be fixed by or under the authority of the Board of Directors. If the day
fixed for the Annual Meeting shall be a legal holiday in the State of
Wisconsin, such meeting shall be held on the next succeeding business day. At
such meeting the Shareholders shall elect directors and transact such other
business as shall lawfully come before them.
A. ELECTORS AND OTHER BUSINESS. Nominations of persons for election
to the Board of Directors of the Corporation and the proposal of
business to be considered by the Shareholders may be made at the
Annual Meeting:
1. Pursuant to the Corporation's notice of meeting;
2. By or at the direction of the Board of Directors; or
3. By any Shareholder of the Corporation who is a shareholder of
record at the time of the giving of the notice provided for in
these Bylaws and who is entitled to vote at the meeting and
complies with the notice procedures set forth below.
<PAGE>
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. For nominations or
other business to be properly before an Annual Meeting by a
shareholder, the Shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. Timely notice is
that notice which is received by the Secretary at the Corporation's
principal office not less than 60 days nor more than 90 days prior
to the last Wednesday in May, provided, however, that in the event
the date of the Annual Meeting is advanced by more than 30 days or
delayed by more than 60 days from the last Monday in May, notice by
the Shareholder, to be timely, must be received as provided above
not earlier than the 90th day prior to the date of such Annual
Meeting and not later than the close of business on the later of
(x) the 60th day prior to such Annual Meeting, or (y) the 10th day
on which public announcement of the date of such a meeting is first
made. Such Shareholder's notice shall be signed by the Shareholder
of record who intends to make the nomination or introduce the other
business (or his or her duly authorized proxy or other
representative), shall bear the date of signature of such
Shareholder or representative, and shall set forth:
1. The name and address, as they appear on the Corporation's
books, of such Shareholder and the beneficial owner(s), if
any, on whose behalf the nomination or proposal is made;
2. The class and number of shares of the Corporation which are
beneficially owned by such Shareholder or beneficial
owner(s);
3. A representation that such Shareholder is a holder of record
of shares entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to make the
nomination or introduce the other business specified in the
notice;
4. In the case of any proposed nomination for election or
reelection as a director:
(a) the name and residence address of the nominee;
(b) a description of all arrangements or understandings
between such Shareholder or beneficial owner(s) and
each nominee and any other person(s) (naming such
person(s)) pursuant to which the nomination is to be
made by the Shareholder;
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<PAGE>
(c) such other information regarding each nominee proposed
by such Shareholder as would be required to be
disclosed in solicitations of proxies for elections of
directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended,
including any information that would be required to be
included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the
Board of Directors; and
(d) the written consent of each nominee to be named in a
proxy statement and to serve as a director of the
Corporation if so elected; and
5. In the case of any other business that such Shareholder
proposes to bring before the meeting,
(a) a brief description of the business desired to be
brought before the meeting, and, if the business
includes a proposal to amend these Bylaws, the language
of the proposed amendment;
(b) such Shareholder's and beneficial owner's(s') reasons
for conducting such business at such time; and
(c) any material interest in such business of such
Shareholder or beneficial owners(s).
Notwithstanding anything in the above paragraph to the contrary, in
the event that the number of directors to be elected to the Board of
Directors of this Corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at
least 70 days prior to the last Wednesday in May, a Shareholder's
notice required by this Section shall also be considered timely, but
only with respect to nominees for new positions created by such
increase, if it is received by the Secretary at the Corporation's
principal office not later than the close of business on the 10th day
following the day on which such public announcement is first made by
the Corporation.
SECTION 2. SPECIAL MEETINGS. Special meetings of the Shareholders may be
called by the Chairman of the Board, and shall be called by the Secretary on
written request of a majority of members of the Board of Directors, or on
written request of the holders of at least 10 percent of
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<PAGE>
the Corporation's shares entitled to vote on a matter. The request shall be
signed, dated and delivered to the Secretary describing one or more purposes
for which the meeting is to be held. The Board of Directors shall set the
place of the meeting. If no such designation is made, the place of the
meeting shall be the principal business office of the Corporation in the
State of Wisconsin, but any meeting may be adjourned to reconvene at any
place designated by a vote of a majority of the shares represented thereat.
A. ELECTIONS AND OTHER BUSINESS. Nominations of persons for
election to the Board of Directors may be made at a Special
Meeting at which directors are to be elected pursuant to such
notice of meeting:
1. By or at the direction of the Board of Directors; or
2. By any Shareholder of the Corporation who:
(a) is a Shareholder of record at the time of giving notice
of the meeting,
(b) is entitled to vote at the meeting, and
(c) complies with the notice procedures set forth below.
B. NOMINATIONS AND SUBMISSION OF BUSINESS MATTERS. Only such
business as shall have been described in such notice shall be
conducted at the Special Meeting. Any Shareholder desiring to
nominate persons for election to the Board of Directors at a
Special Meeting shall cause written notice to be received by the
Secretary of the Corporation at its principal office not earlier
than 90 days prior to such Special Meeting and not later than the
close of business on the later of (x) the 60th day prior to such
Special Meeting or (y) the 10th day following the day on which
public announcement is first made of the date of such Special
Meeting and of the nominees proposed by the Board of Directors to
be elected at such meeting. Such written notice shall be signed
by the Shareholder of record who intends to make the nomination
(or his or her duly authorized proxy or other representative),
shall bear the date of signature of such Shareholder or other
representative, and shall set forth:
1. The name and address, as they appear on the Corporation's
books, of such Shareholder and the beneficial owner(s), if
any, on whose behalf the nomination is made;
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<PAGE>
2. The class and number of shares of the Corporation which are
beneficially owned by such Shareholder or beneficial
owner(s);
3. A representation that such Shareholder is a holder of record
of shares of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to make the nomination specified in the notice;
4. The name and residence address of the person(s) to be
nominated;
5. A description of all arrangements or understandings between
such Shareholder or beneficial owner(s) and each nominee and
any other person(s) (naming such person(s)) pursuant to
which the nomination is to be made by such Shareholder;
6. Such other information regarding each nominee proposed by
such Shareholder as would be required to be disclosed in
solicitations of proxies for elections of directors, or
would be otherwise required to be disclosed, in each case
pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended, including any information that would be
required to be included in a proxy statement filed pursuant
to Regulation 14A had the nominee been nominated by the
Board of Directors; and
7. The written consent of each nominee to be named in a proxy
statement and to serve as a director of the Corporation if
so elected.
SECTION 3. NOTICE OF ANNUAL OR SPECIAL MEETING. Notice may be
communicated by telegraph, teletype, facsimile or other form of wire or
wireless communication, or by mail or private carrier, and, if these forms of
personal notice are impracticable, notice may be communicated by public
announcement. Such notice stating the place, day and hour of the meeting and,
in case of a special meeting, a description of each purpose for which the
meeting is called, shall be communicated or sent not less than 10 days nor
more than 60 days before the date of the meeting, by or at the direction of
the Chairman of the Board or the Secretary, or other Officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. Written notice by the Corporation to its shareholders is effective
when mailed and may be addressed to the shareholder's address shown in the
Corporation's current record of shareholders.
SECTION 4. UNANIMOUS CONSENT WITHOUT MEETING. Any action that may be
taken at a meeting of the Shareholders may be taken without a meeting if a
consent in writing setting forth
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<PAGE>
the action so taken shall be signed by all of the Shareholders entitled to
vote with respect to the subject matter thereof.
SECTION 5. CLOSING OF STOCK TRANSFER BOOKS OR FIXING OF RECORD DATE. A
"Shareholder" of the Corporation shall mean the person in whose name shares
are registered in the stock transfer books of the Corporation or the
beneficial owner of shares to the extent of the rights granted by a nominee
certificate on file with the Corporation. Such nominee certificates, if any,
shall be reflected in the stock transfer books of the Corporation. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled
to receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, 70 days. If the stock transfer books shall be closed
for the purpose of determining Shareholders entitled to the notice of or to
vote at a meeting of Shareholders, such books shall be closed for at least 10
days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the
record date for any such determination of Shareholders, such date in any case
to be not more than 70 days and, in case of a meeting of Shareholders, not
less than 10 days prior to the date on which the particular action requiring
such determination of Shareholders is to be taken. If the stock transfer
books are not closed and no record date is fixed for the determination of
Shareholders entitled to notice of or to vote at a meeting of Shareholders,
or Shareholders entitled to receive payment of a dividend, the close of
business on the date on which notice of the meeting is mailed or on the date
on which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of Shareholders. When a determination of Shareholders entitled to vote at
any meeting of Shareholders has been made as provided in this Section, such
determination shall be applied to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books
and the stated period of closing has expired.
SECTION 6. VOTING RECORD. The Secretary shall, before each meeting of
Shareholders, make a complete list of the Shareholders entitled to vote at
such meeting, or any adjournment thereof, with the address of and the number
of shares held by each. Such record shall be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
Shareholder during the whole time of the meeting for the purposes of the
meeting. The original stock transfer books shall be prima facie evidence as
to who are the Shareholders entitled to examine such record or transfer books
or to vote at any meeting of Shareholders. Failure to comply with the
requirements of this Section shall not affect the validity of any action
taken at such meeting.
SECTION 7. QUORUM. Shares entitled to vote as a separate voting group as
defined in the Wisconsin Business Corporation Law may take action on a matter at
a meeting only if a quorum of those shares exists with respect to that matter.
Unless the Articles of Incorporation or the
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Wisconsin Business Corporation Law provide otherwise, a majority of the votes
entitled to be cast on the matter by a voting group constitutes a quorum of
that voting group for action on that matter.
Once a share is represented for any purposes at a meeting, other than
for the purpose of objecting to holding the meeting or transacting business
at the meeting, it is considered present for purposes of determining whether
a quorum exists for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for that adjourned
meeting.
If a quorum exists, action on a matter by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation or the
Wisconsin Business Corporation Law require a greater number of affirmative
votes.
"Voting group" means any of the following:
A. All shares of one or more classes or series that under the
Articles of Incorporation or the Wisconsin Business Corporation
Law are entitled to vote and be counted together collectively on
a matter at a meeting of Shareholders.
B. All shares that under the Articles of Incorporation or the
Wisconsin Business Corporation Law are entitled to vote generally
on a matter.
Though less than a quorum of the outstanding shares are represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
SECTION 8. PROXIES. At all meetings of Shareholders, a Shareholder
entitled to vote may vote in person or by proxy. A Shareholder may appoint a
proxy to vote or otherwise act for the Shareholder by signing an appointment
form, either personally or by his or her attorney-in-fact. Such proxy
appointment is effective when received by the Secretary of the Corporation
before or at the time of the meeting. Unless otherwise provided in the
appointment form of proxy, a proxy appointment may be revoked at any time
before it is voted, either by written notice filed with the Secretary or the
acting Secretary of the meeting or by oral notice given by the Shareholder to
the presiding officer during the meeting. The presence of a Shareholder who
has filed his or her proxy appointment shall not of itself constitute a
revocation. No proxy appointment shall be valid after eleven months from the
date of its execution, unless otherwise provided in the appointment form of
proxy. The Board of Directors shall have the power and authority to make
rules establishing presumptions as to the validity and sufficiency of proxy
appointments.
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<PAGE>
SECTION 9. VOTING OF SHARES. Each outstanding share shall be entitled
to one vote upon each matter submitted to a vote at a meeting of
Shareholders, except to the extent that the voting rights of the shares of
any voting group or groups are enlarged, limited or denied by the Articles of
Incorporation.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS.
A. OTHER CORPORATIONS. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the
president of such corporation or any other officer appointed by
such president. An appointment form of proxy executed by any
principal officer of such other corporation or assistant thereto
shall be conclusive evidence of the signer's authority to act, in
the absence of express notice to this Corporation, given in
writing to the Secretary of this Corporation, or the designation
of some other person by the Board of Directors or by the Bylaws
of such other corporation.
B. LEGAL REPRESENTATIVES AND FIDUCIARIES. Shares held by an
administrator, executor, guardian, conservator, trustee in
bankruptcy, receiver or assignee for creditors may be voted by
him, either in person or by proxy, without a transfer of such
shares into his or her name, provided that there is filed with
the Secretary before or at the time of meeting proper evidence of
his or her incumbency and the number of shares held by him,
either in person or by proxy. An appointment form of proxy
executed by a fiduciary shall be conclusive evidence of the
signer's authority to act, in the absence of express notice to
this Corporation, given in writing to the Secretary, that such
manner of voting is expressly prohibited or otherwise directed by
the document creating the fiduciary relationship.
C. PLEDGEES. A Shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred;
provided, however, a pledgee shall be entitled to vote shares
held of record by the pledgor if the Corporation receives
acceptable evidence of the pledgee's authority to sign.
D. TREASURY STOCK AND SUBSIDIARIES. Neither treasury shares, nor
shares held by another corporation if a majority of the shares
entitled to vote for the election of directors of such other
corporation is held by this Corporation, shall be voted at any
meeting or counted in determining the total number of outstanding
shares entitled to vote, but shares of its own issue held by this
Corporation in a fiduciary capacity, or held by such other
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<PAGE>
corporation in a fiduciary capacity, may be voted and shall be
counted in determining the total number of outstanding shares
entitled to vote.
E. MINORS. Shares held by a minor may be voted by such minor in
person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the
Secretary of the Corporation has received written notice or has
actual knowledge that such Shareholder is a minor. Shares held
by a minor may be voted by a personal representative,
administrator, executor, guardian or conservator representing the
minor if evidence of such fiduciary status, acceptable to the
Corporation, is presented.
F. INCOMPETENTS AND SPENDTHRIFTS. Shares held by an incompetent or
spendthrift may be voted by such incompetent or spendthrift in
person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the
Secretary of the Corporation has actual knowledge that such
Shareholder has been adjudicated an incompetent or spendthrift or
actual knowledge of judicial proceedings for appointment of a
guardian. Shares held by an incompetent or spendthrift may be
voted by a personal representative, administrator, executor,
guardian or conservator representing the minor if evidence of
such fiduciary status, acceptable to the Corporation, is
presented.
G. JOINT TENANTS. Share registered in the names of two or more
individuals who are named in the registration as joint tenants
may be voted in person or by proxy signed by any one or more of
such individuals if either (i) no other such individual or his or
her legal representative is present and claims the right to
participate in the voting of such shares or prior to the vote
files with the Secretary of the Corporation a contrary written
voting authorization or direction or written denial of authority
of the individual present or signing the appointment form of
proxy proposed to be voted, or (ii) all such other individuals
are deceased and the Secretary of the Corporation has no actual
knowledge that the survivor has been adjudicated not to be the
successor to the interests of those deceased.
SECTION 11. CONDUCT OF MEETINGS. The Chairman of the Board, or in the
Chairman's absence, the President, or, in their absence such Vice President
as is designated by the Board of Directors, shall call the meeting to order
and act as Chairperson of the meeting. Only persons nominated in accordance
with the procedures set forth in Article II, Sections 1 and 2, shall be
eligible to serve as Directors. Only such business as shall have been
brought before a meeting in accordance with the procedures set forth in
Article II, Sections 1 and 2, shall be eligible to be conducted. The
Chairperson of the meeting shall have the power and duty to determine whether
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any nomination or any business proposed to be brought before the meeting was
made in accordance with the procedures set forth in Article II, Sections 1
and 2, and, if any proposed nomination or business is not in compliance
therewith, to declare that such defective proposal shall be disregarded.
SECTION 12. PUBLIC ANNOUNCEMENT. For purposes of Article II, Sections
1 and 2, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press, or comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d)
of the Securities Exchange Act of 1934, as amended.
SECTION 13. INVALIDITY. The Chairperson, upon recommendation of the
Secretary, may reject a vote, consent, waiver, or proxy appointment, if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable doubt about the validity
of the signature on it or about the signatory's authority to sign for the
Shareholder. The Corporation and its officer or agent who accepts or rejects
a vote, consent, waiver or proxy appointment in good faith and in accordance
with the Wisconsin Business Corporation Law shall not be liable for damages
to the Shareholders for consequences of the acceptance or rejection.
SECTION 14. WAIVER OF NOTICE. A Shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the Articles of
Incorporation, or these Bylaws before or after the date and time stated in
the notice. The waiver shall be in writing and signed by the Shareholder
entitled to the notice, contain the same information that would have been
required in the notice under the Wisconsin Business Corporation Law (except
that the time and place of meeting need not be stated), and be delivered to
the Corporation for inclusion in the corporate records. A Shareholder's
attendance at any Annual Meeting or Special Meeting, in person or by proxy,
waives objection to all of the following: (a) lack of notice or defective
notice of the meeting, unless the Shareholder promptly upon arrival or at the
beginning of the meeting objects to holding, or transacting business at, the
meeting; and (b) consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the
Shareholder objects to considering the matter when it is presented.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of Directors of the
Corporation shall be nine (9), all of whom shall be nominated and elected by
the Shareholders as provided herein.
SECTION 2. TERM OF OFFICE. Elected Directors shall hold office for a
term of three (3) years and until their successors are elected and qualified,
except as otherwise provided in this Section or until their death,
resignation or removal. The Board of Directors shall be divided into
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three (3) classes of three (3) directors each. The term of office of the
first class of Directors shall expire at the first annual meeting after their
initial election and when their successors are elected and qualified, the
term of office of the second class shall expire at the second annual meeting
after their initial election and when their successors are elected and
qualified, and the terms of office of the third class shall expire at the
third annual meeting after their initial election and when their successors
are elected and qualified. At each annual meeting after the initial
classification of the Board of Directors, the class of Directors whose term
expires at the time of such election shall be elected to hold office until
the third succeeding annual meeting and until their successors are elected
and qualified.
SECTION 3. NOMINATIONS. Nominations for the election of directors
shall be made in accordance with the provisions of Article II, Sections 1 and
2 hereof, which requirements are hereby incorporated by reference in this
Article III, Section 3.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the Annual Meeting of Shareholders, for
election of corporate officers and transaction of other business. The Board
of Directors may provide by resolution the time and place for holding
additional meetings without other notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special Meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board or the
Secretary upon written request of any three Directors. The Secretary shall
give sufficient notice of such meeting, to be not less than two (2) days, in
person or by mail or by telephone, telegraph, teletype, facsimile or other
form of wire or wireless communication as to enable the Directors so notified
to attend such meeting. The Chairman or Secretary who calls the meeting may
fix any place, within or without the State of Wisconsin, as the place for
holding any Special Meeting of the Board of Directors.
SECTION 6. WAIVER OF NOTICE. Whenever any notice whatsoever is
required to be given to any Director of the Corporation under the Articles of
Incorporation or Bylaws or any provisions of law, a waiver thereof in
writing, signed at any time, whether before or after the time of meeting, by
the Director entitled to such notice, shall be deemed equivalent to the
giving of such notice, and the Corporation shall retain copies of such
waivers in its corporate records. A director's attendance at or
participation in a meeting waives any required notice to him or her of the
meeting unless the Director at the beginning of the meeting or promptly upon
his or her arrival objects to holding the meeting and does not thereafter
vote for or assent to action taken at the meeting. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 7. QUORUM. A majority of the Directors in office for the time
being, and convened according to these Bylaws, shall constitute a quorum for
the transaction of business, but
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a majority of the directors present or participating (though less than a
quorum) may adjourn the meeting from time to time without further notice.
SECTION 8. VACANCIES. Vacancies, including those created by an
increase in the number of directors in the Board of Directors, may be filled
by the remaining Directors. A Director elected to fill a vacancy shall serve
for the unexpired term of his or her predecessor. In the absence of action
by the remaining Directors, the Shareholders may fill such vacancy at a
Special Meeting in accordance with the Articles of Incorporation, or by
unanimous consent according to these Bylaws.
SECTION 9. REMOVAL. The Shareholders may remove one or more directors,
with or without cause, at a meeting called for that purpose, the notice of
which reflects that purpose, in accordance with the Articles of Incorporation
of this Corporation.
SECTION 10. COMPENSATION. A director may receive such compensation for
services as is determined by resolution of the Board irrespective of any
personal interest of its members. A director also may serve the Corporation
in any other capacity and receive compensation therefore. The Board of
Directors also shall have authority to provide for or to delegate authority
to an appropriate committee to provide for reasonable pensions, disability or
death benefits and other benefits or payments, to Directors, Officers and
employees and to their estates, families, dependents or beneficiaries on
account of prior services rendered to the Corporation by such Directors,
Officers and employees.
SECTION 11. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors, subject to
any limitation set forth in these Bylaws or the Articles of Incorporation.
SECTION 12. CONDUCT OF MEETINGS. The Chairman of the Board, or in the
Chairman's absence the President, or in their absence such Vice President as
is designated by the Board of Directors, shall call meetings of the Board of
Directors to order and shall act as Chairperson of the meeting. The
Secretary of the Corporation shall act as Secretary of all meetings of the
Board of Directors, but in the absence of the Secretary, the presiding
Officer may appoint an Assistant Secretary or any Director or other person
present or participating to act as Secretary of the meeting.
SECTION 13. MANNER OF ACTING. If a quorum is present or participating
when a vote is taken, the affirmative vote of a majority of directors present
or participating is the act of the Board of Directors or a committee of the
Board of Directors, unless the Wisconsin Business Corporation Law or the
Articles of Incorporation or these Bylaws require the vote of a greater
number of directors.
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SECTION 14. PRESUMPTION OF ASSENT. A Director of the Corporation who
is present at or participates in a meeting of the Board of Directors or a
committee thereof which he or she is a member, at which action on any
corporate matter is taken, shall be presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in
favor of such action.
SECTION 15. UNANIMOUS CONSENT WITHOUT MEETING. Any action required or
permitted by the Articles of Incorporation or Bylaws or any provision of law
to be taken by the Board of Directors at a meeting or by resolution may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors then in office.
SECTION 16. MEETING BY TELEPHONE OR BY OTHER COMMUNICATION TECHNOLOGY.
Meetings of the Board of Directors or committees may be conducted by
telephone or by other communication technology in accordance with Section
180.0820 of the Wisconsin Business Corporation Law.
SECTION 17. COMMITTEES.
A. REGULAR COMMITTEES.
1. GENERAL DESCRIPTION. In order to facilitate the work of the
Board of Directors of this Corporation, the following
regular committees shall be elected from the membership of
the Board of Directors at the regular meeting held in May of
each year (or at such other time as the Board of Directors
may determine):
Executive Committee
Finance Committee
Management Review Committee
Audit Committee
Each committee shall have four members. The Chairman of the
Board of Directors, and in the Chairman's absence the
President, and in their absence, such Vice President as is
designated by the Board of Directors, shall submit
nominations for such committee memberships. Committee
members shall hold office until the next board meeting at
which Committee elections are conducted in accordance with
these Bylaws, and until their successors are elected and
qualified. Each Regular Committee of the Board of Directors
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may exercise the authority of the full Board within the
scope of the duties and powers delegated to it in these
Bylaws, except that no committee of this Board shall do any
of the following:
(a) Authorize distributions;
(b) Approve or propose to shareholders action that the
Wisconsin Business Corporation Law requires be approved
by shareholders;
(c) Fill vacancies on the board of directors or, except as
provided herein, on any of its committees;
(d) Amend the Articles of Incorporation;
(e) Adopt, amend or repeal the Bylaws;
(f) Approve a plan of merger not requiring shareholder
approval;
(g) Authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the full
Board; or
(h) Authorize or approve the issuance or sale or contract
for sale of shares or determine the designation and
relative rights, preferences and limitations of a class
or series of shares, except that the Board of Directors
may authorize a committee or a senior executive officer
of the Corporation to do so within limits prescribed by
the Board of Directors.
2. THE EXECUTIVE COMMITTEE. When the Board of Directors is not
in session, the Executive Committee shall have and may
exercise all of the powers of the full Board solely with
regard to those matters which are within the scope of the
Executive Committee's designated duties, as provided herein.
The Chairman of the Board of Directors shall be a member of
the Executive Committee.
The Executive Committee shall:
(a) Approve long range corporate and strategic plans,
including plans for any major borrowing or capital
raising programs;
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(b) Advise and consult with management on corporate
policies regarding reserving, reinsurance and other
liabilities;
(c) Approve the annual operating plan;
(d) Approve major changes in policy affecting new services
and programs; and
(e) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Executive
Committee.
3. THE FINANCE COMMITTEE. When the Board of Directors is not
in session, the Finance Committee shall have and may
exercise all of the powers of the full Board solely with
regard to those matters which are within the scope of the
Finance Committee's designated duties, as provided herein.
The Chairman of the Board of Directors shall be a member of
the Finance Committee.
The Finance Committee shall:
(a) Approve investment policies and plans;
(b) Authorize and approve the investment of funds of the
Corporation;
(c) Consult with management regarding real estate, accounts
receivable and other assets;
(d) Determine the amount and types of all insurance that
should be carried by this Corporation and authorize the
purchase thereof;
(e) Advise and consult with the operating management in the
selection of the carriers of such insurance;
(f) Advise and consult with management on corporate tax
policy; and
(g) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Finance
Committee.
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4. THE MANAGEMENT REVIEW COMMITTEE. When the Board of
Directors is not in session, the Management Review Committee
shall have and may exercise all of the powers of the full
Board solely with regard to those matters which are within
the scope of the Management Review Committee's designated
duties, as provided herein.
The Management Review Committee shall:
(a) Evaluate Senior Management (corporate officers)
performance against objectives;
(b) Approve Senior Management development programs;
(c) Approve the corporate compensation policy, including
making recommendations and decisions on any bonuses or
incentive plans, and establish the annual compensation
for the Chairman of the Board of Directors;
(d) Act as the Nominating Committee for officers and
directors and make recommendations to the Board for
types, methods and levels of directors' compensation;
(e) Administer the compensation plans for the officers,
directors, and key employees; and
(f) Carry out such special assignments as the Board of
Directors may, from time to time, give to the
Management Review Committee.
5. THE AUDIT COMMITTEE. When the Board of Directors is not in
session, the Audit Committee shall have and may exercise all
of the powers of the full Board solely with regard to those
matters which are within the scope of the Audit Committee's
designated duties, as provided herein.
The Audit Committee shall:
(a) Select and engage the independent certified public
accountants to audit the books, records and financial
transactions of the Corporation;
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(b) Review with the independent accountants the scope of
their examination, with particular emphasis on the
areas to which either the committee or the independent
accountants believe special attention should be
directed. The Audit Committee may have the independent
accountants perform such additional procedures as the
Committee or the auditors deem necessary;
(c) Review and approve the annual plan for the financial
audit (internal audit) department;
(d) Review with the independent accountants the financial
statements and auditors' reports thereon;
(e) Review the management letter of the independent
accountants, and audit reports by the Corporation's
internal auditors to assure that appropriate action has
been taken by Senior Management as to each item
recommended;
(f) Encourage the independent accountants and the internal
auditors to communicate directly with the Chairman of
the Board and President or, if necessary, the Chairman
of the Audit Committee whenever any significant
recommendation has not been satisfactorily resolved at
the Senior Management level;
(g) Review the Conflict of Interest statements to assure
the Board of Directors that any conflict of interest
has been duly reported to and reviewed by Audit
Committee;
(h) Review and approve all related party transactions; and
(i) Carry out such special assignments as the Board of
Directors may, from time to time, give to the Audit
Committee.
B. SPECIAL COMMITTEES. In addition to the foregoing Regular
Committees, the Board of Directors may, from time to time,
establish Special Committees and specify the composition,
functions and authority of any such Special Committee.
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C. VACANCIES; TEMPORARY APPOINTMENTS. When, for any cause a vacancy
occurs in any Regular Committee, the remaining committee members,
by majority vote, may fill such vacancy by a temporary
appointment of a director on the Board not on the subject
committee to fill the vacancy until the next Board Meeting, at
which time the full Board shall fill the vacancy.
D. COMMITTEE MINUTES AND REPORTS. All of the foregoing committees
shall keep minutes and records of all of their meetings and
activities and shall report the same to the Board of Directors at
its next regular meeting. Such minutes and records shall be
available for inspection by the Directors at all times.
ARTICLE IV. OFFICERS
SECTION 1. GENERALLY. The principal Officers of the Corporation shall
be a Chairman of the Board (Chief Executive Officer), a President, one or
more Vice Presidents, a Secretary and a Treasurer. The Board of Directors
shall elect the principal officers annually at the Annual Meeting. All
officers shall hold office for a period of one year and until their
successors are duly elected and qualified, or until their prior death,
resignation or removal.
SECTION 2. REMOVAL. Any officer or agent may be removed by the Board
of Directors with or without cause whenever in its judgment the best
interests of the Corporation would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment shall not of itself create contract rights.
SECTION 3. VACANCIES. A vacancy in any principal office because of
death, resignation, removal, or otherwise, shall be filled by the Board of
Directors for the unexpired portion of the term. The Board of Directors may,
from time to time, omit to elect one or more officers, or may omit to fill a
vacancy, and in such case, the designated duties of such officer, unless
otherwise provided in these Bylaws, shall be discharged by the Chairman of
the Board or such other officers as he or she may designate.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall
also be the Chief Executive Officer, shall preside at all meetings of the
Shareholders and of the Directors and shall do and perform such other duties
as from time to time may be assigned to that office by the Board of Directors.
SECTION 5. PRESIDENT. The President shall have general supervision of
the business and affairs of the Corporation. The President may sign and
execute all authorized bonds, notes, checks, contracts, or other obligations
in the name of the Corporation. The President shall
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perform such other duties as from time to time may be assigned to him or her
by the Board of Directors.
SECTION 6. VICE PRESIDENTS. Should the Chairman or the President be
absent or unable to act, the Board of Directors shall designate a Vice
President or other Officer to discharge the duties of the vacant office with
the same power and authority as is vested in that office. The Vice
Presidents shall perform such other duties as from time to time may be
assigned to them by the President or the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall keep a record of the minutes
of the meetings of the Shareholders and of the Board of Directors. He or she
shall countersign all instruments and documents executed by the Corporation;
affix to instruments and documents the seal of the Corporation; keep in books
therefore the transactions of the Corporation; see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by
law; and perform such other duties as usually are incident to such office or
may be assigned by the Chairman of the Board, the President or the Board of
Directors.
SECTION 8. TREASURER. The Treasurer, subject to the control of the
Board of Directors, shall collect, receive, and safely keep all monies, funds
and securities of the Corporation, and attend to all its pecuniary affairs.
He or she shall keep full and complete accounts and records of all its
transactions, of sums owing to or by the Corporation, and all rents and
profits in its behalf.
SECTION 9. ASSISTANTS AND ACTING OFFICERS. The Chairman of the Board,
the President and the Board of Directors shall have the power to appoint any
person to act as assistant to any officer, or as agent for the Corporation in
the officer's stead, or to perform the duties of such officer whenever for
any reason it is impracticable for the officer to act personally, and the
assistant or acting officer or other agent so appointed by the Chairman of
the Board, the President or the Board of Directors shall have the power to
perform all the duties of the office to which he or she is so appointed to be
assistant, or as to which he or she is so appointed to act, except as such
power otherwise may be defined or restricted by the Chairman of the Board,
the President or the Board of Directors.
SECTION 10. SALARIES. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a Director of the
Corporation.
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ARTICLE V. FUNDS OF THE CORPORATION
SECTION 1. FUNDS. All funds of the Corporation shall be deposited or
invested in such depositories or in such securities as may be authorized from
time to time by the Board of Directors or appropriate committee under
authorization of the Board of Directors.
SECTION 2. NAME. All investments and deposits of funds of the
Corporation shall be made and held in its corporate name, except that
securities kept under a custodial agreement or trust arrangement with a bank
or banking and trust company may be issued in the name of a nominee of such
bank or banking and trust company and except that securities may be acquired
and held in bearer form.
SECTION 3. LOANS. All loans contracted on behalf of the Corporation
and all evidences of indebtedness that are issued in the name of the
Corporation shall be under the authority of a resolution of the Board of
Directors. Such authorization may be general or specific.
SECTION 4. CONTRACTS. The Board of Directors may authorize one or more
officers, or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such
authorization may be general or specific. In the absence of other
designation, all deeds, mortgages and instruments of assignment or pledge
made by the Corporation shall be executed in the name of the Corporation by
the Chairman of the Board, the President or one of the Vice Presidents and by
the Secretary or Treasurer; the Secretary, when necessary or required, shall
affix the corporate seal thereto; and when so executed no other party to such
instrument or any third party shall be required to make any inquiry into the
authority of the signing officer or officers.
SECTION 5. DISBURSEMENTS. All monies of the Corporation shall be
disbursed by check, draft, or written order only, and all checks and orders
for the payment of money shall be signed by such Officer or Officers as may
be designated by the Board of Directors. The Officers and employees of the
Corporation handling funds and securities of the Corporation shall give
surety bonds in such sums as the Board of Directors or appropriate committee
may require.
SECTION 6. PROHIBITED TRANSACTIONS. No directors or Officer of the
Corporation shall borrow money from the Corporation, or receive any
compensation for selling, aiding in the sale, or negotiating for the sale of
any property belonging to the Corporation, or for negotiating any loan for or
by the Corporation.
SECTION 7. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject
always to the specific directions of the Board of Directors:
A. Any shares or other securities issued by any other corporation
and owned or controlled by this Corporation may be voted at any
meeting of security
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holders of such other corporation by the Chairman of the Board,
the President or in their absence any Vice President of this
Corporation who may be present and designated by the Board of
Directors; and
B. Whenever, in the judgment of the Chairman of the Board, the
President, or in their absence, a designated Vice President, it
is desirable for this Corporation to execute a proxy or written
consent in respect to any shares or other securities issued by
any other corporation and owned by this Corporation, such proxy
or consent shall be executed in the name of this Corporation by
the Chairman of the Board, the President, or a designated Vice
President of this Corporation in the order as provided in clause
A. of this Section, without necessity of any authorization by the
Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer. Any person
or persons designated in the manner above stated as the proxy or
proxies of this Corporation shall have full right, power and
authority to vote the shares or other securities issued by such
other corporation and owned by this Corporation the same as such
shares or other securities might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form, consistent with law, as shall be
determined by the Board of Directors. Such Certificates shall be signed by
the Chairman of the Board, the President, or a Vice President, and the
Secretary, or by another officer designated by the Chairman of the Board, the
President or the Board of Directors. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except as provided in Section 6 of this Article VI.
SECTION 2. FACSIMILE SIGNATURES AND SEAL. The seal of the Corporation
on any certificates for shares may be a facsimile. The signature of the
Chairman of the Board, the President or other authorized officer upon a
certificate may be a facsimile if the certificate is manually signed on
behalf of a transfer agent, or a registrar, other than the Corporation itself
or an employee of the Corporation.
SECTION 3. SIGNATURE BY FORMER OFFICER. In case any officer who has
signed or whose facsimile signature has been placed upon any certificate for
shares shall have ceased to be such
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officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer at the
date of its issue.
SECTION 4. TRANSFER OF SHARES. Prior to due presentment of a
certificate for shares for registration of transfer, the Corporation may
treat the shareholder of such shares as the person exclusively entitled to
vote, to receive notifications and otherwise to have and exercise all the
rights and powers of an owner. Where a certificate for shares is presented
to the Corporation with a request to register for transfer, the Corporation
shall not be liable to the owner or any other person suffering loss as a
result of such registration of transfer if:
A. There were on or with the certificate the necessary endorsements;
and
B. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
The Corporation may require reasonable assurance that said endorsements are
genuine and effective and in compliance with such other regulations as may be
prescribed by or under the authority of the Board of Directors:
SECTION 5. RESTRICTIONS ON TRANSFER. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
SECTION 6. LOST, DESTROYED OR STOLEN CERTIFICATES. Where the owner
claims that his or her certificate for shares has been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if the
owner:
A. So requests before the Corporation has notice that such shares
have been acquired by a bona fide purchaser;
B. Files with the Corporation a sufficient indemnity bond; and
C. Satisfies such other reasonable requirements as may be prescribed
by or under the authority of the Board of Directors.
SECTION 7. CONSIDERATION FOR SHARES. The shares of the Corporation may
be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The
consideration to be received for shares may consist of any tangible or
intangible property or benefit to the Corporation, including cash, promissory
notes, services performed, contracts for services to be performed or other
securities of the Corporation. When the Corporation receives the
consideration for which the Board of Directors authorized the issuance
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of shares, the shares issued for that consideration are fully paid and
nonassessable, except as provided by Section 180.0622 of the Wisconsin
Business Corporation Law which may require further assessment for unpaid
wages to employees under certain circumstances. The Corporation may place in
escrow shares issued for a contract for future services or benefits or a
promissory note, or make other arrangements to restrict the transfer of the
shares, and may credit distributions in respect of the shares against their
purchase price, until the services are performed, the benefits are received
or the note is paid. If the services are not performed, the benefits are not
received or the note is not paid, the Corporation may cancel, in whole or in
part, the shares escrowed or restricted and the distributions credited.
SECTION 8. UNCERTIFICATED SHARES. In accordance with Section 180.0626
of the Wisconsin Business Corporation Law, the Board of Directors may issue
any shares of any of its classes or series without certificates. The
authorization does not affect shares already represented by certificates
until the certificates are surrendered to the Corporation. Within a
reasonable time after the issuance or transfer of shares without
certificates, the Corporation shall send the Shareholder a written statement
of the information required on share certificates by Sections 180.0625 and
180.0627, if applicable, of the Wisconsin Business Corporation Law, and by
the Bylaws of the Corporation.
The Corporation shall maintain at its offices, or at the office of its
transfer agent, an original or duplicate stock transfer book containing the
names and addresses of all Shareholders and the number of shares held by each
Shareholder. If the shares are uncertificated, the Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as such, as the owner of shares for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Wisconsin.
SECTION 9. TRANSFER AGENT AND REGISTRAR. The Corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors, where the shares of stock of the
Corporation shall be transferable. The Corporation also may maintain one or
more registry offices, each in charge of a registrar designated by the Board
of Directors, where such shares of stock shall be registered. The same
person or entity may be both a transfer agent and registrar.
SECTION 10. STOCK REGULATIONS. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the laws of the State of Wisconsin as it may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the Corporation.
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ARTICLE VII.
INDEMNIFICATION AND LIABILITY OF OFFICERS AND DIRECTORS
SECTION 1. INDEMNIFICATION.
A. Any person, or such person's estate or personal representative,
made or threatened with being made a party to any action, suit,
arbitration, or proceeding (civil, criminal, administrative, or
investigative, whether formal or informal), which involves
foreign, federal, state or local law, by reason of the fact that
such person is or was a Director or Officer of this Corporation
or of any corporation or other enterprise for which he or she
served at this Corporation's request as a director, officer,
partner, trustee, member of any decision-making committee,
employee, or agent, shall be indemnified by this Corporation for
all reasonable expenses incurred in the proceeding to the extent
he or she has been successful on the merits or otherwise.
B. In cases where a person described in subsection A. is not
successful on the merits or otherwise, this Corporation shall
indemnify such person against liability and reasonable expenses
incurred by him or her in any such proceeding, unless liability
was incurred because the person breached or failed to perform a
duty he or she owed to the Corporation and the breach or failure
to perform constituted any of the following:
1. A willful failure to deal fairly with the Corporation or its
Shareholders in connection with a matter in which the
Director or Officer had a material conflict of interest;
2. A violation of criminal law, unless the Director or Officer
had reasonable cause to believe his or her conduct was
lawful or no reasonable cause to believe his or her conduct
was unlawful;
3. A transaction from which the Director or Officer derived an
improper personal profit; or
4. Willful misconduct.
C. The determination whether indemnification shall be required under
subsection B. shall be made, at the selection of the Director or
Officer, according to one of the following methods:
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1. By a majority vote of a quorum of the Board of Directors
consisting of directors not at the time parties to the same
or related proceedings. If a quorum of disinterested
directors cannot be obtained, by majority vote of a
committee duly appointed by the Board of Directors and
consisting solely of two or more directors not at the time
parties to the same or related proceedings. Directors who
are parties to the same or related proceedings may
participate in the designation of members of the committee;
2. By independent legal counsel selected by a quorum of the
Board of Directors or its committee in the manner prescribed
in sub. 1. or, if unable to obtain such a quorum or
committee, by a majority vote of the full Board of
Directors, including Directors who are parties to the same
or related proceedings; or
3. By the court conducting the proceedings or another court of
competent jurisdiction, either on application by the
Director or Officer for an initial determination or on
application for review of an adverse determination under 1.
or 2., above.
D. The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea,
does not, by itself, create a presumption that indemnification of
the Director or Officer is not required.
E. A Director or Officer who seeks indemnification under this
Section shall make a written request to the Corporation.
F. Upon written request by a Director or Officer who is a party to a
proceeding described in subsection A., this Corporation may pay
or reimburse his or her reasonable expenses as incurred if the
Director or Officer provides the Corporation with all of the
following:
1. A written affirmation of his or her good faith belief that
he or she has not breached or failed to perform his or her
duties to the Corporation; and
2. A written undertaking, executed personally or on his or her
behalf, to repay the allowance, and reasonable interest
thereon, to the extent that it is ultimately determined
under subsections C. 1. or C. 2., above, that
indemnification is not required or to the extent that
indemnification is not ordered by a court under subsection
C. 3.,
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above. The undertaking under this subsection shall
be an unlimited general obligation of the Director or
Officer, may be accepted without reference to his or her
ability to repay the allowance, and may be secured or
unsecured.
G. This Article VII, Section 1 subsections A.-F., shall also apply
where a person, or such person's estate or personal
representative, is made or threatened with being made a party to
any proceeding described in subsection A. by reason of the fact
that such person is or was an Employee of the Corporation, except
that in addition to the categories of conduct set forth in
subsection B. in relation to which the Corporation has no duty to
indemnify, the Corporation also shall have no duty to indemnify
the Employee against liability and reasonable expenses incurred
by him or her in any such proceeding if liability was incurred
because the person breached or failed to perform a duty he or she
owed to the Corporation and the breach or failure to perform
constituted material negligence or material misconduct in
performance of the Employee's duties to the Corporation.
H. Unless a Director or Officer of this Corporation has knowledge
that makes reliance unwarranted, a Director or Officer, in
discharging his or her duties to the Corporation, may rely on
information, opinions, reports or statements, any of which may be
written or oral, formal or informal, including financial
statements and other financial data, if prepared or presented by
any of the following:
1. An officer or employee of the Corporation whom the Director
or Officer believes in good faith to be reliable and
competent in the matters presented;
2. Legal counsel, public accountants or other persons as to
matters the Director or Officer believes in good faith are
within the person's professional or expert competence; or
3. In the case of reliance by a Director, a committee of the
Board of Directors of which the Director is not a member if
the Director believes in good faith that the committee
merits confidence.
This subsection does not apply to the liability of a Director for
improper declaration of dividends, distribution of assets,
corporate purchase of its own shares, or distribution of assets
to shareholders during liquidation, or for corporate loans made
to an Officer or Director, under Wisconsin Business Corporation
Law Section 180.0832(1), or the reliance of a Director on
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financial information represented as correct by corporate officers
or independent or certified public accountants under Wisconsin
Business Corporation Law Section 180.0826.
I. In discharging his or her duties to the Corporation and in
determining what he or she believes to be in the best interest of
the Corporation, a Director or Officer may, in addition to
considering the effects of any action on Shareholders, consider
the following:
1. The effects of the action on employees, suppliers and
customers of the Corporation;
2. The effects of the action on communities in which the Corporation
operates; or
3. Any other factor the Director or Officer considers
pertinent.
SECTION 2. LIMITED LIABILITY OF DIRECTORS AND OFFICERS TO CORPORATION
AND SHAREHOLDERS.
A. Except as provided in subsection B. of this Section 2, a Director
or Officer is not liable to this Corporation, its Shareholders,
or any person asserting rights on behalf of the Corporation or
its Shareholders, for damages, settlements, fees, fines,
penalties or other monetary liabilities arising from a breach of,
or failure to perform, any duty resulting solely from his or her
status as a Director, unless the person asserting liability
proves that the breach or failure to perform constitutes any of
the following:
1. A willful failure to deal with the Corporation or its
Shareholders in connection with a matter in which the
Director had a material conflict of interest;
2. A violation of criminal law, unless the Director or Officer
had reasonable cause to believe his or her conduct was
lawful or no reasonable cause to believe his or her conduct
was unlawful;
3. A transaction from which the Director derived an improper
personal profit; or
4. Willful misconduct.
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B. This Section 2 does not apply to the liability of a Director or
Officer for improper declaration of dividends, distribution of
assets, corporate purchase of its own shares, or distribution of
assets to shareholders during liquidation, or for corporate loans
made to an Officer or Director, under Wisconsin Business
Corporation Law Section 180.0832(1).
SECTION 3. CODE OF ETHICS.
A. Directors, Officers and management employees shall exercise the
utmost good faith in all transactions touching upon their duties
to the Corporation and its property. In their dealings with and
on behalf of the Corporation they are held to a strict rule of
honesty and fair dealing between themselves and the Corporation.
They shall not use their positions, or knowledge gained
therefrom, so that a conflict may arise between the Corporation's
interest and that of the individual.
A "conflict of interest" transaction means a transaction with the
Corporation in which a Director of the Corporation has a direct
or indirect interest. The circumstances in which a Director of
the Corporation has an indirect interest in a transaction include
but are not limited to a transaction under any of the following
circumstances:
1. Another entity in which the Director has a material
financial interest or in which the Director is a general
partner is a party to the transaction; or
2. Another entity of which the Director is a director, officer
or trustee is a party to the transaction and the transaction
is, or because of its significance to the Corporation should
be, considered material by the Board of Directors of the
Corporation. A conflict of interest transaction is not
voidable by the Corporation solely because of the Director's
interest in the transaction if any of the circumstances set
forth in Section 180.0831 of the Wisconsin Business Corporation
Law are true or occur.
B. All acts of Directors, Officers and management employees shall be
for the sole benefit of the Corporation in any dealing which may
affect it adversely.
C. No Director, Officer or management employee shall accept any
favor which might influence his official act or which might
reflect upon his business conduct.
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D. Officers and management employees shall avoid outside employment or
activity which involves obligations which may compete with or be
in conflict with the interests of the Corporation.
E. A full disclosure of all facts of any transaction which is
subject to any doubt shall be made to the Chairman of the Board
or the President of the Corporation before consummating the same.
F. A copy of this Article VII, Section 3, annually shall be
delivered to all Directors, Officers and management employees,
each of whom shall acknowledge receipt thereof to the Secretary
of the Corporation.
ARTICLE VIII. CORPORATE DIVIDENDS
The Board of Directors may from time to time declare dividends on its
outstanding shares in the manner and upon the terms and conditions provided
by law and its Articles of Incorporation.
ARTICLE IX. CORPORATE SEAL
The Board of Directors may provide a corporate seal which may be
circular in form and may have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal."
ARTICLE X. FISCAL YEAR
The fiscal year shall be set by the Board of Directors.
ARTICLE XI. AMENDMENTS
SECTION 1. BY SHAREHOLDERS. These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the Shareholders by affirmative
vote of not less than a majority of the shares present or represented at an
annual or special meeting of the Shareholders at which a quorum is in
attendance.
SECTION 2. BY DIRECTORS. These Bylaws may also be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of Directors present at or
participating in any meeting at which a quorum is in attendance;
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but no bylaw adopted by the Shareholders shall be amended or repealed by the
Board of Directors if the bylaw so adopted so provides.
SECTION 3. IMPLIED AMENDMENTS. Any action taken or authorized by the
Shareholders or by the Board of Directors, which would be inconsistent with
the Bylaws then in effect but is taken or authorized by affirmative vote of
not less than the number of shares or the number of Directors required to
amend the Bylaws so that the Bylaws would be consistent with such action,
shall be given the same effect as though the Bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
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CERTIFICATE OF ADOPTION
THE UNDERSIGNED OFFICER OF UNITED WISCONSIN SERVICES, INC. ("UWS")
HEREBY CERTIFIES:
THE FOREGOING RESTATED AND AMENDED BYLAWS OF UWS WERE DULY ADOPTED AS OF
THE 28th DAY OF MAY, 1997.
/s/ Stephen E. Bablitch
--------------------------------------
Stephen E. Bablitch, Secretary
CORPORATE SEAL
<PAGE>
UNITED WISCONSIN SERVICES, INC.
1992 STOCK APPRECIATION RIGHTS PLAN
(as amended effective February 15, 1995)
1. PURPOSE. The purpose of the United Wisconsin Services, Inc. 1992 Stock
Appreciation Rights Plan (the "Plan") is to attract and retain
outstanding individuals as officers and key employees of United
Wisconsin Services, Inc. (the "Corporation") and its subsidiaries, and
to furnish incentives to such individuals through rewards upon the
performance of the common stock of the Corporation. To this end, the
Management Review Committee of the Corporation, or such other committee
as determined by the Board of Directors (the "Committee") may grant
stock appreciation rights ("SARs") to officers and other key employees
of the Corporation and its subsidiaries, on the terms and subject to the
conditions set forth in this Plan.
2. PARTICIPANTS. Participants in the Plan shall consist of such officers
and employees of the Corporation and its subsidiaries as the Committee
in its sole discretion may select from time to time to receive stock
appreciation rights. In determining the officers and employees to whom
stock appreciation rights will be granted, the Committee shall take into
account the duties of the respective officers and employees, their past,
present and potential contributions to the success of the Corporation,
their level of responsibility for the growth, development and financial
success of the Corporation, and such other factors as the Committee
deems relevant in connection with accomplishing the purposes of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two members of
the Board of Directors, all of whom shall, to the extent required,
qualify to administer the Plan as contemplated by Rule 16b-3, as
amended, or other applicable rules under Section 16 of the Securities
Exchange Act of 1934, as amended ("Section 16"). For purposes of
Section 16 and as of the date of adoption of the Plan, members of the
Board of Directors shall qualify to administer the Plan if each proposed
member is a disinterested person. A "disinterested person" means a
director who is not, during the one year prior to service as a member of
the Committee, or during such service, granted or awarded equity
securities pursuant to the Plan or any other plan of the Company, or any
of its affiliates, subject to certain exceptions. Subject to the
provisions of the Plan, the Committee shall have sole discretion and
authority (i) to determine which officers and employees of the
Corporation and its subsidiaries shall be eligible for participation in
the Plan; (ii) to select officers and employees to receive grants under
the Plan; (iii) to determine the number of stock appreciation rights
subject to the grant, the conditions of exercise, the fair market value
of the common stock of the Corporation for purposes of the Plan, and all
other terms and conditions of any grant; and (iv) to prescribe the form
of agreement, certificate or other instrument evidencing the grant. The
Committee shall also have authority to interpret the Plan and to
establish, amend and rescind rules and regulations for the
administration of the Plan, and all such interpretations, rules and
regulations shall be conclusive and binding on all persons, provided,
however, that the Committee shall not exercise such authority in a
manner adversely and significantly affecting stock appreciation rights
<PAGE>
previously granted unless the action taken is required to comply with
any applicable law or regulation.
4. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
January 1, 1992. The Plan shall terminate only by action of the Board
of Directors. No further grants may be made under the Plan after its
termination, but the termination of the Plan shall not adversely and
significantly affect the rights of any participant under, or the
authority of the Committee with respect to, any grants made prior to
termination unless the action taken is required to comply with any
applicable law or regulations.
5. NUMBER OF STOCK APPRECIATION RIGHTS SUBJECT TO THE PLAN. Subject to
adjustment as provided in paragraph 7 hereof, the aggregate number of
stock appreciation rights which may be granted under the Plan shall not
exceed 150,000. Each stock appreciation right evidences the right upon
exercise to receive payment from the Corporation of the amount set forth
in Section 6(d) hereof. Whenever stock appreciation rights granted
under the Plan can no longer under any circumstances be exercised, these
stock appreciation rights shall be available for additional grants under
the Plan. Stock appreciation rights which are exercised shall
thereafter be canceled and retired.
6. STOCK APPRECIATION RIGHTS.
(a) GRANTS. Stock appreciation rights entitling the grantee to
receive cash equal to the sum of (i) the appreciation in value
and (ii) the value of dividends paid on a stated number of shares
of common stock of the Corporation between the date of grant and
the date of exercise may be granted without consideration from
time to time to such officers and employees of the Corporation
and its subsidiaries as may be selected by the Committee.
(b) TERMS OF GRANT AND EXERCISE: GENERAL. The grantee's rights with
respect to stock appreciation rights granted shall vest three
years after the date of grant as to 50% of the stock appreciation
rights; the remaining 50% of the stock appreciation rights
granted shall vest six years after the date of grant. Not
withstanding the above, the Committee has the sole discretion to
alter the time in which previously granted SARs vest in the event
a grantee becomes disabled, retires or dies; provided, however,
that no previously granted SARs vest prior to six months from the
date of grant. Stock appreciation rights are exercisable in
whole or in part provided all of the following conditions are met
at the time of exercise: (i) the stock appreciation rights to be
exercised are vested; (ii) the stock appreciation rights are
exercised only during the period beginning on the third business
day following the date of release of the Corporation's quarterly
or annual summary statements of revenues and earnings and ending
on the twelfth business day following such date (the "Exercise
Date"); (iii) the stock appreciation rights are exercised prior
to the
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expiration of twelve years from the date of grant; and
(iv) the grantee is employed by the Corporation or any present or
future parent or subsidiary of the Corporation at the time of
exercise. Stock appreciation rights not exercised on or before
the close of business twelve years from the date of grant shall
automatically expire and the stock appreciation rights shall
become void. The Committee may at the time of grant or at any
time thereafter impose such additional terms and conditions on
the exercise of stock appreciation rights as it deems necessary
or desirable for compliance with Section 16.
(c) TERMS OF GRANT AND EXERCISE: TERMINATION OF EMPLOYMENT OR DEATH.
If a grantee ceases to be employed by the Corporation or any of
its subsidiaries for any reason other than death, any stock
appreciation right held by such grantee may be exercised only on
the Exercise Date immediately following the date of such
cessation of employment, but only with respect to that number of
stock appreciation rights which were exercisable immediately
prior to the date of cessation of employment.
If a grantee ceases to be employed by the Corporation or any of
its subsidiaries by reason of death, or dies after termination of
his employment by the Corporation or any of its subsidiaries but
prior to the Exercise Date immediately following thereto, any
stock appreciation right held by such grantee which was
exercisable by the grantee immediately prior to his or her death,
may be exercised by the grantee's personal representative or
executor of his or her estate on an Exercise Date so long as such
Exercise Date is during the period ending on the earlier of the
first anniversary of the date of such grantee's death or the date
of expiration of such stock appreciation rights.
The Committee has the sole discretion to alter the time in which
previously granted SARs vest in the event a grantee becomes
disabled, retires or dies; provided, however, that no previously
granted SARs vest prior to six months from the date of grant.
(d) PAYMENT ON EXERCISE. Upon exercise of a stock appreciation
right, the grantee shall be paid within five business days an
amount in cash equal to the sum of (i) the amount by which the
fair market value of one share of the Corporation's common stock
on the date of exercise exceeds the date of grant value thereof
multiplied by the number of stock appreciation rights being
exercised and (ii) the value of the cash dividends associated
therewith. The value of the cash dividends associated with
exercised stock appreciation rights shall be equal to the actual
cash dividend paid on a share of common stock between the date of
grant and the date of exercise, plus annual interest earned on
the dividend paid between the date the cash dividend is paid and
the date of exercise, multiplied by the number of
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stock appreciation rights being exercised. Annual interest shall
be reset annually and shall be at the rate of the one year Treasury
Bill as of September 30th of the prior year plus 150 basis
points; provided, however, the annual interest rate shall in no
event be less than 7.00% or greater than 10.00% per annum.
For purposes of this paragraph, the fair market value of a share
of common stock of the Corporation shall be determined using the
first of the following rules which apply:
(A) During such time as the Corporation's common stock is traded
on the New York Stock Exchange (the "Exchange"), the closing
price of the Corporation's common stock on the Exchange; or
(B) If the Corporation's common stock is not then traded on the
Exchange, the mean between the published bid and asked prices
of the common stock of the Corporation if the common stock of
the Corporation was then traded on a bona fide
over-the-counter market; or
(C) If the common stock of the Corporation was not traded on the
Exchange or on a bona fide over-the-counter market, a value
determined by an appraiser selected by the Committee.
In the event that the date of exercise of a stock appreciation
right is a date for which there were no sales of the
Corporation's common stock if the stock is traded on the
Exchange, such fair market value shall be determined by taking an
average of the closing prices on the nearest day before and the
nearest day after the exercise date. In the event that the date
of exercise of a stock appreciation right is a date for which
there is no published bid and asked prices if the stock is traded
on the over-the-counter market, such fair market value shall be
determined by referring to the next preceding business day on
which trading occurs or on which published prices are available.
With regard to only the initial grants of SARs, the Committee, in
its sole discretion, may set the date of grant value of one share
of the Corporation's common stock at a value equal to the Initial
Public Offering price of the Corporation's common stock declared
effective October 24, 1991. All subsequent grants of SARs, shall
be valued as of the date of grant.
(e) ADDITIONAL TERMS AND CONDITIONS. The agreement or instrument
evidencing the grant of stock appreciation rights may contain
such other
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terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Committee in its sole
discretion.
7. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION, ETC. The terms and conditions
of stock appreciation rights shall be subject to adjustment by the
Committee in its sole discretion as to the number, kind and date of grant
value in the event of changes in the outstanding common stock of the
Corporation by reason of stock dividends, stock splits, recapitalization,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in corporate structure or capitalization occurring after
the date of the grant of any stock appreciation right, provided that if the
Corporation shall change its common stock into a greater or lesser number
of shares through a stock dividend, stock split-up, or combination of
shares, outstanding rights shall be adjusted proportionately, consistent
with existing law and regulation, to prevent inequitable results.
8. EFFECT OF LIQUIDATION, MERGER, CONSOLIDATION OR OTHER EVENTS. Nothing
contained in the Plan or in the terms of any stock appreciation rights
granted under the Plan shall in any way prohibit the Corporation from
merging with or consolidating into another corporation, or from selling or
transferring all or substantially all of its assets, or from distributing
all or substantially all of its assets to its shareholders in liquidation,
or from dissolving and terminating its corporate existence; and in any such
event, all outstanding stock appreciation rights granted under the Plan
which have vested shall be deemed to have been exercised at the time of any
such merger, consolidation, sale or transfer of assets, liquidation, or
dissolution, except to the extent that any agreement or undertaking of any
party to such merger, consolidation, or sale or transfer of assets, or any
plan pursuant to which such liquidation or dissolution is effected, shall
make specific provision to continue such stock appreciation rights and the
rights of such person or persons entitled to exercise such stock
appreciation rights.
9. AMENDMENT AND TERMINATION OF PLAN. The Plan may be amended or terminated
by the Board of Directors of the Corporation in any respect; provided,
however, the Board shall not exercise such authority in a manner adversely
and significantly affecting stock appreciation rights previously granted
unless the action taken is required to comply with any applicable law or
regulation.
10. MISCELLANEOUS.
(a) NO RIGHT TO A GRANT. Neither the adoption of the Plan nor any
action of the Board of Directors or of the Committee shall be
deemed to give any officer or employee any right to be selected
as a participant or to be granted a stock appreciation right.
(b) NO RIGHTS AS SHAREHOLDER. No officer or employee shall have any
rights of any kind as a shareholder of the Corporation with
respect to stock appreciation rights.
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(c) EMPLOYMENT. Nothing contained in this Plan shall be deemed to
confer upon any officer or employee any right of continued
employment with the Corporation or any of its subsidiaries or to
limit or diminish in any way the right of the Corporation or any
such subsidiary to terminate his or her employment at any time
with or without cause.
(d) TAXES. The Corporation shall be entitled to deduct from any
payment under the Plan the amount of any tax required by law to
be withheld with respect to such payment or may require any
participant to pay such amount to the Corporation prior to and as
a condition of making such payment.
(e) NONTRANSFERABILITY. No stock appreciation right shall be
transferable except by will or the laws of descent and
distribution. During the grantee's lifetime, stock appreciation
rights shall be exercisable only by such grantee.
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as of
this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United
Wisconsin Services, Inc., an insurance holding company organized pursuant
to Ch. 180, Wisconsin Statutes ("UWS"), and United Wisconsin Insurance
Company, a stock insurance corporation organized pursuant to Ch. 611,
Wisconsin Statutes ("UWIC").
RECITALS
WHEREAS, BCBSUW, UWS and UWIC are affiliated corporations, with UWIC
being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS,
and this Agreement is intended to further specify the services, costs, and
allocation methods contemplated by that service agreement;
WHEREAS, BCBSUW and UWS provide to each other business resources and
services that are necessary for the continued operation of BCBSUW's and UWS's
business, and UWIC provides both BCBSUW and UWS with officer services;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an officer leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to each other and the
compensation and cost allocations therefor; and (iii) the respective rights
and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF OFFICERS
a. DEFINITION.
i. "Leased Officers" are those UWS employees that perform
services as officers of BCBSUW, those BCBSUW employees that
perform services as officers of UWS, and those UWIC employees
that perform services as officers of BCBSUW and/or UWS.
(Leased Officers may also be referred to herein as "Officers").
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<PAGE>
b. LEASE OF OFFICERS.
i. OBLIGATION TO PROVIDE OFFICERS. BCBSUW and UWS shall
provide to each other, and UWIC shall provide to BCBSUW and/or
UWS, to the extent requested by BCBSUW and/or UWS and with the
consent of the respective company's Board of Directors (the
"Board"), the entire requirement of Leased Officers as shall
be necessary or appropriate for the conduct of BCBSUW's and
UWS's business.
ii. INDEPENDENT HIRING. Notwithstanding Section i.
OBLIGATION TO PROVIDE OFFICERS. BCBSUW and UWS shall provide
to each other, and UWIC shall provide to BCBSUW and/or UWS, to
the extent requested by BCBSUW and/or UWS and with the consent
of the respective company's Board of Directors (the "Board"),
the entire requirement of Leased Officers, the Boards shall
have the right to obtain and hire directly any or all Officers
from any other sources and on any terms to perform such
duties, on behalf of BCBSUW or UWS, as the case may be, as the
Boards may consider appropriate from time to time. Should the
Boards hire officers from other sources, it will not hire any
individual who was a BCBSUW, UWS, or UWIC employee leased
under this Agreement within three (3) months preceding such
hiring, without the written consent of the other party(ies) to
this Agreement.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources
Department ("Human Resources") shall be responsible for the
implementation, management, and operation of BCBSUW's, UWS's,
and UWIC's leasing obligations under this Agreement.
c. EMPLOYMENT RELATIONSHIPS. BCBSUW, UWS, and UWIC shall be, and
shall have all the privileges, rights, and responsibilities of, common law
employers of all BCBSUW, UWS, and UWIC employees, respectively, whether or
not the employee actually performs services for BCBSUW or UWS. Employment,
termination, and terms of employment of all Leased Officers shall be
reserved to the full Boards of Directors of the Leased Officer's common law
employer (BCBSUW, UWS or UWIC, as the case may be), provided, however, that
while any such individual is leased to perform services as an officer under
this Agreement, BCBSUW, UWS or UWIC, as the case may be, will be consulted
prior to all determinations regarding the employment, or terms thereof, of
such individuals; provided, however, that such input shall be of an
advisory nature and will not be binding on the common law employer of such
individuals. Officers leased to UWS shall remain employees of BCBSUW and
UWIC, respectively, and Officers leased to BCBSUW shall remain employees of
UWS and UWIC, respectively, and shall in no way be treated as or considered
employees of the company to which such Officer is leased.
2. SERVICES AND OTHER RESOURCES
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a. SERVICES AND RESOURCES PROVIDED BY BCBSUW TO UWS. BCBSUW shall
provide to UWS, to the extent requested by UWS and subject to Section 5.
MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES, the
following services and resources (together "BCBSUW Services"). BCBSUW
shall supply BCBSUW Services only if UWS has determined not to have its
own employees or third parties furnish the BCBSUW Services, subject to
Section 5.
MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES.
i. OFFICE SPACE AND FACILITIES. Office space and
facilities, including, but not limited to, furniture and equipment,
as shall be necessary or appropriate for the conduct of UWS's
operations.
ii. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities
made available hereunder as shall be necessary to maintain such
property and facilities in good working order, and such other
building services as may be necessary or appropriate for the
conduct of UWS's business.
iii. OFFICE SERVICES. Such office services as shall be
necessary or appropriate for the conduct of UWS's business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, telecommunications, centralized mailing, technology
support and central data base maintenance, as shall be necessary or
appropriate for the conduct of UWS's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS TO BCBSUW. UWS shall
provide to BCBSUW, to the extent requested by BCBSUW and subject to
Section 5.
MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES, the
following services and resources (together "UWS Services"). UWS shall
supply UWS Services only if BCBSUS has determined not to have its own
employees or third parties furnish the UWS Services, subject to Section 5.
MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES.
i. CORPORATE SUPPORT SERVICES. Such corporate support
services, including, but not limited to, corporate compliance,
legal, and government relations, as shall be necessary or
appropriate for the conduct of BCBSUW's business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of BCBSUW's business.
iii. MARKETING AND COMMUNICATIONS. Such corporate marketing and
communications services, including, but not limited to, public
relations and
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employee community events, as shall be necessary or appropriate
for the conduct of BCBSUW's business.
iv. HUMAN RESOURCES. Such human resource services,
including, but not limited to, staffing, labor and employment
relations, training and development, and administration of payroll
and employee benefits, as shall be necessary or appropriate for the
conduct of BCBSUW's business.
v. FINANCIAL SERVICES. Such financial services, including,
but not limited to, tax, treasury, cash management, administration
of financial systems, corporate accounting, and strategic
planning/consulting, as shall be necessary or appropriate for the
conduct of BCBSUW's business.
vi. ACTUARIAL AND UNDERWRITING SERVICES. Such actuarial and
underwriting services as shall be necessary or appropriate for the
conduct of BCBSUW's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate
source of qualified employees to ensure the acceptable
performance of BCBSUW and UWS Services.
3. COST ALLOCATION METHODS
a. LEASED OFFICERS.
i. ALLOCATION OF OFFICER COSTS. To the extent that Officers
are leased to BCBSUW or UWS, costs associated with the lease of
such Officers shall be indirectly charged to BCBSUW or UWS, as the
case may be, as provided in Section ii. INDIRECT ALLOCATIONS.
Cost allocations for (i) those BCBSUW Services provided to UWS, as
identified on Schedule 2 ("Schedule 2 Services"), and (ii) those
UWS Services provided to BCBSUW, as identified on Schedule 3
("Schedule 3 Services"), shall be determined annually for the next
succeeding Fiscal Year ("Fiscal Year" shall mean January 1 through
December 31) on the basis of utilization and cost studies performed
by UWS. Through the use of Indirect Allocation Methods, as
described in Schedule 4 attached hereto, utilization of the
services identified on Schedules 2 and 3 shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group
("BCBSUW/UWS Group" includes BCBSUW, UWS and UWS subsidiaries).
Each month (i) all costs associated with the utilization of
Schedule 2 Services shall be multiplied by UWS's total allocation
percentage to determine UWS's allocable share of costs for Schedule
2 Services, and (ii) all costs associated with the utilization of
Schedule 3 Services shall be multiplied by BCBSUW's total
allocation percentage to determine BCBSUW's allocable share of
costs for Schedule 3 Services. For any specific Schedule 3
Service, BCBSUW's total allocation percentage shall be determined
by adding the applicable allocation percentage from each of the
service agreements included in Schedule 3.
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Notwithstanding the preceding, (i) allocation percentages are subject
to interim Fiscal Year adjustments to allocate more accurately costs
based on actual utilization by each company in the BCBSUW/UWS
Group, (ii) costs associated with Schedule 2 Services performed
directly for UWS shall be allocable to UWS only and costs
associated with Schedule 3 Services performed directly for BCBSUW
shall be allocable to BCBSUW only, and (iii) subject to approval by
the Vice President of Finance for the BCBSUW/UWS Group, the
Indirect Allocation Method used to allocate costs to UWS for
specific Schedule 2 Services and to BCBSUW for specific Schedule 3
Services shall be subject to agreement by the parties on an annual
basis. Schedule 2, attached hereto, sets forth UWS's annual
allocation percentages for costs and expenses associated with
Schedule 2 Services. Schedule 3, attached hereto, sets forth
BCBSUW's annual allocation percentages for costs and expenses
associated with Schedule 3 Services. Schedule 2 and Schedule 3
shall be amended annually.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW Services
are rendered on behalf of or for the benefit of UWS, and to the extent
that UWS Services are rendered on behalf of or for the benefit of
BCBSUW, costs therefor shall be allocated to UWS and BCBSUW,
respectively, as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW and UWS
Services identified on Schedule 1 shall be directly charged to UWS
and BCBSUW, respectively, on a monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for (i) those BCBSUW
Services provided to UWS, as identified on Schedule 2 ("Schedule 2
Services"), and (ii) those UWS Services provided to BCBSUW, as
identified on Schedule 3 ("Schedule 3 Services"), shall be
determined annually for the next succeeding Fiscal Year ("Fiscal
Year" shall mean January 1 through December 31) on the basis of
utilization and cost studies performed by UWS. Through the use of
Indirect Allocation Methods, as described in Schedule 4 attached
hereto, utilization of the services identified on Schedules 2 and 3
shall be reduced to an allocation percentage for each company in
the BCBSUW/UWS Group ("BCBSUW/UWS Group" includes BCBSUW, UWS and
UWS subsidiaries). Each month (i) all costs associated with the
utilization of Schedule 2 Services shall be multiplied by UWS's
total allocation percentage to determine UWS's allocable share of
costs for Schedule 2 Services, and (ii) all costs associated with
the utilization of Schedule 3 Services shall be multiplied by
BCBSUW's total allocation percentage to determine BCBSUW's
allocable share of costs for Schedule 3 Services. For any specific
Schedule 3 Service, BCBSUW's total allocation percentage shall be
determined by adding the applicable allocation percentage from each
of the service agreements included in Schedule 3. Notwithstanding
the preceding, (i) allocation percentages are subject to interim
Fiscal Year adjustments to allocate more accurately costs based on
actual utilization by each company in the BCBSUW/UWS Group, (ii)
costs associated
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with Schedule 2 Services performed directly for UWS shall be
allocable to UWS only and costs associated with Schedule 3 Services
performed directly for BCBSUW shall be allocable to BCBSUW only,
and (iii) subject to approval by the Vice President of Finance
for the BCBSUW/UWS Group, the Indirect Allocation Method used to
allocate costs to UWS for specific Schedule 2 Services and to
BCBSUW for specific Schedule 3 Services shall be subject to
agreement by the parties on an annual basis.(1) Schedule 2,
attached hereto, sets forth UWS's annual allocation percentages
for costs and expenses associated with Schedule 2 Services.
Schedule 3, attached hereto, sets forth BCBSUW's annual allocation
percentages for costs and expenses associated with Schedule 3
Services. Schedule 2 and Schedule 3 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW and UWS
Services identified on Schedule 5 ("Chargeback Services") either
shall be (i) indirectly allocated to UWS or BCBSUW, as the case may
be, as discussed in Section ii. INDIRECT ALLOCATIONS. Cost
allocations for (i) those BCBSUW Services provided to UWS, as
identified on Schedule 2 ("Schedule 2 Services"), and (ii) those
UWS Services provided to BCBSUW, as identified on Schedule 3
("Schedule 3 Services"), shall be determined annually for the next
succeeding Fiscal Year ("Fiscal Year" shall mean January 1 through
December 31) on the basis of utilization and cost studies performed
by UWS. Through the use of Indirect Allocation Methods, as
described in Schedule 4 attached hereto, utilization of the
services identified on Schedules 2 and 3 shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group
("BCBSUW/UWS Group" includes BCBSUW, UWS and UWS subsidiaries).
Each month (i) all costs associated with the utilization of
Schedule 2 Services shall be multiplied by UWS's total allocation
percentage to determine UWS's allocable share of costs for Schedule
2 Services, and (ii) all costs associated with the utilization of
Schedule 3 Services shall be multiplied by BCBSUW's total
allocation percentage to determine BCBSUW's allocable share of
costs for Schedule 3 Services. For any specific Schedule 3
Service, BCBSUW's total allocation percentage shall be determined
by adding the applicable allocation percentage from each of the
service agreements included in Schedule 3. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal
Year adjustments to allocate more accurately costs based on actual
utilization by each company in the BCBSUW/UWS Group, (ii) costs
associated with Schedule 2 Services performed directly for UWS
shall be allocable to UWS only and costs associated with Schedule 3
Services performed directly for BCBSUW shall be allocable to BCBSUW
only, and (iii) subject to approval by the Vice President of
Finance for the BCBSUW/UWS Group, the Indirect
- ------------------------
(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should
be considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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<PAGE>
Allocation Method used to allocate costs to UWS for specific
Schedule 2 Services and to BCBSUW for specific Schedule 3 Services
shall be subject to agreement by the parties on an annual basis.
Schedule 2, attached hereto, sets forth UWS's annual allocation
percentages for costs and expenses associated with Schedule 2
Services. Schedule 3, attached hereto, sets forth BCBSUW's annual
allocation percentages for costs and expenses associated with
Schedule 3 Services. Schedule 2 and Schedule 3 shall be amended
annually, if the cost is a general expense for providing the
Chargeback Service to all users; or (ii) directly charged to a UWS
or BCBSUW cost center, as the case may be, if the cost is an
expense specific to a UWS or BCBSUW cost center. Thus, costs
associated with Chargeback Services shall be either directly
charged or indirectly allocated to UWS and BCBSUW on a monthly
basis, depending on the nature of the cost.
iv. CHARGES AND ALLOCATIONS TO BCBSUW REGIONS. Direct charges
and indirect allocations to BCBSUW subsequently shall be
charged/re-allocated to the regional operations of BCBSUW
("Regions") as follows:
(1) Direct charges to BCBSUW, which are attributable to a
specific regional operation(s) of BCBSUW, shall be charged to
the Region(s).
(2) Indirect cost allocations to BCBSUW for Schedule 3
Services shall be re-allocated to the Regions as follows:
(a) Regional Expenses: Regional expense allocations
shall be determined using only the BCBSUW (Total Less All
Other LOB's) and the FEP services agreements included in
Schedule 3 (the "BCBSUW/FEP Service Agreements"). Schedule
6, attached hereto, identifies certain cost centers from
the BCBSUW/FEP Service Agreements that shall be allocated
to the Regions in the manner specified in Schedule 6. The
remainder of the BCBSUW indirect allocations from the
BCBSUW/FEP Service Agreements shall be re-allocated to
the Regions pro rata based on earned fees.
(b) Unique Lines of Business ("LOB") Expenses: All
service agreements included in Schedule 3, other than the
BCBSUW/FEP Service Agreements, shall be referred to herein
as "Unique LOB Service Agreements." The BCBSUW indirect
allocations from certain Unique LOB Service Agreements
shall be allocated to the Regions as provided in Schedule
7, attached hereto.
Notwithstanding Section (2) Indirect cost allocations to BCBSUW for Schedule
3 Services shall be re-allocated to the Regions as follows:, the methodology
used to allocate BCBSUW
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indirect cost allocations to the Regions shall be subject to negotiation, on
an annual basis, by the Finance Manager of BCBSUW and the directors of the
BCBSUW Regions. Accordingly, Schedule 6 and 7 shall be amended, if necessary,
on an annual basis.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that UWS
leases or utilizes the services of Officers from BCBSUW and/or UWIC, and
to the extent that UWS utilizes BCBSUW Services, BCBSUW and/or UWIC may
charge UWS a reasonable negotiated fee therefor, as set forth in
Schedule 8. To the extent that BCBSUW leases or utilizes the services of
Officers from UWS and/or UWIC, and to the extent that BCBSUW utilizes
UWS Services, UWS and/or UWIC may charge BCBSUW a reasonable negotiated
fee therefor, as set forth in Schedule 9.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses
shall be allocated in a fair and reasonable manner. BCBSUW, UWS, and
UWIC shall maintain reasonable and appropriate operating procedures to
allocate costs and expenses so as to enable each party's independent
certified public accounting firm to audit such costs and the allocation
thereof. At the end of each month, BCBSUW, UWS, and UWIC shall provide
or make available to each other appropriate documentation respecting the
costs and expenses that are allocated, either directly or indirectly, to
each other for that month in sufficient detail to permit the other party
to identify the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month,
not later than the 30th day of the following month, (i) UWS shall
promptly reimburse BCBSUW and UWIC for all costs and expenses incurred
by BCBSUW and UWIC in furnishing or obtaining the Officers and BCBSUW
Services provided for under Sections I and II, which amount shall be
based on the total of direct charges and indirect allocations to UWS for
the preceding month, and (ii) BCBSUW shall promptly reimburse UWS and
UWIC for all costs and expenses incurred by UWS and UWIC in furnishing
or obtaining the Officers and UWS Services provided for under Sections I
and II, which amount shall be based on the total of direct charges and
indirect allocations to BCBSUW for the preceding month. Notwithstanding
the preceding, the parties reserve the right to offset amounts due to
each other under this Agreement.
5. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, BCBSUW
and UWS shall be required to utilize BCBSUW and UWS Services budgeted to
each other for that Contract Year, unless otherwise negotiated by the
parties. ("Contract Year" shall mean January 1 through December 31.)
If, at any time during the Contract Year, BCBSUW and/or UWS require
services or other resources in addition to those budgeted to each other,
BCBSUW and/or UWS, as the case may be, may obtain such services or
resources from a source outside of the BCBSUW/UWS Group only if such
company's additional needs cannot be accommodated by each other.
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<PAGE>
b. CONTRACT YEAR RENEWAL MODIFICATIONS. BCBSUW shall provide UWS
and/or UWIC and UWS shall provide BCBSUW and/or UWIC with at least
three (3) months' written notice prior to the next Contract Year (unless
the parties mutually agree upon a shorter period) of its intent to do
any of the following:
i. Increase or decrease the number or utilization of
Officers or BCBSUW or UWS Services, as the case may be, with
respect to the next Contract Year;
ii. Obtain services or other resources, which are available
from each other, from a party outside the BCBSUW/UWS Group with
respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have
the right to provide BCBSUW and UWS Services to each other either
directly or indirectly, through any company in the BCBSUW/UWS Group.
BCBSUW and UWS may provide services and other resources to each other
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with the other party's
consent. Costs for Outside Services shall be subject to a cost
structure negotiated by the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the
event of the Change of Control (as hereinafter defined in this Section)
of any party hereto and while this Agreement remains in effect, BCBSUW,
UWS, or UWIC may, for the sole purpose of documenting in more detail the
terms and respective rights and obligations of the parties with respect
to Officers and Services provided hereunder, request that any of the
following types of ancillary agreements be executed by any parties
hereto and effected thereby:
i. Officer Lease Agreement;
ii. Office and Equipment Lease;
iii. Management Information Systems Agreement;
iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the
parties (together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject
to negotiation of the respective parties, and (ii) control in case of any
conflict with Sections 1.
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LEASE OF through 5. MODIFICATIONS TO LEASED EMPLOYEES AND CBSUW/UWS
SERVICES of this Agreement. Executed Ancillary Agreements shall be
attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person,
group, or entity that is not affiliated with the BCBSUW/UWS Group
purchases all or substantially all of the assets or acquires the
ownership of 50% or more of the voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests
the execution of an Ancillary Agreement ("Requesting Party"), the
parties shall have sixty 60 days (unless the parties hereto mutually
agree to a different period) to negotiate and execute the Ancillary
Agreement, during which time the parties hereto shall remain obligated
to perform in accordance with the terms of this Agreement. If after 60
days (unless a different period is mutually agreed upon by the parties
hereto) the requested Ancillary Agreement has not been executed, the
Requesting Party may terminate this Agreement in accordance with Section
ii. This Agreement may be terminated pursuant to Section VI.B by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.. The parties
hereby agree that any negotiations subject to this Section ERROR! NOT A
VALID BOOKMARK SELF-REFERENCE. shall be performed in good faith and
every reasonable effort shall be made to effect the execution of a
requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW, UWS, and UWIC shall make
available to each other, for inspection, examination and copying, all
of its books and records pertaining to the Officers and BCBSUW/UWS
Services provided under this Agreement each Contract Year:
i. At all reasonable times at the principal places of business
of BCBSUW, UWS, and UWIC, or at such other place as the parties
hereto may otherwise agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws
applicable to such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
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i. The parties acknowledge and agree that they may deliver
to each other information about themselves and their business which
is nonpublic, confidential or proprietary in nature. All such
information, regardless of the manner in which it is delivered, is
referred to as "Proprietary Information." However, Proprietary
Information does not include information which 1. is or becomes
generally available to the public other than as a result of a
disclosure by the other party, 2. was available to the other party
on a nonconfidential basis prior to its disclosure by the
disclosing party, or 3. becomes available to the other party on a
nonconfidential basis from a person other than by the disclosing
party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all
Proprietary Information confidential and not disclose or reveal any
Proprietary Information to any person other than those employed by
the other party, or who is actively and directly participating in
the performance under this Agreement on behalf of the other party
("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any
Proprietary Information to any person other than another Involved
Person; and c. not use the Proprietary Information, and ensure that
each Involved Person does not use the Proprietary Information, for
any purpose other than in connection with the performance under
this Agreement.
ii. Upon termination of this Agreement for any reason
whatsoever, each party shall promptly surrender and deliver to each
other party all records, materials, documents, data and any other
Proprietary Information of the other parties and shall not retain
any description containing or pertaining to any Proprietary
Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS, or UWIC, as
the case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree not to directly
compete with the products or markets of each other during the term of
this Agreement. BCBSUW and UWS further agree that for a period of two
(2) years following the termination of this Agreement for any reason,
the parties will not directly compete with each other in any market in
which the other operates or does business at the termination of this
Agreement.
d. COOPERATION. The parties hereto will fully cooperate with
each other and their respective counsel, if any, agents and accountants
in connection with any action to be taken in the performance of their
obligations under this Agreement. In the conduct of their affairs and
the performance of this Agreement the parties hereto shall, unless
otherwise agreed, maintain the working relationships of the parties on
substantially the same terms as before the execution of this Agreement.
Notwithstanding the preceding, the parties do not intend, nor should
this Agreement be construed, to restrict any party's ability to contract
with any other person or entity to provide services similar to or the
same as those which are the subject of this Agreement.
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8. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and
shall automatically renew annually therefrom until such time as
otherwise terminated pursuant to Section
b. TERMINATION.
i. This Agreement may be terminated by any party at any time
by giving one (1) years advance written notice to the
nonterminating parties of its intention to terminate.
ii. This Agreement may be terminated pursuant to Section b.
EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the
parties shall have sixty 60 days (unless the parties hereto
mutually agree to a different period) to negotiate and execute the
Ancillary Agreement, during which time the parties hereto shall
remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually
agreed upon by the parties hereto) the requested Ancillary
Agreement has not been executed, the Requesting Party may terminate
this Agreement in accordance with Section ii.
This Agreement may be terminated pursuant to Section VI.B
by the Requesting Party giving three (3) months advance written
notice to the nonterminating parties of its intention to
terminate. The parties hereby agree that any negotiations subject
to this Section ERROR! NOT A VALID BOOKMARK SELF-REFERENCE. shall
be performed in good faith and every reasonable effort shall be
made to effect the execution of a requested Ancillary Agreement. by
the Requesting Party giving three (3) months advance written notice
to the nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the
election of and upon written notice from the non-defaulting party
in the event of any of the following:
(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy,
or substantial cessation or interruption of its business
operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
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HOWEVER, if the defaulting party provides the non-defaulting parties
with prompt notice of the event of default, the defaulting party shall have
30 days to cure the defect, during which time the non-defaulting party may
not exercise the termination right under this section iii. This Agreement
shall terminate immediately at the election of and upon written notice from
the non-defaulting party in the event of any of the following:.
iv. Liabilities After Termination. The termination of this
Agreement shall not limit the obligation or liabilities of any party
hereto incurred but not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY BCBSUW.
i. Notwithstanding anything to the contrary in this
Agreement, neither UWIC, UWS, nor any UWS subsidiaries, nor any
person who is or was, at the time of any action or inaction
affecting BCBSUW, a director, officer, employee or agent of UWIC,
UWS or any UWS subsidiary (collectively "Indemnitees") shall be
liable to BCBSUW for any action or inaction taken or omitted to be
taken by such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction
does not constitute actual fraud, gross negligence or willful or
wanton misconduct.
ii. BCBSUW shall, to the fullest extent not prohibited by
law, indemnify and hold harmless each Indemnitee against any
liability, damage, cost, expense, loss, claim or judgment
(including, without limitation, reasonable attorneys' fees and
expenses) resulting to, imposed upon or incurred by such Indemnitee
a. in connection with any action, suit, arbitration or proceeding
to which such Indemnitee was or is a party or is threatened to be
made a party by reason of the Officers and/or UWS Services provided
to BCBSUW hereunder; PROVIDED, HOWEVER, that such Indemnitee acted
(or failed to act) in good faith and such action or inaction does
not constitute actual fraud, gross negligence or willful or wanton
misconduct, or b. by reason of, arising out of or resulting from
any breach or misrepresentation by BCBSUW under this Agreement.
b. INDEMNIFICATION BY UWS.
i. Notwithstanding anything to the contrary in this
Agreement, neither UWIC, BCBSUW, nor any person who is or was, at
the time of any action or inaction affecting UWS, a director,
officer, employee or agent of UWIC or BCBSUW (collectively
"Indemnitees") shall be liable to UWS or any UWS subsidiary for any
action or inaction taken or omitted to be taken by such
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<PAGE>
Indemnitee; PROVIDED, HOWEVER, that such Indemnitee acted (or failed
to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct.
ii. UWS shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability,
damage, cost, expense, loss, claim or judgment (including, without
limitation, reasonable attorneys' fees and expenses) resulting to,
imposed upon or incurred by such Indemnitee a. in connection with
any action, suit, arbitration or proceeding to which such
Indemnitee was or is a party or is threatened to be made a party by
reason of the Officers and/or BCBSUW Services provided to UWS
hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or failed
to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton
misconduct, or b. by reason of, arising out of or resulting from
any breach or misrepresentation by UWS under this Agreement.
c. INDEMNIFICATION BY UWIC. UWIC hereby agrees to indemnify and
hold harmless BCBSUW and UWS, and their successors and assigns, from and
against any liability, damage, cost, expense, loss, claim or judgment
(including, without limitation, reasonable attorneys' fees and expenses)
resulting to, imposed upon or incurred by BCBSUW and/or UWS by reason
of, arising out of, or resulting from any breach or misrepresentation by
UWIC under this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned or transferred by any of the
parties hereto without the prior written consent of the other parties.
A Change of Control shall be deemed an assignment requiring the consent
of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to
alter the terms of this Agreement in the future to take into account such
events or conditions as may from time to time occur. Any amendments to
this Agreement shall be in writing and shall be executed by all parties;
however, Ancillary Agreements need only be executed by the parties
affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any
other right or power. In addition to any rights granted herein, the
parties hereto shall have and may exercise any and all rights and
remedies now or hereafter provided by law except as may be limited by
Section d. RESOLUTION OF DISPUTES. of this Agreement.
d. RESOLUTION OF DISPUTES.
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i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW or UWS
Services, or scheduling, performance and utilization of
Officers necessary for the conduct of BCBSUW's or UWS's
business shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three
(3) persons, each of whom shall 1. represent the respective
interest of a party hereto, and 2. be mutually agreed upon by
the parties hereto. If the coordinating committee is unable to
unanimously resolve the dispute, then the parties hereto may
resort to the dispute resolution process provided for in
Section ii. FORMAL RESOLUTION.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section ii. FORMAL RESOLUTION.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section (1) Coordinating
Committee: Any conflicts or disputes regarding occupancy,
utilization or delivery of BCBSUW or UWS Services, or
scheduling, performance and utilization of Officers necessary
for the conduct of BCBSUW's or UWS's business shall be
submitted to a coordinating committee for resolution. The
coordinating committee shall consist of three (3) persons,
each of whom shall 1. represent the respective interest of a
party hereto, and 2. be mutually agreed upon by the parties
hereto. If the coordinating committee is unable to
unanimously resolve the dispute, then the parties hereto may
resort to the dispute resolution process provided for in
Section ii. FORMAL RESOLUTION.. or an audit committee
pursuant to Section (2) Audit Committee: Any conflicts or
disputes regarding allocation methods, allocated costs,
offsets, fees or any matter related thereto shall be submitted
to an audit committee for resolution. The audit committee
shall consist of three (3) persons, each of whom shall 1.
represent the
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respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee
is unable to unanimously resolve the dispute, then the
parties hereto may resort to the dispute resolution process
provided for in Section ii. FORMAL RESOLUTION.. shall
be settled by arbitration. In order to initiate an
arbitration, BCBSUW, UWS, or UWIC (as the case may be) shall
deliver a written notice of demand for arbitration to the
other affected party(ies). Within thirty (30) days of the
giving of such written notice, each party involved shall
appoint an individual as arbitrator (the "Party Arbitrators").
Within thirty (30) days of their appointment, the Party
Arbitrators shall collectively select one (or two if necessary
to constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give
the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, or if mailed (by registered or
certified mail, postage prepaid, return receipt requested), or if
transmitted by facsimile or e-mail, as follows:
i. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
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Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
ii. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
iii. If to UWIC:
Mr. Mark Granoff
United Wisconsin Insurance Company
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number; (414) 226-6229
Any notice or other communication given as provided in this Section e.
NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail,
as follows:, shall be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the
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return receipt or shipping invoice signed by a representative of such party
or by the facsimile confirmation or e-mail return receipt). Any party from
time to time may change its address for purpose of notices to that party by
giving a similar notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this
Agreement have occurred and shall continue to be carried out on an arm's
length basis. Further, the officers, services and other resources
contemplated by this Agreement shall be provided to BCBSUW and UWS on an
independent contractor basis. Nothing in this Agreement shall be construed
to create an employer-employee relationship between (i) Officers leased by
BCBSUW hereunder and UWS and/or UWIC, or (ii) Officers leased by UWS
hereunder and BCBSUW and/or UWIC.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and
agreement of the parties hereto and supersede all prior agreements and
understandings, written or oral, between the parties with respect to the
transactions contemplated herein. Provided, however, the foregoing shall
not operate or be construed to prohibit proof of prior understandings and
agreements between or among the parties to the extent necessary to properly
construe or interpret this Agreement. Notwithstanding the preceding, the
parties acknowledge that there are, and/or may be in the future, any number
of independent third party contracts between various companies in the
BCBSUW/UWS Group for various services and/or business arrangements, and any
such contracts, whether written or oral, shall survive the execution of
this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted
for convenience and do not constitute matter to be construed or interpreted
in connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the
benefit of the parties hereto and does not confer any right, benefit, or
privilege upon any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Wisconsin (without giving
effect to principles of conflicts of laws) as to all matters, including,
without limitation, matters of validity, construction, effect, performance
and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of any party under this Agreement will not be
materially and adversely affected thereby, 1. such provision will be fully
severable, 2. this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof, 3. the remaining provisions of this Agreement will remain in
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full force and effect and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom, and 4. in lieu of
such illegal, invalid, or unenforceable provision, there will be added
automatically as part of this Agreement, a legal, valid, and enforceable
provision as similar terms to such illegal, invalid, or unenforceable
provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but
all of which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
---------------------------------------
Title:
------------------------------------
By:
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Title:
------------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
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Title:
------------------------------------
UNITED WISCONSIN INSURANCE COMPANY
By:
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Title:
------------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into
as of this _____ day of _______________, 1998 ("Effective Date"), by and
among Blue Cross & Blue Shield United of Wisconsin, a service insurance
corporation organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"),
United Wisconsin Services, Inc., an insurance holding company organized
pursuant to Ch. 180, Wisconsin Statutes ("UWS"), and United Heartland, Inc.,
a corporation organized pursuant to Ch. 180, Wisconsin Statutes ("UHI").
RECITALS
WHEREAS, BCBSUW, UWS and UHI are affiliated corporations, with UHI
being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, UHI is a managing general agent for the sale and servicing of
workers' compensation business insured by United Wisconsin Insurance Company
("UWIC"), or in states where UWIC is not licensed, insured by other insurers
with whom UHI and UWIC have written agreements;
WHEREAS, BCBSUW and UWS collectively provide business resources and
services necessary for the continued operation of UHI's business; and
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an officer leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to UHI and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF OFFICERS
a. DEFINITION.
i. "Leased Officers" are those BCBSUW and/or UWS employees that
perform services, as officers of UHI, for UHI. (Leased Officers may also be
referred to herein as "Officers").
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b. LEASE OF OFFICERS.
i. OBLIGATION TO PROVIDE OFFICERS. BCBSUW and/or UWS shall provide
to UHI, to the extent requested by UHI's Board of Directors (the "UHI Board"),
the entire requirement of Leased Officers as shall be necessary or appropriate
for the conduct of UHI's business.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i. and the
UHI Board's present intent to lease Officers from BCBSUW and/or UWS, the UHI
Board shall have the right to obtain and hire directly any or all Officers
from any other sources and on any terms to perform such duties as the UHI
Board may consider appropriate from time to time. Should the UHI Board hire
officers from other sources, it will not hire any individual who was a BCBSUW
or UWS Employee leased to UHI within three (3) months preceding such hiring,
without the written consent of BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's leasing obligations under this Agreement.
c. EMPLOYMENT RELATIONSHIPS. Employment, termination, and terms of
employment of all Leased Officers shall be reserved to the full Boards of
Directors of BCBSUW and UWS, provided, however, that while any such individual
is leased to UHI to perform services as an officer, UHI will be consulted prior
to all determinations regarding the employment, or terms thereof, of such
individuals; provided, however, that UHI's input shall be of an advisory nature
and will not be binding on BCBSUW or UWS as the common law employers of such
individuals. BCBSUW and UWS shall be, and shall have all the privileges,
rights, and responsibilities of, common law employers of all BCBSUW and UWS
employees, respectively, whether or not the employee actually performs services
for BCBSUW, UWS or another company in the BCBSUW/UWS Group. Officers leased to
UHI pursuant to this Agreement shall remain employees of BCBSUW or UWS, and
shall in no way be treated as or considered employees of UHI.
2. SERVICES AND OTHER RESOURCES PROVIDED TO UHI
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
UHI, to the extent requested by UHI and subject to Section 5, the following
services and resources (together "BCBSUW Services"). BCBSUW shall supply
BCBSUW Services only if UHI has determined not to have its own employees or
third parties furnish the BCBSUW Services, subject to Section 5.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of UHI's operations.
ii. BUILDING SERVICES. Building services, including, but not limited
to, repair and maintenance of any property and facilities made available
hereunder as shall be
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necessary to maintain such property and facilities in good working order, and
such other building services as may be necessary or appropriate for the
conduct of UHI's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of UHI's business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, corporate network support,
telecommunications, centralized mailing, technology support and central data
base maintenance, as shall be necessary or appropriate for the conduct of UHI's
business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, lobbyist activities, as shall be necessary or
appropriate for the conduct of UHI's business.
vi. COMPANY CAR AND TRAVEL. Availability and maintenance of vehicles
for company related travel and such other travel related services as shall be
necessary or appropriate for the conduct of UHI'S business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to UHI,
to the extent requested by UHI and subject to Section 5, the following
services and resources (together "UWS Services"). UWS shall supply UWS
Services only if UHI has determined not to have its own employees or third
parties furnish the UWS Services, subject to Section 5.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of UHI's
business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of UHI's business.
iii. CORPORATE MARKETING AND COMMUNICATIONS. Such corporate marketing
and communications services, including, but not limited to, public relations and
employee community events, as shall be necessary or appropriate for the conduct
of UHI's business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate for the conduct of UHI's business.
v. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, tax, treasury, administration of financial systems,
and strategic planning/consulting, as shall be necessary or appropriate for the
conduct of UHI's business.
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vi. ACTUARIAL AND UNDERWRITING SERVICES. Such actuarial and
underwriting services as shall be necessary or appropriate for the conduct of
UHI's business.
vii. OTHER SERVICES. Such other services as shall be necessary or
appropriate for the conduct of UHI's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. COST ALLOCATION METHODS
a. LEASED OFFICERS.
i. ALLOCATION OF OFFICER COSTS. To the extent that Officers are
leased to UHI, costs associated with the lease of such Officers shall be
indirectly charged to UHI as provided in Section 3.b.ii.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of UHI, costs therefor shall be
allocated to UHI as follows:
i. DIRECT ALLOCATIONS. Costs associated with those BCBSUW/UWS
Services identified on Schedule 1 shall be directly charged to UHI on a monthly
basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. Each month all
costs associated with the utilization of Schedule 2 Services shall be multiplied
by the allocation percentage of UHI to determine UHI's allocable share of costs
for Schedule 2 Services. Notwithstanding the preceding, (i) allocation
percentages are subject to interim Fiscal Year adjustments to allocate more
accurately costs based on actual utilization by each company in the BCBSUW/UWS
Group, (ii) costs associated with Schedule 2 Services performed directly for UHI
shall be allocable to UHI only, and (iii) subject to approval by the Vice
President of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method
used to allocate costs for specific Schedule 2 Services shall be subject to
agreement by the parties on an annual basis.(1) Schedule 2, attached hereto,
sets forth UHI's annual allocation percentage for costs and expenses associated
with Schedule 2 Services. Schedule 2 shall be amended annually.
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to UHI as discussed in Section 3.b.ii. if the cost is a general
expense for providing the Chargeback Service to all users; or (ii) directly
charged to UHI's cost center, if the cost is an expense specific to UHI's cost
center. Thus, costs associated with Chargeback Services shall be either
directly charged or indirectly allocated to UHI on a monthly basis, depending on
the nature of the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that UHI leases or
utilizes the services of Officers from BCBSUW and/or UWS, and to the extent that
UHI utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may charge UHI a reasonable
negotiated fee therefor, as set forth in Schedule 5.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable UHI's independent certified public accounting firm to audit such
costs and the allocation thereof. At the end of each month, BCBSUW and/or UWS
shall provide or make available to UHI appropriate documentation respecting the
costs and expenses that are allocated, either directly or indirectly, to UHI for
that month in sufficient detail to permit UHI to identify the sources of such
charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, UHI shall promptly reimburse
BCBSUW and/or UWS for all costs and expenses incurred by BCBSUW and/or UWS in
furnishing or obtaining the Officers and Services provided for under Sections I
and II, which amount shall be based on the total of direct charges and indirect
allocations to UHI for the preceding month. Notwithstanding the preceding, UHI
reserves the right to offset any amounts due to BCBSUW and/or UWS under this
Agreement against other obligations of BCBSUW and/or UWS to UHI.
5. MODIFICATIONS TO BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, UHI shall be
required to utilize BCBSUW/UWS Services budgeted to UHI for that Contract Year,
unless otherwise negotiated by the parties. ("Contract Year" shall mean January
1 through December 31.) If, at any time during the Contract Year, UHI requires
services or other resources in addition to those budgeted to UHI by BCBSUW and
UWS, UHI may obtain such services or resources from a source outside of the
BCBSUW/UWS Group only if UHI's additional needs cannot be accommodated by BCBSUW
or UWS, or if otherwise agreed to by the parties.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. UHI shall provide BCBSUW and/or
UWS with at least three (3) months' written notice prior to the next Contract
Year (unless the parties mutually agree upon a shorter period) of its intent to
do any of the following:
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i. Increase or decrease the number or utilization of Officers or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain officers, services or other resources, which are available
either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group with
respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide BCBSUW/UWS Services to UHI either directly or indirectly,
through any company in the BCBSUW/UWS Group. BCBSUW and UWS may provide
services and other resources to UHI indirectly through purchase from or contract
with a source outside the BCBSUW/UWS Group ("Outside Services") only with UHI's
consent. Costs for Outside Services shall be subject to a cost structure
negotiated by the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or UHI may, for
the sole purpose of documenting in more detail the terms and respective rights
and obligations of the parties with respect to Officers and Services provided
hereunder, request that any of the following types of ancillary agreements be
executed by any parties hereto and effected thereby:
1. Officer Lease Agreement;
2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any
conflict with Sections 1 through 5 of this Agreement. Executed Ancillary
Agreements shall be attached to this Agreement as amendments hereto. "Change
of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with the BCBSUW/UWS Group
purchases all or substantially all of the assets or acquires the ownership of
50% or more of the voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in
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accordance with the terms of this Agreement. If after 60 days (unless a
different period is mutually agreed upon by the parties hereto) the requested
Ancillary Agreement has not been executed, the Requesting Party may terminate
this Agreement in accordance with Section 8.b.ii. The parties hereby agree
that any negotiations subject to this Section 6.b shall be performed in good
faith and every reasonable effort shall be made to effect the execution of a
requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW and UWS shall make available to UHI,
for inspection, examination and copying, all of its books and records pertaining
to the Officers and BCBSUW/UWS Services provided to UHI each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW and UWS, or at such other place as the parties hereto may otherwise agree
to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials,
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documents, data and any other Proprietary Information of the other parties and
shall not retain any description containing or pertaining to any Proprietary
Information of the other parties, unless otherwise consented to in writing by
a duly authorized officer of BCBSUW, UWS or UHI as the case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding UHI) will directly compete with the products or
markets of UHI during the term of this Agreement. BCBSUW and UWS further agree
that for a period of two (2) years following the termination of this Agreement
for any reason, no company in the BCBSUW/UWS Group (excluding UHI) will directly
compete with UHI in any market in which UHI operates or does business at the
termination of this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict in any way UHI's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
8. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 8.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 6.b by
the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy,
or substantial cessation or interruption of its business
operations for any reason whatsoever;
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(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section 8.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY UHI.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
UHI), nor any person who is or was, at the time of any action or inaction
affecting UHI, a director, officer, employee or agent of BCBSUW, UWS or any
other company in the BCBSUW/UWS Group (other than UHI) (collectively
"Indemnitees") shall be liable to UHI for any action or inaction taken or
omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton misconduct.
ii. UHI shall, to the fullest extent not prohibited by law, indemnify
and hold harmless each Indemnitee against any liability, damage, cost, expense,
loss, claim or judgment (including, without limitation, reasonable attorneys'
fees and expenses) resulting to, imposed upon or incurred by such Indemnitee a.
in connection with any action, suit, arbitration or proceeding to which such
Indemnitee was or is a party or is threatened to be made a party by reason of
the Officers and BCBSUW/UWS Services provided to UHI hereunder; PROVIDED,
HOWEVER, that such Indemnitee acted (or failed to act) in good faith and such
action or inaction does not constitute actual fraud, gross negligence or willful
or wanton misconduct, or b. by reason of, arising out of or resulting from any
breach or misrepresentation by UHI under this Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless UHI, and its successors
and assigns, from and against any liability, damage, cost, expense, loss, claim
or judgment (including, without limitation, reasonable attorneys' fees and
expenses) resulting to, imposed upon or incurred by UHI by reason of, arising
out of or resulting from any breach or misrepresentation by BCBSUW or UWS under
this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written
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consent of the other parties. A Change of Control shall be deemed an
assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 10.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Officers necessary for the conduct of UHI's business shall be
submitted to a coordinating committee for resolution. The
coordinating committee shall consist of three (3) persons,
each of whom shall 1. represent the respective interest of a
party hereto, and 2. be mutually agreed upon by the parties
hereto. If the coordinating committee is unable to
unanimously resolve the dispute, then the parties hereto may
resort to the dispute resolution process provided for in
Section 10.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 10.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise
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has been unresolved by a coordinating committee pursuant to
Section 10.d.i(1) or an audit committee pursuant to Section
10.d.i(2) shall be settled by arbitration. In order to
initiate an arbitration, BCBSUW, UWS or UHI (as the case may
be) shall deliver a written notice of demand for arbitration
to the other affected party(ies). Within thirty (30) days of
the giving of such written notice, each party involved shall
appoint an individual as arbitrator (the "Party Arbitrators").
Within thirty (30) days of their appointment, the Party
Arbitrators shall collectively select one (or two if necessary
to constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give
the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
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Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to UHI:
Mr. Emil Pfenninger
United Heartland, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6400
Any notice or other communication given as provided in this Section 10.e,
shall be deemed given upon the first business day after actual delivery to
the party to whom such notice or other communication is sent (as evidenced by
the return receipt or shipping invoice signed by a representative of such
party or by the facsimile confirmation or e-mail return receipt). Any party
from time to time may change its address for purpose of notices to that party
by giving a similar notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the officers, services and other resources contemplated by this
Agreement shall be provided to UHI on an independent contractor basis. Nothing
in this Agreement shall be construed to create an employer-employee relationship
between UHI and Officers or any of the parties hereto.
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g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
UNITED HEARTLAND, INC.
By:
------------------------------------
Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and Meridian Managed Care, Inc., a corporation
organized pursuant to Ch. 180, Wisconsin Statutes ("MMC").
RECITALS
WHEREAS, BCBSUW, UWS and MMC are affiliated corporations, with MMC
being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, MMC provides care services management and medical director
services to various companies in the BCBSUW/UWS Group, and MMC also contracts
with outside entities to provide care services management;
WHEREAS, BCBSUW provides certain employees and BCBSUW and UWS
collectively provide the other business resources and services necessary for the
continued operation of MMC's business;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to MMC and that MMC will
continue to provide to various companies in the BCBSUW/UWS Group, and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those BCBSUW employees that are assigned
to perform all of their services for MMC with respect only to the information
support
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services provided by MMC to other companies in the BCBSUW/UWS Group. (Direct
Employees may also be referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. BCBSUW shall provide to MMC, to
the extent requested by MMC, the entire requirement of Direct Employees for use
in MMC's business according to such job descriptions, qualifications,
experience, education, or skills (collectively "Employee Specifications") as may
be specified by MMC from time to time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i. and MMC's
present intent to lease Direct Employees from BCBSUW, MMC shall have the
right, subject to Section 6, to obtain and hire directly any or all employees
from any other sources and on any terms to perform such duties as MMC may
consider appropriate from time to time. Should MMC hire employees from other
sources, it will not hire any individual who was a BCBSUW or UWS Employee
leased to MMC within three (3) months preceding such hiring, without the
written consent of BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and MMC shall notify Human Resources at any time of its intention to
change such Employee Specifications for Direct Employees, at which time Human
Resources shall promptly make the requested changes to the Employee
Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to MMC to perform
services as an officer, MMC will be consulted prior to all determinations
regarding the employment, or terms thereof, of such individuals; provided,
however, that MMC's input shall be of an advisory nature and will not be binding
on BCBSUW or UWS as the common law employers of such individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish
performance criteria or standards, which reflect the Employee Specifications
supplied by MMC, for leased Direct Employees while performing services for
MMC. MMC shall advise Human Resources on the performance of Direct
Employees, and shall have the right to request investigation, disciplinary
action, reassignment, and removal of such employees. If at any time MMC
becomes dissatisfied with the performance of a Direct Employee, MMC shall
have the right to reject the continued lease of that particular employee and
request a replacement therefor. BCBSUW and UWS shall have the exclusive
right, however, to direct all BCBSUW and UWS employees, respectively, as to
the manner in which services are to be rendered and performance goals are to
be achieved. BCBSUW and UWS shall be, and shall have all the privileges,
rights, and responsibilities of, common law employers of all BCBSUW and UWS
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employees, respectively, including, but not limited to, establishing work and
disciplinary rules, setting compensation levels, and directing each BCBSUW or
UWS Employee as to the manner in which daily duties are completed, whether or
not the employee actually performs services for BCBSUW, UWS or another
company in the BCBSUW/UWS Group. Employees leased to MMC pursuant to this
Agreement shall remain employees of BCBSUW or UWS, and shall in no way be
treated as or considered employees of MMC.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to
Direct Employees performing services for MMC, if BCBSUW adopts or implements
any change in compensation, employee benefit plans, or any other fringe
benefit that results in higher Total Personnel Costs (as defined at
Section 4.a.i) than those in existence as of the date of this Agreement,
BCBSUW shall provide MMC with written notice at least 30 days before such
change becomes effective (unless such change is required by law, in which
case MMC will be notified as soon as possible), describing such new benefit
and the projected increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO MMC
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall
provide to MMC, to the extent requested by MMC and subject to Section 6, the
following services and resources (together "BCBSUW Services"). BCBSUW shall
supply BCBSUW Services only if MMC has determined not to have its own
employees or third parties furnish the BCBSUW Services, subject to Section 6.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of MMC's operations.
ii. BUILDING SERVICES. Building services, including, but not limited
to, repair and maintenance of any property and facilities made available
hereunder as shall be necessary to maintain such property and facilities in good
working order, and such other building services as may be necessary or
appropriate for the conduct of MMC's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of MMC's business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of MMC's business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, lobbyist activities, as shall be necessary or
appropriate for the conduct of MMC's business.
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vi. COMPANY CAR AND TRAVEL. Availability and maintenance of vehicles
for company related travel and such other travel related services as shall be
necessary or appropriate for the conduct of MMC's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to MMC,
to the extent requested by MMC and subject to Section 6, the following
services and resources (together "UWS Services"). UWS shall supply UWS
Services only if MMC has determined not to have its own employees or third
parties furnish the UWS Services, subject to Section 6.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of MMC's
business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of MMC's business.
iii. MARKETING AND COMMUNICATIONS. Such marketing and communications
services, including, but not limited to, public relations and employee community
events, as shall be necessary or appropriate for the conduct of MMC's business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by MMC under this
Agreement or otherwise necessary or appropriate for the conduct of MMC's
business.
v. ACCOUNTING SERVICES. Such accounting, audit, bookkeeping and
financial statement preparation services as shall be necessary or appropriate
for the conduct of MMC's business.
vi. FINANCIAL SERVICES. Such financial services, including, but not
limited to, tax, treasury, administration of financial systems, corporate
accounting, and strategic planning/consulting, as shall be necessary or
appropriate for the conduct of MMC's business.
vii. ACTUARIAL SERVICES. Such actuarial services as shall be
necessary or appropriate for the conduct of MMC's business.
viii. OTHER SERVICES. Such other services, including, but not
limited to, those provided by Compcare or Meridian Resource Corporation, as
shall be necessary or appropriate for the conduct of MMC's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. SERVICES PROVIDED BY MMC TO THE BCBSUW/UWS GROUP
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a. SERVICES PROVIDED BY MMC. To the extent that MMC does not have
independent third party pricing contracts with companies in the BCBSUW/UWS
Group, MMC shall provide the following services (together "MMC Services") to
companies in the BCBSUW/UWS Group, to the extent requested by any such
individual company:
i. CARE SERVICES MANAGEMENT. Such care services management,
including, but not limited to, disease and outcomes management, health policy,
data management and reporting, and information support services, as shall be
necessary or appropriate for any company in the BCBSUW/UWS Group.
ii. MEDICAL DIRECTOR. Such medical director services as shall be
necessary or appropriate for any company in the BCBSUW/UWS Group.
4. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
salaries, wages, and bonuses;
profit sharing;
benefit plans;
payroll taxes;
employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to MMC, Total Personnel Costs associated with a Direct
Employee shall be directly charged to MMC on a monthly basis. See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of MMC, costs therefor shall be
allocated to MMC as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to MMC on a monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. Each month all
costs associated with the utilization of Schedule 2 Services shall be
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multiplied by the allocation percentage of MMC to determine MMC's allocable
share of costs for Schedule 2 Services. Notwithstanding the preceding, (i)
allocation percentages are subject to interim Fiscal Year adjustments to
allocate more accurately costs based on actual utilization by each company in
the BCBSUW/UWS Group, (ii) costs associated with Schedule 2 Services
performed directly for MMC shall be allocable to MMC only, and (iii) subject
to approval by the Vice President of Finance for the BCBSUW/UWS Group, the
Indirect Allocation Method used to allocate costs to MMC for specific
Schedule 2 Services shall be subject to agreement by the parties on an annual
basis.(1) Schedule 2, attached hereto, sets forth MMC's annual
allocation percentage for costs and expenses associated with Schedule 2
Services. Schedule 2 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to MMC as discussed in Section 4.b.ii, if the cost is a
general expense for providing the Chargeback Service to all users; or (ii)
directly charged to an MMC cost center, if the cost is an expense specific to an
MMC cost center. Thus, costs associated with Chargeback Services shall be
either directly charged or indirectly allocated to MMC on a monthly basis,
depending on the nature of the cost.
C. MMC SERVICES. To the extent that MMC Services are rendered on behalf
of or for the benefit of a company in the BCBSUW/UWS Group (excluding those
companies that separately enter into third party pricing contracts with MMC for
the provision of such services) costs therefor shall be allocated to the
respective company as follows:
i. INDIRECT ALLOCATIONS. Costs allocations for MMC Services shall
be determined annually for the next succeeding Fiscal Year on the basis of cost
center surveys completed by those companies in the BCBSUW/UWS Group that utilize
MMC Services ("Internal Users"). Based on the survey results, Internal Users
shall be assigned a fixed percentage. Each month all costs associated with the
utilization of MMC Services by Internal Users shall be multiplied by the fixed
allocation percentage of each Internal User to determine the Internal User's
respective allocable share of costs for MMC Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, and (ii) subject to approval by the Vice
President of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method
used to allocate costs for MMC Services shall be subject to agreement by the
parties on an annual basis.
d. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that MMC
leases or utilizes the services of Employees from BCBSUW and/or UWS, and to
the extent that MMC utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may
charge MMC a reasonable negotiated fee therefor, as set forth in Schedule 5.
To the extent that MMC provides MMC
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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Services to any company in the BCBSUW/UWS Group pursuant to this Agreement,
MMC may charge a reasonable negotiated fee therefor, as set forth in Schedule 6.
5. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW, UWS and MMC shall
maintain reasonable and appropriate operating procedures to allocate costs
and expenses so as to enable each party's independent certified public
accounting firm to audit such costs and the allocation thereof. At the end
of each month, (i) BCBSUW and/or UWS shall provide or make available to MMC
appropriate documentation respecting the costs and expenses that are
allocated, either directly or indirectly, to MMC for that month in sufficient
detail to permit MMC to identify the sources of such charges, and (ii) MMC
shall provide or make available to the BCBSUW/UWS Group appropriate
documentation respecting the costs and expenses that are allocated to
individual companies in the BCBSUW/UWS Group for that month for MMC Services
in sufficient detail to permit the identification of the sources of such
charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, (i) MMC shall promptly reimburse
BCBSUW and/or UWS for all costs and expenses incurred by BCBSUW and/or UWS in
furnishing or obtaining the Employees and Services provided for under Sections I
and II, which amount shall be based on the total of direct charges and indirect
allocations to MMC for the preceding month, and (ii) any company in the
BCBSUW/UWS Group on whose behalf MMC Services have been rendered in the
preceding month shall promptly reimburse MMC for all costs and expenses incurred
by MMC in furnishing MMC Services thereto. Notwithstanding the preceding, the
parties reserve the right to offset amounts due to each other under this
Agreement.
6. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, MMC shall be
required to utilize Direct Employees and BCBSUW/UWS Services budgeted to MMC for
that Contract Year, unless otherwise negotiated by the parties. ("Contract Year"
shall mean January 1 through December 31.) If, at any time during the Contract
Year, MMC requires services or other non-human resources in addition to those
budgeted to MMC by BCBSUW and UWS, MMC may obtain such services or resources
from a source outside of the BCBSUW/UWS Group only if MMC's additional needs
cannot be accommodated by BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. MMC shall provide BCBSUW and/or
UWS with at least three (3) months' written notice prior to the next Contract
Year (unless the parties mutually agree upon a shorter period) of its intent to
do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
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ii. Obtain services or other non-human resources, which are available
either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group with
respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide Employees and BCBSUW/UWS Services to MMC either directly or
indirectly, through any company in the BCBSUW/UWS Group. BCBSUW and UWS may
provide employees, services and other resources to MMC indirectly through
purchase from or contract with a source outside the BCBSUW/UWS Group ("Outside
Services") only with MMC's consent. Costs for Outside Services shall be
subject to a cost structure negotiated by the parties hereto.
7. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or MMC may, for
the sole purpose of documenting in more detail the terms and respective rights
and obligations of the parties with respect to Employees and Services provided
hereunder, request that any of the following types of ancillary agreements be
executed by any parties hereto and effected thereby:
i. Employee Lease Agreement;
ii. Office and Equipment Lease;
iii. Management Information Systems Agreement;
iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject
to negotiation of the respective parties, and (ii) control in case of any
conflict with Sections 1 through 6 of this Agreement. Executed Ancillary
Agreements shall be attached to this Agreement as amendments hereto. "Change
of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with the BCBSUW/UWS Group
purchases all or substantially all of the assets or acquires the ownership of
50% or more of the voting stock of a party hereto.
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b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall
have sixty 60 days (unless the parties hereto mutually agree to a different
period) to negotiate and execute the Ancillary Agreement, during which time
the parties hereto shall remain obligated to perform in accordance with the
terms of this Agreement. If after 60 days (unless a different period is
mutually agreed upon by the parties hereto) the requested Ancillary Agreement
has not been executed, the Requesting Party may terminate this Agreement in
accordance with Section 9.b.ii. The parties hereby agree that any
negotiations subject to this Section 7.b shall be performed in good faith
and every reasonable effort shall be made to effect the execution of a
requested Ancillary Agreement.
8. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW, UWS and MMC shall make available to
each other, for inspection, examination and copying, all of its books and
records pertaining to the Employees, BCBSUW/UWS Services, and MMC Services
provided under this Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW, UWS, and MMC, or at such other place as the parties hereto may otherwise
agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that
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each Involved Person does not use the Proprietary Information, for any
purpose other than in connection with the performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS or MMC as the case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding MMC and CNR Health, Inc.) will directly compete with
the products or markets of MMC during the term of this Agreement. BCBSUW and
UWS further agree that for a period of two (2) years following the termination
of this Agreement for any reason, no company in the BCBSUW/UWS Group (excluding
MMC and CNR Health, Inc.) will directly compete with MMC in any market in which
MMC operates or does business at the termination of this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
9. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 9.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 7.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
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(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy, or
substantial cessation or interruption of its business operations
for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting
parties with prompt notice of the event of default, the defaulting party
shall have 30 tdays to cure the defect, during which time the non-defaulting
parties may not exercise the termination right under this section 9.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
10. INDEMNIFICATION
a. INDEMNIFICATION BY MMC.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
MMC), nor any person who is or was, at the time of any action or inaction
affecting MMC, a director, officer, employee or agent of BCBSUW, UWS or any
other company in the BCBSUW/UWS Group (other than MMC) (collectively
"Indemnitees") shall be liable to MMC for any action or inaction taken or
omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton misconduct.
ii. MMC shall, to the fullest extent not prohibited by law, indemnify
and hold harmless each Indemnitee against any liability, damage, cost, expense,
loss, claim or judgment (including, without limitation, reasonable attorneys'
fees and expenses) resulting to, imposed upon or incurred by such Indemnitee a.
in connection with any action, suit, arbitration or proceeding to which such
Indemnitee was or is a party or is threatened to be made a party by reason of
the Employees and BCBSUW/UWS Services provided to MMC hereunder; PROVIDED,
HOWEVER, that such Indemnitee acted (or failed to act) in good faith and such
action or inaction does not constitute actual fraud, gross negligence or willful
or wanton misconduct, or b. by reason of, arising out of or resulting from any
breach or misrepresentation by MMC under this Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS.
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i. Notwithstanding anything to the contrary in this Agreement,
neither MMC, nor any person who is or was, at the time of any action or inaction
affecting the BCBSUW/UWS Group (other than MMC), a director, officer, employee
or agent of MMC (collectively "Indemnitees") shall be liable to any company in
the BCBSUW/UWS Group for any action or inaction taken or omitted to be taken by
such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee acted (or failed to
act) in good faith and such action or inaction does not constitute actual fraud,
gross negligence or willful or wanton misconduct.
ii. BCBSUW and UWS, jointly and severally, hereby agree to indemnify
and hold harmless, to the fullest extent not prohibited by law, each Indemnitee
against any liability, damage, cost, expense, loss, claim or judgment
(including, without limitation, reasonable attorneys' fees and expenses)
resulting to, imposed upon or incurred by such Indemnitee a. in connection with
any action, suit, arbitration or proceeding to which such Indemnitee was or is a
party or is threatened to be made a party by reason of the MMC Services provided
to the BCBSUW/UWS Group hereunder; PROVIDED, HOWEVER, that such Indemnitee acted
(or failed to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct, or b. by reason
of, arising out of or resulting from any breach or misrepresentation by BCBSUW
or UWS under this Agreement.
11. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 11.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
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(1) Coordinating Committee: Any conflicts or disputes
regarding 1. occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Employees necessary for the conduct of MMC's business, or 2.
utilization or delivery of MMC Services, shall be submitted to
a coordinating committee for resolution. The coordinating
committee shall consist of three (3) persons, each of whom
shall 1. represent the respective interest of a party hereto,
and 2. be mutually agreed upon by the parties hereto. If the
coordinating committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute
resolution process provided for in Section 11.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 11.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section 11.d.i(1) or an
audit committee pursuant to Section 11.d.i(2) shall be settled
by arbitration. In order to initiate an arbitration, BCBSUW,
UWS or MMC (as the case may be) shall deliver a written notice
of demand for arbitration to the other affected party(ies).
Within thirty (30) days of the giving of such written notice,
each party involved shall appoint an individual as arbitrator
(the "Party Arbitrators"). Within thirty (30) days of their
appointment, the Party Arbitrators shall collectively select
one (or two if necessary to constitute an odd total number of
arbitrators) additional arbitrator (together the "Panel
Arbitrators") and shall give the parties involved notice of
such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute.
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Judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail,
as follows:
i. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
ii. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
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Facsimile Telephone Number: (414) 226-6229
iii. If to MMC:
Dr. James Hartert
Meridian Managed Care, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section
11.e, shall be deemed given upon the first business day after actual delivery
to the party to whom such notice or other communication is sent (as evidenced
by the return receipt or shipping invoice signed by a representative of such
party or by the facsimile confirmation or e-mail return receipt). Any party
from time to time may change its address for purpose of notices to that party
by giving a similar notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to MMC on an independent contractor basis. Nothing
in this Agreement shall be construed to create an employer-employee relationship
between MMC and Employees or any of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
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h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
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Title:
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By:
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Title:
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UNITED WISCONSIN SERVICES, INC.
By:
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Title:
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MERIDIAN MANAGED CARE, INC.
By:
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Title:
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into
as of this _____ day of _______________, 1998 ("Effective Date"), by and
among Blue Cross & Blue Shield United of Wisconsin, a service insurance
corporation organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"),
United Wisconsin Services, Inc., an insurance holding company organized
pursuant to Ch. 180, Wisconsin Statutes ("UWS"), and United Wisconsin
Insurance Company, a stock insurance corporation organized pursuant to Ch.
611, Wisconsin Statutes ("UWIC").
RECITALS
WHEREAS, BCBSUW, UWS and UWIC are affiliated corporations, with
UWIC being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and
UWS that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries
shall hereinafter be collectively referred to as "BCBSUW/UWS Group"), and
this Agreement is intended to further specify the services, costs, and
allocation methods contemplated by that service agreement;
WHEREAS, under the marketing name United Wisconsin Group ("UWG"),
UWIC performs the sales, underwriting, accounting, data processing, and other
similar functions for group disability, life, dental and vision products
written by UWIC and/or United Heartland Life Insurance Company ("UHLIC"), or
written by United Wisconsin Life Insurance Company ("UWLIC") and reinsured by
UHLIC;
WHEREAS, under the marketing name UWG, UWIC also administers agent
licensing and commission payments, and provides accounting and information
processing services for various companies in the BCBSUW/UWS Group, all on an
independent third party contract basis (all services provided by UWIC under
the UWG name hereinafter shall be collectively referred to as "UWG business");
WHEREAS, UWIC has entered into independent third party contracts
with UWLIC and UHLIC to provide various services in connection with UHLIC's
and UWLIC's business and the cost and/or profit sharing associated therewith;
WHEREAS, UWIC also underwrites "Senior Health," an individual
Medicare product, and BCBSUW provides all of the marketing and administrative
services in connection with Senior Health business;
WHEREAS, BCBSUW and UWS collectively provide other business
resources and services necessary for the continued operation of UWIC's UWG
and Senior Health business; and
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WHEREAS, by entering into this Agreement, the parties hereto wish
to establish clearly (i) an officer leasing arrangement; (ii) the services
and resources that BCBSUW and UWS will continue to provide to UWIC and the
compensation and cost allocations therefor; and (iii) the respective rights
and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of
the mutual covenants hereinafter contained, the parties hereto agree as
follows:
I. LEASE OF OFFICERS
a. DEFINITION.
i. "Leased Officers" are those BCBSUW and/or UWS employees that
perform services as officers of UWIC or of any other company in the
BCBSUW/UWS Group for which UWIC must provide officer services pursuant to a
third party contract. (Leased Officers may also be referred to herein as
"Officers").
b. LEASE OF OFFICERS.
i. OBLIGATION TO PROVIDE OFFICERS. BCBSUW and/or UWS shall
provide to UWIC and to any other company in the BCBSUW/UWS Group, to the
extent requested by UWIC and with the consent of the respective company's
Board of Directors (the "Board"), the entire requirement of Leased Officers
as shall be necessary or appropriate for the conduct of UWIC's UWG and/or
Senior Health business and such other companies' UWG business.
ii. INDEPENDENT HIRING. Notwithstanding Section i. OBLIGATION
TO PROVIDE OFFICERS. BCBSUW and/or UWS shall provide to UWIC and to any
other company in the BCBSUW/UWS Group, to the extent requested by UWIC and
with the consent of the respective company's Board of Directors (the
"Board"), the entire requirement of Leased Officers as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business and
such other companies' UWG business., the Boards shall have the right to
obtain and hire directly any or all Officers from any other sources and on
any terms to perform such duties, on behalf of UWIC, as the Boards may
consider appropriate from time to time. Should the Boards hire officers from
other sources, it will not hire any individual who was a BCBSUW or UWS
Employee leased under this Agreement within three (3) months preceding such
hiring, without the written consent of BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management,
and operation of BCBSUW's and UWS's leasing obligations under this Agreement.
c. EMPLOYMENT RELATIONSHIPS. Employment, termination, and terms of
employment of all Leased Officers shall be reserved to the full Boards of
Directors of
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BCBSUW and UWS, provided, however, that while any such individual is leased
to perform services as an officer under this Agreement, UWIC will be
consulted prior to all determinations regarding the employment, or terms
thereof, of such individuals; provided, however, that UWIC's input shall be
of an advisory nature and will not be binding on BCBSUW or UWS as the common
law employers of such individuals. BCBSUW and UWS shall be, and shall have
all the privileges, rights, and responsibilities of, common law employers of
all BCBSUW and UWS employees, respectively, whether or not the employee
actually performs services for BCBSUW, UWS or another company in the
BCBSUW/UWS Group. Officers leased pursuant to this Agreement shall remain
employees of BCBSUW or UWS, and shall in no way be treated as or considered
employees of UWIC or any other company in the BCBSUW/UWS Group for which UWIC
is to supply officers or employees.
2. SERVICES AND OTHER RESOURCES PROVIDED TO UWIC
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
UWIC, to the extent requested by UWIC and subject to Section 5. MODIFICATIONS
TO BCBSUW/UWS SERVICES, the following services and resources (together
"BCBSUW Services"). BCBSUW shall supply BCBSUW Services only if UWIC has
determined not to have its own employees or third parties furnish the BCBSUW
Services, subject to Section 5. MODIFICATIONS TO BCBSUW/UWS SERVICES.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary
or appropriate for the conduct of UWIC's UWG and/or Senior Health business.
ii. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities made
available hereunder as shall be necessary to maintain such property and
facilities in good working order, and such other building services as may be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, forms management, transportation, graphics, printing, and
duplicating, as shall be necessary or appropriate for the conduct of UWIC's
UWG and/or Senior Health business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, administrative reporting, customer service and
relations, electronic enrollment, claims processing, and lobbyist activities,
as shall be necessary or appropriate for the conduct of UWIC's UWG and/or
Senior Health business.
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vi. MARKETING, SALES AND CONFERENCE SERVICES. Such marketing,
sales, advertising, and conference support as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
vii. COMPANY CAR AND TRAVEL. Availability and maintenance of
vehicles for company related travel and such other travel related services as
shall be necessary or appropriate for the conduct of UWIC's UWG and/or Senior
Health business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to
UWIC, to the extent requested by UWIC and subject to Section 5. MODIFICATIONS
TO BCBSUW/UWS SERVICES, the following services and resources (together "UWS
Services"). UWS shall supply UWS Services only if UWIC has determined not to
have its own employees or third parties furnish the UWS Services, subject to
Section 5. MODIFICATIONS TO BCBSUW/UWS SERVICES.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of UWIC's UWG
and/or Senior Health business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
iii. CORPORATE MARKETING AND COMMUNICATIONS. Such corporate
marketing and communications services, including, but not limited to, public
relations and employee community events, as shall be necessary or appropriate
for the conduct of UWIC's UWG and/or Senior Health business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate for the conduct of UWIC's UWG and/or Senior Health
business.
v. FINANCIAL SERVICES. Such financial services, including, but
not limited to, cash management, tax, treasury, corporate accounting, and
strategic planning/consulting, as shall be necessary or appropriate for the
conduct of UWIC's UWG and/or Senior Health business.
vi. ACTUARIAL AND UNDERWRITING. Such actuarial and underwriting
services as shall be necessary or appropriate for the conduct of UWIC's UWG
and/or Senior Health business.
vii. OTHER SERVICES. Such other services as shall be necessary or
appropriate for the conduct of UWIC's UWG and/or Senior Health business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
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3. COST ALLOCATION METHODS
a. LEASED OFFICERS.
i. ALLOCATION OF OFFICER COSTS. To the extent that Officers are
leased to UWIC or any other company in the BCBSUW/UWS Group for which UWIC
must provide officer services, costs associated with the lease of such
Officers shall be indirectly charged to UWIC as provided in Section ii.
INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS Services
identified on Schedule 2 ("Schedule 2 Services") shall be determined annually
for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed
by UWS. Through the use of Indirect Allocation Methods, as described in
Schedule 3 attached hereto, utilization of Schedule 2 Services shall be
reduced to an allocation percentage for each company in the BCBSUW/UWS Group.
For any specific Schedule 2 Service, UWIC's total allocation percentage
shall be determined by adding the applicable allocation percentage from each
of the service agreements included in Schedule 2. Each month all costs
associated with the utilization of Schedule 2 Services shall be multiplied by
UWIC's total allocation percentage to determine UWIC's allocable share of
costs for Schedule 2 Services. Notwithstanding the preceding, (i) allocation
percentages are subject to interim Fiscal Year adjustments to allocate more
accurately costs based on actual utilization by each company in the
BCBSUW/UWS Group, (ii) costs associated with Schedule 2 Services performed
directly for UWIC shall be allocable to UWIC only, and (iii) subject to
approval by the Vice President of Finance for the BCBSUW/UWS Group, the
Indirect Allocation Method used to allocate costs for specific Schedule 2
Services shall be subject to agreement by the parties on an annual basis.
Schedule 2, attached hereto, sets forth UWIC's annual allocation percentage
for costs and expenses associated with Schedule 2 Services rendered on behalf
of or for the benefit of UWIC's UWG and Senior Health business. Schedule 2
shall be amended annually.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services
are rendered on behalf of or for the benefit of UWIC's UWG and/or Senior
Health business, costs therefor shall be allocated to UWIC as follows:
i. DIRECT ALLOCATIONS. Costs associated with those BCBSUW/UWS
Services identified on Schedule 1 shall be directly charged to UWIC on a monthly
basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean
January 1 through December 31) on the basis of utilization and cost studies
performed by UWS. Through the use of Indirect Allocation Methods, as
described in Schedule 3 attached hereto, utilization of Schedule 2 Services
shall be reduced to an allocation percentage for each company in the
BCBSUW/UWS Group. For any specific Schedule 2 Service, UWIC's total
allocation percentage shall be determined by adding the applicable allocation
percentage from each of the service agreements included in Schedule 2. Each
month all costs associated with the utilization of Schedule 2 Services shall
be multiplied by UWIC's total allocation percentage to determine UWIC's
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allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, (ii) costs associated with Schedule 2
Services performed directly for UWIC shall be allocable to UWIC only, and
(iii) subject to approval by the Vice President of Finance for the BCBSUW/UWS
Group, the Indirect Allocation Method used to allocate costs for specific
Schedule 2 Services shall be subject to agreement by the parties on an annual
basis.(1) Schedule 2, attached hereto, sets forth UWIC's annual allocation
percentage for costs and expenses associated with Schedule 2 Services
rendered on behalf of or for the benefit of UWIC's UWG and Senior Health
business. Schedule 2 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i)
indirectly allocated to UWIC as discussed in Section ii. INDIRECT
ALLOCATIONS. Cost allocations for those BCBSUW/UWS Services identified on
Schedule 2 ("Schedule 2 Services") shall be determined annually for the next
succeeding Fiscal Year ("Fiscal Year" shall mean January 1 through December
31) on the basis of utilization and cost studies performed by UWS. Through
the use of Indirect Allocation Methods, as described in Schedule 3 attached
hereto, utilization of Schedule 2 Services shall be reduced to an allocation
percentage for each company in the BCBSUW/UWS Group. For any specific
Schedule 2 Service, UWIC's total allocation percentage shall be determined by
adding the applicable allocation percentage from each of the service
agreements included in Schedule 2. Each month all costs associated with the
utilization of Schedule 2 Services shall be multiplied by UWIC's total
allocation percentage to determine UWIC's allocable share of costs for
Schedule 2 Services. Notwithstanding the preceding, (i) allocation
percentages are subject to interim Fiscal Year adjustments to allocate more
accurately costs based on actual utilization by each company in the
BCBSUW/UWS Group, (ii) costs associated with Schedule 2 Services performed
directly for UWIC shall be allocable to UWIC only, and (iii) subject to
approval by the Vice President of Finance for the BCBSUW/UWS Group, the
Indirect Allocation Method used to allocate costs for specific Schedule 2
Services shall be subject to agreement by the parties on an annual basis.
Schedule 2, attached hereto, sets forth UWIC's annual allocation percentage
for costs and expenses associated with Schedule 2 Services rendered on behalf
of or for the benefit of UWIC's UWG and Senior Health business. Schedule 2
shall be amended annually., if the cost is a general expense for providing
the Chargeback Service to all users; or (ii) directly charged to a UWIC cost
center, if the cost is an expense specific to a UWIC cost center. Thus,
costs associated with Chargeback Services shall be either directly charged or
indirectly allocated to UWIC on a monthly basis, depending on the nature of
the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that UWIC
leases or utilizes the services of Officers from BCBSUW and/or UWS, and to
the extent that UWIC
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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<PAGE>
utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may charge UWIC a reasonable
negotiated fee therefor, as set forth in Schedule 5.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and
expenses so as to enable UWIC's independent certified public accounting firm
to audit such costs and the allocation thereof. At the end of each month,
BCBSUW and/or UWS shall provide or make available to UWIC appropriate
documentation respecting the costs and expenses that are allocated, either
directly or indirectly, to UWIC for that month in sufficient detail to permit
UWIC to identify the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, UWIC shall promptly reimburse
BCBSUW and/or UWS for all costs and expenses incurred by BCBSUW and/or UWS in
furnishing or obtaining the Officers and Services provided for under Sections
I and II, which amount shall be based on the total of direct charges and
indirect allocations to UWIC for the preceding month. Notwithstanding the
preceding, UWIC reserves the right to offset any amounts due to BCBSUW and/or
UWS under this Agreement against other obligations of BCBSUW and/or UWS to
UWIC.
5. MODIFICATIONS TO BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, UWIC shall be
required to utilize BCBSUW/UWS Services budgeted to UWIC for that Contract
Year, unless otherwise negotiated by the parties. ("Contract Year" shall mean
January 1 through December 31.) If, at any time during the Contract Year,
UWIC requires services or other resources in addition to those budgeted to
UWIC by BCBSUW and UWS, UWIC may obtain such services or resources from a
source outside of the BCBSUW/UWS Group only if UWIC's additional needs cannot
be accommodated by BCBSUW or UWS, or if otherwise agreed to by the parties.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. UWIC shall provide BCBSUW
and/or UWS with at least three (3) months' written notice prior to the next
Contract Year (unless the parties mutually agree upon a shorter period) of
its intent to do any of the following:
i. Increase or decrease the number or utilization of Officers or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain officers, services or other resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS
Group with respect to the next Contract Year.
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c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide BCBSUW/UWS Services to UWIC either directly or indirectly,
through any company in the BCBSUW/UWS Group. BCBSUW and UWS may provide
services and other resources to UWIC indirectly through purchase from or
contract with a source outside the BCBSUW/UWS Group ("Outside Services") only
with UWIC's consent. Costs for Outside Services shall be subject to a cost
structure negotiated by the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the
event of the Change of Control (as hereinafter defined in this Section) of
any party hereto and while this Agreement remains in effect, BCBSUW, UWS or
UWIC may, for the sole purpose of documenting in more detail the terms and
respective rights and obligations of the parties with respect to Officers and
Services provided hereunder, request that any of the following types of
ancillary agreements be executed by any parties hereto and effected thereby:
i. Officer Lease Agreement;
ii. Office and Equipment Lease;
iii. Management Information Systems Agreement;
iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections I through V of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall
have sixty 60 days (unless the parties hereto mutually agree to a different
period) to negotiate and execute the Ancillary Agreement, during which time
the parties hereto shall remain obligated to perform in accordance with the
terms of this Agreement. If after 60 days (unless a different period is
mutually agreed upon by the parties hereto) the requested Ancillary Agreement
has not been executed, the Requesting Party may terminate this Agreement in
accordance with Section ii.
This Agreement may be terminated pursuant to Section VI.B by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate. The parties hereby
agree that any negotiations subject to this Section ERROR! NOT A VALID
BOOKMARK SELF-REFERENCE. shall be performed in good faith and
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every reasonable effort shall be made to effect the execution of a requested
Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW and UWS shall make available to
UWIC, for inspection, examination and copying, all of its books and records
pertaining to the Officers and BCBSUW/UWS Services provided to UWIC each
Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW and UWS, or at such other place as the parties hereto may otherwise agree
to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS or UWIC as the case may be.
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<PAGE>
c. COOPERATION. The parties hereto will fully cooperate with each
other and their respective counsel, if any, agents and accountants in
connection with any action to be taken in the performance of their
obligations under this Agreement. In the conduct of their affairs and the
performance of this Agreement the parties hereto shall, unless otherwise
agreed, maintain the working relationships of the parties on substantially
the same terms as before the execution of this Agreement. Notwithstanding
the preceding, the parties do not intend, nor should this Agreement be
construed, to restrict in any way UWIC's ability to contract with any other
person or entity to provide services similar to or the same as those which
are the subject of this Agreement.
8. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and
shall automatically renew annually therefrom until such time as otherwise
terminated pursuant to Section b. TERMINATION..
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section B. EFFECT
OF A REQUEST TO EXECUTE. If any party hereto requests the execution of an
Ancillary Agreement ("Requesting Party"), the parties shall have sixty 60
days (unless the parties hereto mutually agree to a different period) to
negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed
upon by the parties hereto) the requested Ancillary Agreement has not been
executed, the Requesting Party may terminate this Agreement in accordance
with Section ii. This Agreement may be terminated pursuant to Section VI.B
by the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.. The parties hereby
agree that any negotiations subject to this Section ERROR! NOT A VALID
BOOKMARK SELF-REFERENCE. shall be performed in good faith and every
reasonable effort shall be made to effect the execution of a requested
Ancillary Agreement. by the Requesting Party giving three (3) months advance
written notice to the nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of
and upon written notice from the non-defaulting party in the event of any of
the following:
(1) A party hereto becomes incapable of fully performing its
duties and obligations according to the terms of this Agreement for the
following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
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(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section iii. This Agreement shall terminate
immediately at the election of and upon written notice from the non-defaulting
party in the event of any of the following:.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY UWIC.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
UWIC), nor any person who is or was, at the time of any action or inaction
affecting UWIC, a director, officer, employee or agent of BCBSUW, UWS or any
other company in the BCBSUW/UWS Group (other than UWIC) (collectively
"Indemnitees") shall be liable to UWIC for any action or inaction taken or
omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee
acted (or failed to act) in good faith and such action or inaction does not
constitute actual fraud, gross negligence or willful or wanton misconduct.
ii. UWIC shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Officers and BCBSUW/UWS Services provided to UWIC hereunder;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct, or b. by reason of, arising out of or resulting
from any breach or misrepresentation by UWIC under this Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless UWIC, and its successors
and assigns, from and against any liability, damage, cost, expense, loss, claim
or judgment (including, without limitation, reasonable attorneys' fees and
expenses) resulting to, imposed upon or incurred by UWIC by reason of, arising
out of or resulting from any breach or misrepresentation by BCBSUW or UWS under
this Agreement.
10. MISCELLANEOUS
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a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law
except as may be limited by Section d. RESOLUTION OF DISPUTES. of this
Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes regarding
occupancy, utilization or delivery of BCBSUW/UWS Services, or scheduling,
performance and utilization of Officers necessary for the conduct of UWIC's UWG
and/or Senior Health business shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three (3) persons, each
of whom shall 1. represent the respective interest of a party hereto, and 2. be
mutually agreed upon by the parties hereto. If the coordinating committee is
unable to unanimously resolve the dispute, then the parties hereto may resort to
the dispute resolution process provided for in Section II. FORMAL RESOLUTION..
(2) Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related thereto
shall be submitted to an audit committee for resolution. The audit committee
shall consist of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually agreed upon by the
parties hereto. If the audit committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute resolution process
provided for in Section ii. FORMAL RESOLUTION..
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among the
parties hereto that arises out of or relates to this Agreement or any Ancillary
Agreement entered into pursuant hereto, and which otherwise has been unresolved
by a coordinating committee pursuant to Section (1) Coordinating Committee:
Any conflicts or disputes
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regarding occupancy, utilization or delivery of BCBSUW/UWS Services, or
scheduling, performance and utilization of Officers necessary for the conduct
of UWIC's UWG and/or Senior Health business shall be submitted to a
coordinating committee for resolution. The coordinating committee shall
consist of three (3) persons, each of whom shall 1. represent the respective
interest of a party hereto, and 2. be mutually agreed upon by the parties
hereto. If the coordinating committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute resolution process
provided for in Section ii. FORMAL RESOLUTION.. or an audit committee
pursuant to Section (2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees or any matter
related thereto shall be submitted to an audit committee for resolution. The
audit committee shall consist of three (3) persons, each of whom shall 1.
represent the respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is unable to
unanimously resolve the dispute, then the parties hereto may resort to the
dispute resolution process provided for in Section ii. FORMAL RESOLUTION..
shall be settled by arbitration. In order to initiate an arbitration, BCBSUW,
UWS or UWIC (as the case may be) shall deliver a written notice of demand for
arbitration to the other affected party(ies). Within thirty (30) days of the
giving of such written notice, each party involved shall appoint an
individual as arbitrator (the "Party Arbitrators"). Within thirty (30) days
of their appointment, the Party Arbitrators shall collectively select one (or
two if necessary to constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give the parties
involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such longer
period as may be agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding on the parties
involved. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and expenses of
its own Party Arbitrator, and pay its own legal, accounting, and other
professional fees and expenses, b. jointly share in the payment of the fees
and expenses of the other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other expenses
jointly incurred by the involved parties directly related to the arbitration
proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail,
as follows:
1. If to BCBSUW:
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Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to UWIC:
Mr. Mark Granoff
United Wisconsin Insurance Company
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section e.
NOTICES. All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, or if mailed (by registered or certified mail, postage prepaid,
return receipt requested), or if transmitted by facsimile or e-mail, as
follows:, shall be deemed given upon the first business day after actual
delivery to the party to whom such notice or other communication is sent (as
evidenced by the return receipt or shipping invoice signed by a
representative of such party or by the facsimile confirmation or e-
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mail return receipt). Any party from time to time may change its address for
purpose of notices to that party by giving a similar notice specifying a new
address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this
Agreement have occurred and shall continue to be carried out on an arm's
length basis. Further, the officers, services and other resources
contemplated by this Agreement shall be provided to UWIC on an independent
contractor basis, and nothing in this Agreement shall be construed to create
an employer-employee relationship between UWIC and Officers or any of the
parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement
of the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or
be construed to prohibit proof of prior understandings and agreements between
or among the parties to the extent necessary to properly construe or
interpret this Agreement. Notwithstanding the preceding, the parties
acknowledge that there are, and/or may be in the future, any number of
independent third party contracts between various companies in the BCBSUW/UWS
Group for various services and/or business arrangements, and any such
contracts, whether written or oral, shall survive the execution of this
Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted
for convenience and do not constitute matter to be construed or interpreted
in connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the
benefit of the parties hereto and does not confer any right, benefit, or
privilege upon any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Wisconsin (without giving effect
to principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and
remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of any party under this Agreement will not be
materially and adversely affected thereby, 1. such provision will be fully
severable, 2. this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof, 3. the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom, and 4. in lieu of such
illegal, invalid, or unenforceable provision, there will be added
automatically as part of this Agreement, a legal, valid, and enforceable
provision as similar terms to such illegal, invalid, or unenforceable
provision as may be possible.
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l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the Effective
Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN INSURANCE COMPANY
By:
------------------------------------
Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into
as of this _____ day of _______________, 1998 ("Effective Date"), by and
among Blue Cross & Blue Shield United of Wisconsin, a service insurance
corporation organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"),
United Wisconsin Services, Inc., an insurance holding company organized
pursuant to Ch. 180, Wisconsin Statutes ("UWS"), Meridian Managed Care, Inc.,
a corporation organized pursuant to Ch. 180, Wisconsin Statutes ("MMC"), and
Compcare Health Services Insurance Corporation, a stock insurance corporation
organized pursuant to Ch. 611, Wisconsin Statutes ("Compcare") on behalf of
its Pharmacy Services business unit ("Compcare Pharmacy").
RECITALS
WHEREAS, BCBSUW, UWS, MMC, and Compcare are affiliated
corporations, with MMC and Compcare being wholly owned subsidiaries of UWS;
WHEREAS, Compcare Pharmacy is an unincorporated business unit of
Compcare;
WHEREAS, there is an existing service agreement between BCBSUW and
UWS that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries
shall hereinafter be collectively referred to as "BCBSUW/UWS Group"), and
this Agreement is intended to further specify the services, costs, and
allocation methods contemplated by that service agreement;
WHEREAS, Compcare Pharmacy provides pharmacy benefits management
services to various companies in the BCBSUW/UWS Group, and Compcare Pharmacy
also contracts with outside entities to provide pharmacy benefits management
services under the marketing name Right Rx;
WHEREAS, MMC provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Compcare Pharmacy's business;
WHEREAS, by entering into this Agreement, the parties hereto wish
to establish clearly (i) an employee leasing arrangement; (ii) the services
and resources that BCBSUW and UWS will continue to provide to Compcare
Pharmacy and that Compcare Pharmacy will continue to provide to various
companies in the BCBSUW/UWS Group, and the compensation and cost allocations
therefor; and (iii) the respective rights and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of
the mutual covenants hereinafter contained, the parties hereto agree as
follows:
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1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those MMC employees that are assigned to
perform all of their services for Compcare Pharmacy. (Direct Employees may also
be referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. MMC shall provide to
Compcare Pharmacy, to the extent requested by Compcare Pharmacy, the entire
requirement of Direct Employees for use in Compcare Pharmacy's business
according to such job descriptions, qualifications, experience, education, or
skills (collectively "Employee Specifications") as may be specified by
Compcare Pharmacy from time to time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i. and
Compcare Pharmacy's present intent to lease Direct Employees from MMC,
Compcare Pharmacy shall have the right, subject to Section 6, to obtain and
hire directly any or all employees from any other sources and on any terms to
perform such duties as Compcare Pharmacy may consider appropriate from time
to time. Should Compcare Pharmacy hire employees from other sources, it will
not hire any individual who was an MMC, BCBSUW or UWS Employee leased to
Compcare Pharmacy within three (3) months preceding such hiring, without the
written consent of MMC, BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management,
and operation of MMC's, BCBSUW's and UWS's employee leasing obligations under
this Agreement. Employee Specifications shall be retained in the files of
Human Resources, and Compcare Pharmacy shall notify Human Resources at any
time of its intention to change such Employee Specifications for Direct
Employees, at which time Human Resources shall promptly make the requested
changes to the Employee Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Compcare
Pharmacy to perform services as an officer, Compcare Pharmacy will be
consulted prior to all determinations regarding the employment, or terms
thereof, of such individuals; provided, however, that Compcare Pharmacy's
input shall be of an advisory nature and will not be binding on BCBSUW or UWS
as the common law employers of such individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish
performance criteria or standards, which reflect the Employee Specifications
supplied by Compcare Pharmacy, for leased Direct Employees while performing
services for Compcare Pharmacy. Compcare Pharmacy shall advise Human
Resources on the performance of Direct Employees, and shall have the right to
request investigation, disciplinary action, reassignment, and removal
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of such employees. If at any time Compcare Pharmacy becomes dissatisfied with
the performance of a Direct Employee, Compcare Pharmacy shall have the right
to reject the continued lease of that particular employee and request a
replacement therefor. MMC, BCBSUW and UWS shall have the exclusive right,
however, to direct all MMC, BCBSUW and UWS employees, respectively, as to the
manner in which services are to be rendered and performance goals are to be
achieved. MMC, BCBSUW and UWS shall be, and shall have all the privileges,
rights, and responsibilities of, common law employers of all MMC, BCBSUW and
UWS employees, respectively, including, but not limited to, establishing work
and disciplinary rules, setting compensation levels, and directing each MMC,
BCBSUW or UWS Employee as to the manner in which daily duties are completed,
whether or not the employee actually performs services for MMC, BCBSUW, UWS
or another company in the BCBSUW/UWS Group. Employees leased to Compcare
Pharmacy pursuant to this Agreement shall remain employees of MMC, BCBSUW or
UWS, and shall in no way be treated as or considered employees of Compcare
Pharmacy.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Compcare Pharmacy, if MMC adopts or
implements any change in compensation, employee benefit plans, or any other
fringe benefit that results in higher Total Personnel Costs (as defined at
Section 4.a.i.) than those in existence as of the date of this Agreement, MMC
shall provide Compcare Pharmacy with written notice at least 30 days before
such change becomes effective (unless such change is required by law, in
which case Compcare Pharmacy will be notified as soon as possible),
describing such new benefit and the projected increase in the Total Personnel
Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO COMPCARE PHARMACY
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Compcare Pharmacy, to the extent requested by Compcare Pharmacy and subject
to Section 6, the following services and resources (together "BCBSUW
Services"). BCBSUW shall supply BCBSUW Services only if Compcare Pharmacy
has determined not to have its own employees or third parties furnish the
BCBSUW Services, subject to Section 6.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary
or appropriate for the conduct of Compcare Pharmacy's operations.
ii. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, technology support and central
data base maintenance, as shall be necessary or appropriate for the conduct
of Compcare Pharmacy's business.
iii. EXECUTIVE SERVICES. Such executive services, as shall be
necessary or appropriate for the conduct of Compcare Pharmacy's business.
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b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to
Compcare Pharmacy, to the extent requested by Compcare Pharmacy and subject
to Section 6, the following services and resources (together "UWS Services").
UWS shall supply UWS Services only if Compcare Pharmacy has determined not
to have its own employees or third parties furnish the UWS Services, subject
to Section 6.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
as shall be necessary or appropriate for the conduct of Compcare Pharmacy's
business.
ii. FINANCIAL SERVICES. Such financial services, including, but
not limited to, administration of financial systems, corporate accounting,
and strategic planning/consulting, as shall be necessary or appropriate for
the conduct of Compcare Pharmacy's business.
iii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Compcare Pharmacy's business.
iv. OTHER SERVICES. Such other services, including, but not
limited to, those provided by MMC and Meridian Resource Corporation, as shall
be necessary or appropriate for the conduct of Compcare Pharmacy's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. SERVICES PROVIDED BY COMPCARE PHARMACY TO BCBSUW/UWS GROUP
a. SERVICES PROVIDED BY COMPCARE PHARMACY. Compcare Pharmacy shall
provide the following services ("Compcare Pharmacy Services") to companies in
the BCBSUW/UWS Group, to the extent requested by any such individual company:
i. PHARMACY BENEFITS MANAGEMENT. Such pharmacy benefits
administration and management services as shall be necessary or appropriate
for any company in the BCBSUW/UWS Group.
4. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
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salaries, wages, and bonuses;
profit sharing;
benefit plans;
payroll taxes;
employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Compcare Pharmacy, Total Personnel Costs associated
with a Direct Employee shall be directly charged to Compcare Pharmacy on a
monthly basis. See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS
Services are rendered on behalf of or for the benefit of Compcare Pharmacy,
costs therefor shall be allocated to Compcare Pharmacy as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS
Services identified on Schedule 1 shall be directly charged to Compcare
Pharmacy on a monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean
January 1 through December 31) on the basis of utilization and cost studies
performed by UWS. Through the use of Indirect Allocation Methods, as
described in Schedule 3 attached hereto, utilization of Schedule 2 Services
shall be reduced to an allocation percentage for each company, and various
business units, in the BCBSUW/UWS Group. Each month all costs associated
with the utilization of Schedule 2 Services shall be multiplied by the
allocation percentage of Compcare Pharmacy to determine Compcare Pharmacy's
allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
companies/units in the BCBSUW/UWS Group, (ii) costs associated with Schedule
2 Services performed directly for Compcare Pharmacy shall be allocable to
Compcare Pharmacy only, and (iii) subject to approval by the Vice President
of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method used to
allocate costs to Compcare Pharmacy for specific Schedule 2 Services shall be
subject to agreement by the parties on an annual basis.(1) Schedule 2,
attached hereto, sets forth Compcare Pharmacy's annual allocation percentage
for costs and expenses associated with Schedule 2 Services. Schedule 2 shall
be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i)
indirectly allocated to Compcare Pharmacy as discussed in Section 4.b.ii, if
the cost is a general expense
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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for providing the Chargeback Service to all users; or (ii) directly charged
to a Compcare Pharmacy cost center, if the cost is an expense specific to a
Compcare Pharmacy cost center. Thus, costs associated with Chargeback
Services shall be either directly charged or indirectly allocated to Compcare
Pharmacy on a monthly basis, depending on the nature of the cost.
c. COMPCARE PHARMACY SERVICES. To the extent that Compcare Pharmacy
Services are rendered on behalf of or for the benefit of a company in the
BCBSUW/UWS Group (excluding those companies, if any, that separately enter
into third party contracts with Compcare Pharmacy for the provision of such
services) costs therefor shall be allocated to the respective company as
follows:
i. INDIRECT ALLOCATIONS. Costs allocations for Compcare Pharmacy
Services shall be determined annually for the next succeeding Fiscal Year on
the basis of cost center surveys completed by those companies in the
BCBSUW/UWS Group that utilize Compcare Pharmacy Services ("Internal Users").
Based on the survey results, Internal Users shall be assigned a fixed
percentage. Each month all costs associated with the utilization of Compcare
Pharmacy Services by Internal Users shall be multiplied by the fixed
allocation percentage of each Internal User to determine the Internal User's
respective allocable share of costs for Compcare Pharmacy Services.
Notwithstanding the preceding, (i) allocation percentages are subject to
interim Fiscal Year adjustments to allocate more accurately costs based on
actual utilization by each company in the BCBSUW/UWS Group, and (ii) subject
to approval by the Vice President of Finance for the BCBSUW/UWS Group, the
Indirect Allocation Method used to allocate costs for Compcare Pharmacy
Services shall be subject to agreement by the parties on an annual basis.
d. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Compcare
Pharmacy leases or utilizes the services of Employees from MMC, BCBSUW and/or
UWS, and to the extent that Compcare Pharmacy utilizes BCBSUW/UWS Services,
MMC, BCBSUW and/or UWS may charge Compcare Pharmacy a reasonable negotiated
fee therefor, as set forth in Schedule 5. To the extent that Compcare
Pharmacy provides Compcare Pharmacy Services to any company in the BCBSUW/UWS
Group pursuant to this Agreement, Compcare Pharmacy may charge a reasonable
negotiated fee therefor, as set forth in Schedule 6.
5. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. MMC, BCBSUW, UWS and Compcare
Pharmacy shall maintain reasonable and appropriate operating procedures to
allocate costs and expenses so as to enable each party's independent
certified public accounting firm to audit such costs and the allocation
thereof. At the end of each month, (i) MMC, BCBSUW and/or UWS shall provide
or make available to Compcare Pharmacy appropriate documentation respecting
the costs and expenses that are allocated, either directly or indirectly, to
Compcare Pharmacy for that month in sufficient detail to permit Compcare
Pharmacy to identify the sources of such charges, and (ii) Compcare Pharmacy
shall provide or make available to the BCBSUW/UWS
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Group appropriate documentation respecting the costs and expenses that are
allocated to individual companies in the BCBSUW/UWS Group for that month for
Compcare Pharmacy Services in sufficient detail to permit the identification
of the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, (i) Compcare Pharmacy shall
promptly reimburse MMC, BCBSUW and/or UWS for all costs and expenses incurred
by MMC, BCBSUW and/or UWS in furnishing or obtaining the Employees and
Services provided for under Sections I and II, which amount shall be based on
the total of direct charges and indirect allocations to Compcare Pharmacy for
the preceding month, and (ii) any company in the BCBSUW/UWS Group on whose
behalf Compcare Pharmacy Services have been rendered in the preceding month
shall promptly reimburse Compcare Pharmacy for all costs and expenses
incurred by Compcare Pharmacy in furnishing Compcare Pharmacy Services
thereto. Notwithstanding the preceding, the parties reserve the right to
offset amounts due to each other under this Agreement.
6. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Compcare
Pharmacy shall be required to utilize Employees and BCBSUW/UWS Services
budgeted to Compcare Pharmacy for that Contract Year, unless otherwise
negotiated by the parties. ("Contract Year" shall mean January 1 through
December 31.) If, at any time during the Contract Year, Compcare Pharmacy
requires employees, services or other resources in addition to those budgeted
to Compcare Pharmacy by MMC, BCBSUW and UWS, Compcare Pharmacy may obtain
such employees, services or resources from a source outside of the BCBSUW/UWS
Group only if Compcare Pharmacy's additional needs cannot be accommodated by
MMC, BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Compcare Pharmacy shall
provide MMC, BCBSUW and/or UWS with at least three (3) months' written notice
prior to the next Contract Year (unless the parties mutually agree upon a
shorter period) of its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain employees, services or other resources, which are
available either from MMC, BCBSUW or UWS, from a party outside the BCBSUW/UWS
Group with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. MMC, BCBSUW and UWS
have the right to provide Employees and BCBSUW/UWS Services to Compcare
Pharmacy either directly or indirectly, through any company in the BCBSUW/UWS
Group. MMC, BCBSUW and UWS may provide employees, services and other
resources to Compcare Pharmacy indirectly through purchase from or contract
with a source outside the
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BCBSUW/UWS Group ("Outside Services") only with Compcare Pharmacy's consent.
Costs for Outside Services shall be subject to a cost structure negotiated by
the parties hereto.
7. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event
of the Change of Control (as hereinafter defined in this Section) of any
party hereto and while this Agreement remains in effect, BCBSUW, UWS, MMC or
Compcare Pharmacy may, for the sole purpose of documenting in more detail the
terms and respective rights and obligations of the parties with respect to
Employees and Services provided hereunder, request that any of the following
types of ancillary agreements be executed by any parties hereto and effected
thereby:
i. Employee Lease Agreement;
ii. Office and Equipment Lease;
iii. Management Information Systems Agreement;
iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject
to negotiation of the respective parties, and (ii) control in case of any
conflict with Sections 1 through 6 of this Agreement. Executed Ancillary
Agreements shall be attached to this Agreement as amendments hereto. "Change
of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with the BCBSUW/UWS Group
purchases all or substantially all of the assets or acquires the ownership of
50% or more of the voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall
have sixty 60 days (unless the parties hereto mutually agree to a different
period) to negotiate and execute the Ancillary Agreement, during which time
the parties hereto shall remain obligated to perform in accordance with the
terms of this Agreement. If after 60 days (unless a different period is
mutually agreed upon by the parties hereto) the requested Ancillary Agreement
has not been executed, the Requesting Party may terminate this Agreement in
accordance with Section 9.b.ii. The parties hereby agree that any
negotiations subject to this Section 7.b shall be
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performed in good faith and every reasonable effort shall be made to effect
the execution of a requested Ancillary Agreement.
8. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. MMC, BCBSUW, UWS and Compcare Pharmacy
shall make available to each other, for inspection, examination and copying,
all of its books and records pertaining to the Employees, BCBSUW/UWS
Services, and Compcare Pharmacy Services provided under this Agreement each
Contract Year:
i. At all reasonable times at the principal places of business of
MMC, BCBSUW, UWS, and Compcare Pharmacy, or at such other place as the
parties hereto may otherwise agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable
to such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to
each other information about themselves and their business which is
nonpublic, confidential or proprietary in nature. All such information,
regardless of the manner in which it is delivered, is referred to as
"Proprietary Information." However, Proprietary Information does not include
information which 1. is or becomes generally available to the public other
than as a result of a disclosure by the other party, 2. was available to the
other party on a nonconfidential basis prior to its disclosure by the
disclosing party, or 3. becomes available to the other party on a
nonconfidential basis from a person other than by the disclosing party.
Unless otherwise agreed to in writing by the disclosing party, the other
party shall a. except as required by law, keep all Proprietary Information
confidential and not disclose or reveal any Proprietary Information to any
person other than those employed by the other party, or who is actively and
directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep
all Proprietary Information confidential and not disclose or reveal any
Proprietary Information to any person other than another Involved Person; and
c. not use the Proprietary Information, and ensure that each Involved Person
does not use the Proprietary Information, for any purpose other than in
connection with the performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all
records, materials, documents, data and any other Proprietary Information of
the other parties and shall not retain any description containing or
pertaining to any Proprietary Information of the other parties,
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unless otherwise consented to in writing by a duly authorized officer of MMC,
BCBSUW, UWS or Compcare Pharmacy as the case may be.
c. COVENANT NOT TO COMPETE. MMC, BCBSUW and UWS agree that no
company in the BCBSUW/UWS Group (excluding Compcare) will directly compete
with the products or markets of Compcare Pharmacy during the term of this
Agreement. MMC, BCBSUW and UWS further agree that for a period of two (2)
years following the termination of this Agreement for any reason, no company
in the BCBSUW/UWS Group (excluding Compcare) will directly compete with
Compcare Pharmacy in any market in which Compcare Pharmacy operates or does
business at the termination of this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with
each other and their respective counsel, if any, agents and accountants in
connection with any action to be taken in the performance of their
obligations under this Agreement. In the conduct of their affairs and the
performance of this Agreement the parties hereto shall, unless otherwise
agreed, maintain the working relationships of the parties on substantially
the same terms as before the execution of this Agreement. Notwithstanding
the preceding, the parties do not intend, nor should this Agreement be
construed, to restrict any party's ability to contract with any other person
or entity to provide services similar to or the same as those which are the
subject of this Agreement.
9. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and
shall automatically renew annually therefrom until such time as otherwise
terminated pursuant to Section B.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of
its intention to terminate.
ii. This Agreement may be terminated pursuant to Section 7.b by
the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of
and upon written notice from the non-defaulting party in the event of any of
the following:
(1) A party hereto becomes incapable of fully performing its
duties and obligations according to the terms of this Agreement for the
following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
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(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the
non-defaulting parties with prompt notice of the event of default, the
defaulting party shall have 30 days to cure the defect, during which time the
non-defaulting parties may not exercise the termination right under this
Section 9.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
10. INDEMNIFICATION
a. INDEMNIFICATION BY COMPCARE PHARMACY.
i. Notwithstanding anything to the contrary in this Agreement,
neither MMC, BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group
(other than Compcare), nor any person who is or was, at the time of any
action or inaction affecting Compcare Pharmacy, a director, officer, employee
or agent of MMC, BCBSUW, UWS or any other company in the BCBSUW/UWS Group
(other than Compcare) (collectively "Indemnitees") shall be liable to
Compcare Pharmacy for any action or inaction taken or omitted to be taken by
such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee acted (or failed to
act) in good faith and such action or inaction does not constitute actual
fraud, gross negligence or willful or wanton misconduct.
ii. Compcare Pharmacy shall, to the fullest extent not prohibited
by law, indemnify and hold harmless each Indemnitee against any liability,
damage, cost, expense, loss, claim or judgment (including, without
limitation, reasonable attorneys' fees and expenses) resulting to, imposed
upon or incurred by such Indemnitee a. in connection with any action, suit,
arbitration or proceeding to which such Indemnitee was or is a party or is
threatened to be made a party by reason of the Employees and BCBSUW/UWS
Services provided to Compcare Pharmacy hereunder; PROVIDED, HOWEVER, that
such Indemnitee acted (or failed to act) in good faith and such action or
inaction does not constitute actual fraud, gross negligence or willful or
wanton misconduct, or b. by reason of, arising out of or resulting from any
breach or misrepresentation by Compcare Pharmacy under this Agreement.
b. INDEMNIFICATION BY MMC, BCBSUW AND UWS.
i. Notwithstanding anything to the contrary in this Agreement,
neither Compcare (as used in this Section 10.b., Compcare shall include
Compcare Pharmacy), nor any person who is or was, at the time of any action
or inaction affecting the BCBSUW/UWS Group (other than Compcare), a director,
officer, employee or agent of
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Compcare (collectively "Indemnitees") shall be liable to any company in the
BCBSUW/UWS Group for any action or inaction taken or omitted to be taken by
such Indemnitee; PROVIDED, HOWEVER, that such Indemnitee acted (or failed to
act) in good faith and such action or inaction does not constitute actual
fraud, gross negligence or willful or wanton misconduct.
ii. MMC, BCBSUW and UWS, jointly and severally, hereby agree to
indemnify and hold harmless, to the fullest extent not prohibited by law,
each Indemnitee against any liability, damage, cost, expense, loss, claim or
judgment (including, without limitation, reasonable attorneys' fees and
expenses) resulting to, imposed upon or incurred by such Indemnitee a. in
connection with any action, suit, arbitration or proceeding to which such
Indemnitee was or is a party or is threatened to be made a party by reason of
the Compcare Pharmacy Services provided to the BCBSUW/UWS Group hereunder;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good
faith and such action or inaction does not constitute actual fraud, gross
negligence or willful or wanton misconduct, or b. by reason of, arising out
of or resulting from any breach or misrepresentation by MMC, BCBSUW or UWS
under this Agreement.
11. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or
obligations hereunder may be assigned or transferred by any of the parties
hereto without the prior written consent of the other parties. A Change of
Control shall be deemed an assignment requiring the consent of the other
parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to
alter the terms of this Agreement in the future to take into account such
events or conditions as may from time to time occur. Any amendments to this
Agreement shall be in writing and shall be executed by all parties; however,
Ancillary Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in
exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. In addition to any rights granted herein, the parties hereto
shall have and may exercise any and all rights and remedies now or hereafter
provided by law except as may be limited by Section 11.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes regarding
1. occupancy, utilization or delivery of BCBSUW/UWS Services, or scheduling,
performance and utilization of Employees necessary for the conduct of Compcare
Pharmacy's business, or 2. utilization or delivery of Compcare Pharmacy
Services, shall be submitted to a coordinating
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committee for resolution. The coordinating committee shall consist of four
(4) persons, each of whom shall 1. represent the respective interest of a
party hereto, and 2. be mutually agreed upon by the parties hereto. If the
coordinating committee is unable to unanimously resolve the dispute, then the
parties hereto may resort to the dispute resolution process provided for in
Section 11.d.ii
(2) Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related
thereto shall be submitted to an audit committee for resolution. The audit
committee shall consist of four (4) persons, each of whom shall 1. represent
the respective interest of a party hereto, and 2. be mutually agreed upon by
the parties hereto. If the audit committee is unable to unanimously resolve
the dispute, then the parties hereto may resort to the dispute resolution
process provided for in Section 11.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among the
parties hereto that arises out of or relates to this Agreement or any
Ancillary Agreement entered into pursuant hereto, and which otherwise has
been unresolved by a coordinating committee pursuant to Section 11.d.i(1) or
an audit committee pursuant to Section 11.d.i(2) shall be settled by
arbitration. In order to initiate an arbitration, MMC, BCBSUW, UWS or
Compcare Pharmacy (as the case may be) shall deliver a written notice of
demand for arbitration to the other affected party(ies). Within thirty (30)
days of the giving of such written notice, each party involved shall appoint
an individual as arbitrator (the "Party Arbitrators"). Within thirty (30)
days of their appointment, the Party Arbitrators shall collectively select
one (or two if necessary to constitute an odd total number of arbitrators)
additional arbitrator (together the "Panel Arbitrators") and shall give the
parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such longer
period as may be agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding on the parties
involved. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and expenses of
its own Party Arbitrator, and pay its own legal, accounting, and other
professional fees and expenses, b. jointly share in the payment of the fees
and expenses of the other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other expenses
jointly incurred by the involved parties directly related to the arbitration
proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
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e. NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, or if mailed (by registered or certified
mail, postage prepaid, return receipt requested), or if transmitted by
facsimile or e-mail, as follows:
i. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
ii. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
iii. If to MMC:
Dr. James Hartert
Meridian Managed Care, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
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iv. If to Compcare Pharmacy:
Mr. Steve Maike
Compcare Health Services Insurance Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-5257
Any notice or other communication given as provided in
this Section 11.e, shall be deemed given upon the first business day after
actual delivery to the party to whom such notice or other communication is
sent (as evidenced by the return receipt or shipping invoice signed by a
representative of such party or by the facsimile confirmation or e-mail
return receipt). Any party from time to time may change its address for
purpose of notices to that party by giving a similar notice specifying a new
address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this
Agreement have occurred and shall continue to be carried out on an arm's
length basis. Further, the employees, services and other resources
contemplated by this Agreement shall be provided to Compcare Pharmacy on an
independent contractor basis. Nothing in this Agreement shall be construed
to create an employer-employee relationship between Compcare Pharmacy and
Employees or any of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement
of the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or
be construed to prohibit proof of prior understandings and agreements between
or among the parties to the extent necessary to properly construe or
interpret this Agreement. Notwithstanding the preceding, the parties
acknowledge that there are, and/or may be in the future, any number of
independent third party contracts between various companies in the BCBSUW/UWS
Group for various services and/or business arrangements, and any such
contracts, whether written or oral, shall survive the execution of this
Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement.
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i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the
benefit of the parties hereto and does not confer any right, benefit, or
privilege upon any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin (without
giving effect to principles of conflicts of laws) as to all matters,
including, without limitation, matters of validity, construction, effect,
performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of any party under this Agreement will not be
materially and adversely affected thereby, 1. such provision will be fully
severable, 2. this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof, 3. the remaining provisions of this Agreement will remain in full
force and effect and will not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom, and 4. in lieu of such
illegal, invalid, or unenforceable provision, there will be added
automatically as part of this Agreement, a legal, valid, and enforceable
provision as similar terms to such illegal, invalid, or unenforceable
provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which will be deemed an original, but
all of which will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
-----------------------------------
Title:
--------------------------------
By:
-----------------------------------
Title:
--------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
-----------------------------------
Title:
--------------------------------
MERIDIAN MANAGED CARE, INC.
By:
-----------------------------------
Title:
--------------------------------
ON BEHALF OF COMPCARE PHARMACY, COMPCARE HEALTH SERVICES INSURANCE CORPORATION
By:
-----------------------------------
Title:
--------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), Meridian Managed Care, Inc., a corporation organized
pursuant to Ch. 180, Wisconsin Statutes ("MMC"), and Compcare Health Services
Insurance Corporation, a stock insurance corporation organized pursuant to Ch.
611, Wisconsin Statutes ("Compcare") on behalf of its RxCel business unit
("Compcare RxCel").
RECITALS
WHEREAS, BCBSUW, UWS, MMC, and Compcare are affiliated corporations,
with MMC and Compcare being wholly owned subsidiaries of UWS;
WHEREAS, Compcare RxCel is an unincorporated business unit of
Compcare;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Compcare RxCel is a pharmacy operated for the benefit of
various companies in the BCBSUW/UWS Group to provide, on a third party contract
basis, pharmaceutical products to insureds/enrollees thereof;
WHEREAS, MMC provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Compcare RxCel's business;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Compcare Rxcel and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
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i. "Direct Employees" are those MMC employees that are assigned to
perform all of their services for Compcare RxCel. (Direct Employees may also be
referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. MMC shall provide to Compcare
RxCel, to the extent requested by Compcare RxCel, the entire requirement of
Direct Employees for use in Compcare RxCel's business according to such job
descriptions, qualifications, experience, education, or skills (collectively
"Employee Specifications") as may be specified by Compcare RxCel from time to
time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i and Compcare
RxCel's present intent to lease Direct Employees from MMC, Compcare RxCel shall
have the right, subject to Section 5, to obtain and hire directly any or all
employees from any other sources and on any terms to perform such duties as
Compcare RxCel may consider appropriate from time to time. Should Compcare
RxCel hire employees from other sources, it will not hire any individual who was
an MMC, BCBSUW or UWS Employee leased to Compcare RxCel within three (3) months
preceding such hiring, without the written consent of MMC, BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of MMC's, BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Compcare RxCel shall notify Human Resources at any time of its
intention to change such Employee Specifications for Direct Employees, at which
time Human Resources shall promptly make the requested changes to the Employee
Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Compcare RxCel to
perform services as an officer, Compcare RxCel will be consulted prior to all
determinations regarding the employment, or terms thereof, of such individuals;
provided, however, that Compcare RxCel's input shall be of an advisory nature
and will not be binding on BCBSUW or UWS as the common law employers of such
individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Compcare RxCel, for leased Direct Employees while performing services for
Compcare RxCel. Compcare RxCel shall advise Human Resources on the performance
of Direct Employees, and shall have the right to request investigation,
disciplinary action, reassignment, and removal of such employees. If at any
time Compcare RxCel becomes dissatisfied with the performance of a Direct
Employee, Compcare RxCel shall have the right to reject the continued lease of
that particular employee and request a replacement therefor. MMC, BCBSUW and
UWS shall have the exclusive right, however, to direct all MMC, BCBSUW and UWS
employees,
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respectively, as to the manner in which services are to be rendered and
performance goals are to be achieved. MMC, BCBSUW and UWS shall be, and
shall have all the privileges, rights, and responsibilities of, common law
employers of all MMC, BCBSUW and UWS employees, respectively, including, but
not limited to, establishing work and disciplinary rules, setting
compensation levels, and directing each MMC, BCBSUW or UWS Employee as to the
manner in which daily duties are completed, whether or not the employee
actually performs services for MMC, BCBSUW, UWS or another company in the
BCBSUW/UWS Group. Employees leased to Compcare RxCel pursuant to this
Agreement shall remain employees of MMC, BCBSUW or UWS, and shall in no way
be treated as or considered employees of Compcare RxCel.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Compcare RxCel, if MMC adopts or implements
any change in compensation, employee benefit plans, or any other fringe benefit
that results in higher Total Personnel Costs (as defined at Section 3.a.i)
than those in existence as of the date of this Agreement, MMC shall provide
Compcare RxCel with written notice at least 30 days before such change becomes
effective (unless such change is required by law, in which case Compcare RxCel
will be notified as soon as possible), describing such new benefit and the
projected increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO COMPCARE RXCEL
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Compcare RxCel, to the extent requested by Compcare RxCel and subject to Section
V, the following services and resources (together "BCBSUW Services"). BCBSUW
shall supply BCBSUW Services only if Compcare RxCel has determined not to have
its own employees or third parties furnish the BCBSUW Services, subject to
Section 5.
i. TECHNOLOGY SUPPORT. Such technology support as shall be
necessary or appropriate for the conduct of Compcare RxCel's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to Compcare
RxCel, to the extent requested by Compcare RxCel and subject to Section 5, the
following services and resources (together "UWS Services"). UWS shall supply
UWS Services only if Compcare RxCel has determined not to have its own employees
or third parties furnish the UWS Services, subject to Section 5.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, legal and government relations, as shall be
necessary or appropriate for the conduct of Compcare RxCel's business.
ii. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, administration of financial systems, corporate
accounting, and strategic planning/consulting, as shall be necessary or
appropriate for the conduct of Compcare RxCel's business.
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iii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Compcare RxCel's business.
iv. OTHER SERVICES. Such other services, including, but not limited
to, those provided by MMC and Meridian Resource Corporation, as shall be
necessary or appropriate for the conduct of Compcare RxCel's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. COST ALLOCATION METHODS
a. Leased Employees.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
a. salaries, wages, and bonuses;
profit sharing;
benefit plans;
payroll taxes;
employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Compcare RxCel, Total Personnel Costs associated with a
Direct Employee shall be directly charged to Compcare RxCel on a monthly basis.
See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Compcare RxCel, costs therefor shall
be allocated to Compcare RxCel as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to Compcare RxCel on a
monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company, and various business units, in the
BCBSUW/UWS Group. Each month all costs associated with the utilization of
Schedule 2 Services shall be multiplied by the allocation percentage of Compcare
RxCel to determine Compcare RxCel's allocable share of costs for Schedule 2
Services.
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Notwithstanding the preceding, (i) allocation percentages are subject
to interim Fiscal Year adjustments to allocate more accurately costs based on
actual utilization by companies/units in the BCBSUW/UWS Group, (ii) costs
associated with Schedule 2 Services performed directly for Compcare RxCel shall
be allocable to Compcare RxCel only, and (iii) subject to approval by the Vice
President of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method
used to allocate costs to Compcare RxCel for specific Schedule 2 Services shall
be subject to agreement by the parties on an annual basis.(1) Schedule 2,
attached hereto, sets forth Compcare RxCel's annual allocation percentage for
costs and expenses associated with Schedule 2 Services. Schedule 2 shall be
amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to Compcare RxCel as discussed in Section 3.b.ii, if the cost is a
general expense for providing the Chargeback Service to all users; or (ii)
directly charged to a Compcare RxCel cost center, if the cost is an expense
specific to a Compcare RxCel cost center. Thus, costs associated with
Chargeback Services shall be either directly charged or indirectly allocated to
Compcare RxCel on a monthly basis, depending on the nature of the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Compcare
RxCel leases or utilizes the services of Employees from MMC, BCBSUW and/or UWS,
and to the extent that Compcare RxCel utilizes BCBSUW/UWS Services, MMC, BCBSUW
and/or UWS may charge Compcare RxCel a reasonable negotiated fee therefor, as
set forth in Schedule 5.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. MMC, BCBSUW, and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable each party's independent certified public accounting firm to
audit such costs and the allocation thereof. At the end of each month, MMC,
BCBSUW and/or UWS shall provide or make available to Compcare RxCel appropriate
documentation respecting the costs and expenses that are allocated, either
directly or indirectly, to Compcare RxCel for that month in sufficient detail to
permit Compcare RxCel to identify the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, Compcare RxCel shall promptly
reimburse MMC, BCBSUW and/or UWS for all costs and expenses incurred by MMC,
BCBSUW and/or UWS in furnishing or obtaining the Employees and Services provided
for under Sections I and II, which amount shall be based on the total of direct
charges and indirect allocations to Compcare RxCel for the preceding month.
Notwithstanding the preceding, Compcare RxCel reserves the
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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right to offset any amounts due to MMC, BCBSUW and/or UWS under this
Agreement against other obligations of MMC, BCBSUW and/or UWS to Compcare
RxCel.
5. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Compcare RxCel
shall be required to utilize Employees and BCBSUW/UWS Services budgeted to
Compcare RxCel for that Contract Year, unless otherwise negotiated by the
parties. ("Contract Year" shall mean January 1 through December 31.) If, at any
time during the Contract Year, Compcare RxCel requires employees, services or
other resources in addition to those budgeted to Compcare RxCel by MMC, BCBSUW
and UWS, Compcare RxCel may obtain such employees, services or resources from a
source outside of the BCBSUW/UWS Group only if Compcare RxCel's additional needs
cannot be accommodated by MMC, BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Compcare RxCel shall provide
MMC, BCBSUW and/or UWS with at least three (3) months' written notice prior to
the next Contract Year (unless the parties mutually agree upon a shorter period)
of its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain employees, services or other resources, which are
available either from MMC, BCBSUW or UWS, from a party outside the BCBSUW/UWS
Group with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. MMC, BCBSUW and UWS have
the right to provide Employees and BCBSUW/UWS Services to Compcare RxCel either
directly or indirectly, through any company in the BCBSUW/UWS Group. MMC,
BCBSUW and UWS may provide employees, services and other resources to Compcare
RxCel indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Compcare RxCel's consent.
Costs for Outside Services shall be subject to a cost structure negotiated by
the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS, MMC or Compcare
RxCel may, for the sole purpose of documenting in more detail the terms and
respective rights and obligations of the parties with respect to Employees and
Services provided hereunder, request that any of the following types of
ancillary agreements be executed by any parties hereto and effected thereby:
i. Employee Lease Agreement;
ii. Office and Equipment Lease;
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iii. Management Information Systems Agreement;
iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections I through V of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
8.b.ii. The parties hereby agree that any negotiations subject to this
Section 6.b shall be performed in good faith and every reasonable effort shall
be made to effect the execution of a requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. MMC, BCBSUW, and UWS shall make available to
each other, for inspection, examination and copying, all of its books and
records pertaining to the Employees and BCBSUW/UWS Services provided under this
Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
MMC, BCBSUW, and UWS, or at such other place as the parties hereto may otherwise
agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
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i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of MMC, BCBSUW, UWS or Compcare RxCel as
the case may be.
c. COVENANT NOT TO COMPETE. MMC, BCBSUW and UWS agree that no company in
the BCBSUW/UWS Group (excluding Compcare) will directly compete with the
products or markets of Compcare RxCel during the term of this Agreement. MMC,
BCBSUW and UWS further agree that for a period of two (2) years following the
termination of this Agreement for any reason, no company in the BCBSUW/UWS Group
(excluding Compcare) will directly compete with Compcare RxCel in any market in
which Compcare RxCel operates or does business at the termination of this
Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
8. TERM AND TERMINATION
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a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 8.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 6.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
(1) A party hereto becomes incapable of fully performing its
duties and obligations according to the terms of this Agreement for the
following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section 8.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY COMPCARE RXCEL.
i. Notwithstanding anything to the contrary in this Agreement,
neither MMC, BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other
than Compcare), nor any person who is or was, at the time of any action or
inaction affecting Compcare RxCel, a director, officer, employee or agent of
MMC, BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than
Compcare) (collectively "Indemnitees") shall be liable to Compcare RxCel for any
action or inaction taken or omitted to be taken by such Indemnitee; PROVIDED,
HOWEVER, that such Indemnitee acted (or failed to act) in good faith and such
action or inaction does not constitute actual fraud, gross negligence or willful
or wanton misconduct.
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ii. Compcare RxCel shall, to the fullest extent not prohibited by
law, indemnify and hold harmless each Indemnitee against any liability, damage,
cost, expense, loss, claim or judgment (including, without limitation,
reasonable attorneys' fees and expenses) resulting to, imposed upon or incurred
by such Indemnitee a. in connection with any action, suit, arbitration or
proceeding to which such Indemnitee was or is a party or is threatened to be
made a party by reason of the Employees and BCBSUW/UWS Services provided to
Compcare RxCel hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or
failed to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct, or b. by reason
of, arising out of or resulting from any breach or misrepresentation by Compcare
RxCel under this Agreement.
b. INDEMNIFICATION BY MMC, BCBSUW AND UWS. MMC, BCBSUW and UWS, jointly
and severally, hereby agree to indemnify and hold harmless Compcare RxCel, and
its successors and assigns, from and against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by Compcare
RxCel by reason of, arising out of or resulting from any breach or
misrepresentation by MMC, BCBSUW or UWS under this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section X.D of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes regarding
occupancy, utilization or delivery of BCBSUW/UWS Services, or scheduling,
performance
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and utilization of Employees necessary for the conduct of Compcare RxCel's
business, shall be submitted to a coordinating committee for resolution. The
coordinating committee shall consist of four (4) persons, each of whom shall
1. represent the respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the coordinating committee is unable
to unanimously resolve the dispute, then the parties hereto may resort to the
dispute resolution process provided for in Section 10.d.ii.
(2) Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related thereto
shall be submitted to an audit committee for resolution. The audit committee
shall consist of four (4) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually agreed upon by the
parties hereto. If the audit committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute resolution process
provided for in Section 10.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among the
parties hereto that arises out of or relates to this Agreement or any Ancillary
Agreement entered into pursuant hereto, and which otherwise has been unresolved
by a coordinating committee pursuant to Section 10.d.i(1) or an audit committee
pursuant to Section 10.d.i(2) shall be settled by arbitration. In order to
initiate an arbitration, MMC, BCBSUW, UWS or Compcare RxCel (as the case may be)
shall deliver a written notice of demand for arbitration to the other affected
party(ies). Within thirty (30) days of the giving of such written notice, each
party involved shall appoint an individual as arbitrator (the "Party
Arbitrators"). Within thirty (30) days of their appointment, the Party
Arbitrators shall collectively select one (or two if necessary to constitute an
odd total number of arbitrators) additional arbitrator (together the "Panel
Arbitrators") and shall give the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such longer
period as may be agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding on the parties
involved. Such decision shall be a condition precedent to any right of legal
action arising out of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and expenses of
its own Party Arbitrator, and pay its own legal, accounting, and other
professional fees and expenses, b. jointly share in the payment of the fees and
expenses of the other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other expenses jointly
incurred by the involved parties directly related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be conducted
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
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e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to MMC:
Dr. James Hartert
Meridian Managed Care, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
4. If to Compcare RxCel:
5.
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Ms. Nina Reinero
Compcare Health Services Insurance Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 769-4931
Any notice or other communication given as provided in this Section 10.e, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Compcare RxCel on an independent contractor
basis. Nothing in this Agreement shall be construed to create an
employer-employee relationship between Compcare RxCel and Employees or any of
the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of
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conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
MERIDIAN MANAGED CARE, INC.
By:
------------------------------------
Title:
---------------------------------
ON BEHALF OF COMPCARE RXCEL, COMPCARE HEALTH SERVICES INSURANCE CORPORATION
By:
------------------------------------
Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), Meridian Managed Care, Inc., a corporation organized
pursuant to Ch. 180, Wisconsin Statutes ("MMC"), and Compcare Health Services
Insurance Corporation, a stock insurance corporation organized pursuant to Ch.
611, Wisconsin Statute ("Compcare").
RECITALS
WHEREAS, BCBSUW, UWS, MMC and Compcare are affiliated corporations,
with MMC and Compcare being wholly owned subsidiaries of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Compcare operates a health maintenance organization ("HMO")
through which Compcare (i) markets, underwrites, and services Compcare Group
Plans, including, but not limited to, Medicaid Plans, (ii) markets and services
the Compcare Point of Service Plans, with Compcare underwriting the HMO portion
and United Wisconsin Insurance Company ("UWIC") underwriting the indemnity
portion, and (iii) markets and services Compcare Out-of-Area Products, which are
underwritten by United Wisconsin Life Insurance Company ("UWLIC") or such other
company as may be agreed upon from time to time;
WHEREAS, Compcare has entered into independent third party contracts
with UWIC and UWLIC to provide administrative services in connection with the
indemnity portion of the Compcare Point of Service Plans and the Compcare
Out-of-Area Products and to document the cost and/or profit sharing associated
therewith, and Compcare has entered into an independent third party contract
with UWIC to reinsure a portion of the loss on the Compcare in-network portion
of the Compcare Point of Service Plans;
WHEREAS, Compcare also provides quality improvement, network
management, accounting, and provider contracting and relations services to
various companies in the BCBSUW/UWS Group;
WHEREAS, MMC provides certain employees and BCBSUW and UWS
collectively provide the other business resources and services necessary for the
continued operation of Compcare's business;
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WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Compcare and that
Compcare will continue to provide to various companies in the BCBSUW/UWS Group,
and the compensation and cost allocations therefor; and (iii) the respective
rights and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those MMC employees that are assigned to
perform all of their services for Compcare with respect only to the quality
improvement and network management functions provided by Compcare to other
companies in the BCBSUW/UWS Group. (Direct Employees may also be referred to
herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. MMC shall provide to Compcare,
to the extent requested by Compcare, the entire requirement of Direct Employees
for use in Compcare's business according to such job descriptions,
qualifications, experience, education, or skills (collectively "Employee
Specifications") as may be specified by Compcare from time to time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i and
Compcare's present intent to lease Direct Employees from MMC, Compcare shall
have the right, subject to Section 6, to obtain and hire directly any or all
employees from any other sources and on any terms to perform such duties as
Compcare may consider appropriate from time to time. Should Compcare hire
employees from other sources, it will not hire any individual who was an MMC,
BCBSUW or UWS Employee leased to Compcare within three (3) months preceding
such hiring, without the written consent of MMC, BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of MMC's, BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Compcare shall notify Human Resources at any time of its
intention to change such Employee Specifications for Direct Employees, at which
time Human Resources shall promptly make the requested changes to the Employee
Specifications.
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c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Compcare to
perform services as an officer, Compcare will be consulted prior to all
determinations regarding the employment, or terms thereof, of such individuals;
provided, however, that Compcare's input shall be of an advisory nature and will
not be binding on BCBSUW or UWS as the common law employers of such individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Compcare, for leased Direct Employees while performing services for Compcare.
Compcare shall advise Human Resources on the performance of Direct Employees,
and shall have the right to request investigation, disciplinary action,
reassignment, and removal of such employees. If at any time Compcare becomes
dissatisfied with the performance of a Direct Employee, Compcare shall have the
right to reject the continued lease of that particular employee and request a
replacement therefor. MMC, BCBSUW and UWS shall have the exclusive right,
however, to direct all MMC, BCBSUW and UWS employees, respectively, as to the
manner in which services are to be rendered and performance goals are to be
achieved. MMC, BCBSUW and UWS shall be, and shall have all the privileges,
rights, and responsibilities of, common law employers of all MMC, BCBSUW and UWS
employees, respectively, including, but not limited to, establishing work and
disciplinary rules, setting compensation levels, and directing each MMC, BCBSUW
or UWS Employee as to the manner in which daily duties are completed, whether or
not the employee actually performs services for MMC, BCBSUW, UWS or another
company in the BCBSUW/UWS Group. Employees leased to Compcare pursuant to this
Agreement shall remain employees of MMC, BCBSUW or UWS, and shall in no way be
treated as or considered employees of Compcare.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Compcare, if MMC adopts or implements any
change in compensation, employee benefit plans, or any other fringe benefit that
results in higher Total Personnel Costs (as defined at Section 4.a.i) than
those in existence as of the date of this Agreement, MMC shall provide Compcare
with written notice at least 30 days before such change becomes effective
(unless such change is required by law, in which case Compcare will be notified
as soon as possible), describing such new benefit and the projected increase in
the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO COMPCARE
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Compcare, to the extent requested by Compcare and subject to Section 6, the
following services and resources (together "BCBSUW Services"). BCBSUW shall
supply BCBSUW Services only if Compcare has determined not to have its own
employees or third parties furnish the BCBSUW Services, subject to Section 6.
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i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of Compcare's operations.
ii. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities made
available hereunder as shall be necessary to maintain such property and
facilities in good working order, and such other building services as may be
necessary or appropriate for the conduct of Compcare's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of Compcare's business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of Compcare's business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, administrative support and reporting, word
processing, documentation and training, contracts and booklets, customer service
administration, claims administration, benefits and provider administration, and
lobbyist activities, as shall be necessary or appropriate for the conduct of
Compcare's business.
vi. SALES AND MARKETING SERVICES. Such sales and marketing
services, including, but not limited to, direct and agency sales, sales
training, marketing communications and compliance, membership and electronic
enrollment, and customer relations, as shall be necessary or appropriate for
the conduct of Compcare's business.
vii. FINANCE AND UNDERWRITING SERVICES. Such finance and
underwriting services, including, but not limited to, financial reporting,
cash adjustments, medical review, and small group underwriting, as shall be
necessary or appropriate for the conduct of Compcare's business.
viii. MANAGEMENT SERVICES. Such management services as shall be
necessary or appropriate for the conduct of Compcare's business.
xi. COMPANY CAR AND TRAVEL. Availability and maintenance of
vehicles for company related travel and such other travel related services as
shall be necessary or appropriate for the conduct of Compcare's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to
Compcare, to the extent requested by Compcare and subject to Section 6, the
following services and resources (together "UWS Services"). UWS shall supply
UWS Services only if Compcare has determined not to have its own employees or
third parties furnish the UWS Services, subject to Section 6.
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i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of Compcare's
business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Compcare's business.
iii. MARKETING AND COMMUNICATIONS. Such corporate marketing and
communications services, including, but not limited to, public relations and
employee community events, as shall be necessary or appropriate for the conduct
of Compcare's business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by Compcare under
this Agreement or otherwise necessary or appropriate for the conduct of
Compcare's business.
v. FINANCIAL SERVICES. Such financial services, including, but not
limited to, tax, treasury, cash management, administration of financial systems,
corporate accounting, and strategic planning/consulting, as shall be necessary
or appropriate for the conduct of Compcare's business.
vi. ACTUARIAL AND UNDERWRITING SERVICES. Such actuarial and
underwriting services as shall be necessary or appropriate for the conduct of
Compcare's business.
vii. OTHER SERVICES. Such other services, including, but not limited
to, those provided by MMC or Meridian Resource Corporation, as shall be
necessary or appropriate for the conduct of Compcare's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. SERVICES PROVIDED BY COMPCARE TO THE BCBSUW/UWS GROUP
a. SERVICES PROVIDED BY COMPCARE. Compcare shall provide the following
services (together "Compcare Services") to companies in the BCBSUW/UWS Group, to
the extent requested by any such individual company:
i. QUALITY IMPROVEMENT. Such quality improvement services,
including, but not limited to, credentialing, quality alerts, and coordinating
external accreditation, as shall be necessary or appropriate for any company in
the BCBSUW/UWS Group.
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ii. NETWORK MANAGEMENT. Such network management services,
including, but not limited to, network analysis, provider relations support,
provider financial services, and provider reporting and analysis, as shall be
necessary or appropriate for any company in the BCBSUW/UWS Group.
iii. PROVIDER CONTRACTING. Such provider contracting services as
shall be necessary or appropriate for any company in the BCBSUW/UWS Group.
iv. ACCOUNTING. Such accounting services as shall be necessary or
appropriate for any company in the BCBSUW/UWS Group.
v. SALES. Such sales support as shall be necessary or appropriate
for any company in the BCBSUW/UWS Group.
4. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
salaries, wages, and bonuses;
profit sharing;
benefit plans;
payroll taxes;
employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Compcare, Total Personnel Costs associated with a Direct
Employee shall be directly charged to Compcare on a monthly basis. See Schedule
1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Compcare, costs therefor shall be
allocated to Compcare as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to Compcare on a monthly
basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS
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Group. For any specific Schedule 2 Service, Compcare's total allocation
percentage shall be determined by adding the applicable allocation percentage
from each of the service agreements included in Schedule 2. Each month all
costs associated with the utilization of Schedule 2 Services shall be
multiplied by Compcare's total allocation percentage to determine Compcare's
allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, (ii) costs associated with Schedule 2
Services performed directly for Compcare shall be allocable to Compcare only,
and (iii) subject to approval by the Vice President of Finance for the
BCBSUW/UWS Group, the Indirect Allocation Method used to allocate costs to
Compcare for specific Schedule 2 Services shall be subject to agreement by
the parties on an annual basis.(1) Schedule 2, attached hereto, sets forth
Compcare's annual allocation percentages for costs and expenses associated
with Schedule 2 Services. Schedule 2 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to Compcare as discussed in Section 4.b.ii, if the cost is a general
expense for providing the Chargeback Service to all users; or (ii) directly
charged to a Compcare cost center, if the cost is an expense specific to a
Compcare cost center. Thus, costs associated with Chargeback Services shall be
either directly charged or indirectly allocated to Compcare on a monthly basis,
depending on the nature of the cost.
iv. CHARGES AND ALLOCATIONS TO COMPCARE REGIONS. Direct charges to
Compcare, which are attributable to a specific regional operation of Compcare
("Region"), subsequently shall be charged to the Region. The Regions also shall
be allocated a pro rata percentage of the Compcare indirect cost allocations
based on the Region's earned fees. Notwithstanding the preceding, the
methodology used to allocate Compcare indirect cost allocations to the Regions
shall be subject to negotiation, on an annual basis, by the Finance Manager of
Compcare and the directors of the Compcare Regions.
c. COMPCARE SERVICES. To the extent that Compcare Services are rendered
on behalf of or for the benefit of a company in the BCBSUW/UWS Group, costs
therefor shall be allocated to the respective company as follows:
i. INDIRECT ALLOCATIONS. Costs allocations for Compcare Services
(excluding Compcare Sales Services) shall be determined annually for the next
succeeding Fiscal Year on the basis of cost center surveys completed by those
companies in the BCBSUW/UWS Group that utilize Compcare Services ("Internal
Users"). Based on the survey results, Internal Users shall be assigned a fixed
percentage. Each month all costs associated with the utilization of Compcare
Services by Internal Users shall be multiplied by the fixed allocation
percentage of each Internal User to determine the Internal User's respective
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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allocable share of costs for Compcare Services. Notwithstanding the preceding,
(i) allocation percentages are subject to interim Fiscal Year adjustments to
allocate more accurately costs based on actual utilization by each company in
the BCBSUW/UWS Group, and (ii) subject to approval by the Vice President of
Finance for the BCBSUW/UWS Group, the Indirect Allocation Method used to
allocate costs for Compcare Services shall be subject to agreement by the
parties on an annual basis.
ii. SALES CHARGEBACKS. Costs associated with Compcare Sales
Services either shall be (i) indirectly allocated to the Internal User if the
cost is a general expense for providing the Sale Services to all Internal
Users; or (ii) directly charged to an Internal User's cost center, if the
cost is an expense specific to an Internal User's cost center.
d. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Compcare
leases or utilizes the services of Employees from MMC, BCBSUW and/or UWS, and to
the extent that Compcare utilizes BCBSUW/UWS Services, MMC, BCBSUW and/or UWS
may charge Compcare a reasonable negotiated fee therefor, as set forth in
Schedule 5. To the extent that Compcare provides Compcare Services to any
company in the BCBSUW/UWS Group pursuant to this Agreement, Compcare may charge
a reasonable negotiated fee therefor, as set forth in Schedule 6.
5. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. MMC, BCBSUW, UWS and Compcare shall
maintain reasonable and appropriate operating procedures to allocate costs and
expenses so as to enable each party's independent certified public accounting
firm to audit such costs and the allocation thereof. At the end of each month,
(i) MMC, BCBSUW and/or UWS shall provide or make available to Compcare
appropriate documentation respecting the costs and expenses that are allocated,
either directly or indirectly, to Compcare for that month in sufficient detail
to permit Compcare to identify the sources of such charges, and (ii) Compcare
shall provide or make available to the BCBSUW/UWS Group appropriate
documentation respecting the costs and expenses that are allocated to individual
companies in the BCBSUW/UWS Group for that month for Compcare Services in
sufficient detail to permit the identification of the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, (i) Compcare shall promptly
reimburse MMC, BCBSUW and/or UWS for all costs and expenses incurred by MMC,
BCBSUW and/or UWS in furnishing or obtaining the Employees and Services provided
for under Sections I and II, which amount shall be based on the total of direct
charges and indirect allocations to Compcare for the preceding month, and (ii)
any company in the BCBSUW/UWS Group on whose behalf Compcare Services have been
rendered in the preceding month shall promptly reimburse Compcare for all costs
and expenses incurred by Compcare in furnishing Compare Services thereto.
Notwithstanding the preceding, the parties reserve the right to offset amounts
due to each other under this Agreement.
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6. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Compcare shall
be required to utilize Direct Employees and BCBSUW/UWS Services budgeted to
Compcare for that Contract Year, unless otherwise negotiated by the parties.
("Contract Year" shall mean January 1 through December 31.) If, at any time
during the Contract Year, Compcare requires services or other non-human
resources in addition to those budgeted to Compcare by BCBSUW and UWS, Compcare
may obtain such services or resources from a source outside of the BCBSUW/UWS
Group only if Compcare's additional needs cannot be accommodated by BCBSUW or
UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Compcare shall provide MMC,
BCBSUW and/or UWS with at least three (3) months' written notice prior to the
next Contract Year (unless the parties mutually agree upon a shorter period) of
its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain services or other non-human resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS
Group with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. MMC, BCBSUW and UWS have
the right to provide Employees and BCBSUW/UWS Services to Compcare either
directly or indirectly, through any company in the BCBSUW/UWS Group. MMC,
BCBSUW and UWS may provide employees, services and other resources to Compcare
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Compcare's consent. Costs for
Outside Services shall be subject to a cost structure negotiated by the parties
hereto.
7. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS, MMC or Compcare
may, for the sole purpose of documenting in more detail the terms and respective
rights and obligations of the parties with respect to Employees and Services
provided hereunder, request that any of the following types of ancillary
agreements be executed by any parties hereto and effected thereby:
i. Employee Lease Agreement;
ii. Office and Equipment Lease;
iii. Management Information Systems Agreement;
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iv. Service Agreement(s); or
v. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections I through VI of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
IX.B.2. The parties hereby agree that any negotiations subject to this Section
VII.B shall be performed in good faith and every reasonable effort shall be made
to effect the execution of a requested Ancillary Agreement.
8. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW, UWS, MMC and Compcare shall make
available to each other, for inspection, examination and copying, all of its
books and records pertaining to the Employees, BCBSUW/UWS Services, and Compcare
Services provided under this Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW, UWS, MMC, and Compcare, or at such other place as the parties hereto
may otherwise agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
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iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS, MMC or Compcare as the case
may be.
c. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
9. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 9.b.
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b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 7.b by
the Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of
and upon written notice from the non-defaulting party in the event of any of
the following:
(1) A party hereto becomes incapable of fully
performing its duties and obligations according to the terms
of this Agreement for the following reason(s): insolvency,
bankruptcy, or substantial cessation or interruption of its
business operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties
with prompt notice of the event of default, the defaulting party shall have 30
days to cure the defect, during which time the non-defaulting parties may not
exercise the termination right under this section 9.b.iii.
iv. Liabilities After Termination. The termination of this
Agreement shall not limit the obligation or liabilities of any party hereto
incurred but not discharged prior to termination.
10. INDEMNIFICATION
a. INDEMNIFICATION BY COMPCARE.
i. Notwithstanding anything to the contrary in this Agreement,
neither MMC, BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other
than Compcare), nor any person who is or was, at the time of any action or
inaction affecting Compcare, a director, officer, employee or agent of MMC,
BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than Compcare)
(collectively "Indemnitees") shall be liable to Compcare for any action or
inaction taken or omitted to be taken by such Indemnitee; PROVIDED, HOWEVER,
that such Indemnitee acted (or failed to act) in good faith and such action or
inaction does not constitute actual fraud, gross negligence or willful or wanton
misconduct.
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ii. Compcare shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Employees and BCBSUW/UWS Services provided to Compcare hereunder;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good faith
and such action or inaction does not constitute actual fraud, gross negligence
or willful or wanton misconduct, or b. by reason of, arising out of or resulting
from any breach or misrepresentation by Compcare under this Agreement.
b. INDEMNIFICATION BY MMC, BCBSUW AND UWS.
i. Notwithstanding anything to the contrary in this Agreement,
neither Compcare, nor any person who is or was, at the time of any action or
inaction affecting the BCBSUW/UWS Group (other than Compcare), a director,
officer, employee or agent of Compcare (collectively "Indemnitees") shall be
liable to any company in the BCBSUW/UWS Group for any action or inaction taken
or omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such
Indemnitee acted (or failed to act) in good faith and such action or inaction
does not constitute actual fraud, gross negligence or willful or wanton
misconduct.
ii. MMC, BCBSUW and UWS, jointly and severally, hereby agree to
indemnify and hold harmless, to the fullest extent not prohibited by law, each
Indemnitee against any liability, damage, cost, expense, loss, claim or judgment
(including, without limitation, reasonable attorneys' fees and expenses)
resulting to, imposed upon or incurred by such Indemnitee a. in connection with
any action, suit, arbitration or proceeding to which such Indemnitee was or is a
party or is threatened to be made a party by reason of the Compcare Services
provided to the BCBSUW/UWS Group hereunder; PROVIDED, HOWEVER, that such
Indemnitee acted (or failed to act) in good faith and such action or inaction
does not constitute actual fraud, gross negligence or willful or wanton
misconduct, or b. by reason of, arising out of or resulting from any breach or
misrepresentation by MMC, BCBSUW or UWS under this Agreement.
11. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
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c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 11.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding 1. occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Employees necessary for the conduct of Compcare's business,
or 2. utilization or delivery of Compcare Services, shall be
submitted to a coordinating committee for resolution. The
coordinating committee shall consist of four (4) persons,
each of whom shall 1. represent the respective interest of a
party hereto, and 2. be mutually agreed upon by the parties
hereto. If the coordinating committee is unable to
unanimously resolve the dispute, then the parties hereto may
resort to the dispute resolution process provided for in
Section 11.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of four (4) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 11.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section 11.d.i(1) or an
audit committee pursuant to Section 11.d.i(2) shall be
settled by arbitration. In order to initiate an arbitration,
BCBSUW, UWS, MMC or Compcare (as the case may be) shall
deliver a written notice of demand for arbitration to the
other affected party(ies). Within thirty (30) days of the
giving of such written notice, each party involved shall
appoint an individual as arbitrator (the "Party
Arbitrators"). Within thirty (30) days of their appointment,
the Party Arbitrators shall
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collectively select one (or two if necessary to constitute an
odd total number of arbitrators) additional arbitrator
(together the "Panel Arbitrators") and shall give the parties
involved notice of such choice.
(2) The arbitration hearings shall be held in
Milwaukee, Wisconsin. Each party shall submit its case to the
Panel Arbitrators within sixty (60) days of the selection of
the Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
i. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
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Facsimile Telephone Number: (414) 523-4920
ii. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
iii. If to MMC:
Dr. James Hartert
Meridian Managed Care, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
iv. If to Compcare:
Mr. Roger A. Formisano
Compcare Health Services Insurance Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section
11.e, shall be deemed given upon the first business day after actual delivery to
the party to whom such notice or other communication is sent (as evidenced by
the return receipt or shipping invoice signed by a representative of such party
or by the facsimile confirmation or e-mail return receipt). Any party from time
to time may change its address for purpose of notices to that party by giving a
similar notice specifying a new address.
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f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Compcare on an independent contractor basis.
Nothing in this Agreement shall be construed to create an employer-employee
relationship between Compcare and Employees or any of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
MERIDIAN MANAGED CARE, INC.
By:
------------------------------------
Title:
---------------------------------
COMPCARE HEALTH SERVICES INSURANCE CORPORATION
By:
------------------------------------
Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and Meridian Resource Corporation, a corporation
organized pursuant to Ch. 180, Wisconsin Statutes ("Meridian Corp") on behalf of
its Investigation and Recovery Services business unit ("Meridian IRS").
RECITALS
WHEREAS, BCBSUW, UWS and Meridian Corp are affiliated corporations,
with Meridian Corp being a wholly owned subsidiary of UWS;
WHEREAS, Meridian IRS is an unincorporated business unit of Meridian
Corp;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Meridian IRS provides subrogation and recovery services,
fraud and abuse investigation services, and collection services to various
companies in the BCBSUW/UWS Group, and Meridian IRS also contracts with outside
entities to provide subrogation and recovery services;
WHEREAS, UWS provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Meridian IRS's business;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Meridian IRS and that
Meridian IRS will continue to provide to various companies in the BCBSUW/UWS
Group, and the compensation and cost allocations therefor; and (iii) the
respective rights and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
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1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those UWS employees that are assigned to
perform all of their services for Meridian IRS. (Direct Employees may also be
referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. UWS shall provide to Meridian
IRS, to the extent requested by Meridian IRS, the entire requirement of Direct
Employees for use in Meridian IRS's business according to such job descriptions,
qualifications, experience, education, or skills (collectively "Employee
Specifications") as may be specified by Meridian IRS from time to time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.B.i and Meridian
IRS's present intent to lease Direct Employees from UWS, Meridian IRS shall have
the right, subject to Section 6, to obtain and hire directly any or all
employees from any other sources and on any terms to perform such duties as
Meridian IRS may consider appropriate from time to time. Should Meridian IRS
hire employees from other sources, it will not hire any individual who was a
BCBSUW or UWS Employee leased to Meridian IRS within three (3) months preceding
such hiring, without the written consent of BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Meridian IRS shall notify Human Resources at any time of its
intention to change such Employee Specifications for Direct Employees, at which
time Human Resources shall promptly make the requested changes to the Employee
Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Meridian IRS to
perform services as an officer, Meridian IRS will be consulted prior to all
determinations regarding the employment, or terms thereof, of such individuals;
provided, however, that Meridian IRS's input shall be of an advisory nature and
will not be binding on BCBSUW or UWS as the common law employers of such
individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Meridian IRS, for leased Direct Employees while performing services for Meridian
IRS. Meridian IRS shall advise Human Resources on the performance of Direct
Employees, and shall have the right to request investigation, disciplinary
action, reassignment, and removal of such employees. If at any time Meridian
IRS becomes dissatisfied with the performance of a Direct Employee,
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Meridian IRS shall have the right to reject the continued lease of that
particular employee and request a replacement therefor. BCBSUW and UWS shall
have the exclusive right, however, to direct all BCBSUW and UWS employees,
respectively, as to the manner in which services are to be rendered and
performance goals are to be achieved. BCBSUW and UWS shall be, and shall
have all the privileges, rights, and responsibilities of, common law
employers of all BCBSUW and UWS employees, respectively, including, but not
limited to, establishing work and disciplinary rules, setting compensation
levels, and directing each BCBSUW or UWS Employee as to the manner in which
daily duties are completed, whether or not the employee actually performs
services for BCBSUW, UWS or another company in the BCBSUW/UWS Group.
Employees leased to Meridian IRS pursuant to this Agreement shall remain
employees of BCBSUW or UWS, and shall in no way be treated as or considered
employees of Meridian IRS.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Meridian IRS, if UWS adopts or implements any
change in compensation, employee benefit plans, or any other fringe benefit that
results in higher Total Personnel Costs (as defined at Section 4.a.i) than
those in existence as of the date of this Agreement, UWS shall provide Meridian
IRS with written notice at least 30 days before such change becomes effective
(unless such change is required by law, in which case Meridian IRS will be
notified as soon as possible), describing such new benefit and the projected
increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO MERIDIAN IRS
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Meridian IRS, to the extent requested by Meridian IRS and subject to Section 6,
the following services and resources (together "BCBSUW Services"). BCBSUW shall
supply BCBSUW Services only if Meridian IRS has determined not to have its own
employees or third parties furnish the BCBSUW Services, subject to Section 6.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary
or appropriate for the conduct of Meridian IRS's operations.
ii. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities made
available hereunder as shall be necessary to maintain such property and
facilities in good working order, and such other building services as may be
necessary or appropriate for the conduct of Meridian IRS's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for
the conduct of Meridian IRS's business.
iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology
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support and central data base maintenance, as shall be
necessary or appropriate for the conduct of Meridian IRS's business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, lobbyist activities, documentation and
training, as shall be necessary or appropriate for the conduct of Meridian
IRS's business.
vi. COMPANY CAR AND TRAVEL. Availability and maintenance of
vehicles for company related travel and such other travel related services as
shall be necessary or appropriate for the conduct of Meridian IRS's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to Meridian
IRS, to the extent requested by Meridian IRS and subject to Section 6, the
following services and resources (together "UWS Services"). UWS shall supply
UWS Services only if Meridian IRS has determined not to have its own employees
or third parties furnish the UWS Services, subject to Section 6.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of Meridian
IRS's business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Meridian IRS's business.
iii. MARKETING AND COMMUNICATIONS. Such marketing and communications
services, including, but not limited to, public relations and employee community
events, as shall be necessary or appropriate for the conduct of Meridian IRS's
business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by Meridian IRS
under this Agreement or otherwise necessary or appropriate for the conduct of
Meridian IRS's business.
v. ACCOUNTING SERVICES. Such accounting, audit, bookkeeping and
financial statement preparation services as shall be necessary or appropriate
for the conduct of Meridian IRS's business.
vi. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, tax, treasury, administration of financial systems,
corporate accounting, and strategic planning/consulting, as shall be necessary
or appropriate for the conduct of Meridian IRS's business.
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vii. OTHER SERVICES. Such other services, including, but not limited
to, those provided by Compcare, Dentacare or Meridian Managed Care, as shall be
necessary or appropriate for the conduct of Meridian IRS's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. SERVICES PROVIDED BY MERIDIAN IRS TO THE BCBSUW/UWS GROUP
a. SERVICES PROVIDED BY MERIDIAN IRS. Meridian IRS shall provide the
following services (together "Meridian IRS Services") to companies in the
BCBSUW/UWS Group, to the extent requested by any such individual company:
i. SUBROGATION AND RECOVERY SERVICES. Such subrogation and recovery
services as shall be necessary or appropriate for the conduct of any company in
the BCBSUW/UWS Group.
ii. FRAUD AND ABUSE INVESTIGATION SERVICES. Such fraud and abuse
investigation services as shall be necessary or appropriate for the conduct of
any company in the BCBSUW/UWS Group.
iii. COLLECTION SERVICES. Such collection services as shall be
necessary or appropriate for the conduct of any company in the BCBSUW/UWS Group.
4. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
a. salaries, wages, and bonuses;
b. profit sharing;
c. benefit plans;
d. payroll taxes;
e. employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Meridian IRS, Total Personnel Costs associated with a
Direct Employee shall be directly charged to Meridian IRS on a monthly basis.
See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Meridian IRS, costs therefor shall
be allocated to Meridian IRS as follows:
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i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to Meridian IRS on a monthly
basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. Each month all
costs associated with the utilization of Schedule 2 Services shall be multiplied
by the allocation percentage of Meridian Corp to determine Meridian Corp's
allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, (ii) costs associated with Schedule 2
Services performed directly for Meridian Corp shall be allocable to Meridian
Corp only, and (iii) subject to approval by the Vice President of Finance for
the BCBSUW/UWS Group, the Indirect Allocation Method used to allocate costs to
Meridian Corp for specific Schedule 2 Services shall be subject to agreement by
the parties on an annual basis.(1) Subsequently, indirect cost allocations to
Meridian Corp shall be allocated to each individual business unit within
Meridian Corp, including Meridian IRS, each month based on the ratio of the
unit's directly charged expenses to the total Meridian Corp directly charged
expenses. Notwithstanding the preceding sentence, costs associated with those
Schedule 2 Services not actually utilized by Meridian IRS, such as cost center
104 for the Meridian Madison office, shall not be allocated to Meridian IRS.
Schedule 2, attached hereto, sets forth Meridian Corp's annual allocation
percentage for costs and expenses associated with Schedule 2 Services. Schedule
2 shall be amended annually.
III. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to Meridian IRS as discussed in Section 4.b.ii, if the cost is a
general expense for providing the Chargeback Service to all users; or (ii)
directly charged to a Meridian IRS cost center, if the cost is an expense
specific to a Meridian IRS cost center. Thus, costs associated with Chargeback
Services shall be either directly charged or indirectly allocated to Meridian
IRS on a monthly basis, depending on the nature of the cost.
c. MERIDIAN IRS SERVICES. To the extent that Meridian IRS Services are
rendered on behalf of or for the benefit of a company in the BCBSUW/UWS Group
(excluding those companies that separately enter into third party contracts with
Meridian IRS for the provision of such services) costs therefor shall be
allocated to the respective company as follows:
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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i. RECOVERY SERVICES. Each month, the total amount of recoveries
and/or savings (the term "savings" as used in this Section 4.C, shall mean
those costs that a company is not ultimately liable for due to discovery (i) of
a responsible third party, or (ii) that the cost is not covered by the
applicable contract) generated by the subrogation, recovery, and collection
services performed for companies in the BCBSUW/UWS Group pursuant to this
Agreement shall be determined ("Total Recovery Savings"). Subsequently, all
costs and expenses associated with such monthly Total Recovery Savings ("Cost
Center 95 Expenses") shall be allocated to individual companies in the
BCBSUW/UWS Group based on the ratio of recoveries/savings actually realized by
each individual company to the Total Recovery Savings.
ii. FRAUD AND ABUSE INVESTIGATIONS. Each month, the total amount of
recoveries and/or savings generated by the fraud and abuse investigation
services performed for companies in the BCBSUW/UWS Group pursuant to this
Agreement shall be determined ("Total Fraud Savings"). Subsequently, all costs
and expenses associated with such monthly Total Fraud Savings ("Cost Center 90
Expenses") shall be allocated to individual companies in the BCBSUW/UWS Group
based on the ratio of recoveries/savings actually realized by each individual
company to the Total Fraud Savings.
iii. OTHER ALLOCATED COSTS. In addition to costs and expenses
directly attributable to recovery and investigation services, as discussed in
Sections 4.c.i and 4.c.ii, costs and expenses associated with the Director of
Meridian IRS, including general support staff therefor ("Cost Center 92
Expenses"), shall be allocated to companies in the BCBSUW/UWS Group as follows:
Each month, (i) Cost Center 95 Expenses and Cost Center 90 Expenses ("Internal
Meridian IRS Service Costs"), and (ii) costs and expenses associated with
Meridian IRS Services performed pursuant to external third party contracts
("Cost Center 108 Expenses") shall be totaled ("Total Meridian IRS Service
Costs"). Subsequently, Cost Center 92 Expenses shall be allocated to individual
companies in the BCBSUW/UWS Group based on the ratio of Internal Meridian IRS
Service Costs actually allocated to each individual company in the BCBSUW/UWS
Group to the Total Meridian IRS Service Costs.
iv. FEDERAL EMPLOYEE PROGRAM COSTS. Notwithstanding the preceding,
to the extent that Meridian IRS Services are performed with respect to the
Federal Employee Program ("FEP"), cost allocations associated therewith must be
based on specific FEP rules and regulations, and thus, FEP cost allocations
shall be subject to negotiation by the respective parties on a case by case
basis.
d. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Meridian IRS
leases or utilizes the services of Employees from BCBSUW and/or UWS, and to the
extent that Meridian IRS utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may
charge Meridian IRS a reasonable negotiated fee therefor, as set forth in
Schedule 5. To the extent that Meridian IRS provides Meridian IRS Services to
any company in the BCBSUW/UWS Group pursuant to this Agreement, Meridian IRS may
charge a reasonable negotiated fee therefor, as set forth in Schedule 6.
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5. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW, UWS and Meridian IRS shall
maintain reasonable and appropriate operating procedures to allocate costs and
expenses so as to enable each party's independent certified public accounting
firm to audit such costs and the allocation thereof. At the end of each month,
(i) BCBSUW and/or UWS shall provide or make available to Meridian IRS
appropriate documentation respecting the costs and expenses that are allocated,
either directly or indirectly, to Meridian IRS for that month in sufficient
detail to permit Meridian IRS to identify the sources of such charges, and (ii)
Meridian IRS shall provide or make available to the BCBSUW/UWS Group appropriate
documentation respecting the costs and expenses that are allocated to individual
companies in the BCBSUW/UWS Group for that month for Meridian IRS Services in
sufficient detail to permit the identification of the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, (i) Meridian IRS shall promptly
reimburse BCBSUW and/or UWS for all costs and expenses incurred by BCBSUW and/or
UWS in furnishing or obtaining the Employees and Services provided for under
Sections I and II, which amount shall be based on the total of direct charges
and indirect allocations to Meridian IRS for the preceding month, and (ii) any
company in the BCBSUW/UWS Group on whose behalf Meridian IRS Services have been
rendered in the preceding month shall promptly reimburse Meridian IRS for all
costs and expenses incurred by Meridian IRS in furnishing Meridian IRS Services
thereto. Notwithstanding the preceding, the parties reserve the right to offset
amounts due to each other under this Agreement.
6. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Meridian IRS
shall be required to utilize Employees and BCBSUW/UWS Services budgeted to
Meridian IRS for that Contract Year, unless otherwise negotiated by the parties.
("Contract Year" shall mean January 1 through December 31.) If, at any time
during the Contract Year, Meridian IRS requires employees, services or other
resources in addition to those budgeted to Meridian IRS by BCBSUW and UWS,
Meridian IRS may obtain such employees, services or resources from a source
outside of the BCBSUW/UWS Group only if Meridian IRS's additional needs cannot
be accommodated by BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Meridian IRS shall provide
BCBSUW and/or UWS with at least three (3) months' written notice prior to the
next Contract Year (unless the parties mutually agree upon a shorter period) of
its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
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ii. Obtain employees, services or other resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group
with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide Employees and BCBSUW/UWS Services to Meridian IRS either
directly or indirectly, through any company in the BCBSUW/UWS Group. BCBSUW and
UWS may provide employees, services and other resources to Meridian IRS
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Meridian IRS's consent. Costs
for Outside Services shall be subject to a cost structure negotiated by the
parties hereto.
7. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or Meridian IRS
may, for the sole purpose of documenting in more detail the terms and respective
rights and obligations of the parties with respect to Employees and Services
provided hereunder, request that any of the following types of ancillary
agreements be executed by any parties hereto and effected thereby:
1. Employee Lease Agreement;
2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections 1 through 6 of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been
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executed, the Requesting Party may terminate this Agreement in accordance
with Section 9.b.ii. The parties hereby agree that any negotiations subject
to this Section 7.b shall be performed in good faith and every reasonable
effort shall be made to effect the execution of a requested Ancillary
Agreement.
8. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW, UWS and Meridian IRS shall make
available to each other, for inspection, examination and copying, all of its
books and records pertaining to the Employees, BCBSUW/UWS Services, and Meridian
IRS Services provided under this Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW, UWS, and Meridian IRS, or at such other place as the parties hereto may
otherwise agree to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain
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any description containing or pertaining to any Proprietary Information of
the other parties, unless otherwise consented to in writing by a duly
authorized officer of BCBSUW, UWS or Meridian IRS as the case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding Meridian Corp) will directly compete with the
products or markets of Meridian IRS during the term of this Agreement. BCBSUW
and UWS further agree that for a period of two (2) years following the
termination of this Agreement for any reason, no company in the BCBSUW/UWS Group
(excluding Meridian Corp) will directly compete with Meridian IRS in any market
in which Meridian IRS operates or does business at the termination of this
Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
9. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 9.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 7.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy,
or substantial cessation or interruption of its business
operations for any reason whatsoever;
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(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section 9.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
10. INDEMNIFICATION
a. INDEMNIFICATION BY MERIDIAN IRS.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
Meridian Corp), nor any person who is or was, at the time of any action or
inaction affecting Meridian IRS, a director, officer, employee or agent of
BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than Meridian
Corp) (collectively "Indemnitees") shall be liable to Meridian IRS for any
action or inaction taken or omitted to be taken by such Indemnitee; PROVIDED,
HOWEVER, that such Indemnitee acted (or failed to act) in good faith and such
action or inaction does not constitute actual fraud, gross negligence or willful
or wanton misconduct.
ii. Meridian IRS shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Employees and BCBSUW/UWS Services provided to Meridian IRS
hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in
good faith and such action or inaction does not constitute actual fraud, gross
negligence or willful or wanton misconduct, or b. by reason of, arising out of
or resulting from any breach or misrepresentation by Meridian IRS under this
Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS.
i. Notwithstanding anything to the contrary in this Agreement,
neither Meridian Corp (as used in this Section 10.b, Meridian Corp shall include
Meridian IRS), nor any person who is or was, at the time of any action or
inaction affecting the BCBSUW/UWS Group (other than Meridian Corp), a director,
officer, employee or agent of Meridian Corp (collectively "Indemnitees") shall
be liable to any company in the BCBSUW/UWS Group for any action or inaction
taken or omitted to be taken by such Indemnitee; PROVIDED, HOWEVER, that such
Indemnitee acted (or failed to act) in good faith and
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such action or inaction does not constitute actual fraud, gross negligence or
willful or wanton misconduct.
ii. BCBSUW and UWS, jointly and severally, hereby agree to indemnify
and hold harmless, to the fullest extent not prohibited by law, each Indemnitee
against any liability, damage, cost, expense, loss, claim or judgment
(including, without limitation, reasonable attorneys' fees and expenses)
resulting to, imposed upon or incurred by such Indemnitee a. in connection with
any action, suit, arbitration or proceeding to which such Indemnitee was or is a
party or is threatened to be made a party by reason of the Meridian IRS Services
provided to the BCBSUW/UWS Group hereunder; PROVIDED, HOWEVER, that such
Indemnitee acted (or failed to act) in good faith and such action or inaction
does not constitute actual fraud, gross negligence or willful or wanton
misconduct, or b. by reason of, arising out of or resulting from any breach or
misrepresentation by BCBSUW or UWS under this Agreement.
11. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 11.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding 1. occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Employees necessary for the conduct of Meridian IRS's
business, or 2. utilization or delivery of Meridian IRS
Services, shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three
(3)
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persons, each of whom shall 1. represent the respective
interest of a party hereto, and 2. be mutually agreed upon by
the parties hereto. If the coordinating committee is unable
to unanimously resolve the dispute, then the parties hereto
may resort to the dispute resolution process provided for in
Section 11.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 11.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section 11.d.i.(1) or an
audit committee pursuant to Section 11.d.i.(2) shall be settled
by arbitration. In order to initiate an arbitration, BCBSUW,
UWS or Meridian IRS (as the case may be) shall deliver a
written notice of demand for arbitration to the other affected
party(ies). Within thirty (30) days of the giving of such
written notice, each party involved shall appoint an
individual as arbitrator (the "Party Arbitrators"). Within
thirty (30) days of their appointment, the Party Arbitrators
shall collectively select one (or two if necessary to
constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give
the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the
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fees and expenses of the other one (or two) arbitrator(s)
selected by the Party Arbitrators, and c. jointly share in the
payment of the other expenses jointly incurred by the involved
parties directly related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail,
as follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to Meridian IRS:
Mr. Roger Formisano
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Meridian Resource Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section 11.e, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Meridian IRS on an independent contractor basis.
Nothing in this Agreement shall be construed to create an employer-employee
relationship between Meridian IRS and Employees or any of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
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k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
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Title:
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By:
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Title:
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UNITED WISCONSIN SERVICES, INC.
By:
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Title:
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ON BEHALF OF MERIDIAN IRS, MERIDIAN RESOURCE CORPORATION
By:
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Title:
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and Meridian Resource Corporation, a corporation
organized pursuant to Ch. 180, Wisconsin Statutes ("Meridian Corp") on behalf of
its Consulting Services business unit ("Meridian Consulting").
RECITALS
WHEREAS, BCBSUW, UWS and Meridian Corp are affiliated corporations,
with Meridian Corp being a wholly owned subsidiary of UWS;
WHEREAS, Meridian Consulting is an unincorporated business unit of
Meridian Corp;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Meridian Consulting (i) provides consulting services,
including, but not limited to, the Meridian Profiling System, the Standard
Hospital Cost Index, and external accreditation services, to various companies
in the BCBSUW/UWS Group and to outside entities, all on a third party contract
basis, and (ii) through the Medicaid Evaluation and Decision Support Project
("MEDS"), provides the Wisconsin Bureau of Health Care Financing with various
services to support the daily management of the Wisconsin Medicaid program;
WHEREAS, UWS provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Meridian Consulting's business;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Meridian Consulting
and the compensation and cost allocations therefor; and (iii) the respective
rights and responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
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1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those UWS employees that are assigned to
perform all of their services for Meridian Consulting. (Direct Employees may
also be referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. UWS shall provide to Meridian
Consulting, to the extent requested by Meridian Consulting, the entire
requirement of Direct Employees for use in Meridian Consulting's business
according to such job descriptions, qualifications, experience, education, or
skills (collectively "Employee Specifications") as may be specified by Meridian
Consulting from time to time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i and Meridian
Consulting's present intent to lease Direct Employees from UWS, Meridian
Consulting shall have the right, subject to Section 5, to obtain and hire
directly any or all employees from any other sources and on any terms to perform
such duties as Meridian Consulting may consider appropriate from time to time.
Should Meridian Consulting hire employees from other sources, it will not hire
any individual who was a BCBSUW or UWS Employee leased to Meridian Consulting
within three (3) months preceding such hiring, without the written consent of
BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Meridian Consulting shall notify Human Resources at any time of
its intention to change such Employee Specifications for Direct Employees, at
which time Human Resources shall promptly make the requested changes to the
Employee Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Meridian
Consulting to perform services as an officer, Meridian Consulting will be
consulted prior to all determinations regarding the employment, or terms
thereof, of such individuals; provided, however, that Meridian Consulting's
input shall be of an advisory nature and will not be binding on BCBSUW or UWS as
the common law employers of such individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Meridian Consulting, for leased Direct Employees while performing services for
Meridian Consulting. Meridian Consulting shall advise Human Resources on the
performance of Direct Employees, and shall have the right to request
investigation, disciplinary action, reassignment, and removal
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of such employees. If at any time Meridian Consulting becomes dissatisfied
with the performance of a Direct Employee, Meridian Consulting shall have the
right to reject the continued lease of that particular employee and request a
replacement therefor. BCBSUW and UWS shall have the exclusive right, however,
to direct all BCBSUW and UWS employees, respectively, as to the manner in
which services are to be rendered and performance goals are to be achieved.
BCBSUW and UWS shall be, and shall have all the privileges, rights, and
responsibilities of, common law employers of all BCBSUW and UWS employees,
respectively, including, but not limited to, establishing work and
disciplinary rules, setting compensation levels, and directing each BCBSUW or
UWS Employee as to the manner in which daily duties are completed, whether or
not the employee actually performs services for BCBSUW, UWS or another
company in the BCBSUW/UWS Group. Employees leased to Meridian Consulting
pursuant to this Agreement shall remain employees of BCBSUW or UWS, and shall
in no way be treated as or considered employees of Meridian Consulting.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Meridian Consulting, if UWS adopts or
implements any change in compensation, employee benefit plans, or any other
fringe benefit that results in higher Total Personnel Costs (as defined at
Section 3.a.i) than those in existence as of the date of this Agreement, UWS
shall provide Meridian Consulting with written notice at least 30 days before
such change becomes effective (unless such change is required by law, in which
case Meridian Consulting will be notified as soon as possible), describing such
new benefit and the projected increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO MERIDIAN CONSULTING
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Meridian Consulting, to the extent requested by Meridian Consulting and subject
to Section 5, the following services and resources (together "BCBSUW Services").
BCBSUW shall supply BCBSUW Services only if Meridian Consulting has determined
not to have its own employees or third parties furnish the BCBSUW Services,
subject to Section 5.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of Meridian Consulting's operations.
ii. BUILDING SERVICES. Building services, including, but not limited
to, repair and maintenance of any property and facilities made available
hereunder as shall be necessary to maintain such property and facilities in good
working order, and such other building services as may be necessary or
appropriate for the conduct of Meridian Consulting's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of Meridian Consulting's business.
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iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of Meridian Consulting's business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, lobbyist activities, documentation and training,
as shall be necessary or appropriate for the conduct of Meridian Consulting's
business.
vi. COMPANY CAR AND TRAVEL. Availability and maintenance of vehicles
for company related travel and such other travel related services as shall be
necessary or appropriate for the conduct of Meridian Consulting's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to
Meridian Consulting, to the extent requested by Meridian Consulting and
subject to Section 5, the following services and resources (together "UWS
Services"). UWS shall supply UWS Services only if Meridian Consulting has
determined not to have its own employees or third parties furnish the UWS
Services, subject to Section 5.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of Meridian
Consulting's business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Meridian Consulting's business.
iii. MARKETING AND COMMUNICATIONS. Such marketing and communications
services, including, but not limited to, public relations and employee community
events, as shall be necessary or appropriate for the conduct of Meridian
Consulting's business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by Meridian
Consulting under this Agreement or otherwise necessary or appropriate for the
conduct of Meridian Consulting's business.
v. ACCOUNTING SERVICES. Such accounting, audit, bookkeeping and
financial statement preparation services as shall be necessary or appropriate
for the conduct of Meridian Consulting's business.
vi. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, tax, treasury, administration of financial systems,
corporate accounting, and strategic planning/consulting, as shall be necessary
or appropriate for the conduct of Meridian Consulting's business.
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vii. OTHER SERVICES. Such other services, including, but not limited
to, those provided by Compcare, Dentacare or Meridian Managed Care, as shall be
necessary or appropriate for the conduct of Meridian Consulting's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
a. salaries, wages, and bonuses;
b. profit sharing;
c. benefit plans;
d. payroll taxes;
e. employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Meridian Consulting, Total Personnel Costs associated
with a Direct Employee shall be directly charged to Meridian Consulting on a
monthly basis. See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Meridian Consulting, costs therefor
shall be allocated to Meridian Consulting as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to Meridian Consulting on a
monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. Each month all
costs associated with the utilization of Schedule 2 Services shall be multiplied
by the allocation percentage of Meridian Corp to determine Meridian Corp's
allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, (ii) costs associated
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with Schedule 2 Services performed directly for Meridian Corp shall be
allocable to Meridian Corp only, and (iii) subject to approval by the Vice
President of Finance for the BCBSUW/UWS Group, the Indirect Allocation Method
used to allocate costs to Meridian Corp for specific Schedule 2 Services
shall be subject to agreement by the parties on an annual basis.(1)
Subsequently, indirect cost allocations to Meridian Corp shall be allocated
to each individual business unit within Meridian Corp, including Meridian
Consulting, each month based on the ratio of the unit's directly charged
expenses to the total Meridian Corp directly charged expenses. Schedule 2,
attached hereto, sets forth Meridian Corp's annual allocation percentage for
costs and expenses associated with Schedule 2 Services. Schedule 2 shall be
amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to Meridian Consulting as discussed in Section 3.b.ii, if the cost is
a general expense for providing the Chargeback Service to all users; or (ii)
directly charged to a Meridian Consulting cost center, if the cost is an expense
specific to a Meridian Consulting cost center. Thus, costs associated with
Chargeback Services shall be either directly charged or indirectly allocated to
Meridian Consulting on a monthly basis, depending on the nature of the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Meridian
Consulting leases or utilizes the services of Employees from BCBSUW and/or UWS,
and to the extent that Meridian Consulting utilizes BCBSUW/UWS Services, BCBSUW
and/or UWS may charge Meridian Consulting a reasonable negotiated fee therefor,
as set forth in Schedule 5.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable Meridian Consulting's independent certified public accounting
firm to audit such costs and the allocation thereof. At the end of each month,
BCBSUW and/or UWS shall provide or make available to Meridian Consulting
appropriate documentation respecting the costs and expenses that are allocated,
either directly or indirectly, to Meridian Consulting for that month in
sufficient detail to permit Meridian Consulting to identify the sources of such
charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, Meridian Consulting shall
promptly reimburse BCBSUW and/or UWS for all costs and expenses incurred by
BCBSUW and/or UWS in furnishing or obtaining the Employees and Services provided
for under Sections I and II, which amount shall be based on the total of direct
charges and indirect allocations to Meridian
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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Consulting for the preceding month. Notwithstanding the preceding, Meridian
Consulting reserves the right to offset any amounts due to BCBSUW and/or UWS
under this Agreement against other obligations of BCBSUW and/or UWS to
Meridian Consulting.
5. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Meridian
Consulting shall be required to utilize Employees and BCBSUW/UWS Services
budgeted to Meridian Consulting for that Contract Year, unless otherwise
negotiated by the parties. ("Contract Year" shall mean January 1 through
December 31.) If, at any time during the Contract Year, Meridian Consulting
requires employees, services or other resources in addition to those budgeted to
Meridian Consulting by BCBSUW and UWS, Meridian Consulting may obtain such
employees, services or resources from a source outside of the BCBSUW/UWS Group
only if Meridian Consulting's additional needs cannot be accommodated by BCBSUW
or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Meridian Consulting shall
provide BCBSUW and/or UWS with at least three (3) months' written notice prior
to the next Contract Year (unless the parties mutually agree upon a shorter
period) of its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain employees, services or other resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group
with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide Employees and BCBSUW/UWS Services to Meridian Consulting either
directly or indirectly, through any company in the BCBSUW/UWS Group. BCBSUW and
UWS may provide employees, services and other resources to Meridian Consulting
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Meridian Consulting's consent.
Costs for Outside Services shall be subject to a cost structure negotiated by
the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or Meridian
Consulting may, for the sole purpose of documenting in more detail the terms and
respective rights and obligations of the parties with respect to Employees and
Services provided hereunder, request that any of the following types of
ancillary agreements be executed by any parties hereto and effected thereby:
1. Employee Lease Agreement;
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2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections 1 through 5 of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
8.b.ii. The parties hereby agree that any negotiations subject to this
Section 6.b shall be performed in good faith and every reasonable effort shall
be made to effect the execution of a requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW and UWS shall make available to
Meridian Consulting, for inspection, examination and copying, all of its books
and records pertaining to the Employees and BCBSUW/UWS Services provided under
this Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW and UWS, or at such other place as the parties hereto may otherwise agree
to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
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b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS or Meridian Consulting as
the case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding Meridian Corp) will directly compete with the
products or markets of Meridian Consulting during the term of this Agreement.
BCBSUW and UWS further agree that for a period of two (2) years following the
termination of this Agreement for any reason, no company in the BCBSUW/UWS Group
(excluding Meridian Corp) will directly compete with Meridian Consulting in any
market in which Meridian Consulting operates or does business at the termination
of this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
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8. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 8.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 6.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy,
or substantial cessation or interruption of its business
operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section 8.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY MERIDIAN CONSULTING.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
Meridian Corp), nor any person who is or was, at the time of any action or
inaction affecting Meridian Consulting, a director, officer, employee or agent
of BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than Meridian
Corp) (collectively "Indemnitees") shall be liable to Meridian Consulting for
any action or inaction taken or omitted to be taken by such Indemnitee;
PROVIDED, HOWEVER, that such Indemnitee acted (or
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failed to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct.
ii. Meridian Consulting shall, to the fullest extent not prohibited
by law, indemnify and hold harmless each Indemnitee against any liability,
damage, cost, expense, loss, claim or judgment (including, without limitation,
reasonable attorneys' fees and expenses) resulting to, imposed upon or incurred
by such Indemnitee a. in connection with any action, suit, arbitration or
proceeding to which such Indemnitee was or is a party or is threatened to be
made a party by reason of the Employees and BCBSUW/UWS Services provided to
Meridian Consulting hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or
failed to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct, or b. by reason
of, arising out of or resulting from any breach or misrepresentation by Meridian
Consulting under this Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless Meridian Consulting, and
its successors and assigns, from and against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by Meridian
Consulting by reason of, arising out of or resulting from any breach or
misrepresentation by BCBSUW or UWS under this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 10.d of this Agreement.
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d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Employees necessary for the conduct of Meridian Consulting's
business shall be submitted to a coordinating committee for
resolution. The coordinating committee shall consist of three
(3) persons, each of whom shall 1. represent the respective
interest of a party hereto, and 2. be mutually agreed upon by
the parties hereto. If the coordinating committee is unable to
unanimously resolve the dispute, then the parties hereto may
resort to the dispute resolution process provided for in
Section 10.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 10.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section 10.d.i(1) or an
audit committee pursuant to Section 10.d.i(2) shall be settled
by arbitration. In order to initiate an arbitration, BCBSUW,
UWS or Meridian Consulting (as the case may be) shall deliver
a written notice of demand for arbitration to the other
affected party(ies). Within thirty (30) days of the giving of
such written notice, each party involved shall appoint an
individual as arbitrator (the "Party Arbitrators"). Within
thirty (30) days of their appointment, the Party Arbitrators
shall collectively select one (or two if necessary to
constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give
the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final
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and binding on the parties involved. Such decision shall be a
condition precedent to any right of legal action arising out
of the arbitrated dispute. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail,
as follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
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P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
3. If to Meridian Consulting:
Mr. Roger Formisano
Meridian Resource Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section 10.e, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Meridian Consulting on an independent contractor
basis. Nothing in this Agreement shall be construed to create an
employer-employee relationship between Meridian Consulting and Employees or any
of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
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i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
ON BEHALF OF MERIDIAN CONSULTING, MERIDIAN RESOURCE CORPORATION
By:
------------------------------------
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Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and Meridian Resource Corporation, a corporation
organized pursuant to Ch. 180, Wisconsin Statutes ("Meridian Corp") on behalf of
its Audit Services business unit ("Meridian Audit").
RECITALS
WHEREAS, BCBSUW, UWS and Meridian Corp are affiliated corporations,
with Meridian Corp being a wholly owned subsidiary of UWS;
WHEREAS, Meridian Audit is an unincorporated business unit of Meridian
Corp;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Meridian Audit provides hospital bill audit services to
various companies in the BCBSUW/UWS Group on a third party contract basis, and
Meridian Audit also contracts with outside entities to provide hospital bill
audit and claims audit services;
WHEREAS, UWS provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Meridian Audit's business;
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Meridian Audit and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
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1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those UWS employees that are assigned to
perform all of their services for Meridian Audit. (Direct Employees may also be
referred to herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. UWS shall provide to Meridian
Audit, to the extent requested by Meridian Audit, the entire requirement of
Direct Employees for use in Meridian Audit's business according to such job
descriptions, qualifications, experience, education, or skills (collectively
"Employee Specifications") as may be specified by Meridian Audit from time to
time.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i and Meridian
Audit's present intent to lease Direct Employees from UWS, Meridian Audit shall
have the right, subject to Section 5, to obtain and hire directly any or all
employees from any other sources and on any terms to perform such duties as
Meridian Audit may consider appropriate from time to time. Should Meridian
Audit hire employees from other sources, it will not hire any individual who was
a BCBSUW or UWS Employee leased to Meridian Audit within three (3) months
preceding such hiring, without the written consent of BCBSUW and/or UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Meridian Audit shall notify Human Resources at any time of its
intention to change such Employee Specifications for Direct Employees, at which
time Human Resources shall promptly make the requested changes to the Employee
Specifications.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Meridian Audit to
perform services as an officer, Meridian Audit will be consulted prior to all
determinations regarding the employment, or terms thereof, of such individuals;
provided, however, that Meridian Audit's input shall be of an advisory nature
and will not be binding on BCBSUW or UWS as the common law employers of such
individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Meridian Audit, for leased Direct Employees while performing services for
Meridian Audit. Meridian Audit shall advise Human Resources on the performance
of Direct Employees, and shall have the right to request investigation,
disciplinary action, reassignment, and removal of such employees. If at any
time Meridian Audit becomes dissatisfied with the performance of a
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Direct Employee, Meridian Audit shall have the right to reject the continued
lease of that particular employee and request a replacement therefor. BCBSUW
and UWS shall have the exclusive right, however, to direct all BCBSUW and UWS
employees, respectively, as to the manner in which services are to be
rendered and performance goals are to be achieved. BCBSUW and UWS shall be,
and shall have all the privileges, rights, and responsibilities of, common
law employers of all BCBSUW and UWS employees, respectively, including, but
not limited to, establishing work and disciplinary rules, setting
compensation levels, and directing each BCBSUW or UWS Employee as to the
manner in which daily duties are completed, whether or not the employee
actually performs services for BCBSUW, UWS or another company in the
BCBSUW/UWS Group. Employees leased to Meridian Audit pursuant to this
Agreement shall remain employees of BCBSUW or UWS, and shall in no way be
treated as or considered employees of Meridian Audit.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct
Employees performing services for Meridian Audit, if UWS adopts or implements
any change in compensation, employee benefit plans, or any other fringe benefit
that results in higher Total Personnel Costs (as defined at Section 3.a.i)
than those in existence as of the date of this Agreement, UWS shall provide
Meridian Audit with written notice at least 30 days before such change becomes
effective (unless such change is required by law, in which case Meridian Audit
will be notified as soon as possible), describing such new benefit and the
projected increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO MERIDIAN AUDIT
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Meridian Audit, to the extent requested by Meridian Audit and subject to
Section 5, the following services and resources (together "BCBSUW Services").
BCBSUW shall supply BCBSUW Services only if Meridian Audit has determined
not to have its own employees or third parties furnish the BCBSUW Services,
subject to Section 5.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of Meridian Audit's operations.
ii. BUILDING SERVICES. Building services, including, but not limited
to, repair and maintenance of any property and facilities made available
hereunder as shall be necessary to maintain such property and facilities in good
working order, and such other building services as may be necessary or
appropriate for the conduct of Meridian Audit's business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of Meridian Audit's business.
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iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of Meridian Audit's business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, lobbyist activities, documentation and training,
as shall be necessary or appropriate for the conduct of Meridian Audit's
business.
vi. COMPANY CAR AND TRAVEL. Availability and maintenance of vehicles
for company related travel and such other travel related services as shall be
necessary or appropriate for the conduct of Meridian Audit's business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to Meridian
Audit, to the extent requested by Meridian Audit and subject to Section 5, the
following services and resources (together "UWS Services"). UWS shall supply
UWS Services only if Meridian Audit has determined not to have its own employees
or third parties furnish the UWS Services, subject to Section 5.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of Meridian
Audit's business.
ii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Meridian Audit's business.
iii. MARKETING AND COMMUNICATIONS. Such marketing and communications
services, including, but not limited to, public relations and employee community
events, as shall be necessary or appropriate for the conduct of Meridian Audit's
business.
iv. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by Meridian Audit
under this Agreement or otherwise necessary or appropriate for the conduct of
Meridian Audit's business.
v. ACCOUNTING SERVICES. Such accounting, audit, bookkeeping and
financial statement preparation services as shall be necessary or appropriate
for the conduct of Meridian Audit's business.
vi. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, tax, treasury, administration of financial systems,
corporate accounting, and strategic planning/consulting, as shall be necessary
or appropriate for the conduct of Meridian Audit's business.
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vii. OTHER SERVICES. Such other services, including, but not limited
to, those provided by Compcare, Dentacare or Meridian Managed Care, as shall be
necessary or appropriate for the conduct of Meridian Audit's business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
a. salaries, wages, and bonuses;
b. profit sharing;
c. benefit plans;
d. payroll taxes;
e. employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent that Direct
Employees are leased to Meridian Audit, Total Personnel Costs associated with a
Direct Employee shall be directly charged to Meridian Audit on a monthly basis.
See Schedule 1.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Meridian Audit, costs therefor shall
be allocated to Meridian Audit as follows:
i. DIRECT CHARGES. Costs associated with those BCBSUW/UWS Services
identified on Schedule 1 shall be directly charged to Meridian Audit on a
monthly basis.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 2 ("Schedule 2 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect Allocation Methods, as described in Schedule 3
attached hereto, utilization of Schedule 2 Services shall be reduced to an
allocation percentage for each company in the BCBSUW/UWS Group. Each month all
costs associated with the utilization of Schedule 2 Services shall be multiplied
by the allocation percentage of Meridian Corp to determine Meridian Corp's
allocable share of costs for Schedule 2 Services. Notwithstanding the
preceding, (i) allocation percentages are subject to interim Fiscal Year
adjustments to allocate more accurately costs based on actual utilization by
each company in the BCBSUW/UWS Group, (ii) costs associated with Schedule 2
Services performed directly for Meridian Corp shall be allocable to Meridian
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Corp only, and (iii) subject to approval by the Vice President of Finance for
the BCBSUW/UWS Group, the Indirect Allocation Method used to allocate costs
to Meridian Corp for specific Schedule 2 Services shall be subject to
agreement by the parties on an annual basis.(1) Subsequently, indirect cost
allocations to Meridian Corp shall be allocated to each individual business
unit within Meridian Corp, including Meridian Audit, each month based on the
ratio of the unit's directly charged expenses to the total Meridian Corp
directly charged expenses. Notwithstanding the preceding sentence, costs
associated with those Schedule 2 Services not actually utilized by Meridian
Audit, such as cost center 104 for the Meridian Madison office, shall not be
allocated to Meridian Audit. Schedule 2, attached hereto, sets forth Meridian
Corp's annual allocation percentage for costs and expenses associated with
Schedule 2 Services. Schedule 2 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 4 ("Chargeback Services") either shall be (i) indirectly
allocated to Meridian Audit as discussed in Section 3.b.ii, if the cost is a
general expense for providing the Chargeback Service to all users; or (ii)
directly charged to a Meridian Audit cost center, if the cost is an expense
specific to a Meridian Audit cost center. Thus, costs associated with
Chargeback Services shall be either directly charged or indirectly allocated to
Meridian Audit on a monthly basis, depending on the nature of the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Meridian
Audit leases or utilizes the services of Employees from BCBSUW and/or UWS, and
to the extent that Meridian Audit utilizes BCBSUW/UWS Services, BCBSUW and/or
UWS may charge Meridian Audit a reasonable negotiated fee therefor, as set forth
in Schedule 5.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable Meridian Audit's independent certified public accounting firm to
audit such costs and the allocation thereof. At the end of each month, BCBSUW
and/or UWS shall provide or make available to Meridian Audit appropriate
documentation respecting the costs and expenses that are allocated, either
directly or indirectly, to Meridian Audit for that month in sufficient detail to
permit Meridian Audit to identify the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, Meridian Audit shall promptly
reimburse BCBSUW and/or UWS for all costs and expenses incurred by BCBSUW and/or
UWS in furnishing or obtaining the Employees and Services provided for under
Sections I and II, which amount shall be based on the total of direct charges
and indirect allocations to Meridian Audit for the
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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preceding month. Notwithstanding the preceding, Meridian Audit reserves the
right to offset any amounts due to BCBSUW and/or UWS under this Agreement
against other obligations of BCBSUW and/or UWS to Meridian Audit.
5. MODIFICATIONS TO LEASED EMPLOYEES AND BCBSUW/UWS SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Meridian Audit
shall be required to utilize Employees and BCBSUW/UWS Services budgeted to
Meridian Audit for that Contract Year, unless otherwise negotiated by the
parties. ("Contract Year" shall mean January 1 through December 31.) If, at any
time during the Contract Year, Meridian Audit requires employees, services or
other resources in addition to those budgeted to Meridian Audit by BCBSUW and
UWS, Meridian Audit may obtain such employees, services or resources from a
source outside of the BCBSUW/UWS Group only if Meridian Audit's additional needs
cannot be accommodated by BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Meridian Audit shall provide
BCBSUW and/or UWS with at least three (3) months' written notice prior to the
next Contract Year (unless the parties mutually agree upon a shorter period) of
its intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain employees, services or other resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group
with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide Employees and BCBSUW/UWS Services to Meridian Audit either
directly or indirectly, through any company in the BCBSUW/UWS Group. BCBSUW and
UWS may provide employees, services and other resources to Meridian Audit
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Meridian Audit's consent.
Costs for Outside Services shall be subject to a cost structure negotiated by
the parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or Meridian Audit
may, for the sole purpose of documenting in more detail the terms and respective
rights and obligations of the parties with respect to Employees and Services
provided hereunder, request that any of the following types of ancillary
agreements be executed by any parties hereto and effected thereby:
1. Employee Lease Agreement;
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2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections 1 through 5 of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
8.b.ii. The parties hereby agree that any negotiations subject to this
Section 6.b shall be performed in good faith and every reasonable effort shall
be made to effect the execution of a requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW and UWS shall make available to
Meridian Audit, for inspection, examination and copying, all of its books and
records pertaining to the Employees and BCBSUW/UWS Services provided under this
Agreement each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW and UWS, or at such other place as the parties hereto may otherwise agree
to and designate;
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
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i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS or Meridian Audit as the
case may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding Meridian Corp) will directly compete with the
products or markets of Meridian Audit during the term of this Agreement. BCBSUW
and UWS further agree that for a period of two (2) years following the
termination of this Agreement for any reason, no company in the BCBSUW/UWS Group
(excluding Meridian Corp) will directly compete with Meridian Audit in any
market in which Meridian Audit operates or does business at the termination of
this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed, maintain the
working relationships of the parties on substantially the same terms as before
the execution of this Agreement. Notwithstanding the preceding, the parties do
not intend, nor should this Agreement be construed, to restrict any party's
ability to contract with any other person or entity to provide services similar
to or the same as those which are the subject of this Agreement.
8. TERM AND TERMINATION
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a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 8.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 6.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of and
upon written notice from the non-defaulting party in the event of any of the
following:
(1) A party hereto becomes incapable of fully performing
its duties and obligations according to the terms of this
Agreement for the following reason(s): insolvency, bankruptcy,
or substantial cessation or interruption of its business
operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this Section 8.b.iii.
iv. Liabilities After Termination. The termination of this Agreement
shall not limit the obligation or liabilities of any party hereto incurred but
not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY MERIDIAN AUDIT.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
Meridian Corp), nor any person who is or was, at the time of any action or
inaction affecting Meridian Audit, a director, officer, employee or agent of
BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than Meridian
Corp) (collectively "Indemnitees") shall be liable to Meridian Audit for any
action or inaction taken or omitted to be taken by such Indemnitee; PROVIDED,
HOWEVER, that such Indemnitee acted (or failed to act) in good faith and such
action or inaction does not constitute actual fraud, gross negligence or willful
or wanton misconduct.
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ii. Meridian Audit shall, to the fullest extent not prohibited by
law, indemnify and hold harmless each Indemnitee against any liability, damage,
cost, expense, loss, claim or judgment (including, without limitation,
reasonable attorneys' fees and expenses) resulting to, imposed upon or incurred
by such Indemnitee a. in connection with any action, suit, arbitration or
proceeding to which such Indemnitee was or is a party or is threatened to be
made a party by reason of the Employees and BCBSUW/UWS Services provided to
Meridian Audit hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or
failed to act) in good faith and such action or inaction does not constitute
actual fraud, gross negligence or willful or wanton misconduct, or b. by reason
of, arising out of or resulting from any breach or misrepresentation by Meridian
Audit under this Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless Meridian Audit, and its
successors and assigns, from and against any liability, damage, cost, expense,
loss, claim or judgment (including, without limitation, reasonable attorneys'
fees and expenses) resulting to, imposed upon or incurred by Meridian Audit by
reason of, arising out of or resulting from any breach or misrepresentation by
BCBSUW or UWS under this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 10.d of this Agreement.
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW/UWS
Services, or scheduling, performance and utilization of
Employees necessary for the
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conduct of Meridian Audit's business shall be submitted to a
coordinating committee for resolution. The coordinating
committee shall consist of three (3) persons, each of whom
shall 1. represent the respective interest of a party hereto,
and 2. be mutually agreed upon by the parties hereto. If the
coordinating committee is unable to unanimously resolve the
dispute, then the parties hereto may resort to the dispute
resolution process provided for in Section 10.d.ii.
(2) Audit Committee: Any conflicts or disputes
regarding allocation methods, allocated costs, offsets, fees
or any matter related thereto shall be submitted to an audit
committee for resolution. The audit committee shall consist
of three (3) persons, each of whom shall 1. represent the
respective interest of a party hereto, and 2. be mutually
agreed upon by the parties hereto. If the audit committee is
unable to unanimously resolve the dispute, then the parties
hereto may resort to the dispute resolution process provided
for in Section 10.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among
the parties hereto that arises out of or relates to this
Agreement or any Ancillary Agreement entered into pursuant
hereto, and which otherwise has been unresolved by a
coordinating committee pursuant to Section 10.d.i(1) or an
audit committee pursuant to Section 10.d.i(2) shall be settled
by arbitration. In order to initiate an arbitration, BCBSUW,
UWS or Meridian Audit (as the case may be) shall deliver a
written notice of demand for arbitration to the other affected
party(ies). Within thirty (30) days of the giving of such
written notice, each party involved shall appoint an
individual as arbitrator (the "Party Arbitrators"). Within
thirty (30) days of their appointment, the Party Arbitrators
shall collectively select one (or two if necessary to
constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give
the parties involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel
Arbitrators within sixty (60) days of the selection of the
Panel Arbitrators or within such longer period as may be
agreed by the Panel Arbitrators. The decision rendered by a
majority of the Panel Arbitrators shall be final and binding
on the parties involved. Such decision shall be a condition
precedent to any right of legal action arising out of the
arbitrated dispute. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof.
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(3) Each involved party shall a. pay the fees and
expenses of its own Party Arbitrator, and pay its own legal,
accounting, and other professional fees and expenses, b.
jointly share in the payment of the fees and expenses of the
other one (or two) arbitrator(s) selected by the Party
Arbitrators, and c. jointly share in the payment of the other
expenses jointly incurred by the involved parties directly
related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. C. Edward Mordy
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
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3. If to Meridian Audit:
Mr. Roger Formisano
Meridian Resource Corporation
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section 10.e, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Meridian Audit on an independent contractor
basis. Nothing in this Agreement shall be construed to create an
employer-employee relationship between Meridian Audit and Employees or any of
the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
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j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
ON BEHALF OF MERIDIAN AUDIT, MERIDIAN RESOURCE CORPORATION
By:
------------------------------------
Title:
---------------------------------
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INTERCOMPANY SERVICE AGREEMENT
This Intercompany Service Agreement ("Agreement") is entered into as
of this _____ day of _______________, 1998 ("Effective Date"), by and among Blue
Cross & Blue Shield United of Wisconsin, a service insurance corporation
organized pursuant to Ch. 613, Wisconsin Statutes ("BCBSUW"), United Wisconsin
Services, Inc., an insurance holding company organized pursuant to Ch. 180,
Wisconsin Statutes ("UWS"), and United Wisconsin Proservices, Inc., a
corporation organized pursuant to Ch. 180, Wisconsin Statutes ("Proservices").
RECITALS
WHEREAS, BCBSUW, UWS and Proservices are affiliated corporations, with
Proservices being a wholly owned subsidiary of UWS;
WHEREAS, there is an existing service agreement between BCBSUW and UWS
that extends to subsidiaries of UWS (BCBSUW, UWS and its subsidiaries shall
hereinafter be collectively referred to as "BCBSUW/UWS Group"), and this
Agreement is intended to further specify the services, costs, and allocation
methods contemplated by that service agreement;
WHEREAS, Proservices created and operates an electronic billing and
claims network that links health care providers and payors throughout Wisconsin
and elsewhere;
WHEREAS, BCBSUW provides the employees and BCBSUW and UWS collectively
provide the other business resources and services necessary for the continued
operation of Proservices' business; and
WHEREAS, by entering into this Agreement, the parties hereto wish to
establish clearly (i) an employee leasing arrangement; (ii) the services and
resources that BCBSUW and UWS will continue to provide to Proservices and the
compensation and cost allocations therefor; and (iii) the respective rights and
responsibilities of the parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. LEASE OF EMPLOYEES
a. CLASSIFICATION OF EMPLOYEES.
i. "Direct Employees" are those BCBSUW employees that are assigned
to perform all of their services for Proservices.
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ii. "Dual Capacity Employees" are those BCBSUW employees assigned to
the United Government Services business unit who perform services for
Proservices. (Direct and Dual Capacity Employees may collectively be referred to
herein as "Employees.")
b. LEASE OF EMPLOYEES.
i. OBLIGATION TO PROVIDE EMPLOYEES. BCBSUW shall provide to
Proservices, to the extent requested by Proservices, the entire requirement of
Direct Employees for use in Proservices' business according to such job
descriptions, qualifications, experience, education, or skills (collectively
"Employee Specifications") as may be specified by Proservices from time to time.
BCBSUW shall also provide to Proservices, to the extent requested by
Proservices, the entire requirement of Dual Capacity Employees for use in
Proservices' business. Dual Capacity Employees shall meet Employee
Specifications that are mutually acceptable to BCBSUW and Proservices.
ii. INDEPENDENT HIRING. Notwithstanding Section 1.b.i and
Proservices' present intent to lease Direct and Dual Capacity Employees from
BCBSUW, Proservices shall have the right, subject to Section 5, to obtain and
hire directly any or all employees from any other sources and on any terms to
perform such duties as Proservices may consider appropriate from time to time.
Should Proservices hire employees from other sources, it will not hire any
individual who was a BCBSUW or UWS Employee leased to Proservices within three
(3) months preceding such hiring, without the written consent of BCBSUW and/or
UWS.
iii. HUMAN RESOURCES DEPARTMENT. UWS's Human Resources Department
("Human Resources") shall be responsible for the implementation, management, and
operation of BCBSUW's and UWS's employee leasing obligations under this
Agreement. Employee Specifications shall be retained in the files of Human
Resources, and Proservices shall notify Human Resources at any time of its
intention to change such Employee Specifications for Direct Employees, at which
time Human Resources shall promptly make the requested changes to the Employee
Specifications. Changes to Employee Specifications of Dual Capacity Employees
must be mutually agreed to by BCBSUW and Proservices prior to implementation by
Human Resources.
c. OFFICERS. Employment, termination, and terms of employment of all
officers shall be reserved to the full Boards of Directors of BCBSUW and UWS,
provided, however, that while any such individual is leased to Proservices to
perform services as an officer, Proservices will be consulted prior to all
determinations regarding the employment, or terms thereof, of such individuals;
provided, however, that Proservices' input shall be of an advisory nature and
will not be binding on BCBSUW or UWS as the common law employers of such
individuals.
d. EMPLOYMENT RELATIONSHIPS. Human Resources shall establish performance
criteria or standards, which reflect the Employee Specifications supplied by
Proservices, for leased Direct Employees and for leased Dual Capacity Employees
while performing services for
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Proservices. Proservices shall advise Human Resources on the performance of
Direct and Dual Capacity Employees, and shall have the right to request
investigation, disciplinary action, reassignment, and removal of such
employees. If at any time Proservices becomes dissatisfied with the
performance of a Direct or Dual Capacity Employee, Proservices shall have the
right to reject the continued lease of that particular employee and request a
replacement therefor. BCBSUW and UWS shall have the exclusive right,
however, to direct all BCBSUW and UWS employees, respectively, as to the
manner in which services are to be rendered and performance goals are to be
achieved. BCBSUW and UWS shall be, and shall have all the privileges,
rights, and responsibilities of, common law employers of all BCBSUW and UWS
employees, respectively, including, but not limited to, establishing work and
disciplinary rules, setting compensation levels, and directing each BCBSUW or
UWS Employee as to the manner in which daily duties are completed, whether or
not the employee actually performs services for BCBSUW, UWS or another
company in the BCBSUW/UWS Group. Employees leased to Proservices pursuant to
this Agreement shall remain employees of BCBSUW or UWS, and shall in no way
be treated as or considered employees of Proservices.
e. NOTIFICATION OF PERSONNEL COST CHANGES. With respect to Direct and
Dual Capacity Employees performing services for Proservices, if BCBSUW adopts or
implements any change in compensation, employee benefit plans, or any other
fringe benefit that results in higher Total Personnel Costs (as defined at
Section 3.a.i) than those in existence as of the date of this Agreement,
BCBSUW shall provide Proservices with written notice at least 30 days before
such change becomes effective (unless such change is required by law, in which
case Proservices will be notified as soon as possible), describing such new
benefit and the projected increase in the Total Personnel Costs.
2. SERVICES AND OTHER RESOURCES PROVIDED TO PROSERVICES
a. SERVICES AND RESOURCES PROVIDED BY BCBSUW. BCBSUW shall provide to
Proservices, to the extent requested by Proservices and subject to Section 5,
the following services and resources (together "BCBSUW Services"). BCBSUW shall
supply BCBSUW Services only if Proservices has determined not to have its own
employees or third parties furnish the BCBSUW Services, subject to Section 5.
i. OFFICE SPACE AND FACILITIES. Office space and facilities,
including, but not limited to, furniture and equipment, as shall be necessary or
appropriate for the conduct of Proservices' operations.
ii. BUILDING SERVICES. Building services, including, but not
limited to, repair and maintenance of any property and facilities made
available hereunder as shall be necessary to maintain such property and
facilities in good working order, and such other building services as may be
necessary or appropriate for the conduct of Proservices' business.
iii. OFFICE SERVICES. Such office services, including, but not
limited to, warehousing, transportation, stockroom, graphics, printing,
duplicating and forms management, as shall be necessary or appropriate for the
conduct of Proservices' business.
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iv. CENTRAL SYSTEMS. Such central systems, including, but not
limited to, management information systems, telecommunications, centralized
mailing, technology support and central data base maintenance, as shall be
necessary or appropriate for the conduct of Proservices' business.
v. ADMINISTRATIVE SERVICES. Such administrative services,
including, but not limited to, maintenance of liability insurance, lobbyist
activities and payment of director fees, as shall be necessary or appropriate
for the conduct of Proservices' business.
vi. ACCOUNTING SERVICES. Such accounting, audit, bookkeeping and
financial statement preparation services as shall be necessary or appropriate
for the conduct of Proservices' business.
vii. EXECUTIVE SERVICES. Such executive services as shall be
necessary or appropriate for the conduct of Proservices' business.
viii. SALES AND CONFERENCE SERVICES. Such sales and conference
support as shall be necessary or appropriate for the conduct of Proservices'
business.
ix. COMPANY CAR AND TRAVEL. Availability and maintenance of
vehicles for company related travel and such other travel related services as
shall be necessary or appropriate for the conduct of Proservices' business.
b. SERVICES AND RESOURCES PROVIDED BY UWS. UWS shall provide to
Proservices, to the extent requested by Proservices and subject to Section 5,
the following services and resources (together "UWS Services"). UWS shall
supply UWS Services only if Proservices has determined not to have its own
employees or third parties furnish the UWS Services, subject to Section 5.
i. CORPORATE SUPPORT SERVICES. Such corporate support services,
including, but not limited to, corporate compliance, legal, and government
relations, as shall be necessary or appropriate for the conduct of Proservices'
business.
ii. MARKETING AND COMMUNICATIONS. Such marketing and communications
services, including, but not limited to, public relations and employee community
events, as shall be necessary or appropriate for the conduct of Proservices'
business.
iii. HUMAN RESOURCES. Such human resource services, including, but
not limited to, staffing, labor and employment relations, training and
development, and administration of payroll and employee benefits, as shall be
necessary or appropriate with respect to Employees utilized by Proservices under
this Agreement or otherwise necessary or appropriate for the conduct of
Proservices' business.
iv. FINANCIAL SERVICES. Such financial services, including, but not
limited to, cash management, tax, treasury, administration of financial systems,
and strategic
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planning/consulting, as shall be necessary or appropriate for the conduct of
Proservices' business.
c. STAFFING. BCBSUW and UWS shall both maintain an adequate source of
qualified employees to ensure the acceptable performance of BCBSUW and UWS
Services.
3. COST ALLOCATION METHODS
a. LEASED EMPLOYEES.
i. TOTAL PERSONNEL COSTS. The term "Total Personnel Costs" shall
include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an Employee. Such term shall
include, but shall not be limited to, the following costs, expenses, and
obligations:
a. salaries, wages, and bonuses;
b. profit sharing;
c. benefit plans;
d. payroll taxes;
e. employee insurance.
ii. ALLOCATION OF PERSONNEL COSTS. To the extent Employees are
leased to Proservices, Total Personnel Costs for such Employees shall be
directly charged to Proservices as follows:
(1) Direct Employees. The Total Personnel Costs associated
with a Direct Employee shall be directly charged to Proservices on a monthly
basis. See Schedule 1.
(2) Dual Capacity Employees. The Total Personnel Costs
associated with a Dual Capacity Employee shall, on a monthly basis, be directly
charged to Proservices based on hours worked for Proservices. See Schedule 2.
b. BCBSUW AND UWS SERVICES. To the extent that BCBSUW/UWS Services are
rendered on behalf of or for the benefit of Proservices, costs therefor shall be
allocated to Proservices as follows:
i. DIRECT ALLOCATIONS. Costs associated with those BCBSUW/UWS
Services identified on Schedule 1 shall be directly charged to Proservices on a
monthly basis. Costs associated with those BCBSUW/UWS Services identified on
Schedule 2 shall, on a monthly basis, be directly charged to Proservices based
on Proservices' actual use.
ii. INDIRECT ALLOCATIONS. Cost allocations for those BCBSUW/UWS
Services identified on Schedule 3 ("Schedule 3 Services") shall be determined
annually for the next succeeding Fiscal Year ("Fiscal Year" shall mean January 1
through December 31) on the basis of utilization and cost studies performed by
UWS. Through the use of Indirect
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Allocation Methods, as described in Schedule 4 attached hereto, utilization
of Schedule 3 Services shall be reduced to an allocation percentage for each
company in the BCBSUW/UWS Group. Each month all costs associated with the
utilization of Schedule 3 Services shall be multiplied by the allocation
percentage of Proservices to determine Proservices' allocable share of costs
for Schedule 3 Services. Notwithstanding the preceding, (i) allocation
percentages are subject to interim Fiscal Year adjustments to allocate more
accurately costs based on actual utilization by each company in the
BCBSUW/UWS Group, (ii) costs associated with Schedule 3 Services performed
directly for Proservices shall be allocable to Proservices only, and (iii)
subject to approval by the Vice President of Finance for the BCBSUW/UWS
Group, the Indirect Allocation Method used to allocate costs for specific
Schedule 3 Services shall be subject to agreement by the parties on an annual
basis.(1) Schedule 3, attached hereto, sets forth Proservices' annual
allocation percentage for costs and expenses associated with Schedule 3
Services. Schedule 3 shall be amended annually.
iii. CHARGEBACKS. Costs associated with those BCBSUW/UWS Services
identified on Schedule 5 ("Chargeback Services") either shall be (i) indirectly
allocated to Proservices as discussed in Section 3.b.ii, if the cost is a
general expense for providing the Chargeback Service to all users; or (ii)
directly charged to Proservices' cost center, if the cost is an expense specific
to Proservices' cost center. Thus, costs associated with Chargeback Services
shall be either directly charged or indirectly allocated to Proservices on a
monthly basis, depending on the nature of the cost.
c. FEES IN ADDITION TO ALLOCATED COSTS. To the extent that Proservices
leases or utilizes the services of Employees from BCBSUW and/or UWS, and to the
extent that Proservices utilizes BCBSUW/UWS Services, BCBSUW and/or UWS may
charge Proservices a reasonable negotiated fee therefor, as set forth in
Schedule 6.
4. SUBSTANTIATION OF AND REIMBURSEMENT FOR ALLOCATED COSTS
a. SUBSTANTIATION OF ALLOCATED COSTS. All costs and expenses shall be
allocated in a fair and reasonable manner. BCBSUW and UWS shall maintain
reasonable and appropriate operating procedures to allocate costs and expenses
so as to enable Proservices' independent certified public accounting firm to
audit such costs and the allocation thereof. At the end of each month, BCBSUW
and/or UWS shall provide or make available to Proservices appropriate
documentation respecting the costs and expenses that are allocated, either
directly or indirectly, to Proservices for that month in sufficient detail to
permit Proservices to identify the sources of such charges.
b. REIMBURSEMENT FOR ALLOCATED COSTS. At the end of each month, not
later than the 30th day of the following month, Proservices shall promptly
reimburse BCBSUW for all costs and expenses incurred by BCBSUW in furnishing or
obtaining the Employees and
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(1) Before granting approval of any negotiated change to the method of
allocating costs for a particular service, the following factors should be
considered: (i) compliance with FAS rules; (ii) other federal government
contracting implications; and (iii) feasibility.
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Services provided for under Sections I and II, which amount shall be based on
the total of direct charges and indirect allocations to Proservices from
BCBSUW for the preceding month. At the end of each Fiscal Year quarter, not
later than the 30th day after the end of each quarter, Proservices shall
promptly reimburse UWS for all costs and expenses incurred by UWS in
furnishing or obtaining the Employees and Services provided for under Section
1 and 2, which amount shall be based on the total of direct charges and
indirect allocations to Proservices from UWS for the preceding Fiscal Year
quarter. Notwithstanding the preceding, Proservices reserves the right to
offset any amounts due to BCBSUW and/or UWS under this Agreement against
other obligations of BCBSUW and/or UWS to Proservices.
5. MODIFICATIONS TO LEASED EMPLOYEES AND SERVICES
a. MID-CONTRACT YEAR MODIFICATIONS. Each Contract Year, Proservices
shall be required to utilize Employees and BCBSUW/UWS Services budgeted to
Proservices for that Contract Year, unless otherwise negotiated by the parties.
("Contract Year" shall mean January 1 through December 31.) If, at any time
during the Contract Year, Proservices requires employees, services or other
resources in addition to those budgeted to Proservices by BCBSUW and UWS,
Proservices may obtain such employees, services or resources from a source
outside of the BCBSUW/UWS Group only if Proservices' additional needs cannot be
accommodated by BCBSUW or UWS.
b. CONTRACT YEAR RENEWAL MODIFICATIONS. Proservices shall provide BCBSUW
and/or UWS with at least three (3) months' written notice prior to the next
Contract Year (unless the parties mutually agree upon a shorter period) of its
intent to do any of the following:
i. Increase or decrease the number or utilization of Employees or
BCBSUW/UWS Services with respect to the next Contract Year;
ii. Obtain employees, services or other resources, which are
available either from BCBSUW or UWS, from a party outside the BCBSUW/UWS Group
with respect to the next Contract Year.
c. PROVISION OF SERVICES BY BCBSUW/UWS GROUP. BCBSUW and UWS have the
right to provide Employees and BCBSUW/UWS Services to Proservices either
directly or indirectly, through any company in the BCBSUW/UWS Group. BCBSUW and
UWS may provide employees, services and other resources to Proservices
indirectly through purchase from or contract with a source outside the
BCBSUW/UWS Group ("Outside Services") only with Proservices' consent. Costs
for Outside Services shall be subject to a cost structure negotiated by the
parties hereto.
6. EXECUTION OF ANCILLARY AGREEMENTS
a. RIGHT TO REQUEST EXECUTION OF ANCILLARY AGREEMENTS. In the event of
the Change of Control (as hereinafter defined in this Section) of any party
hereto and while this Agreement remains in effect, BCBSUW, UWS or Proservices
may, for the sole purpose of
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documenting in more detail the terms and respective rights and obligations of
the parties with respect to Employees and Services provided hereunder,
request that any of the following types of ancillary agreements be executed
by any parties hereto and effected thereby:
1. Employee Lease Agreement;
2. Office and Equipment Lease;
3. Management Information Systems Agreement;
4. Service Agreement(s); or
5. Any other Agreement deemed necessary or expedient by the parties
(together "Ancillary Agreements").
The terms of any executed Ancillary Agreement shall (i) be subject to
negotiation of the respective parties, and (ii) control in case of any conflict
with Sections 1 through 5 of this Agreement. Executed Ancillary Agreements
shall be attached to this Agreement as amendments hereto. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with the BCBSUW/UWS Group purchases all or
substantially all of the assets or acquires the ownership of 50% or more of the
voting stock of a party hereto.
b. EFFECT OF A REQUEST TO EXECUTE. If any party hereto requests the
execution of an Ancillary Agreement ("Requesting Party"), the parties shall have
sixty 60 days (unless the parties hereto mutually agree to a different period)
to negotiate and execute the Ancillary Agreement, during which time the parties
hereto shall remain obligated to perform in accordance with the terms of this
Agreement. If after 60 days (unless a different period is mutually agreed upon
by the parties hereto) the requested Ancillary Agreement has not been executed,
the Requesting Party may terminate this Agreement in accordance with Section
8.b.ii. The parties hereby agree that any negotiations subject to this
Section 6.b shall be performed in good faith and every reasonable effort shall
be made to effect the execution of a requested Ancillary Agreement.
7. ADDITIONAL COVENANTS
a. AVAILABILITY OF RECORDS. BCBSUW and UWS shall make available to
Proservices, for inspection, examination and copying, all of its books and
records pertaining to the Employees and BCBSUW/UWS Services provided to
Proservices each Contract Year:
i. At all reasonable times at the principal places of business of
BCBSUW and UWS, or at such other place as the parties hereto may otherwise agree
to and designate;
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<PAGE>
ii. In a form maintained in accordance with generally accepted
accounting principles and with any other general standards or laws applicable to
such book or record;
iii. For a term of at least five (5) years, from the end of each
Contract Year, irrespective of the termination of this Agreement.
b. CONFIDENTIALITY.
i. The parties acknowledge and agree that they may deliver to each
other information about themselves and their business which is nonpublic,
confidential or proprietary in nature. All such information, regardless of the
manner in which it is delivered, is referred to as "Proprietary Information."
However, Proprietary Information does not include information which 1. is or
becomes generally available to the public other than as a result of a disclosure
by the other party, 2. was available to the other party on a nonconfidential
basis prior to its disclosure by the disclosing party, or 3. becomes available
to the other party on a nonconfidential basis from a person other than by the
disclosing party. Unless otherwise agreed to in writing by the disclosing
party, the other party shall a. except as required by law, keep all Proprietary
Information confidential and not disclose or reveal any Proprietary Information
to any person other than those employed by the other party, or who is actively
and directly participating in the performance under this Agreement on behalf of
the other party ("Involved Persons"); b. cause each Involved Person to keep all
Proprietary Information confidential and not disclose or reveal any Proprietary
Information to any person other than another Involved Person; and c. not use the
Proprietary Information, and ensure that each Involved Person does not use the
Proprietary Information, for any purpose other than in connection with the
performance under this Agreement.
ii. Upon termination of this Agreement for any reason whatsoever,
each party shall promptly surrender and deliver to each other party all records,
materials, documents, data and any other Proprietary Information of the other
parties and shall not retain any description containing or pertaining to any
Proprietary Information of the other parties, unless otherwise consented to in
writing by a duly authorized officer of BCBSUW, UWS or Proservices as the case
may be.
c. COVENANT NOT TO COMPETE. BCBSUW and UWS agree that no company in the
BCBSUW/UWS Group (excluding Proservices) will directly compete with the products
or markets of Proservices during the term of this Agreement. BCBSUW and UWS
further agree that for a period of two (2) years following the termination of
this Agreement for any reason, no company in the BCBSUW/UWS Group (excluding
Proservices) will directly compete with Proservices in any market in which
Proservices operates or does business at the termination of this Agreement.
d. COOPERATION. The parties hereto will fully cooperate with each other
and their respective counsel, if any, agents and accountants in connection with
any action to be taken in the performance of their obligations under this
Agreement. In the conduct of their affairs and the performance of this
Agreement the parties hereto shall, unless otherwise agreed,
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<PAGE>
maintain the working relationships of the parties on substantially the same
terms as before the execution of this Agreement. Notwithstanding the
preceding, the parties do not intend, nor should this Agreement be construed,
to restrict in any way Proservices' ability to contract with any other person
or entity to provide services similar to or the same as those which are the
subject of this Agreement.
8. TERM AND TERMINATION
a. TERM. This Agreement shall commence on the Effective Date and shall
automatically renew annually therefrom until such time as otherwise terminated
pursuant to Section 8.b.
b. TERMINATION.
i. This Agreement may be terminated by any party at any time by
giving one (1) years advance written notice to the nonterminating parties of its
intention to terminate.
ii. This Agreement may be terminated pursuant to Section 6.b by the
Requesting Party giving three (3) months advance written notice to the
nonterminating parties of its intention to terminate.
iii. This Agreement shall terminate immediately at the election of
and upon written notice from the non-defaulting party in the event of any of
the following:
(1) A party hereto becomes incapable of fully performing its
duties and obligations according to the terms of this Agreement for the
following reason(s): insolvency, bankruptcy, or substantial cessation or
interruption of its business operations for any reason whatsoever;
(2) A party hereto commits fraud or gross negligence in
performing its obligations under this Agreement;
HOWEVER, if the defaulting party provides the non-defaulting parties with prompt
notice of the event of default, the defaulting party shall have 30 days to cure
the defect, during which time the non-defaulting parties may not exercise the
termination right under this section 8.b.iii.
iv. Liabilities After Termination. The termination of this
Agreement shall not limit the obligation or liabilities of any party hereto
incurred but not discharged prior to termination.
9. INDEMNIFICATION
a. INDEMNIFICATION BY PROSERVICES.
i. Notwithstanding anything to the contrary in this Agreement,
neither BCBSUW, UWS, nor any other company in the BCBSUW/UWS Group (other than
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<PAGE>
Proservices), nor any person who is or was, at the time of any action or
inaction affecting Proservices, a director, officer, employee or agent of
BCBSUW, UWS or any other company in the BCBSUW/UWS Group (other than
Proservices) (collectively "Indemnitees") shall be liable to Proservices for
any action or inaction taken or omitted to be taken by such Indemnitee;
PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in good
faith and such action or inaction does not constitute actual fraud, gross
negligence or willful or wanton misconduct.
ii. Proservices shall, to the fullest extent not prohibited by law,
indemnify and hold harmless each Indemnitee against any liability, damage, cost,
expense, loss, claim or judgment (including, without limitation, reasonable
attorneys' fees and expenses) resulting to, imposed upon or incurred by such
Indemnitee a. in connection with any action, suit, arbitration or proceeding to
which such Indemnitee was or is a party or is threatened to be made a party by
reason of the Employees and BCBSUW/UWS Services provided to Proservices
hereunder; PROVIDED, HOWEVER, that such Indemnitee acted (or failed to act) in
good faith and such action or inaction does not constitute actual fraud, gross
negligence or willful or wanton misconduct, or b. by reason of, arising out of
or resulting from any breach or misrepresentation by Proservices under this
Agreement.
b. INDEMNIFICATION BY BCBSUW AND UWS. BCBSUW and UWS, jointly and
severally, hereby agree to indemnify and hold harmless Proservices, and its
successors and assigns, from and against any liability, damage, cost, expense,
loss, claim or judgment (including, without limitation, reasonable attorneys'
fees and expenses) resulting to, imposed upon or incurred by Proservices by
reason of, arising out of or resulting from any breach or misrepresentation by
BCBSUW or UWS under this Agreement.
10. MISCELLANEOUS
a. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned or transferred by any of the parties hereto without
the prior written consent of the other parties. A Change of Control shall be
deemed an assignment requiring the consent of the other parties hereto.
b. AMENDMENT. The parties recognize that it may be desirable to alter
the terms of this Agreement in the future to take into account such events or
conditions as may from time to time occur. Any amendments to this Agreement
shall be in writing and shall be executed by all parties; however, Ancillary
Agreements need only be executed by the parties affected thereby.
c. WAIVER; REMEDIES. No failure or delay of a party in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. In
addition to any rights granted herein, the parties hereto shall have and may
exercise any and all rights and remedies now or hereafter provided by law except
as may be limited by Section 10.D of this Agreement.
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<PAGE>
d. RESOLUTION OF DISPUTES.
i. INFORMAL RESOLUTION.
(1) Coordinating Committee: Any conflicts or disputes
regarding occupancy, utilization or delivery of BCBSUW/UWS Services, or
scheduling, performance and utilization of Employees necessary for the
conduct of Proservices' business shall be submitted to a coordinating
committee for resolution. The coordinating committee shall consist of three
(3) persons, each of whom shall 1. represent the respective interest of a
party hereto, and 2. be mutually agreed upon by the parties hereto. If the
coordinating committee is unable to unanimously resolve the dispute, then the
parties hereto may resort to the dispute resolution process provided for in
Section 10.d.ii.
(2) Audit Committee: Any conflicts or disputes regarding
allocation methods, allocated costs, offsets, fees or any matter related
thereto shall be submitted to an audit committee for resolution. The audit
committee shall consist of three (3) persons, each of whom shall 1. represent
the respective interest of a party hereto, and 2. be mutually agreed upon by
the parties hereto. If the audit committee is unable to unanimously resolve
the dispute, then the parties hereto may resort to the dispute resolution
process provided for in Section 10.d.ii.
ii. FORMAL RESOLUTION.
(1) Any dispute, controversy or claim between or among the
parties hereto that arises out of or relates to this Agreement or any
Ancillary Agreement entered into pursuant hereto, and which otherwise has
been unresolved by a coordinating committee pursuant to Section 10.d(1) or
an audit committee pursuant to Section 10.d.i(2) shall be settled by
arbitration. In order to initiate an arbitration, BCBSUW, UWS or Proservices
(as the case may be) shall deliver a written notice of demand for arbitration
to the other affected party(ies). Within thirty (30) days of the giving of
such written notice, each party involved shall appoint an individual as
arbitrator (the "Party Arbitrators"). Within thirty (30) days of their
appointment, the Party Arbitrators shall collectively select one (or two if
necessary to constitute an odd total number of arbitrators) additional
arbitrator (together the "Panel Arbitrators") and shall give the parties
involved notice of such choice.
(2) The arbitration hearings shall be held in Milwaukee,
Wisconsin. Each party shall submit its case to the Panel Arbitrators within
sixty (60) days of the selection of the Panel Arbitrators or within such
longer period as may be agreed by the Panel Arbitrators. The decision
rendered by a majority of the Panel Arbitrators shall be final and binding on
the parties involved. Such decision shall be a condition precedent to any
right of legal action arising out of the arbitrated dispute. Judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
(3) Each involved party shall a. pay the fees and expense of
its own Party Arbitrator, and pay its own legal, accounting, and other
professional fees and expenses, b. jointly share in the payment of the fees
and expenses of the other one (or two)
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<PAGE>
arbitrator(s) selected by the Party Arbitrators, and c. jointly share in the
payment of the other expenses jointly incurred by the involved parties
directly related to the arbitration proceeding.
(4) Except as provided above, the arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
e. NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, or if mailed (by registered or certified mail, postage
prepaid, return receipt requested), or if transmitted by facsimile or e-mail, as
follows:
1. If to BCBSUW:
Ms. Essie Whitelaw
Blue Cross & Blue Shield United of Wisconsin
1515 North RiverCenter Drive
Milwaukee, Wisconsin 53212
Facsimile Telephone Number: (414) 226-6700
With copies to:
Ms. Penny Siewert
Blue Cross & Blue Shield United of Wisconsin
N17W24340 Riverwood Drive
Waukesha, Wisconsin 53188
Facsimile Telephone Number: (414) 523-4920
2. If to UWS:
Mr. Roger Formisano
United Wisconsin Services, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
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<PAGE>
3. If to Proservices:
Mr. C. Edward Mordy
United Wisconsin Proservices, Inc.
401 West Michigan Street
P.O. Box 2025
Milwaukee, Wisconsin 53201-2025
Facsimile Telephone Number: (414) 226-6229
Any notice or other communication given as provided in this Section 10.e, shall
be deemed given upon the first business day after actual delivery to the party
to whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation or e-mail return receipt). Any party from time to time
may change its address for purpose of notices to that party by giving a similar
notice specifying a new address.
f. RELATIONSHIP OF THE PARTIES. Negotiations relating to this Agreement
have occurred and shall continue to be carried out on an arm's length basis.
Further, the employees, services and other resources contemplated by this
Agreement shall be provided to Proservices on an independent contractor basis.
Nothing in this Agreement shall be construed to create an employer-employee
relationship between Proservices and Employees or any of the parties hereto.
g. ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits referred to herein constitute the entire understanding and agreement of
the parties hereto and supersede all prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement. Notwithstanding the preceding, the parties acknowledge that there
are, and/or may be in the future, any number of independent third party
contracts between various companies in the BCBSUW/UWS Group for various services
and/or business arrangements, and any such contracts, whether written or oral,
shall survive the execution of this Agreement and any renewal hereof.
h. HEADINGS. The headings used in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
i. NO THIRD PARTY BENEFICIARIES. This Agreement is only for the benefit
of the parties hereto and does not confer any right, benefit, or privilege upon
any person or entity not a party to this Agreement.
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<PAGE>
j. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws) as to all matters, including, without
limitation, matters of validity, construction, effect, performance and remedies.
k. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, 1. such provision will be fully severable, 2.
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, 3. the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and 4. in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as part of this Agreement, a legal,
valid, and enforceable provision as similar terms to such illegal, invalid, or
unenforceable provision as may be possible.
l. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the Effective Date.
BLUE CROSS BLUE SHIELD UNITED OF WISCONSIN
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
UNITED WISCONSIN PROSERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
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<PAGE>
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<PAGE>
AMENDMENT TO JOINT VENTURE AGREEMENT
This Amendment to the Joint Venture Agreement (the "Amendment") is made
and entered into this 24 day of October 1996, by and among United
Wisconsin Services, Inc., a corporation organized under chapter 180 of the
Wisconsin Statutes ("UWS"), Blue Cross & Blue Shield United of Wisconsin, a
service insurance corporation organized under chapter 613 of the Wisconsin
Statutes ("Blue Cross"), Compcare Health Services Insurance Corporation, a
health maintenance organization organized under chapter 611 of the Wisconsin
Statutes ("Compcare") and Northwoods Health Care, LLC, a limited liability
company organized under Chapter 183 of the Wisconsin Statutes ("NHC").
WHEREAS, the parties entered into a certain joint venture agreement
dated July 1, 1996 (the "Agreement");
WHEREAS, the Agreement provides for an initial term of three calendar
years, commencing on July 1, 1996 and terminating on December 31, 1999; and
WHEREAS, the parties desire to amend the Agreement to extend the initial
term to five calendar years, commencing on July 1, 1996 and terminating on
December 31, 12001, and to amend other provisions of the Agreement consistent
with this extension.
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Amendment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. The parties agree that Article 4, relating to the Medical Services
Agreement, is hereby amended to read in its entirety as follows:
NHC shall arrange for the delivery of all health care services for the
Joint Venture according to the terms of a medical services agreement
(the "Medical Services Agreement") between NHC and Compcare, attached
hereto as EXHIBITS B. The capitation rates to be paid to NHC by
Compcare for calendar years 1997, 1998 and 1999 shall be as
established in the attached EXHIBIT C. Capitation shall be paid to
NHC on a monthly basis for each enrolled plan member; such capitation
shall be adjusted for age, sex and benefit plan design. Compcare and
NHC shall establish the capitation rate for each additional calendar
year of the Joint Venture, including any extensions thereof, in a
written agreement by June 30 of each year, such capitation rate to
become effective in the next succeeding calendar year. It is the
expectation of the Parties that Compcare and NHC will capitate
providers for the delivery of health care services under the Joint
Venture. The provider agreements, executed by NHC, Compcare and
individual providers, shall include provision for: (i) a withhold of
at least fifteen percent (15%), unless such withhold is waived by
unanimous consent of the Governing Committee; and (ii) periodic price
adjustments. The overall responsibility for medical management shall
remain with the underwriters; however, the Medical Services Agreement
shall define those responsibilities relating to medical management and
utilization review that shall be delegated to NHC.
<PAGE>
2. The parties agree that section 5.C, relating to limitation on
risk-sharing, is hereby amended to read in its entirety as follows:
5.C. LIMITATION OF RISK-SHARING. As a condition precedent to the UWS
Parties' obligations under this Agreement, Howard Young Health Care,
Inc. shall provide capitalization to NHC of TWO (2) MILLION DOLLARS
for the initial term of the Agreement. Such capitalization shall be
in the form of either cash or a non-revocable letter of credit from
Howard Young Health Care, Inc. or another party acceptable to UWS.
UWS shall not unreasonably withhold permission to substitute another
party for all or part of the irrevocable letter of credit. NHC's
obligation for sharing in Aggregate Service Losses and Aggregate Net
Underwriting Losses during the initial five (5) year term of the
Agreement shall be limited to a total of TWO (2) MILLION DOLLARS. If
the Joint Venture is extended for an additional term or terms, NHC
shall provide additional capitalization as mutually agreed by the
Parties.
3. The parties agree that amounts owed with respect to the Aggregate
Service Profit (Loss) and the Aggregate Net Underwriting Profit (Loss) shall
be reconciled at the end of the initial five year term, and that section 5.D
is hereby amended to read in its entirety as follows:
5.D RECONCILIATION FOLLOWING INITIAL TERM. The UWS Parties and NHC
shall reconcile amounts owed with respect to the Aggregate Service
Profit (Loss) and the Aggregate Net Underwriting Profit (Loss) within
180 days after the end of the initial five (5) year term of this
Agreement. Either Party may offset any balance, whether on account of
Aggregate Service Profit (Loss) or Aggregate Net Underwriting Profit
(Loss) or Aggregate Net Underwriting Profit (Loss), due from one party
to the other under this Agreement.
4. The parties hereby agree that the initial term of the joint venture
shall commence on July 1, 1996 and terminate on December 31, 2001, and that
sections 6.A and 6.B are hereby amended to read in their entirety as follows:
6.A TERM. The initial term of this Agreement shall commence on July
1, 1996, (the "Effective Date") and terminate five (5) calendar years
from the Effective Date on December 31, 2001. The Joint Venture shall
automatically renew for additional one year terms unless written
notice of termination is give in accordance with section 6.B, below.
6.B TERMINATION. This Agreement may be terminated as follows:
1. Any party may terminate this Agreement at the end of the
initial five (5) year term, or any subsequent term, upon 180 days
advance written notice to all other parties. Termination shall be
effective on December 31.
2. All providers with whom NHC and Compcare have contracted
to provide health care services under this Joint Venture Agreement
shall continue to provide services according to the terms of the
applicable Product benefit plan until the end of the then current
term of such benefit plan.
<PAGE>
3. The capitation amounts paid to NHC for the provision of
health care services, as referenced in Article 4 herein, shall
continue to be paid until the end of the applicable Product benefit
plan years thereunder and at the rates in effect at the time of
termination.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective representatives and to become effective as of
the Effective Date.
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
By: [ILLEGIBLE]
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
UNITED WISCONSIN SERVICES, INC.
By: [ILLEGIBLE]
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
COMPCARE HEALTH SERVICES
INSURANCE CORPORATION
By: [ILLEGIBLE]
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
NORTHWOODS HEALTH CARE, LLC
By: [ILLEGIBLE]
----------------------------------
Title: Manager
-------------------------------
Date: October 24, 1996
--------------------------------
<PAGE>
INFORMATION SYSTEM SERVICES AGREEMENT
BETWEEN
BLUE CROSS BLUE SHIELD OF SOUTH CAROLINA
AND
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
DATED AS OF
AUGUST 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Scope of Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Current Applications. . . . . . . . . . . . . . . . . . . . . . . . 5
(c) New Applications. . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Print Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Monthly Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 7
(f) System Security . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(g) Access Facilities and System Suitability. . . . . . . . . . . . . . 7
3. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Operating Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Adjustments to the Operating Fee. . . . . . . . . . . . . . . . . . 8
(c) Scope Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Print Center Credit . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Strategic Development Charge. . . . . . . . . . . . . . . . . . . . 9
5. Services Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Basic Services. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Implementation Services . . . . . . . . . . . . . . . . . . . . . . 10
(c) Support Services. . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Record Keeping and Audit Rights . . . . . . . . . . . . . . . . . . 10
6. Taxes Additional . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7. Billings and Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Steering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Steering Minimum. . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Initial System Enhancements and Modifications . . . . . . . . . . . 12
(d) Progress Reporting. . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Ownership of Work Product . . . . . . . . . . . . . . . . . . . . . 12
9. Implementation Matters . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Sharing of Costs Related to Implementation Projects . . . . . . . . 12
(c) EDS Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Phasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Implementation Team . . . . . . . . . . . . . . . . . . . . . . . . 13
10. Migration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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11. Regulatory Mandates. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Federal Mandates. . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) BCA Mandates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) State of Wisconsin Mandates . . . . . . . . . . . . . . . . . . . . 14
12. Other Plan Responsibilities. . . . . . . . . . . . . . . . . . . . . . . 15
(a) Facilities for Use by BCBSSC. . . . . . . . . . . . . . . . . . . . 15
(b) System Related Facilities . . . . . . . . . . . . . . . . . . . . . 15
(c) Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13. Ownership of Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. Proprietary Rights of BCBSSC . . . . . . . . . . . . . . . . . . . . . . 16
(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
15. Termination by BCBSUW for Convenience. . . . . . . . . . . . . . . . . . 17
16. Service Level Commitments. . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Definition of Service Level Commitments . . . . . . . . . . . . . . 17
(b) Exclusive Remedies for Failure to Satisfy Service Level
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
17. Conformity with Documentation. . . . . . . . . . . . . . . . . . . . . . 19
(a) Covenant by BCBSSC. . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Exclusive Remedies for Failure of System to Conform to
Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
18. Events of Default; Remedies. . . . . . . . . . . . . . . . . . . . . . . 19
(a) Default by BCBSSC . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Remedies for Event of Default by BCBSSC . . . . . . . . . . . . . . 20
(c) Default by the Plan; BCBSSC's Remedies. . . . . . . . . . . . . . . 20
19. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Termination Damages . . . . . . . . . . . . . . . . . . . . . . . . 20
(b) Punitive Damages. Neither Party shall be liable to the other
party for any punitive damages. . . . . . . . . . . . . . . . . . . 21
(c) Limitation on Amount of Damages . . . . . . . . . . . . . . . . . . 21
20. Transition Services. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
21. Limited Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22. Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) By BCBSSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) By BCBSUW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
23. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Mutual Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) BCBSSC Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Plan Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . 23
ii
<PAGE>
24. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Informal Dispute Resolution . . . . . . . . . . . . . . . . . . . . 23
(b) Binding Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Provisional Relief. . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. Credit or Payment Relating to Contacts with Other BCA Affiliates . . . . 24
(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
26. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Selection of Arbitrator . . . . . . . . . . . . . . . . . . . . . . 25
(d) Site of Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
27. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . 27
(c) Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 28
(d) No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . 28
(e) Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(f) Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(g) Succession and Assignment . . . . . . . . . . . . . . . . . . . . . 28
(h) Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 28
(i) Forces Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(j) Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
iii
<PAGE>
THIS INFORMATION SYSTEM SERVICES AGREEMENT is made by and between Blue
Cross and Blue Shield of South Carolina ("BCBSSC") and Blue Cross and Blue
Shield United of Wisconsin ("BCBSUW") as of the date immediately preceding
the signatures of the parties subscribed hereinbelow.
INTRODUCTION. This Agreement is the "Definitive Agreement" referred to
in that certain Letter of Intent between the Parties dated as of August 21,
1996, concerning the provisions of certain information system services by
BCBSSC to BCBSUW (the "Letter of Intent").
AGREEMENT. In consideration of the mutual promises and covenants
hereinafter set forth, the Parties hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following definitions shall apply:
"ACCESS FACILITIES" means a channel attachment between the Plan's
network controller located at BCBSSC's data center and BCBSSC's central
processing facility in South Carolina, providing the Plan with access to the
System (as defined below). The Access Facilities do not include
telecommunication lines, telecommunication hubs, network controllers,
terminals, cabling, terminal emulation software, or other equipment or
software required at the Plan's sites for access to the System.
"AGREEMENT" means the within Information System Services Agreement
between the Parties, together with all exhibits, schedules or attachments
referred to herein, all as modified or amended from time to time in
accordance with the provisions hereof.
"BASE FEE" means, as to any Pricing Unit, the Base Rate multiplied by
the number of Subscribers for such Pricing Unit, in any given calendar month.
"BASE RATE" means, as to any Pricing Unit the monthly fee per Subscriber
set forth below:
<TABLE>
<CAPTION>
<S> <C>
Pricing Unit Base Rate
------------ ---------
BCBSUW Medical $ 2.34
BCBSUW Dental $ 0.41
UWS Medical $ 1.80
UWS Dental $ 0.36
</TABLE>
"BASIC SERVICES" means (and only means) the services provided by BCBSSC
to the Plan which are required to: (i) operate the System so as to allow the
Plan access to the System and use of the System Functions (as defined below)
in accordance with the terms and
1
<PAGE>
conditions of this Agreement, (ii) provide customary help desk support (via a
toll-free line provided by BCBSSC), including logging of all calls on the
Inform tracking system or equivalent, and (iii) perform such other services
as are expressly identified herein as included in Basic Services.
"BUSINESS SEGMENT" means any Plan line of business (or other category of
Plan business mutually agreed upon by the Parties prior to the Commencement
Date) that will be part of the domestic health and dental business carried on
by the Plan during the Term, including without limitation ASO, state group,
group health insured, dental, FEP, HIRSP, Dentacare, Compcare HMO, and
individual health and dental product lines of business, and including future
expansion of such business (whether in the form of expansion of existing
health and dental business lines or the addition of new health and dental
business lines).
"COMMENCEMENT DATE" means the first date on which all Business Segments
mutually agreed upon by the Parties as intended to become System Active
Business Segments (as defined below) qualify as System Active Business
Segments.
"CONTRACT" means an individual or group contract for health care or
dental benefits (whether indemnity or service benefits) issued or
administered by the Plan.
"CONTRACT YEAR" means each twelve month period following either the
Commencement Date or an anniversary of the Commencement Date.
"CPI" means the Consumer Price Index for All Urban Consumers (All Items
Index for All U.S. Cities (Base 1984=100)) for any calendar year as published
by the United States Department of Labor, Bureau of Labor Statistics.
"CPI PERCENTAGE" means, at any given time, the percentage increase or
decrease, if any, in the then most currently available CPI ("Current Index")
over the CPI most currently available as of twelve months prior to the
Current Index.
"DOCUMENTATION" means (i) the description of application functions set
forth in Exhibit A hereto; (ii) with respect to all enhancements and
modifications to the application functions (including any new application
functions) implemented after the date of this Agreement pursuant to ISSM, the
description of such new, enhanced or modified application functions set forth
in the "Post Implementation Sign-Off" (as defined in the ISSM) mutually
agreed to by the Parties pursuant to the ISSM; and (iii) with respect to
"Scope Adjustments" pursuant to Paragraph 4(c) below, the additions to,
deletions from or other modifications of application functionality described
in the "Scope Adjustment Sign-Off" referred to in Paragraph 4(c) below.
"IMPLEMENTATION SERVICES" means all services provided by BCBSSC to or on
behalf of the Plan in connection with implementing (or de-implementing) the
Plan's access to the System and/or use of the System Functions prior to the
Commencement Date.
2
<PAGE>
"ISSM" means BCBSSC's comprehensive on-line manual entitled "Information
Systems Standards Manual" setting forth the standards, procedures,
methodologies, policies and guidelines applicable to BCBSSC's information
services operations (including the System), as updated, amended or otherwise
modified from time to time in BCBSSC's sole discretion.
"LABOR RATE" means, for any given calendar year, the annual average
hourly amount actually paid by BCBSSC during the immediately preceding
calendar year as Compensation to the non-management personnel, including
contract programmers, who provide implementation services and/or support
services on behalf of BCBSSC and the customers of BCBSSC. As used herein,
"Compensation" includes all amounts reasonably related to the cost to BCBSSC
of such non-management personnel, including contract programmers, (such as
wages, bonuses and other wage and employment related taxes and benefits
customarily awarded to BCBSSC employees).
"LABOR RATE ADJUSTMENT" means the percentage increase or decrease, if
any, in the current annual Labor Rate over the previous calendar year's Labor
Rate.
"PARTY(IES)" mean either BCBSSC or BCBSUW, or both, as applicable.
"PLAN" means BCBSUW, UWS, and each other affiliate of BCBSUW which
BCBSUW desires to receive System Services under this Agreement.
"PRICING UNIT" means any one of the following stand-alone segments of
the Plan's business: (i) BCBSUW medical; (ii) BCBSUW dental; (iii) UWS
medical; and (iv) UWS dental; and "PRICING UNITS" means all four such
stand-alone segments.
"STEERING" means the process by which BCBSSC's information systems
personnel resources (measured in chargeable hours) are deployed and managed
in connection with a particular project or task related to the System, all as
more particularly set forth in the ISSM. BCBSSC information systems
personnel resources assigned to a project or task in response to a request of
the Chairman of a Steering Committee of one of the Parties are sometimes
referred to herein as "Steering resources of" that Party. For purposes of
this definition, "chargeable hours" does not include travel time to or from
South Carolina.
"SUBSCRIBER" means an individual who has contracted for health care or
dental benefits (whether on an individual or group basis) pursuant to a
System Active Contract. (However, "Subscriber" does not include dependents
entitled to health care or dental benefits under a Contract providing family
coverage). The number of Subscribers for any given calendar month and any
given Business Segment shall be, for all purposes of this Agreement,
reflected in the Systems routine BB30 monthly report for such calendar month
and Business Segment. A single individual may be counted as two (or more)
Subscribers if such individual is a Subscriber under two (or more) separate
System Active Contracts.
3
<PAGE>
"SUPPORT SERVICES" means the services provided by BCBSSC to or on behalf
of the Plan, other than Basic Services, Implementation Services, services
performed under Paragraph 10(a) and activities related to Strategic
Development, and including, without limitation, services in connection with
development and integration into the System, of enhancements and
modifications requested by BCBSUW.
"SYSTEM" means BCBSSC's computer hardware, computer programs (including
without limitation system software, application software and interface
software), the Access Facilities, and related equipment, documentation,
know-how, and other information and third party software by which BCBSSC
makes available to the Plan the System Functions.
"SYSTEM ACTIVE BUSINESS SEGMENT" means any Business Segment whose
Contracts are (in whole or substantial part) System Active Contracts.
"SYSTEM ACTIVE CONTRACT" means, as to any given calendar month, a
Contract which the System routine BB30 report for such month reflects as not
expired or canceled.
"SYSTEM FUNCTIONS" means the application functions currently supported
by the System related to the administration and operation of BCBSSC's
domestic health and dental business lines, including those set forth in the
Documentation, together with such enhancements of, additions to, deletions
from or modifications of the application functions (including any new
application functions) as mutually agreed to by the Parties that are
implemented by the Parties after the date hereof pursuant to the ISSM.
BCBSUW acknowledges that the availability of certain System Functions
(including certain System Functions described in the Documentation) for use
by BCBSUW depends upon BCBSUW obtaining licenses of certain software from
third party vendors, and that obtaining such licenses is BCBSUW's sole
responsibility.
"SYSTEM SERVICES" means the Basic Services, Implementation Services, and
the Support Services, collectively.
"UWS" means United Wisconsin Services, Inc.
"VOLUME" means the aggregate number of System Active Contracts in any
calendar month.
2. SCOPE OF SERVICES.
(a) GENERALLY. During the term of this Agreement (as set forth below),
BCBSSC shall make available to the Plan, and the Plan shall utilize, the
System and the System Services for the Plan's internal administration and
operation of the Business Segments selected by BCBSUW from time to time.
BCBSSC hereby grants the Plan a non-exclusive and non-transferable license to
access the System and utilize the System Functions. This license does not
permit access to or use of the System or the System Functions by any other
4
<PAGE>
person or entity, nor does it permit the Plan to possess, copy, reproduce in
any form, modify, or exercise any other right of control over any System
software, in whole or in part. This license does not grant the Plan access
to, use of, or any other rights with respect to, any other software products
or functions of BCBSSC, its affiliates, or any third party.
(b) CURRENT APPLICATIONS. The System's software applications currently
include, without limitation, the following:
<TABLE>
<C> <S>
AMMS claims processing system and subsystems, including claims
inquiry;
TMCS managed care system, including authorization, referral and
case management subsystems;
CARS back-end group reporting system;
PIMS provider information management system, including provider
demographics, certification and pricing;
Inform correspondence tracking system;
GMIS claims rebundling software (only those modules licensed to
BCBSSC; if BCBSUW desires to add GMIS modules not licensed
to BCBSSC, Support Services chargeable to BCBSUW will be
required to integrate additional modules)**;
OPAS on-line productivity and performance system;
ALGS automated letter generating system used to generate all
system letters in ad hoc or batch mode**;
- membership and enrollment systems, including inquiry
subsystem (and including new CES membership system when
completed and implemented by BCBSSC for its domestic health
and dental business lines);
- benefit file processing and inquiry system;
- premium billing, cash receipts, income accounting and
commission systems; and
- Blue Cross Association ("BCA") mandated systems applicable
to BCBSSC, including ITS, IPDR and FEP.
</TABLE>
5
<PAGE>
<TABLE>
<C> <S>
- Capitation system when completed and implemented by BCBSSC
for its domestic health and dental business lines.
</TABLE>
** Indicates software requiring BCBSUW (at its sole cost) to obtain a third
party vendor license.
Services rendered by BCBSSC to provide the Plan with access to and use
of any and all such current applications shall be chargeable to BCBSUW as
Implementation Services or Support Services, as applicable.
(c) NEW APPLICATIONS.
(i) At BCBSUW's option, and subject to agreement by the Parties as
to an adjustment to the Operating Fee as set forth in subparagraph (ii)
below, BCBSSC shall integrate with the System the following software
applications (individually "New Application" and collectively "New
Applications") (the cost of purchasing, developing, integrating or
licensing such software shall be BCBSUW's sole responsibility):
<TABLE>
<C> <S>
- third party vendor financial systems, including general ledger,
accounts payable, purchasing, fixed assets, and cost allocation;
- additional GMIS modules not licensed to BCBSSC;
- other Plan systems such as drug processing (ProVantage), data
warehouse, and financial and electronic commerce systems; and
- new applications developed with Steering resources of BCBSUW.
</TABLE>
(ii) BCBSSC shall not be required to implement any New Application
until the Parties have agreed upon an appropriate adjustment in the
Operating Fee under Paragraph 4 for the processing of such New
Application.
(iii) All BCBSSC services required to integrate any New
Application into the System shall constitute Implementation Services
chargeable under Paragraph 5(b) or Support Services chargeable under
Paragraph 5(c), as applicable.
(d) PRINT CENTER. BCBSUW shall operate a print center at a mutually
satisfactory Plan site (the "Print Center") to provide the Plan with System
related printing services, including production of identification cards in the
same format and on the same cardstock as currently used by the Plan. BCBSUW
shall provide staffing, equipment, paper and other supplies, and mainframe and
LAN/WAN connections and interface software necessary to support the Print
Center. BCBSUW shall be responsible for all other costs and requirements of the
Print Center, including without limitation all mailing costs, and all cabling
and
6
<PAGE>
environmental requirements of the Print Center. BCBSSC shall not be
responsible for any Print Center costs of any kind whatsoever.
(e) MONTHLY REPORTING. As part of the Basic Services, BCBSSC shall
provide BCBSUW with monthly reports concerning the status of key projects,
performance metrics, issues log, anticipated workload, and compliance with
the service level commitments set forth in Paragraph 16 below.
(f) SYSTEM SECURITY. As part of the Basic Services, BCBSSC shall
follow reasonable security procedures to protect Plan data files from
unauthorized access by third parties or unauthorized BCBSSC personnel. At a
minimum, such security procedures shall be at the level provided by BCBSSC
for the protection of its own data of a similar nature. BCBSSC shall cause
its independent financial auditors to conduct an annual audit of its security
procedures and data center controls and report in writing thereon, and shall
promptly upon its receipt of such report provide a copy thereof to BCBSUW.
If the Parties mutually agree to changes in security procedures recommended
in any such report, such changes shall be promptly implemented at BCBSSC's
sole cost and expense. BCBSSC shall also consider other recommendations by
BCBSUW concerning changes in security procedures. In any event, however,
implementation of any such changes in security procedures shall be in the
sole discretion of BCBSSC.
(g) ACCESS FACILITIES AND SYSTEM SUITABILITY. The Access Facilities
and the System shall be adequately sized to support the Plan's then current
processing volume, with appropriate allowances for unanticipated large
increases in processing volume, and provided that BCBSUW gives BCBSSC
reasonable notice of anticipated large increases in processing volume.
3. TERM.
The initial term ("Initial Term") of this Agreement shall begin with the
effective date thereof and end upon the fifth anniversary of the Commencement
Date. BCBSUW shall have the option to renew this Agreement for two
additional one-year periods (the "Renewal Terms") by giving written notice of
renewal to BCBSSC at least one year prior to the end of the Initial Term and
at least six months prior to any Renewal Term. The Initial Term and the
Renewal Terms are sometimes referred to collectively herein as the "Term."
Notwithstanding the foregoing, this Agreement may be terminated prior to the
expiration of the Initial Term or any Renewal Term pursuant to Paragraphs 15,
16(b)(ii), 17(b)(ii), 18(b) or 18(c) below.
4. OPERATING FEE.
(a) IN GENERAL. In consideration of the System access license referred
to in Paragraph 2(a) above, and the performance of the Basic Services, BCBSUW
shall pay BCBSSC for each calendar month during the Term a fee (the
"Operating Fee") equal to the
7
<PAGE>
sum of the Base Fees for all four Pricing Units for such calendar month;
provided, however, that from and after the Commencement Date, there shall be
a minimum Operating Fee of $500,000 per month.
(b) ADJUSTMENTS TO THE OPERATING FEE. The Operating Fee shall be
adjusted as follows:
(i) if the aggregate number of the BCBSUW Medical Pricing Unit
Subscribers and the UWS Medical Pricing Unit Subscribers exceeds 504,000
for any calendar month during the Term, then the Base Rate for each such
Pricing Unit shall be reduced by 5% for such calendar month;
(ii) the Operating Fee shall be adjusted by all applicable Scope
Adjustments provided for in Paragraph 4(c) below;
(iii) the Operating Fee shall be adjusted following the
implementation of any New Application, in accordance with Paragraph
2(c)(ii) above;
(iv) if the aggregate number of the BCBSUW Dental Pricing Unit
Subscribers and the UWS Dental Pricing Unit Subscribers exceeds 3,400,000
in any Contract Year, the Base Rate applicable to each such Pricing Unit
shall be increased by $0.10 per Subscriber commencing on the first day of
the next succeeding Contract Year;
(v) if the aggregate number of the BCBSUW Dental Pricing Unit
Subscribers and the UWS Dental Pricing Unit Subscribers exceeds 5,000,000
in any Contract Year, the Base Rate applicable to each such Pricing Unit
shall be increased by $0.15 per Subscriber commencing on the first day of
the next succeeding Contract Year; and
(vi) on January 1, 1998, and on each January 1 thereafter, the
Operating Fee shall be adjusted by the CPI Percentage.
(c) SCOPE ADJUSTMENTS. Scope Adjustments are amounts by which the
otherwise applicable Base Rate will be increased or decreased if BCBSUW
elects to include or exclude certain System capabilities from the System
license. (The Base Rates set forth in the definition of "Base Rate" in
Paragraph 1 above assumes each of the following capabilities are included.)
Following are the Scope Adjustments BCBSUW may elect:
<TABLE>
<CAPTION>
Based Rate Adjustment Amount Capability Excluded
---------------------------- -------------------
<S> <C>
$0.01 CARS
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
$0.01 support of Plan financial system
software on BCBSSC main frame
$0.04 TMCS
$0.01 INFO, OPAS and ALGS (all three must
be excluded for credit to apply)
$0.05 BCBSSC data warehouse and statistical
reporting systems
</TABLE>
Additional Scope Adjustments, if any, shall be mutually agreed upon by the
Parties. Steering resources necessary to effect Scope Adjustments shall be
part of BCBSUW's Steering resources chargeable as Implementation Services or
Support Services under Paragraph 5(b) or Paragraph 5(c), as applicable. No
Scope Adjustment shall be effective until both Parties mutually agree upon
and execute a written "Scope Adjustment Sign-off" which shall, INTER ALIA,
contain a description of additions to, deletions from or other modifications
of application functionality resulting from such Scope Adjustment.
(d) PRINT CENTER CREDIT. In consideration of BCBSUW's election to
exclude the Print Center from the scope of Basic Services to be provided by
BCBSSC under this Agreement, for all periods from and after the Commencement
Date BCBSUW shall receive a credit against the Operating Fee equal to
$70,673.00 per month. On January 1, 1998 and on each January 1 thereafter,
the credit for the Print Center shall be adjusted by the CPI Percentage.
(e) STRATEGIC DEVELOPMENT CHARGE. BCBSUW hereby agrees to pay to
BCBSSC a strategic development charge ("Strategic Development Charge") to
defray the cost of BCBSSC's strategic development activities. For purposes
hereof, "strategic development" means all system-related development and
implementation activities classified as "strategic" by BCBSSC, in its sole
discretion. The Strategic Development Charge shall be payable monthly to
BCBSSC, in the amounts and for the Pricing Units set forth below:
<TABLE>
<CAPTION>
Pricing Unit Monthly Strategic Development Charge
------------ ------------------------------------
<S> <C>
BCBSUW Medical $78,675
UWS Medical $20,195
</TABLE>
The first payment for either Pricing Unit set forth above shall be
payable in the month following the month in which there is a System Active
Contract and, thereafter, shall continue for the Initial and Renewal Terms of
this Agreement. Following the Commencement Date and for each Contract Year
thereafter, BCBSUW shall be reimbursed by BCBSSC for the amount, if any, by
which the Strategic Development Charge paid by BCBSUW in any Contract Year
exceeds the amount of Strategic Development costs incurred
9
<PAGE>
by BCBSSC for such Contract Year, as reflected on BCBSSC's books and records.
BCBSSC shall forward to BCBSUW, within 90 days after expiration of each
Contract Year, a detailed statement reconciling the Strategic Development
activities and related costs incurred by BCBSSC with the amounts paid by
BCBSUW, accompanied by the reimbursement amount, if any, owed to BCBSUW. If
BCBSUW wishes to contest any determination by BCBSSC of its System related
strategic development costs, it may request (but no more than once during, or
in respect of, any Contract Year) that BCBSSC's independent financial auditor
determine the amount of such costs and prepare a written report of its
findings. If the auditor's written report indicates a rebate is owed to
BCBSUW, BCBSSC shall pay such rebate in full within 30 days after receipt of
the auditor's written report, and shall promptly pay the cost of the
auditor's work. Otherwise, BCBSUW shall promptly pay (or reimburse BCBSSC
for, as applicable) the cost of the auditor's work.
5. SERVICES FEES.
(a) BASIC SERVICES. Basic Services are included in the Operating Fee
and are provided at no additional charge.
(b) IMPLEMENTATION SERVICES. Subject to Paragraph 9(b) below:
(i) Implementation Services shall be charged to BCBSUW at an initial
rate consisting of two components: (1) a labor component (the "Labor
Component") of $65.00 per chargeable hour, and (2) a CPU component (the
"CPU Component") of $16.25 per chargeable hour.
(ii) On January 1, 1997, and on each January 1 thereafter, the Labor
Component portion of the fee for Implementation Services shall be adjusted
in accordance with the Labor Rate Adjustment.
(c) SUPPORT SERVICES. Support Services shall be charged to BCBSUW at
the rate of $65.00 per chargeable hour. On January 1, 1997, and on each
January 1 thereafter, the fee for Support Services shall be adjusted in
accordance with the Labor Rate Adjustment.
(d) RECORD KEEPING AND AUDIT RIGHTS. All BCBSSC personnel shall keep
written daily time logs in respect of System Services performed. Each time
log entry shall briefly describe the services performed, and reflect in
one-hour increments the time expended in performing the services. BCBSUW
shall have the right (exercisable no more than once during any twelve month
period), at its sole cost and expense, and at a mutually satisfactory time to
be reasonably agreed upon, to inspect and audit, through a mutually-selected
"Big Six" accounting firm, BCBSSC's billing and time log records and Labor
Rate computations relating to the System Services provided to the Plan.
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6. TAXES ADDITIONAL.
BCBSUW shall pay all tariffs and taxes assessed or levied by any
governmental entity that are now or may become applicable to this Agreement,
or measured by payments made thereunder or required to be collected by BCBSSC
or paid by BCBSSC to tax authorities (including interest assessments thereon
if such assessments are due to the Plan's actions or inactions) including but
not limited to, sales, use, excise, gross receipt and personal property
taxes, but excluding taxes based upon the net income of BCBSSC.
7. BILLINGS AND PAYMENTS.
BCBSSC shall on or before the last day of every calendar month invoice
BCBSUW for the total fees due under Paragraphs 4 and 5 above and the total
amount of late charges (if any), due in respect of the preceding calendar
month. Each such invoice shall be due and payable in full by BCBSUW within 30
days of its receipt of such invoice. Delinquent amounts shall accrue on a
per diem basis a late charge at the rate of 1.5% per month (or, if less, the
highest rate permitted by law).
8. STEERING.
(a) GENERALLY. BCBSUW shall establish from among Plan personnel one or
more Steering Committees, each of which shall be headed by a Chairman
selected by BCBSUW and identified in writing to BCBSSC. BCBSUW shall
promptly notify BCBSSC of changes in the identity of any Steering Committee
Chairman. Each Steering Committee Chairman shall have the authority on
behalf of BCBSUW to request that BCBSSC undertake projects or tasks related
to System enhancements or modifications desired by BCBSUW as part of Steering
resources of BCBSUW. All services performed by BCBSSC at the request of a
Chairman of a BCBSUW Steering Committee shall be conclusively deemed to be
compensable Implementation Services under Paragraph 5(b) or Support Services
under Paragraph 5(c), as applicable. Steering shall be carried out in
accordance with the ISSM.
(b) STEERING MINIMUM. BCBSUW may elect to establish a minimum number
of Steering chargeable hours ("Steering Minimum") to be dedicated to projects
or tasks on behalf of BCBSUW for each Contract Year. The Steering Minimum
for the first Contract Year shall be communicated by BCBSUW to BCBSSC six
months prior to the formation of BCBSUW's Steering resources. BCBSUW may
modify the Steering Minimum on an annual basis thereafter, effective as of
the commencement of the Contract Year immediately following such
modification; provided, however, that BCBSUW must give BCBSSC written notice
of each modification at least 90 days prior to the effective date.
Notwithstanding the foregoing, the Steering Minimum shall not exceed 60,000
chargeable hours in any Contract Year without the prior consent of BCBSSC,
which consent shall not be unreasonably withheld.
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(c) INITIAL SYSTEM ENHANCEMENTS AND MODIFICATIONS. System enhancements
and modifications initially desired by BCBSUW include:
(i) development of an interface link to allow regular downloads to
the Plan's data warehousing systems; and
(ii) development of a front-end data collection and router system for
claims distribution.
The development and implementation of such System enhancements and
modifications shall be billed to BCBSUW as either Implementation Services or
Support Services, as applicable.
(d) PROGRESS REPORTING. BCBSSC shall provide BCBSUW with regular,
periodic reports covering project status and budget, issues and time lines in
connection with projects being carried out with Steering resources of BCBSUW.
(e) OWNERSHIP OF WORK PRODUCT. All work product (including without
limitation software code and documentation, software and system designs and
methodologies, and other know-how), and all patent rights and copyrights in
respect of such work product, related to the System or developed in
connection with this Agreement, shall be the exclusive property of BCBSSC,
regardless of whether BCBSSC receives any fees or payments from BCBSUW in
respect of such work product or the services resulting in such work product.
9. IMPLEMENTATION MATTERS.
(a) GENERALLY. The Parties shall work together reasonably and in good
faith to identify the categories of tasks (each an "Implementation Project")
constituting the Implementation Services. Each Implementation Project will
be carried out in accordance with the ISSM.
(b) SHARING OF COSTS RELATED TO IMPLEMENTATION PROJECTS. As part of
the Design process required by the ISSM, BCBSSC will provide BCBSUW with a
Design cost estimate ("Design Cost Estimate") for each Implementation
Project. BCBSUW shall pay for the costs of each Implementation Project that
is approved by BCBSUW and undertaken by BCBSSC pursuant to the ISSM at the
rate set forth in Paragraph 5(b) hereof, except that (i) if the actual cost
for any Implementation Project exceeds the most recent Design Cost Estimate
for that Implementation Project by at least 25% (but less than 75%), BCBSSC
shall be responsible for 25% of such excess amount, and (ii) in addition, if
the actual cost for any Implementation Project exceeds the most recent Design
Cost Estimate for that Implementation Project by 75% or more, BCBSSC shall be
responsible for 50% of the amount exceeding the Design Cost Estimate by 75%
or more.
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(c) EDS MIGRATION. Implementation Services will include technical
assistance requested by BCBSUW regarding its migration from the EDS system,
but BCBSUW shall be solely responsible for obtaining EDS' cooperation in
connection with such migration. BCBSUW shall also remain solely responsible
for compliance by both EDS and BCBSUW with any and all agreements between EDS
and BCBSUW. BCBSUW shall take all reasonable actions necessary to obtain the
cooperation of EDS and its personnel in transitioning the Plan from the EDS
system to the System. Notwithstanding the foregoing, BCBSUW shall cause EDS
to provide to BCBSSC electronic data files of all providers, networks,
pricing, enrollment and membership, benefits, claims history, and managed
care data for the Plan. BCBSUW hereby agrees to indemnify, defend, and hold
harmless BCBSSC and its directors, officers, employees, agents and other
representatives from and against any damage, loss, expense or liability
arising out of, or resulting from, any claim, action or proceeding by EDS (or
any other third party) related, directly or indirectly, to the Plan's
migration to or implementation of the System.
(d) PHASING. The Parties shall consult with each other and agree upon
a strategy for phasing System implementation by Business Segment. Final
decisions as to such phasing strategy shall be in the reasonable discretion
of BCBSUW based on BCBSUW's overall business needs.
(e) IMPLEMENTATION TEAM. The Parties agree that, initially, the key
BCBSSC personnel responsible for System implementation shall be James Shealy
and Patricia Dickerson. BCBSSC shall use reasonable efforts to keep the
System implementation team intact until the Commencement Date and any
replacements to key personnel shall have comparable education and experience
with the particular portion of the System over which such replacement would
have responsibility.
(f) SERVICES PRIOR TO THIS AGREEMENT. BCBSUW acknowledges BCBSSC has
performed preliminary Implementation Services prior to the date of this
Agreement. BCBSUW agrees to pay for such services pursuant to Paragraph 5(b)
hereof so long as the amount due in respect of such services does not exceed
$100,000.00.
10. MIGRATION.
(a) BCBSUW will have the right to migrate functions and Business
Segments from the System during the Term and will not be obligated to migrate
to the System any new functions or Business Segments developed or acquired by
the Plan after the date of this Agreement. Before BCBSUW migrates any Plan
function or Business Segments from the System, it will grant BCBSSC a right
of first refusal to meet or beat the proposed terms, conditions and projected
or quoted costs for performance of the function or Business Segments. This
right of first refusal will not apply to any function or Business Segments
developed or acquired by the Plan after the date of this Agreement, and
BCBSUW will not be obligated to make BCBSSC aware of any such functionality
or Business Segment. However, BCBSUW may request BCBSSC to consider adding a
new function or Business
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Segment to the System, and BCBSSC will respond in accordance with the
procedures set forth in this Agreement and as otherwise reasonably
established by BCBSSC from time to time.
(b) Services provided to the Plan under this Paragraph 10 initially
shall be charged to the Plan at the rate described in Paragraph 5(b)(i)
above. On January 1, 1997, and on each January 1 thereafter, the Labor
Component portion of such rate shall be adjusted in accordance with the Labor
Rate Adjustment.
11. REGULATORY MANDATES.
(a) FEDERAL MANDATES. Each Party shall, as its sole responsibility and
at no cost to the other party, monitor on an ongoing basis all mandates
imposed by federal law or federal regulatory authorities applicable to its
own business (collectively, the "Federal Mandates"). In addition, each Party
shall provide timely notification to the other Party of its desire to
implement, or not to implement, the System modifications required for
compliance with each such Federal Mandate (collectively, the "Federal Mandate
Modifications"). All Federal Mandate Modifications desired by at least one
Party shall be funded equally by both Parties. BCBSSC shall implement all
Federal Mandate Modifications that either one of the Parties desires to
implement. BCBSSC shall endeavor, but shall not be obligated, to implement
all Federal Mandate Modifications desired by any Party within the applicable
federal time deadline.
(b) BCA MANDATES.
(i) Each Party shall, at no cost to the other Party, monitor on an
ongoing basis all changes mandated by the BCA (including, among others, ITS
release 8.0 and all future ITS releases, IPDR and FEP) (collectively, "BCA
Mandates"). Except as otherwise provided in subparagraph (ii) below,
BCBSSC shall, as part of the Basic Services: (1) fully implement the
System modifications required for compliance as determined by BCBSSC with
ITS Release 8.0 by no later than the BCA-mandated date, and (2) fully
implement the System modifications required for compliance with all other
BCA Mandates by the applicable deadline.
(ii) The costs of any Wisconsin-specific changes due to BCA Mandates
shall be chargeable to BCBSUW under Paragraph 5(b) or 5(c), as applicable.
(c) STATE OF WISCONSIN MANDATES. BCBSUW shall be solely responsible
for (i) identifying and communicating to BCBSSC with reasonable notice all
changes in Wisconsin laws, rules and regulations affecting the Plan
(collectively, "Wisconsin Mandates"); and (ii) the Steering resources
necessary to implement the System modifications required for compliance with
Wisconsin Mandates.
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12. OTHER PLAN RESPONSIBILITIES.
(a) FACILITIES FOR USE BY BCBSSC. BCBSUW shall make available to
BCBSSC at no charge (i) such office space, furniture, equipment and
telephones at the Plan's sites as BCBSSC may reasonably request; and (ii)
print center facilities and all related office, storage, power and physical
security (including UPS and power generators). BCBSUW shall not be
responsible for long distance telephone calls or for providing BCBSSC with
special equipment, such as personal computers, modems and printers.
(b) SYSTEM RELATED FACILITIES. BCBSUW is solely responsible for
providing and maintaining all personnel, hardware, software, equipment,
supplies, and other items required at the Plan sites for access to and use of
the System except for the Access Facilities. Without limiting the generality
of the foregoing, BCBSUW shall be responsible for the following:
(i) All hardware at the Plan Sites, including without limitation
servers, workstations, terminals, printers, modems, uninterruptable power
supply equipment, cabling and interface cards.
(ii) All telecommunications equipment, hardware and software
(including without limitation all terminal emulation software required by
intelligent workstations used to access the System) for each Plan site in
conformity with all BCBSSC specifications as may be applicable thereto,
including, without limitation, if required, all hardware and software
necessary to establish and maintain a dedicated dial or lease line circuit
connecting each Plan site to the central telecommunications hub and a high
speed telecommunications line which connects to the Plan's network
controller located at BCBSSC's data center.
(c) REPRESENTATIVE.
(i) Each Party shall designate and maintain at all times a
Representative to work on all aspects of the implementation and use of the
System. Subject to subparagraph (ii) below, each Party's Representative
shall have at all times full power and authority to act on behalf of and
bind such Party as to all matters and activities related to or contemplated
by this Agreement (including, without limitation, requesting development
and implementation of modifications or enhancements by BCBSSC or the
performance of other special services by BCBSSC). Initially, BCBSUW's
Representative shall be Thomas E. Liechty and BCBSSC's Representative shall
be Stephen Von Fange. Each party may change the Representative from time
to time by written notice to the other Party.
(ii) Notwithstanding anything to the contrary in subparagraph (i)
above, no act by a Representative shall be binding on the Party he or she
represents unless set forth in writing by such Representative.
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13. OWNERSHIP OF DATA.
BCBSUW shall be the exclusive owner of all its stored data in BCBSSC's
possession, and BCBSSC shall deliver all such data to BCBSUW promptly upon
its request upon termination of this Agreement. BCBSSC will possess no lien
on, or any other right to, such data.
14. PROPRIETARY RIGHTS OF BCBSSC.
BCBSUW acknowledges and agrees as follows:
(a) BCBSSC shall possess and retain all right, title, and interest
(including without limitation all trade secret rights, copyrights and patent
rights) in and to the System and its component parts, including without
limitation (i) all software code and documentation, (ii) the ISSM and all
other manuals or user information, (iii) the design and format of the input
and output screens, graphical user interface, and printable forms, reports
and other hard copy output incorporated in or generated by the System, and
(iv) all additions, enhancements, revisions, updates or other modifications
to the System or any part thereof, regardless of any fee or charge paid by
BCBSUW to BCBSSC in respect of the design, creation or use thereof. BCBSUW
shall not cause or permit removal or alteration in any way of any notice,
legend or symbol denoting any copyright, trademark, patent or other
proprietary right or interest of BCBSSC appearing on (i) any input or output
screen or hard copy output incorporated in or generated by the System, or
(ii) any documentation, manuals, brochures, or other written or printed
materials of any kind.
(b) The System and its component parts described above, and the process
methodologies, design elements and other know-how related thereto, constitute
valuable proprietary information and trade secrets of BCBSSC. BCBSUW shall
not disclose (nor permit any Plan employee or agent to disclose) to any
person or entity, or allow any person or entity access to, any such
proprietary information or trade secrets in whole or in part; provided,
however, use of the System in accordance with the terms and conditions of
this Agreement shall be permitted for employees of the Plan in the ordinary
course and scope of their employment by the Plan. BCBSUW shall not cause or
permit any part of the System's software components to be reverse engineered,
decompiled, or disassembled. BCBSUW shall not cause or permit the software,
documentation, or other information related to the System to be copied or
reproduced in any form or medium, in whole or in part. BCBSUW shall take
such actions to preserve and protect BCBSSC's proprietary rights and interest
of confidentiality in and with respect to the System which are, at a minimum,
commensurate with those actions taken by BCBSUW to preserve and protect its
most valuable trade secrets or other proprietary or confidential information.
(c) BCBSUW's confidentiality obligations to BCBSSC under Paragraphs
14(a) and 14(b) do not apply to any information which (i) was lawfully and
rightfully in the Plan's
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possession at the time of disclosure by BCBSSC and was not acquired directly
or indirectly from BCBSSC, (ii) was lawfully and rightfully acquired by the
Plan from others who had no confidentiality obligation to BCBSSC with respect
to same, or (iii) is now, or hereafter becomes, through no fault of the Plan,
part of the public domain by publication or otherwise.
(d) The Plan has no right to use the System or any part thereof except
as specifically granted under the license referred to in Paragraph 2(a). The
Plan shall not, directly or indirectly, take any action in derogation of, or
in conflict with, BCBSSC's rights in the System as set forth above.
15. TERMINATION BY BCBSUW FOR CONVENIENCE.
In the event BCBSUW terminates this Agreement without "cause" (as
defined below), BCBSUW shall pay BCBSSC a termination fee in the amount of
Six Million Dollars ($6,000,000) as liquidated damages. BCBSUW agrees that
this termination fee is not a penalty, but represents a reasonable QUID PRO
QUO in respect of such termination in light of the substantial investment
made by BCBSSC of money, key personnel time, lost business opportunities, and
other resources in order to fulfill its obligations under this Agreement.
For purposes hereof, "cause" means (and only means) either (i) a "Failure"
within the meaning of Paragraph 16(a)(vi) below, (ii) a "material" failure of
the System to conform with the functionality described in the Documentation
within the meaning of Paragraph 17(b)(i), (iii) an Event of Default within
the meaning of Paragraph 18(a) below, or (iv) a suspension of performance by
BCBSSC due to a force majeure which continues for 30 or more consecutive days.
16. SERVICE LEVEL COMMITMENTS.
(a) DEFINITION OF SERVICE LEVEL COMMITMENTS. The following Service
Level Commitments shall be effective on a date which is six months after the
Commencement Date and shall continue through the Term.
(i) "CICS AVAILABILITY PERCENTAGE" shall mean the ratio, expressed as
a percentage, of the actual amount of time each of the Plan's Production
CICS Regions is available for use by the Plan, divided by the total amount
of time between the mutually agreed upon business hours during any monthly
period. System SMF data will be used to calculate the CICS Availability
Percentage on a monthly basis.
(ii) "CICS RESPONSE TIME AVERAGE" shall mean the ratio, expressed in
seconds or a fraction thereof, of the sum of all of the Plan's interactive
Production CICS transaction response times for a calendar month divided by
the total number of the Plan's interactive Production CICS transactions
during that same month. TMON (or equivalent) software will be used to
calculate the CICS Response Time Average. Response time shall be the time
elapsed between the moment a transaction is received by BCBSSC from the
Plan's network controller until the moment an intended
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response is presented back to the Plan's same network controller by
the System.
(iii) "INFORMATIONAL FILES AVAILABILITY PERCENTAGE" shall mean the
ratio, expressed as a percentage, of the formula ((A-B)/(A)) where (A) is
the total scheduled available hours in a month times the number of
production informational files, and (B) is the number of hours during which
production informational files were not available during the month. Hours
that fall into the following categories will not be used to calculate (B)
above: (1) mutually agreed upon holidays; (2) normal scheduled maintenance
periods for which BCBSUW receives prior notification through BCBSSC's
E-mail system; (3) periods during which the file in question is being
updated or loaded and (4) Sundays while regular weekly maintenance is
being performed. File unavailability will be logged to the BCBSSC InForm
System which will be used to calculate the Informational Files Availability
Percentage for each month.
(iv) "DISASTER RECOVERY." BCBSSC shall provide disaster recovery
services and hotsite capabilities and procedures for testing such
capabilities at least on an annual basis.
(v) "BATCH SYSTEM COMPLETION." Prior to the Commencement Date, the
Parties shall jointly develop and mutually agree to a schedule setting
forth the time of day each business day that each category of production
files will be available. Such schedule shall become part of this Service
Level Commitment.
(vi) "FAILURE." Each of the following shall constitute a failure to
satisfy a Service Level Commitment ("Failure"): (1) a CICS Availability
Percentage was less than 98.25% for two consecutive months; (2) a CICS
Response-Time Average was more than 1.8 seconds for two consecutive months;
(3) an Informational Files Availability Percentage was less than 95% for
two consecutive months; (4) Disaster Recovery Testing was unsuccessful in
any 12-month period and retesting within 90 days thereafter was also
unsuccessful; or (5) Batch Systems Completion has been missed more than two
times during a calendar month for two consecutive months.
(b) EXCLUSIVE REMEDIES FOR FAILURE TO SATISFY SERVICE LEVEL
COMMITMENTS. Subject to the $6 million limitation expressed in Paragraph
19(c) below, the Plan's exclusive remedies for BCBSSC's failure to satisfy
any Service Level Commitment shall be as follows:
(i) CREDITS. For each Failure (as defined above), BCBSSC shall pay
to BCBSUW $50,000 for that Failure. If any Failure continues to the next
consecutive month, BCBSSC shall pay to BCBSUW $100,000 for such month, and
$350,000 for each consecutive month thereafter until the Service Level
Standard has been met. Notwithstanding the foregoing, (A) BCBSSC's
liability to the Plan during any month shall not exceed $350,000 regardless
of the number of Failures occurring in such month; and (B) BCBSSC's
aggregate liability to BCBSUW under this subparagraph
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(b)(i) shall not exceed $3 million for all time. BCBSSC agrees that the
credit payments hereunder are not a penalty, but represent a reasonable
QUID PRO QUO in respect of the losses and inconvenience incurred by
BCBSUW due to the degradation in the level of services provided to the
Plan.
(ii) TERMINATION. If, during the term of this Agreement, BCBSUW has
reached the $3 million limitation of damages specified in subparagraph
(b)(i)(B) above then, upon the next occurrence of a Failure to satisfy a
Service Level Standard by BCBSSC BCBSUW shall be entitled to terminate this
Agreement and recover from BCBSSC one-half the reasonable costs incurred by
BCBSUW to convert to an alternate system, such recovery not to exceed $3
million.
17. CONFORMITY WITH DOCUMENTATION.
(a) COVENANT BY BCBSSC. BCBSSC agrees that the System will conform in
material respects with the functionality described in the Documentation.
(b) EXCLUSIVE REMEDIES FOR FAILURE OF SYSTEM TO CONFORM TO
DOCUMENTATION. Subject to the $6 million limitation expressed in Paragraph
19(c) below, BCBSUW's exclusive remedies for any breach by BCBSSC of its
covenant under Paragraph 17(a) above shall be as follows:
(i) CORRECTIVE ACTION AND COSTS. BCBSSC promptly shall correct, at
its own cost, any material failure (as defined in the next sentence) of the
System to conform with the functionality described in the Documentation.
For purposes of the foregoing, a failure is "material" if BCBSSC has
received from BCBSUW written notice of the failure and the failure is
deemed material by both Parties. Pending the completion of any such
corrective action, BCBSSC shall provide the Plan with a manual or automated
work-around at no charge to the Plan, and, upon the approval of both of the
Parties (which approval shall not be unreasonably withheld), shall
reimburse or credit BCBSUW for the reasonable costs in excess of $10,000
incurred by the Plan in connection with the System failure.
(ii) TERMINATION. In the event that BCBSSC fails to promptly initiate
corrective action under subparagraph (i) above or fails to diligently
pursue such action to completion, BCBSUW shall have the right, upon 90
days' prior written notice to BCBSSC, to terminate this Agreement and
recover its Termination Damages (as defined in Paragraph 19 below).
18. EVENTS OF DEFAULT; REMEDIES.
(a) DEFAULT BY BCBSSC. Each of the following shall be deemed an Event
of Default by BCBSSC:
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(i) BCBSSC materially breaches its confidentiality obligations under
Paragraph 23 below; or
(ii) BCBSSC fails to perform any material obligation to migrate
functions and Business Segments from the EDS System, as set forth in the
conversion schedule to be jointly developed by and mutually agreed upon by
the Parties and such failure continues for 60 days after written notice to
BCBSSC; provided that such failure is within the reasonable control of
BCBSSC and is not caused (in whole or in material part) by the acts or
omissions of the Plan or EDS or their respective agents and employees; or
(iii) BCBSSC materially breaches its indemnification obligations
under Paragraph 22 below.
(b) REMEDIES FOR EVENT OF DEFAULT BY BCBSSC. Upon the occurrence of an
Event of Default by BCBSSC, BCBSUW, at its option, may terminate this
Agreement and recover its Termination Damages.
(c) DEFAULT BY THE PLAN; BCBSSC'S REMEDIES. In the event of any
default by BCBSUW in the performance or observance of any of its material
obligations under this Agreement that remains uncured for more than 30 days
after written notice thereof, BCBSSC shall have the right to (A) terminate
this Agreement effective 180 days after the giving of written notice to
BCBSUW, and, subject to the limitation expressed in Paragraph 19(c) below,
recover its Termination Damages; or (B) without terminating this Agreement,
recover its actual damages caused by the Plan's failure to perform, subject
to the limitation expressed in Paragraph 19(c) below. In the event any
amount owed by BCBSUW to BCBSSC under this Agreement remains delinquent for
60 days or more, BCBSSC shall have the right, in its sole discretion, and in
addition to any and all other rights or remedies available hereunder, to
interrupt the Plan's access to any or all of the System Functions and the
System Services.
19. LIMITATION OF LIABILITY.
(a) TERMINATION DAMAGES. "Termination Damages" means the following
damages with respect to each Party, subject to the $6 million limitation set
forth in Paragraph 19(c):
(i) FOR THE PLAN. The sum of the following amounts:
(A) The actual, documented damages incurred by the Plan as a
result of the breach or failure by BCBSSC under Paragraphs 16(a)(vi),
17(b)(i), or 18(a) above, limited in the aggregate to $3 million; and
(B) One-half of the actual costs incurred by the Plan to convert
from the System to an alternate system.
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(ii) BCBSSC. The actual, documented damages incurred by BCBSSC as a
result of the breach or failure by the Plan which gives rise to such claim.
(b) PUNITIVE DAMAGES. Neither Party shall be liable to the other party
for any punitive damages.
(c) LIMITATION ON AMOUNT OF DAMAGES. Except for the Parties'
indemnification obligations under Paragraph 22 below, which shall not be
contractually limited: (i) in no event shall either Party's aggregate
liability to the other Party in respect of any and all claims arising out of
or otherwise related to this Agreement exceed six million ($6,000,000); and
(ii) in no event shall either Party have any liability whatsoever to the
other for damages of any kind in respect of this Agreement (regardless of
whether the claim for damages is grounded in contract, tort or any other
legal basis) except to the extent (and there only to the extent) expressly
provided in this Agreement.
20. TRANSITION SERVICES.
(a) Upon expiration or termination of this Agreement for any reason:
(i) at the request of BCBSUW, BCBSSC shall reasonably assist BCBSUW in
migrating to an alternate system, with BCBSSC's services in connection
therewith to be compensated by BCBSUW as Support Services under Paragraph
5(c) above; and (ii) at the request of BCBSUW, BCBSSC shall continue to
provide services to the Plan on a month-to-month basis for a period of up to
12 months, on a per-claim and per-encounter basis at a rate of $2.25 per
claim or encounter, as applicable, and otherwise in accordance with this
Agreement. On January 1, 1998 and on each January 1 thereafter, the rate
shall be adjusted by the CPI Percentage.
(b) Promptly following the effective date of termination of BCBSSC's
services under this Agreement for any reason, BCBSUW shall promptly return to
BCBSSC any and all manuals, documents or other written materials in its
possession relating to the System. Following termination of this Agreement
for any reason BCBSUW shall remain obligated to pay to BCBSSC all amounts
accrued or owing under this Agreement prior to the effective date of
termination.
21. LIMITED WARRANTY.
BCBSSC warrants that the System and the Plan's use thereof pursuant to
this Agreement do not, and during the Term and will not, infringe the rights
of any third party. BCBSSC MAKES NO OTHER WARRANTY OF ANY KIND, WHETHER
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY PRODUCT OR
SERVICE PROVIDED BY BCBSSC TO THE PLAN. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, BCBSUW ACKNOWLEDGES AND AGREES THAT: (1) THE SYSTEM SERVICES
(INCLUDING WITHOUT LIMITATION THE PLAN'S RIGHT OF ACCESS TO AND USE OF THE
SYSTEM
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FUNCTIONS) ARE PROVIDED BY BCBSSC STRICTLY ON AN "AS IS" BASIS; (2) BCBSSC
HAS NOT MADE, AND DOES NOT MAKE, ANY REPRESENTATION OR WARRANTY OF ANY KIND;
AND (3) EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPHS 16 AND 17 ABOVE, BCBSSC
HAS NOT MADE, AND DOES NOT MAKE, ANY GUARANTY OR OTHER ASSURANCE OF ANY KIND
AS TO EITHER THE QUALITY OR PERFORMANCE OF ANY PRODUCT OR SERVICE PROVIDED BY
BCBSSC, OR THE ACCURACY, EFFICIENCY, SPEED OR OTHER PERFORMANCE
CHARACTERISTICS OF THE SYSTEM OR ANY SYSTEM FUNCTION.
22. INDEMNITIES.
(a) BY BCBSSC. BCBSSC hereby agrees to indemnify, defend, and hold
harmless the Plan and its directors, officers, employees, agents and other
representatives from and against any damage, loss, expense or liability
arising out of, or resulting from either (i) any third party claim, action or
proceeding for intellectual property infringement resulting from the Plan's
use of the System, in whole or in part, in accordance with the terms and
conditions of this Agreement; or (ii) any breach by BCBSSC or its agents and
employees of its confidentiality obligations under Paragraph 23 below.
(b) BY BCBSUW. BCBSUW hereby agrees to indemnify, defend, and hold
harmless BCBSSC and its directors, officers, employees, agents and other
representatives from and against any damage, loss, expense or liability
(collectively, "Losses") arising out of, or resulting from either (i) any
third party claim, action or proceeding (including, without limitation, a
claim alleging medical malpractice or false claim for reimbursement but
excluding any third party claim, action or proceeding to which subparagraph
(a) above applies) arising out of, or resulting from, in whole or in part,
the Plan's use of the System, (ii) any breach by BCBSUW of its
confidentiality obligations under Paragraph 23 below, or (iii) any
infringement by BCBSUW of any right of BCBSSC described in Paragraph 14 above.
23. CONFIDENTIALITY.
(a) MUTUAL OBLIGATIONS. Except as otherwise provided in subparagraph
(d) of this Paragraph 23, each Party agrees (i) to hold in strict confidence
and not to disclose to any other person or entity the terms of this Agreement
and this Agreement, except to the extent otherwise required by applicable
law, and (ii) to limit access to such information to only those of its
employees or agents with a legitimate need for the information; provided,
however, each party shall have the right, in connection with a legitimate
business purpose, to disclose generally that BCBSSC is providing information
system services to the Plan without disclosing specific terms or conditions
hereof.
(b) BCBSSC OBLIGATIONS. BCBSSC recognizes the Plan's fiduciary duty to
hold patient information in strict confidence, and agrees that the Plan's
data files include
22
<PAGE>
information which is proprietary to and a valuable asset of The Plan. BCBSSC
agrees (i) to hold in strict confidence, and not to disclose or otherwise
make available to any third party, all Plan data files (including all patient
and other information contained therein), except to the extent (A) otherwise
required by applicable law, (B) such information is lawfully and rightfully
acquired by BCBSSC from others who had no confidentiality obligation to the
Plan with respect to the same, (C) such information is obtained or obtainable
by BCBSSC by lawful and rightful means, or (D) is now, or hereafter becomes,
through no fault of BCBSSC, part of the public domain by publication or
otherwise; (ii) to limit access to such information to only those BCBSSC
employees needing the information for purposes of performing services under
this Agreement; and (iii) to use such information solely for purposes
contemplated by this Agreement. In addition, BCBSSC agrees not to copy any
Plan data files except as required by law or for back up purposes for data
protection without the Plan's prior written consent.
(c) PLAN OBLIGATIONS. In addition to BCBSUW's obligations of
confidentiality under Paragraph 14, BCBSUW agrees (i) to hold in strict
confidence, and not to disclose or otherwise make available to any third
party, any and all other information of a confidential nature provided by
BCBSSC to the Plan, except to the extent (A) otherwise required by applicable
law, (B) such information is lawfully and rightfully acquired by the Plan
from others who had no confidentiality obligation to BCBSSC with respect to
the same, (C) such information is obtained or obtainable by the Plan by
lawful and rightful means, or (D) is now, or hereafter becomes, through no
fault of the Plan, part of the public domain by publication or otherwise;
(ii) to limit access to such information to only those Plan employees needing
the information for purposes contemplated by this Agreement; and (iii) to use
such information solely for purposes contemplated by this Agreement.
(d) PUBLIC ANNOUNCEMENTS. The Parties shall mutually agree to the
timing and contents of any public announcement of the existence or subject
matter of this Agreement.
24. DISPUTE RESOLUTION.
(a) INFORMAL DISPUTE RESOLUTION. If a dispute arises out of or
relating to this Agreement, including, without limitation, a dispute as to
any amount payable by BCBSUW hereunder, the Parties shall engage in mandatory
informal dispute resolution. The first attempt at informal dispute
resolution shall be at the level of each Party's managers with day to day
responsibility for services to the Plan. If that attempt is unsuccessful the
senior management of each Party shall attempt to informally resolve the
dispute. In no event shall either Party be obligated to continue informal
dispute resolution efforts for a total of more than thirty days before
submitting the dispute to binding arbitration pursuant to Paragraph 24(b)
below.
(b) BINDING ARBITRATION. If a dispute is not resolved under Paragraph
24(a) above to the mutual satisfaction of the Parties, the Parties shall
promptly submit such dispute to binding arbitration pursuant to Paragraph 26
below.
23
<PAGE>
(c) PROVISIONAL RELIEF. Subject to BCBSSC's right to interrupt service
to the Plan set forth in Paragraph 18(c) above, at all times prior to the
completion of the dispute resolution procedures set forth in Paragraphs 24(a)
and (b) above, each Party shall perform its respective obligations under this
Agreement, and the Plan shall continue to make timely payments on all
invoices submitted by BCBSSC pending the completion of the dispute resolution
procedures.
(d) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of South Carolina without giving
effect to any choice or conflict of law provision or rule of any jurisdiction
that would cause the application of the laws of any jurisdiction other than
the State of South Carolina.
25. CREDIT OR PAYMENT RELATING TO CONTACTS WITH OTHER BCA AFFILIATES.
In recognition of the value of BCBSSC's relationship with BCBSUW to
BCBSSC's ability to enter into information systems contracts with other BCA
licensee plans, BCBSSC shall credit or pay BCBSUW the following sum with
respect to certain of such contracts (each a "BCA Licensee Contract"):
(a) For the first comprehensive BCA Licensee Contract entered into
during the Term, a sum equal to $0.10 per Subscriber per month under such BCA
Licensee Contract for the first full production year.
(b) For the second comprehensive BCA Licensee Contract entered into
during the Term, a sum equal to $0.05 per Subscriber per month under such BCA
Licensee Contract for that contract's first full production year.
26. ARBITRATION.
(a) GENERALLY. Except as otherwise specifically set forth in this
Agreement, in any action, dispute, claim or controversy between the Parties,
whether sounding in contract, tort, or otherwise, arising under this
Agreement, including any action based upon, arising out of, or in connection
with any course of conduct, course of dealing, statement (whether oral or
written), or actions of either Party ("Dispute" or "Disputes"), shall be
resolved by binding arbitration in accordance with this Paragraph 26, and
otherwise in accordance with Title 9 of the United States Code, as amended,
and the Commercial Arbitration Rules of the American Arbitration Association
("AAA"), as in effect from time to time (the "Rules"). In the event of any
inconsistency between the Rules and the provisions of this Paragraph 26, the
provisions of this Paragraph 26 shall supersede the Rules. All statutes of
limitations that would otherwise be applicable shall apply to any arbitration
proceeding hereunder. In any arbitration proceeding subject to the
provisions of this Paragraph 26, the arbitrator is specifically empowered to
decide (by documents only, or with a hearing, at the arbitrator's sole
discretion) pre-hearing motions that are substantially similar to pre-hearing
motions to dismiss and motions for summary adjudication. Judgment upon the
award rendered may be
24
<PAGE>
entered in any court having jurisdiction. Whenever an arbitration is
required, the Parties shall select an arbitrator in the manner provided in
Paragraph 26(c) below.
(b) [Intentionally Left Blank]
(c) SELECTION OF ARBITRATOR. Whenever an arbitration is required under
Paragraph 26(a) above, the arbitrator shall be selected in accordance with
this Paragraph 26(c). Except as otherwise provided, the arbitrator or
referee shall be an attorney or retired judge selected in accordance with the
Rules of the AAA. Any arbitrator or referee selected under this Paragraph
26(c) shall be knowledgeable in the subject matter of the Dispute. Qualified
retired judges shall be selected through panels maintained by AAA, a state
trial court of general jurisdiction over civil matters without regard to the
monetary amount in controversy (or a higher state court), or private
organization providing such services. A single arbitrator who is an attorney
but is not a retired judge shall have the power to render a maximum award of
$100,000. Where any Party makes timely written request prior to appointment
of the arbitrator, or where the claim of any Party exceeds $100,000, the
arbitrator shall be a retired judge formerly sitting on the bench in a state
trial court of general jurisdiction over civil matters without regard to the
monetary amount in controversy (or a higher state court), or a retired
Federal court judge formerly sitting on the bench in a United States Court of
Appeals or any Federal District Court. A single arbitrator who is a retired
judge shall have the power to render a maximum award of $1,000,000. Where
any Party seeks an award in excess of $1,000,000, the Dispute shall be
decided by a majority vote of three arbitrators, at least one of whom shall
meet the requirements for retired judges set forth herein. For purposes of
this Paragraph 26(c), the computation of the maximum award an arbitrator may
make shall include any amounts awarded for arbitration fees, attorneys fees
and all other related costs provided by Paragraph 26(e) below.
(d) SITE OF PROCEEDING. Any arbitration proceeding pursuant to this
Paragraph 26 shall, unless the Parties otherwise mutually agree in writing,
be conducted in (i) Milwaukee, Wisconsin if the Dispute is submitted to
arbitration by BCBSSC, and (ii) in Columbia, South Carolina if the Dispute is
submitted to arbitration by BCBSUW; provided, however, in the event one
Party, in contravention of this Agreement, commences civil litigation with
respect to a Dispute rather than submitting the Dispute to binding
arbitration, if the second Party submits such Dispute to binding arbitration,
such second Party shall have the right to decide whether the site of the
arbitration proceeding shall be in Milwaukee, Wisconsin or Columbia, South
Carolina.
(e) MISCELLANEOUS. This Agreement shall be interpreted, and the
resolution of all Disputes and the rights and liabilities of the Parties
shall be determined, in accordance with the internal laws (as opposed to
conflicts of law provisions) of the State of South Carolina; provided that
any arbitration questions arising under this Paragraph 26 on dispute
resolution shall be governed in accordance with Title 9 of the United States
Code, as amended; and provided further, however, that no law of the State of
South Carolina or any other jurisdiction shall be applicable hereto to the
extent such law should prohibit or limit in any
25
<PAGE>
way the arbitration of Disputes pursuant to this Paragraph 26. To the extent
any provision of this Paragraph 26 is prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Paragraph 26. The provisions
of this Paragraph 26 shall survive any termination or expiration of this
Agreement until payment in full of the obligations thereunder, unless the
Parties otherwise expressly agree in writing. The arbitrator shall have the
power to award to the prevailing Party recovery of all costs, expenses and
fees incurred by it (including reasonable attorneys' fees, administrative
fees, arbitrators' fees, and court costs), and in particular, but without
limitation of the foregoing, shall have the power to award to either Party
hereto, whether or not such Party shall be the prevailing Party in an
arbitration, recovery of all costs, expenses and fees incurred by it
(including reasonable attorneys' fees, administrative fees, arbitrators'
fees, and court costs), but only to the extent payable or reimbursable by the
other Party under the applicable provisions of this Agreement.
27. MISCELLANEOUS.
(a) NOTICES. All legal notices between the Parties under this
Agreement shall be in writing, and shall be deemed to have been duly made
upon the earlier of (i) actual receipt by the intended recipient, or (ii)
three business days after being sent by certified or registered United States
mail, delivery restricted to the addressee, postage pre-paid, to the address
specified below for the intended recipient, or to such other address as the
intended recipient may hereafter specify in a notice duly given to the other
Party in the manner herein set forth.
If to BCBSSC:
Blue Cross and Blue Shield of South Carolina
I-20 at Alpine Road
Columbia, SC 29219
Attn: Stephen K. Wiggins
Judith M. Davis, Esq.
If to the BCBSUW:
Blue Cross and Blue Shield United of Wisconsin
401 West Michigan Street
Milwaukee WI 53203
Attn: C. Edward Mordy
Stephen E. Bablitch, Esq.
Either Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary
26
<PAGE>
mail, or electronic mail), but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth.
(b) RELATIONSHIP OF PARTIES. The Parties agree that, in performing any
and all System Services, BCBSSC is acting as an independent contractor.
BCBSSC assumes no liability or responsibility for obligations of the Plan in
respect of its customers or any other person or entity. Nothing in this
Agreement shall be construed to make BCBSSC a partner, joint venturer or
employee of the Plan. Nothing in this Agreement shall be construed to make
BCBSSC responsible for complying with any disclosure, reporting or other
requirement of the Plan's business or operations.
(c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties hereto respecting the subject matter hereof and
supersedes and replaces any and all prior agreements or arrangements between
the Parties whether written or oral (including without limitation the Letter
of Intent).
(d) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person or entity other than the Parties and their
respective successors and permitted assigns.
(e) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof, thereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(f) HEADINGS. The Paragraph headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors and
permitted assigns. Except as provided below, no Party may assign this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party; provided, however, either
Party may (i) assign any or all of its rights and interests hereunder to one
or more of its affiliates which it controls, and (ii) designate one or more
of its affiliates which it controls to perform its obligations hereunder, but
in either case such Party shall nonetheless remain responsible for the
performance of all of its obligations hereunder).
(h) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant
27
<PAGE>
hereunder or thereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or thereunder, or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(i) FORCES MAJEURE. All periods of time specified for performance of
obligations (other than monetary payment obligations) by either Party in this
Agreement shall be subject to an extension for a period of time equal to any
delay caused by a "Force Majeure" as hereinafter defined. "Force Majeure"
shall mean and include acts of God, changes in government regulations, acts
of governmental bodies or their employees or agents, weather, strikes,
lockouts, boycotts, and inability to secure labor or any material specified
or reasonably necessary in connection with property through ordinary business
channels, fire, unusual delays in transportation, unavoidable casualties or
any other causes beyond the Parties' control. Following the occurrence of
any Force Majeure, the performance effected thereby shall be extended to a
number of days equal to the period of such delay. Notwithstanding the
foregoing, if performance by BCBSSC is suspended for 30 or more consecutive
days, the Plan shall have the right to terminate this Agreement and recover
its Termination Damages from BCBSSC.
(j) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed, sealed and delivered as of the 23rd day of August, 1996.
BLUE CROSS AND BLUE SHIELD
UNITED OF WISCONSIN (SEAL)
BY: [ILLEGIBLE]
----------------------------------
TITLE: Chairman & CEO
-------------------------------
BLUE CROSS AND BLUE SHIELD
OF SOUTH CAROLINA (SEAL)
BY: [ILLEGIBLE]
----------------------------------
TITLE: Pres & CEO
-------------------------------
28
<PAGE>
AMENDMENT #1 TO
INFORMATION SYSTEM SERVICES AGREEMENT
DATED AS OF AUGUST 23, 1996 BETWEEN
BLUE CROSS AND BLUE SHIELD OF SOUTH CAROLINA AND
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
1. PARTIES. This amendment (the "Amendment") is between Blue Cross and Blue
Shield of South Carolina ("BCBSSC") and Blue Cross & Blue Shield United of
Wisconsin ("BCBSUW"). BCBSSC and BCBSUW are sometimes referred to herein
individually as a "Party", and collectively as the "Parties".
2. EFFECTIVE DATE. The effective date of this Amendment shall be as of
January 1, 1997 (the "Effective Date").
3. PURPOSE. The purpose of this Amendment is to amend that certain
Information Systems Services Agreement between the Parties dated as of
August 23, 1996 (the "Agreement"). Except as expressly set forth herein,
the Agreement shall remain in full force and effect without modification.
Terms not otherwise defined herein shall have the meanings ascribed to them
by the Agreement.
4. DEFINITIONAL MODIFICATIONS. Paragraph 1 of the Agreement is hereby amended
as set forth below in this Paragraph.
(a) Add the following definitions:
"Business Services" means any and all services provided by any member
of the Business Services Group (as defined below).
"Business Services Group" means the corporate group within BCBSSC's
Information System Services Division which provides services related to:
workflow design, documentation assistance, development or analysis of desk
procedures, work measurement assistance, OPAS system support,
administrative proposal support, reengineering business process support,
staffing model development, and other areas designated by BCBSSC from time
to time.
"Customer Expert" means any BCBSSC employee designated from time to
time by BCBSSC as a Customer Expert to provide services related to system
requirements development; system modifications testing; training program
development; trainer training; quality control program design,
implementation and operation; and other areas designated by BCBSSC from
time to time.
"Customer Expert Services" means any and all services provided by any
Customer Expert other than the Customer Expert staff Coordinator, who
currently is Pat Dickerson. Services rendered by such staff Coordinator
shall be chargeable as Support Services (as defined below).
(b) The following definition is amended and restated as follows:
"System Services" means Basic Services, Implementation Services,
Support Services, Business Services, and Customer Expert Services,
collectively.
5. SERVICES FEES MODIFICATIONS. Paragraph 5 of the Agreement is hereby
amended as set forth below in this Paragraph.
(a) Subparagraph "(d)" is hereby redesignated as subparagraph "e".
<PAGE>
(b) Add a new subparagraph (d) that provides as follows:
(d) BUSINESS SERVICES AND CUSTOMER EXPERT SERVICES. For each
calendar year commencing with 1997, Business Services shall be charged to
BCBSUW at the rate of $45.00 per hour and Customer Expert Services shall be
charged to BCBSUW at the rate of $40.00 per hour. On January 1 of each
calendar year beginning with 1998, the fee rate for Business Services and
Customer Expert Services shall be adjusted by the CPI Percentage.
6. TRAVEL-RELATED EXPENSE REIMBURSEMENT. Paragraph 12 of the Agreement is
hereby amended by adding a new subparagraph (d) that provides as follows:
(d) TRAVEL-RELATED EXPENSE REIMBURSEMENT. All travel-related
expenses of BCBSSC and its personnel related to the performance of
either Business Services or Customer Expert Services shall be reimbursed
by BCBSUW in accordance with the rules set forth in BCBSSC's official
policy (as in effect from time to time) governing BCBSSC's reimbursement
of travel-related expenses incurred by its employees. All such
reimbursements shall be billed by BCBSSC and paid by BCBSUW in
accordance with Paragraph 7 above.
7. EXECUTION. The Parties have duly executed and delivered this Amendment
this 6 day of May, 1997, to be effective as of the Effective Date.
BLUE CROSS AND BLUE SHIELD OF SOUTH
CAROLINA
BY: [ILLEGIBLE]
----------------------------------
TITLE: [ILLEGIBLE]
-------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
BY: [ILLEGIBLE]
----------------------------------
TITLE: VP
-------------------------------
2
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT, dated as of March 7, 1997 (the "Effective Date"), is by and
between Customer, a United Wisconsin Services, Inc. ("Licensee"), and
Electronic Data Systems Corporation, a Delaware corporation ("EDS").
WHEREAS, Licensee and EDS entered into an Agreement dated November 15, 1983,
as amended, for electronic data processing services (the "EDS Agreement"); and
WHEREAS, EDS currently provides Licensee access to Licensee's data for
Licensee's own use and manipulation; and
WHEREAS, EDS uses a proprietary software program to provide such data to
Licensee in a certain format and with certain efficiencies; and
WHEREAS, Licensee plans to migrate its claim processing business from EDS to
a third party vendor and wishes to continue receiving its data from EDS in
the manner in which it currently receives such data; and
WHEREAS, EDS is willing to provide such data to Licensee so long as the
propriety and confidential information of EDS is protected in accordance with
the terms and conditions set forth herein;
WHEREAS, Licensee desires to use the Licensed System Files (as defined in
Section I below) that are proprietary to EDS; and
WHEREAS, EDS is willing to license such Licensed System Files to Licensee on
the terms and conditions set forth herein;
NOW, THEREFORE, EDS and Licensee hereby agree as follows:
1. LICENSED SYSTEM FILES. As used in this Agreement, the term "Licensed
System Files" means the most current version, as of the Effective Date, of
the EDS proprietary data file access routines and data file record layouts
listed in Attachment A. Upon execution of this Agreement, EDS will provide
to Licensee electronic read-only access to the most current version of the
Licensed System Files for use by Licensee in accordance with and subject to
the terms and conditions of this Agreement.
2. GRANT OF LICENSE. As of the Effective Date, EDS grants to Licensee, and
Licensee accepts from EDS, a royalty-free, non-transferable, non-exclusive
license to use, and copy the Licensed System Files during the term of this
Agreement in accordance with and subject to the following restrictions:
1
<PAGE>
(a) The Licensed System Files will be used by Licensee solely to support
the internal data processing operations of Licensee and of any direct
or indirect majority owned subsidiary of Licensee so long as such
entity remains a direct or indirect majority-owned subsidiary of
Licensee (collectively, the "Licensee Group").
(b) The Licensed System Files will be used by Licensee solely on equipment
and at facilities owned or leased by the Licensee Group and under the
control of the Licensee Group and will be operated solely by employees
of Licensee. Licensee will notify EDS in writing as to the number and
specific location of the copies of the Licensed System Files used by
Licensee hereunder prior to the commencement of each such use.
Licensee agrees that it will cause the Licensee Group to comply with
the terms and conditions of this Agreement.
(c) Licensee will not, and will not permit its employees to copy or
reproduce the Licensed System Files, or any component thereof, except
as may be necessary in connection with Licensee's use of the Licensed
System Files to support the internal data processing operations of the
Licensee Group in accordance with the terms of this Agreement.
(d) Licensee will maintain the Licensed System Files in strictest
confidence, will provide access to the Licensed System Files solely to
those Licensee employees requiring such access to support the internal
data processing operations of the Licensee Group, and will instruct
those Licensee employees that the Licensed. System Files, and all
components thereof, are proprietary to, and, as between the parties,
are considered to be the trade secrets of EDS.
(e) Licensee will not, and will not permit its employees or agents to,
sell, assign, lease, license, sublicense, or otherwise transfer or
provide the Licensed System Files, or any component thereof, right
therein, or access thereto, to any other party for any purpose.
(f) Licensee accepts full responsibility for the selection of the Licensed
System Files to achieve Licensee's desired results, the use of the
Licensed System Files, the results obtained from the Licensed System
Files, and all ongoing maintenance and support for the Licensed System
Files.
(g) Licensee will include on all components of the Licensed System Files
which it may have in its possession, or create, whatever type of
designation EDS may reasonably require from time to time to indicate
that such material is the proprietary property of EDS.
(h) In the event that any portion of the Licensed System Files should come
into the possession of unauthorized third parties as a result of a
breach by Licensee of this Agreement, Licensee will, at its expense,
use all reasonable efforts to retrieve such
2
<PAGE>
material and, if unsuccessful in such efforts, will reimburse EDS for
all reasonable expenses incurred by EDS in attempting to retrieve
such materials.
(i) Licensee acknowledges and agrees that the Licensed System Files, and
all components thereof, are the valuable property and, as between the
parties, are considered to be trade secrets of EDS, that any violation
by Licensee of the provisions of this Section 2 would cause EDS
irreparable injury for which EDS would have no adequate remedy at law,
and that, in addition to any other remedies which EDS may have, EDS
will be entitled to preliminary and other injunctive relief against
any such violation.
Notwithstanding any provision to the contrary in this Agreement, the parties
agree that Licensee is the owner of all of its data embodied in the Licensed
System Files and that this Agreement shall not place any restrictions or
obligations on Licensee's use, distribution and manipulation of such data.
Licensee shall not be prevented from disclosing any or all portions of the
Licensed System Files if it is disclosed pursuant to any requirement of the
law of the United States or any state thereof, the order of any court or
governmental agency, or the rules or regulations of any governmental agency,
provided, however, that Licensee provides EDS with prompt written notice
thereof prior to disclosure.
3. WARRANTY DISCLAIMER. THERE ARE, AND EDS MAKES, NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY MATTER, INCLUDING NO
REPRESENTATIONS OR WARRANTIES REGARDING THE MERCHANTABILITY, SUITABILITY,
ORIGINALITY, FITNESS FOR A PARTICULAR USE OR PURPOSE, OR RESULTS TO BE
DERIVED FROM THE USE OF ANY SERVICE OR FROM THE LICENSED SYSTEM FILES OR
FROM OTHER ITEMS PROVIDED UNDER THIS AGREEMENT. Further, EDS expressly
does not warrant that the Licensed System Files will conform to any
particular specifications, contain any specific functions, meet any of
Licensee's requirements or be free from defects. Licensee acknowledges and
agrees that EDS is providing the Licensed System Files on an "AS IS"
basis. Without limiting the foregoing, Licensee's acknowledges and agrees
that the Licensed System Files are not year 2000 compliant, and EDS has
no obligation to make the Licensed System Files year 2000 compliant.
4. ELECTRONIC READ-ONLY ACCESS CHARGES. Licensee will pay EDS for all incurred
computer usage associated with electronic read-only access Licensed System
Files on EDS owned or leased equipment. EDS charges for electronic access
to Licensed System Files will be paid on a quarterly basis at the computer
usage rates specified in Attachment B.
5. TAXES. Licensee will pay directly, or reimburse EDS for, all taxes,
assessments, duties, permits and fees, however designated, which are levied
upon this Agreement, the Licensed System Files, or computer usage, or their
use, excluding franchise taxes and taxes based on the net income of EDS.
3
<PAGE>
6. TERMINATION. This Agreement may be terminated as follows:
(a) If either party defaults in the performance of any of its obligations
hereunder and if such default continues for more than ten days after
written notice specifying the default is given to the defaulting
party, then the other party may, by giving the defaulting party
written notice thereof, terminate this Agreement as of a date
specified in such notice of termination.
(b) If Licensee ceases to carry on its business, a receiver or similar
officer is appointed for Licensee, Licensee makes an assignment for
the benefit of, or a composition with, its creditors, or another
arrangement of similar import, or if proceedings under any bankruptcy
or insolvency law are commenced by or against Licensee, then EDS may,
by giving Licensee written notice thereof, terminate this Agreement as
of a date specified in such notice of termination.
(c) If Licensee ceases to receive data processing services from EDS, such
as with the termination of services under the EDS Agreement, and all
Licensed System Files have been converted from the proprietary format
of the EDS software program, then EDS may, by giving Licensee prior
written notice thereof, terminate this Agreement as of a date
specified in such notice of termination.
(d) Unless previously terminated, this Agreement will terminate on
December 31, 1999, provided, however, that Licensee will have the
option to extend the term of this Agreement for up to two additional
terms of two years each by providing EDS with written notice at least
90 days prior to December 31, 1999, or the end of the first additional
two year term, as the case may be.
Upon termination of this Agreement for any reason, then, in addition to
any other rights which either party may have, Licensee will promptly
return to EDS all copies of the Licensed System Files, and all
components thereof, in Licensee's possession or under Licensee's control
and will completely erase the Licensed System Files, and all components
thereof, from Licensee's computer systems. Upon EDS' request, Licensee
will execute and deliver to EDS a written certification that Licensee
has complied with the provisions of this Section 6 and no longer retains
any material relating to the Licensed System Files or any component
thereof.
7. INFRINGEMENT INDEMNITY. EDS will, at its own expense, defend any action
brought against Licensee to the extent such action is based on a claim that
the Licensed System Files, used within the scope of the license granted
herein, infringes a copyright enforceable under United States law,
infringes a patent granted under United States law, or constitutes an
unlawful disclosure, use or misappropriation of another party's trade
secret or similar property right. EDS will bear the expense of such
defense and pay any damages and
4
<PAGE>
attorneys fees finally awarded by a court of competent jurisdiction
which are attributable to such claim, provided that Licensee notifies
EDS promptly in writing of the claim and that Licensee allows EDS to
fully direct the defense or settlement of such claim. If any such
action is brought, or in the opinion of EDS is likely to be brought,
then EDS may, at its election: (i) obtain for Licensee the right to
continue using the Licensed System Files; (ii) replace or modify the
Licensed System Files so that they become noninfringing; or (iii) if EDS
determines that such remedies are not reasonably available, accept
return of the Licensed System Files and terminate this Agreement. In
the event that EDS terminates this Agreement under this Section, nothing
in this Agreement will prevent Licensee from entering into an agreement
with the applicable third party to use the system that such third party
claims the use of the Licensed System Files was infringing. EDS shall
have no obligation under this Section if the alleged infringement or
violation is based upon the use of the Licensed System Files in
combination with other software, equipment or documentation not
furnished by EDS. EDS will not be responsible for any settlement or
compromise made without its consent. This Section states EDS' entire
obligation regarding infringement.
8. LICENSEE INDEMNITY. Licensee will indemnify, defend and hold harmless EDS
from any liability, loss, or damage to persons or property arising out of a
third party claim based on Licensee's possession, or use of the Licensed
System Files or the fault or negligence of Licensee, its employees or
agents, and will indemnify EDS from any cost or expense incurred by EDS
with respect to any such liability, loss, or damage.
9. LIMITATION OF SUPPORT, Except as provided in Section I hereof, EDS will
have no liability to provide licensee with staffing resources related to
this Agreement as of a date specified in such notice of termination.
10. LIMITATION OF LIABILITY. Except as provided in Section 7 hereof, EDS
will have no liability to Licensee for any claims relating to this
Agreement, the Licensed System Files, or EDS' performance hereunder,
whether in contract or in tort, including negligence, and Licensee's
exclusive remedy with respect to any such claim will be to terminate
this Agreement as provided in Section 6 hereof. Without limiting the
foregoing, EDS will have no liability for any cause of action against
EDS which accrued more than two years prior to the filing of a suit
alleging such cause of action.
11. MISCELLANEOUS.
(a) This Agreement will be binding on the parties hereto and their
successors and assigns, but Licensee may not assign this Agreement
without the prior written consent of EDS, which consent will not be
unreasonably withheld.
(b) Wherever under this Agreement one party is required to give notice to
the other, such notice will be deemed given if actually delivered or
if mailed by United
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<PAGE>
States mail, registered or certified mail, return receipt requested,
and postage prepaid, and addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attention of the President
In the case of Licensee:
United Wisconsin Services, Inc.
401 West Michigan Street
Post Office Box 2025
Milwaukee, Wisconsin 53201
Attention of the President
Either party may at any time changes its address for notification
purposes by mailing a notice stating the change and setting forth
the new address.
(c) If any provision of this Agreement is declared or found to be illegal,
unenforceable or void, then both parties will be relieved of all
obligations arising under such provision, but if the remainder of this
Agreement is not affected by such declaration or finding, then each
provision not so affected will be enforced to the extent permitted by
law.
(d) No delay or omission by either party hereto to exercise any right or
power accruing upon any noncompliance or default by the other party
with respect to any of the terms of this Agreement will impair any
such right or power or be construed to be a waiver thereof. A waiver
by either of the parties hereto of any of the covenants, conditions,
or agreements to be performed by the other will not be construed to be
a waiver of any succeeding breach thereof or of any other covenant,
condition or agreement herein contained.
(e) All remedies provided for in this Agreement will be cumulative and in
addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise.
(f) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof. There are no
understandings or agreements relative hereto which are not fully
expressed herein and no change, waiver or discharge hereof will be
valid unless in writing and executed by the party against which
such change, waiver or discharge is sought to be enforced.
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<PAGE>
(g) This Agreement will be governed by and construed in accordance with
the laws of the State of Wisconsin.
IN WITNESS WHEREOF, EDS and Licensee have caused this Agreement to be signed
and delivered by their duly authorized representatives, all as of the
Effective Date.
ELECTRONIC DATA SYSTEMS UNITED WISCONSIN SERVICES, INC.
CORPORATION
By: /s/ Phillip L. Ramsey By: /s/ Thomas J. Knapp
-------------------------------- ----------------------------------
Printed Printed
Name: Phillip L. Ramsey Name: Thomas J. Knapp
------------------------------ --------------------------------
Date: March 6, 1997 Date: March 7, 1997
------------------------------ --------------------------------
7
<PAGE>
FIRST AMENDMENT
THIS FIRST AMENDMENT TO THE AGREEMENT, dated as of July 16, 1997 (the
"Effective Date"), is by and between Customer, a United Wisconsin Services,
Inc; ("Licensee"), and Electronic Data Systems Corporation, a Delaware
corporation ("EDS").
WHEREAS, Licensee and EDS entered into a License Agreement dated March 7,
1997, for electronic data processing services (the "EDS Agreement"); and
WHEREAS, EDS and the Licensee wish to amend that;
NOW, THEREFORE, EDS and Licensee hereby agree as follows:
1. Attachment A of the Agreement is amended to include the following:
EDS PROPRIETARY DATA FILES AND RECORD LAYOUTS: MEMBERSHIP
MEMBERSHIP (MODEL OFFICE)
Group master
Subscriber master
Document Control System (DCS) transaction file
MEMBERSHIP (PRODUCTION)
Group master
Subscriber master
Document Control System (DCS) transaction file
EDS PROPRIETARY DATA FILES AND RECORD LAYOUTS: CLAIMS
CLAIMS (MODEL OFFICE)
Daily Pend
GENO Tables
ITS - DF (Home plan aid extracted )
ITS - DF (Host received via NDM)
ITS - SF (Home SF incoming via NDM)
ITS - SF (Outgoing, Wisconsin is host)
ITS - SF (Outgoing adjustments, Wisconsin is host)
ITS - RF (Home Authorized/Denied RF incoming via NDM)
ITS - RF (Incoming via NDM)
ITS - NF (Incoming NF's from NDM)
ITS - NF (Outgoing NF's)
ITS - Summaries data bases
ITS - Home Plan Aid Data Manager
Message Codes
Page 1
<PAGE>
Condition Codes
Diagnosis Codes
Deductible Maximum File
Referral file
Coordination of Benefits Comment
HXAR2001 Error Report
CLAIMS (PRODUCTION)
Batch Activation
Daily Pend
Purge Pend
GENO Tables
ITS - DF (Home plan aid extracted )
ITS - DF (Host received via NDM)
ITS - SF (Home SF received via NDM, eventually fed to reformatter)
ITS - SF (Wisconsin is Host SF sent via NDM)
ITS - SF (outgoing adjustments, Wisconsin is host)
ITS - RF (Home Authorized/Denied RF received via NDM)
ITS -RF (CFA response file report and RF records received via NDM)
ITS - NF (Incoming NF's from NDM)
ITS - NF (Outgoing NF's)
ITS - Summaries data bases
ITS - HPA (Home Plan Aid Data Manager)
Message Codes
Condition Codes
EOB Codes (Message file)
Reject Messages (Severity file)
NASCO TRLOG files (To NASCO)
Diagnosis Codes
Deductible Maximum File
Referral file
Coordination of Benefits comment
NASCO Provider File Feed
Customer Service CCS Inquiry
Benefits
Provider Extract
Procedure Master
Pricing: Level 1
Pricing: Level 2
Pricing: Level 3
Cash Control Master
Open Claims A/Rs
Quarterly IL Ameritech Provider File
Page 2
<PAGE>
EDS PROPRIETARY DATA FILES AND RECORD LAYOUTS: PLAN SERVICES
PLAN SERVICES (PRODUCTION)
Fixed Assets
Asset History
Vendor
Invoices
A/P (trade vendor)
Broker: Accrual
Broker File (name)
Broker: On-line backup
Broker Master Input
Broker: IBP Variables
Broker: Pooling Records
Broker: Group/LOB with premium updates
Broker: Premium History
Broker: Tax IDs
Broker: Commission History
Cost Plus: Date File
Cost Plus: Extracted Claims File
Cost Plus: Detail History
Cost Plus: Life Time History
Cost Plus: 3 Month History
Cost Plus: Detail ID Records
Cost Plus: Backup
U/A - Weekly
U/A - Monthly
Walker: P Records
Bridge Tables
Cost Allocation: A Records
Capitation History
Capitation Monthly
Admin File
2. All terms and conditions of the Agreement not specifically amended herein
shall remain in full force and effect.
Page 3
<PAGE>
IN WITNESS WHEREOF, EDS and the Licensee have caused this FIRST AMENDMENT to
be signed and delivered by their duly authorized representatives, all as of
the Effective Date.
ELECTRONIC DATA SYSTEMS UNITED WISCONSIN SERVICES, INC.
CORPORATION
By: By:
-------------------------------- ---------------------------------
Printed Printed
Name: Name:
------------------------------ -------------------------------
Date: Date:
------------------------------ -------------------------------
Page 4
<PAGE>
EQUITY INCENTIVE PLAN
UNITED WISCONSIN SERVICES, INC.
FEBRUARY 1993
(REFLECTS ALL AMENDMENTS THROUGH SEPTEMBER 1, 1997)
THIS DOCUMENT CONSTITUTES PART
OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
(REFLECTS ALL AMENDMENTS THROUGH SEPTEMBER 1, 1997)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <C> <S> <C>
ARTICLE SECTION PAGE
1 ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 2
2 DEFINITIONS 3
3 ADMINISTRATION
3.1 The Committee 7
3.2 Authority of the Committee 7
3.3 Decisions Binding 7
4 SHARES SUBJECT TO THE PLAN
4.1 Number of Shares 8
4.2 Lapsed Awards 9
4.3 Adjustments in Authorized Shares 9
5 ELIGIBILITY AND PARTICIPATION
5.1 Eligibility 10
5.2 Actual Participation 10
6 STOCK OPTIONS
6.1 Grant of Options 10
6.2 Option Award Agreement 10
6.3 Option Price 10
6.4 Duration of Options 11
</TABLE>
i
<PAGE>
<TABLE>
<C> <C> <S> <C>
6.5 Exercise of Options 11
6.6 Payment 11
6.7 Restrictions on Share Transferability 12
6.8 Termination of Employment Due to Death,
Disability or Retirement 12
6.9 Termination of Employment for Other Reasons 13
6.10 Restrictions on Transferability 13
7 STOCK APPRECIATION RIGHTS
7.1 Grant of SARs 14
7.2 Exercise of Tandem SARs 14
7.3 Exercise of Affiliated SARs 15
7.4 Exercise of Freestanding SARs 15
7.5 SAR Agreement 15
7.6 Term of SARs 15
7.7 Payment of SAR Amount 15
7.8 Rule 16b-3 Requirements 16
7.9 Termination of Employment Due to Death,
Disability or Retirement 16
7.10 Termination of Employment for Other Reasons 17
7.11 Non-transferability of SARs 17
8 RESTRICTED STOCK
8.1 Grant of Restricted Stock 18
8.2 Restricted Stock Agreement 18
8.3 Transferability 18
8.4 Other Restrictions 18
8.5 Certificate Legend 19
8.6 Removal of Restrictions 19
</TABLE>
ii
<PAGE>
<TABLE>
<C> <C> <S> <C>
8.7 Voting Rights 19
8.8 Dividends and Other Distributions 19
8.9 Termination of Employment Due to Death,
Disability or Retirement 20
8.10 Termination of Employment for Other Reasons 20
9 PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 Grant of Performance Units/Shares 21
9.2 Value of Performance Units/Shares 21
9.3 Earning of Performance Units/Shares 21
9.4 Form and Timing of Payment of Performance
Units/Shares 21
9.5 Termination of Employment Due to Death,
Disability, Retirement or Involuntary
Termination (Without Cause) 22
9.6 Termination of Employment for Other Reasons 22
9.7 Non-transferability 22
10 BENEFICIARY DESIGNATION 23
11 DEFERRALS 23
12 RIGHTS OF EMPLOYEES
12.1 Employment 23
12.2 Participation 24
13 CHANGE IN CONTROL 24
14 AMENDMENT, MODIFICATION AND TERMINATION
14.1 Amendment, Modification and Termination 25
14.2 Awards Previously Granted 25
15 WITHHOLDING
15.1 Tax Withholding 25
15.2 Share Withholding 25
</TABLE>
iii
<PAGE>
<TABLE>
<C> <C> <S> <C>
16 INDEMNIFICATION 26
17 SUCCESSORS 27
18 LEGAL CONSTRUCTION
18.1 Gender and Number 27
18.2 Severability 27
18.3 Requirements of Law 28
18.4 Securities Law Compliance 28
18.5 Governing Law 28
</TABLE>
iv
<PAGE>
UNITED WISCONSIN SERVICES, INC.
EQUITY INCENTIVE PLAN
(REFLECTS ALL AMENDMENTS THROUGH SEPTEMBER 1, 1997)
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. United Wisconsin Services, Inc., a
Wisconsin corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "United
Wisconsin Services, Inc. Equity Incentive Plan" (hereinafter referred to as
the "Plan"), as set forth in this document. The Plan permits the grant of
Non-qualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, and Performance Shares.
Upon approval by the Board of Directors of the Company, subject to
ratification by an affirmative vote of a majority of Shares at an annual
shareholders' meeting of the Company, the Plan shall become effective as of
February 24, 1993 (the "Effective Date"), and shall remain in effect as
provided in Section 1.3 herein. Awards may be granted prior to shareholder
ratification of the Plan; provided, however, that in the event shareholder
approval of the Plan is not obtained, all outstanding Awards shall become
null and void.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
success, and enhance the value, of the Company by linking the personal
interests of Participants to those of Company shareholders, and by providing
Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants
upon whose judgment, interest, and special effort the successful conduct of
its operation is dependent.
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<PAGE>
1.3 DURATION OF THE PLAN. Subject to approval by the Board of
Directors of the Company and ratification by the shareholders of the Company,
the Plan shall commence on the Effective Date, as described in Section 1.1
herein, and shall remain in effect, subject to the right of the Board of
Directors to terminate the Plan at any time pursuant to Article 14 herein,
until all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions. However, in no event may an Award be
granted under the Plan on or after February 24, 2003.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below and when the meaning is intended, the initial letter of the
word is capitalized:
(a) "Affiliate" - A company closely related to United Wisconsin
Services, Inc. such as United Heartland and American Medical
Security, or such other company as the Board may designate.
"Affiliated SAR" means an SAR that is granted in connection with
a related Option, and which will be deemed to automatically be
exercised simultaneous with the exercise of the related Option.
(b) "Award" means, individually or collectively, a grant under this
Plan of Non-qualified Stock Options, Incentive Stock Options,
SARs, Restricted Stock, Performance Units, or Performance Shares.
(c) "Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(d) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
(e) "Board" or "Board of Directors" means the Board of Directors of
the Company.
(f) "Cause" means:
(i) willful and gross misconduct on the part of a Participant
that is
2
<PAGE>
materially and demonstrably detrimental to the Company; or
(ii) the commission by a Participant of one or more acts which
constitute an indictable crime under United States Federal,
state, or local law. "Cause" under either (i) or (ii) shall
be determined in good faith by the Committee.
(g) "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(i) Any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company, or a corporation owned directly or
indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company), becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period constitute
the Board (and any new Director, whose election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or
whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(iii) The stockholders of the Company approve:
A. a plan of complete liquidation of the Company; or
B. an agreement for the sale or disposition of all or
substantially all the Company's assets; or
C. a merger, consolidation, or reorganization of the
Company with or involving any other corporation, other
than a merger, consolidation, or reorganization that
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting
3
<PAGE>
securities of the surviving entity), at least fifty
percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving
entity) outstanding immediately after such merger,
consolidation, or reorganization.
However, in no event shall a Change-in-Control be
deemed to have occurred, with respect to a Participant,
if the Participant is part of a purchasing group which
consummates the Change-in-Control transaction. A
Participant shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the
Participant is an equity participant in the purchasing
company or group (except for: (i) passive ownership of
less than three percent (3%) of the stock of the
purchasing company; or (ii) ownership of equity
participation in the purchasing company or group which
is otherwise not significant, as determined prior to
the Change-in-Control by a majority of the non-employee
continuing Directors).
(h) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(i) "Committee" means the Management Review Committee, as
specified in Article 3, appointed by the Board to administer
the Plan with respect to grants of Awards.
(j) "Company" means United Wisconsin Services, Inc., a Wisconsin
corporation or any successor thereto as provided in Article
17 herein.
(k) "Director" means any individual who is a member of the Board
of Directors of the Company.
(l) "Disability" means a permanent and total disability, within
the meaning of Code Section 22(e)(3), as determined by the
Committee in good faith, upon receipt of sufficient
competent medical advice from one or more individuals,
selected by the Committee, who are qualified to give
professional medical advice.
(m) "Employee" means any full-time employee of the Company or of
the Company's Subsidiaries or affiliates. Directors who are
not otherwise employed by the Company shall not be
considered
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<PAGE>
Employees under this Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor Act thereto.
(o) "Fair Market Value" means the closing price for Shares on
the relevant date, or (if there were no sales on such date)
the average of closing prices on the nearest day before and
the nearest day after the relevant date, on a stock exchange
or over the counter, as determined by the Committee.
(p) "Freestanding SAR" means an SAR that is granted
independently of any Options.
(q) "Incentive Stock Option" or "ISO" means an option to
purchase Shares, granted under Article 6 herein, which is
designated as an Incentive Stock Option and is intended to
meet the requirements of Section 422 of the Code.
(r) "Insider" shall mean an Employee who is, on the relevant
date, an officer, director of the Company, as defined in
Rule 16 under the Exchange Act.
(s) "Non-qualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is
not intended to be an Incentive Stock Option.
(t) "Option" means an Incentive Stock Option or a Non-qualified
Stock Option.
(u) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(v) "Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
(w) "Performance Unit" means an Award granted to an Employee, as
described in Article 9 herein.
(x) "Performance Share" means an Award granted to an Employee,
as described in Article 9 herein.
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<PAGE>
(y) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is limited in some
way (based on the passage of time, the achievement of
performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and the
Shares are subject to a substantial risk of forfeiture, as
provided in Article 8 herein.
(z) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d).
(aa) "Restricted Stock" means an Award granted to a Participant
pursuant to Article 8 herein.
(bb) "Retirement" shall have the meaning ascribed to it in the
tax-qualified defined benefit retirement plan of the
Company.
(cc) "Shares" means the shares of common stock of the Company.
(dd) "Subsidiary" means any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least fifty
percent (50%) of the total combined voting power of all
classes of stock, or any other entity (including, but not
limited to, partnerships and joint ventures) in which the
Company owns at least fifty percent (50%) of the combined
equity thereof.
(ee) "Stock Appreciation Right" or "SAR" means an Award, granted
alone or in connection with a related Option, designated as
an SAR, pursuant to the terms of Article 7 herein.
(ff) "Tandem SAR" means an SAR that is granted in connection with
a related Option, the exercise of which shall require
forfeiture of the right to purchase a Share under the
related Option (and when a Share is purchased under the
Option, an SAR shall similarly be cancelled).
(gg) "Window Period" means the period beginning on the third
(3rd) business day following the date of public release of
the Company's quarterly sales and earnings information, and
ending on the thirtieth (30th) business day following such
date.
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<PAGE>
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Management
Review Committee of the Board, or by any other Committee appointed by the
Board consisting of not less than two (2) Directors who are not Employees.
The members of the Committee shall be appointed from time to time by, and
shall serve at the discretion of, the Board of Directors.
The Committee shall be comprised solely of Directors who are both: (i)
Non-Employee Directors, as defined in Rule 16b-3 under the Exchange Act; and
(ii) Outside Directors, as defined in Treas. Reg. 1.162-27.
3.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or By-laws of
the Company, and subject to the provisions herein, to determine the size and
types of Awards; to determine the terms and conditions of such Awards in a
manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend, or
waive rules and regulations for the Plan's administration; and (subject to
the provisions of Article 14 herein) to amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for
the administration of the Plan. As permitted by law, the Committee may
delegate its authority as identified hereunder.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding
on all Persons, including the Company, its
7
<PAGE>
stockholders, Employees, Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan may not
exceed 2,750,000. These 2,750,000 Shares may be either authorized but
unissued or reacquired Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
(b) The grant of an Option or Restricted Stock shall reduce the
Shares available for grant under the Plan by the number of Shares
subject to such Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the
related Option (i.e., there is no double counting of Options and
their related Tandem SARs).
(d) The Grant of an Affiliated SAR shall reduce the number of Shares
available for grant by the number of Shares subject to the SAR,
in addition to the number of Shares subject to the related
Option.
(e) The grant of a Freestanding SAR shall reduce the number of Shares
available for grant by the number of Freestanding SARs granted.
(f) The Committee shall in each case determine the appropriate number
of Shares to deduct from the authorized pool in connection with
the grant of Performance Units and/or Performance Shares.
(g) To the extent that an Award is settled in cash rather than in
Shares, the authorized Share pool shall be credited with the
appropriate number of Shares represented by the cash settlement
of the Award, as determined at the sole discretion of the
Committee (subject to the limitation set forth in Section 4.2
herein).
The maximum number of Shares with respect to which Awards may be made to
any
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<PAGE>
Employee during any three (3) year period shall not exceed 100,000 shares.
Notwithstanding the foregoing, if the Employee receives the Award prior to
March 31, 1997 in connection with the Employee's initial employment by the
Company or in connection with a merger or acquisition by the Company, the
maximum number of Shares with respect to which Awards may be made during the
three (3) year period ended March 31, 1997 shall be 850,000 Shares.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option, or the
termination of a related Option upon exercise of the corresponding Tandem
SAR), any Shares subject to such Award again shall be available for the grant
of an Award under the Plan. However, in the event that prior to the Award's
cancellation, termination, expiration, or lapse, the holder of the Award at
any time received one or more "benefits of ownership" pursuant to such Award
(as defined by the Securities and Exchange Commission, pursuant to any rule
or interpretation promulgated under Section 16 of the Exchange Act), the
shares subject to such Award shall not be made available for regrant under
the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made
in the number of class of Shares which may be delivered under the Plan, and
in the number and class of and/or price of Shares subject to outstanding
Options, SARs, and Restricted Stock granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights;
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and provided that the number of Shares subject to any Award shall always be a
whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include
all full-time, active Employees of the Company and its Subsidiaries, as
determined by the Committee, including Employees who are members of the
Board, but excluding Directors who are not Employees.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those
to whom Awards shall be granted and shall determine the nature and amount of
each award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each
Participant. The Committee may grant ISOs, NQSOs, or a combination thereof.
6.2 OPTION AWARD AGREEMENT. Each Option grant shall be evidenced by an
Option Award Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Option Award Agreement also
shall specify whether the Option is intended to be an ISO within the meaning
of Section 422 of the Code, or an NQSO whose grant is intended not to fall
under the Code provisions of Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option shall
be determined by the Committee; provided that the Option Price shall not be
less than one hundred percent
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(100%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
ISO shall be exercisable later than the tenth (10th) anniversary date of its
grant, and no NQSO shall be exercisable later than the twelfth (12th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant. However, in no event may any Option
granted under this Plan become exercisable prior to six (6) months following
the date of its grant.
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Secretary of the Company, setting forth the number
of Shares with respect to which the Option is to be exercised, accompanied by
full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the total Option Price (provided that the Shares which
are tendered must have been held by the Participant for at least six (6)
months prior to their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment,
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the Company shall deliver to the Participant, in the Participant's name,
Share certificates in an appropriate amount based upon the number of Shares
purchased under the Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an
Option under the Plan, as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any Stock exchange or market upon which such Shares are then
listed and/or traded, and under any Blue Sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a
Participant is terminated by reason of death, all outstanding
Options granted to that Participant shall immediately vest one
hundred percent (100%), and shall remain exercisable at any time
prior to their expiration date, or for one (1) year after the
date of death, whichever period is shorter, by such person or
persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the
Participant's rights under the Option by will or by the laws of
descent and distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding Options granted to that Participant shall immediately
vest one hundred percent (100%) as of the date the Committee
determines the definition of Disability to have been satisfied,
and shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date that the
Committee determines the definition of Disability to have been
satisfied, whichever period is shorter.
(c) TERMINATION BY RETIREMENT. In the event the employment of a
Participant is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of Options.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a
Participant's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such
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termination the Participant dies, then the remaining exercise
period under outstanding Options shall equal the longer of:
(i) one (1) year following death; or (ii) the remaining
portion of the exercise period which was triggered by the
employment termination. Such Options shall be exercisable by
such person or persons who shall have been named as the
Participant's beneficiary, or by such persons who have
acquired the Participant's rights under the Option by will or
by the laws of descent and distribution.
(e) EXERCISE LIMITATIONS ON ISOs. In the case of ISOs, the tax
treatment prescribed under Section 422 of the Internal Revenue
Code of 1986, as amended, may not be available if the Options are
not exercised within the Section 422 prescribed time periods
after each of the various types of employment termination.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
a Participant shall terminate for any reason other than the reasons set forth
in Section 6.8 (and other than for Cause), all Options held by the
Participant which are not vested as of the effective date of employment
termination immediately shall be forfeited to the Company (and shall once
again become available for grant under the Plan). However, the Committee, in
its sole discretion, shall have the right to immediately vest all or any
portion of such Options, subject to such terms as the Committee, in its sole
discretion, deems appropriate.
Options which are vested as of the effective date of employment
termination may be exercised by the Participant for a period of up to six (6)
months following termination, or for such longer period up to one (1) year as
the Committee determines with respect to a particular Participant.
If the employment of a Participant shall be terminated by the Company
for Cause, all outstanding options held by the Participant immediately shall
be forfeited to the Company and no additional exercise period shall be
allowed, regardless of the vested status of the Option.
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6.10 RESTRICTIONS ON TRANSFERABILITY. No Option granted under the Plan
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution,
and shall be exercisable by a Participant during his or her lifetime only by
the Participant except that NQSOs may be transferred by a Participant to the
Participant's spouse, children or grandchildren or to a trust for the benefit
of such spouse, children or grandchildren.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARs. Subject to the terms and conditions of the Plan, an
SAR may be granted to an Employee at any time and from time to time as shall
be determined by the Committee. The Committee may grant Affiliated SARs,
Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number
of SARs granted to each Participant (subject to Article 4 herein) and
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs. However, the grant price of a
Freestanding SAR shall be at least equal to one hundred percent (100%) of the
Fair Market Value of a Share on the date of grant of the SAR. The grant
price of Tandem or Affiliated SARs shall equal the Option Price of the
related Option. In no event shall any SAR granted hereunder become
exercisable within the first six (6) months of its grant.
7.2 EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option
is then exercisable.
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Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem
SAR will expire no later than the expiration of the underlying ISO; (ii) the
value of the payout with respect to the Tandem SAR may be for no more than
one hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3 EXERCISE OF AFFILIATED SARs. Affiliated SARs shall be deemed to be
exercised upon the exercise of the related Options. The deemed exercise of
Affiliated SARs shall not necessitate a reduction in the number of related
Options.
7.4 EXERCISE OF FREESTANDING SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
7.5 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.6 TERM OF SARs. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed twelve (12) years.
7.7 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant
shall be entitled to receive payment from the Company in an amount determined
by multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
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(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be
in cash, in Shares of equivalent value, or in some combination thereof.
7.8 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of an SAR
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 (or any successor rule) of the Exchange Act.
For example, if the Participant is an Insider, the ability of the
Participant to exercise SARs for cash will be limited to Window Periods.
However, if the Committee determines that the Participant is not an Insider,
or if the securities laws change to permit greater freedom of exercise of
SARs, then the Committee may permit exercise at any point in time, to the
extent the SARs are otherwise exercisable under the Plan.
7.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
(a) TERMINATION BY DEATH. In the event the employment of a
Participant is terminated by reason of death, all outstanding
SARs granted to that Participant shall immediately vest one
hundred percent (100%), and shall remain exercisable at any time
prior to their expiration date, or for one (1) year after the
date of death, whichever period is shorter, by such person or
persons as shall have been named as the Participant's
beneficiary, or by such persons that have acquired the
Participant's rights under the SAR by will or by the laws of
descent and distribution.
(b) TERMINATION BY DISABILITY. In the event the employment of a
Participant is terminated by reason of Disability, all
outstanding SARs granted to that Participant shall immediately
vest one hundred percent (100%) as of the date the Committee
determines the definition of Disability to have been satisfied,
and shall remain exercisable at any time prior to their
expiration date, or for one (1) year after the date that the
Committee determines the definition of Disability to have been
satisfied, whichever period is shorter.
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(c) TERMINATION BY RETIREMENT. In the event the employment of a
Participant is terminated by reason of Retirement, the Committee
shall retain discretion over the treatment of SARs.
(d) EMPLOYMENT TERMINATION FOLLOWED BY DEATH. In the event that a
Participant's employment terminates by reason of Disability or
Retirement, and within the exercise period allowed by the
Committee following such termination, the Participant dies, then
the remaining exercise period under outstanding SARs shall equal
the longer of: (i) one (1) year following death; or (ii) the
remaining portion of the exercise period which was triggered by
the employment termination. Such SARs shall be exercisable by
such person or persons who shall have been named as the
Participant's beneficiary, or by such persons who have acquired
the Participant's rights under the SAR by will or by the laws of
descent and distribution.
7.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
a Participant shall terminate for any reason other than the reasons set forth
in Section 7.9 (and other than for Cause), all SARs held by the Participant
which are not vested as of the effective date of employment termination
immediately shall be forfeited to the Company (and shall once again become
available for grant under the Plan). However, the Committee, in its sole
discretion, shall have the right to immediately vest all or any portion of
such SARs, subject to such terms as the Committee, in its sole discretion,
deems appropriate.
SARs which are vested as of the effective date of employment termination
may be exercised by the Participant within the period beginning on the
effective date of employment termination, and ending six (6) months after
such date.
If the employment of a Participant shall be terminated by the Company
for Cause, all outstanding SARs held by the Participant immediately shall be
forfeited to the Company and no additional exercise period shall be allowed,
regardless of the vested status of the SARs.
7.11 NON-TRANSFERABILITY OF SARs. No SAR granted under the Plan may be
sold,
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transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all SARs
granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock to eligible Employees in such amounts as the Committee
shall determine.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or Periods, the number of Restricted Stock Shares granted, and
such other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified
in the Restricted Stock Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Agreement. However, in no event may any
Restricted Stock granted under the Plan become vested in a Participant prior
to six (6) months following the date of its grant. All rights with respect
to the Restricted Stock granted to a Participant under the Plan shall be
available during his or her lifetime only to such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan
as it may deem advisable including, without limitation, restrictions based
upon the achievement of specific performance goals
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(Company-wide, divisional, and/or individual), and/or restrictions under
applicable Federal or state securities laws; and may legend the certificates
representing Restricted Stock to give appropriate notice of such restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate representing
Shares of Restricted Stock granted pursuant to the Plan shall bear the
following legend:
"The sale or other transfer of the Shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation
of law, is subject to certain restrictions on transfer as set
forth in the United Wisconsin Services, Inc. Equity Incentive
Plan, and in a Restricted Stock Agreement. A copy of the Plan
and such Restricted Stock Agreement may be obtained from the
Secretary of United Wisconsin Services, Inc."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article 8, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction. Once the Shares are released from
the restrictions, the Participant shall be entitled to have the legend
required by Section 8.5 removed from his or her Share certificate.
8.7 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted
hereunder shall be entitled to receive all dividends and other distributions
paid with respect to those Shares while they are so held. If any such
dividends or distributions are paid in Shares, the Shares shall be subject to
the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they
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<PAGE>
were paid.
In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be subject to a vesting period equal to the longer of: (i)
the remaining vesting period of the Shares of Restricted Stock with respect
to which the dividend is paid; or (ii) six (6) months. The Committee shall
establish procedures for the application of this provision.
8.9 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
In the event the employment of a Participant is terminated by reason of death
or Disability, all outstanding Shares of Restricted Stock shall immediately
vest one hundred percent (100%) as of the date of employment termination (in
the case of Disability, the date employment terminates shall be deemed to be
the date that the Committee determines the definition of Disability to have
been satisfied). The Committee retains discretion over the treatment of
Restricted Stock upon Retirement. In the event of full vesting, the holder
of the certificates of Restricted Stock shall be entitled to have any
non-transferability legends required under Sections 8.4 and 8.5 of this Plan
removed from the Share certificates.
8.10 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of
a Participant shall terminate for any reason other than those specifically
set forth in Section 8.9 herein, all Shares of Restricted Stock held by the
Participant which are not vested as of the effective date of employment
termination immediately shall be forfeited and returned to the Company (and,
subject to Section 4.2 herein, shall once again become available for grant
under the Plan).
With the exception of a termination of employment for Cause, the
Committee, in its sole
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discretion, shall have the right to provide for lapsing of the restrictions
of Restricted Stock following employment termination, upon such terms and
provisions as it deems proper.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the
Plan, Performance Units and Performance Shares may be granted to eligible
Employees at any time and from time to time, as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to each
Participant.
9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall
have an initial value that is established by the Committee at the time of
grant. Each Performance Share shall have an initial value equal to the Fair
Market Value of a Share on the date of grant. The Committee shall set
performance goals in its discretion which, depending on the extent to which
they are met, will determine the number and/or value of Performance
Units/Shares that will be paid out to the Participants. The time period
during which the performance goals must be met shall be called a "Performance
Period." Performance Periods shall, in all cases, exceed six (6) months in
length.
9.3 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable
Performance Period has ended, the holder of Performance Units/Shares shall be
entitled to receive payout on the number of Performance Units/Shares earned
by the Participant over The Performance Period, to be determined as a
function of the extent to which the corresponding performance goals have been
achieved.
9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned
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Performance Units/Shares shall be made in a single lump sum, within
forty-five (45) calendar days following the close of the applicable
Performance Period. The Committee, in its sole discretion, may pay earned
Performance Units/Shares in the form of cash or in Shares (or in a
combination thereof), which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/Shares at the close of the applicable
Performance Period.
Prior to the beginning of each Performance Period, Participants may
elect to defer the receipt of Performance Unit/Share payout upon such terms
as the Committee deems appropriate.
9.5 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT, OR
INVOLUNTARY TERMINATION (WITHOUT CAUSE). In the event the employment of a
Participant is terminated by reason of death or Disability or involuntary
termination without Cause during a Performance Period, the Participant shall
receive a prorated payout of the Performance Units/Shares. The Committee
retains discretion over the treatment of Performance Units/Shares upon
Retirement. Any prorated payout shall be determined by the Committee, in its
sole discretion, and shall be based upon the length of time that the
Participant held the Performance Units/Shares during the Performance Period,
and shall further be adjusted based on the achievement of the pre-established
performance goals.
Timing of payment of earned Performance Units/Shares shall be determined
by the Committee at its sole discretion.
9.6 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons
set forth in Section 9.5 herein, all Performance Units/Shares shall be
forfeited by the Participant to the Company, and shall once again be
available for grant under the Plan.
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9.7 NON-TRANSFERABILITY. Performance Units/Shares may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further a
Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in the
form prescribed by the Company and will be effective only when any necessary
spousal consent is obtained and filed by the Participant in writing with the
Secretary of the Company during the Participant's lifetime. In the absence
of any such designation, benefits remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise
be due to such Participant by virtue of the exercise of the Option or SAR,
the lapse or waiver of restrictions with respect to Restricted Stock, or the
satisfaction of any requirements or goals with respect to Performance
Units/Shares. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right
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of the Company to terminate any Participant's employment at any time, nor
confer upon any Participant any right to continue in the employ of the
Company.
For purposes of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between Subsidiaries)
or Parent (Blue Cross & Blue Shield United of Wisconsin) shall not be deemed
a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or having been so selected, to be selected
to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise
specifically prohibited by the terms of Section 18, herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse, and within ten (10) business days after the
occurrence of a Change in Control, the stock certificates
representing Shares of Restricted Stock, without any restrictions
or legend thereon, shall be delivered to the applicable
Participants;
(c) The target value attainable under all Performance Units and
Performance Shares shall be deemed to have been fully earned for
the entire Performance Period as of the effective date of the
Change in Control, and shall be paid out in cash to Participants
within thirty (30) days following the effective date of the
Change in Control; provided, however, that there shall not be an
accelerated payout with respect to Performance Units or
Performance Shares which were granted less than six (6) months
prior to the effective date of the Change in Control;
(d) Subject to Article 14 herein, the Committee shall have the
authority to make any modifications to the Awards as determined
by the Committee to be appropriate before the effective date of
the Change in Control.
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ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend,
or modify the Plan. However, without the approval of the shareholders of the
Company (as may be required by the Code, by the insider trading rules of
Section 16 of the Exchange Act, by any national securities exchange or system
on which the Shares are then listed or reported, or by a regulatory body
having jurisdiction with respect hereto), no such termination, amendment or
modification may:
(a) Materially increase the total number of Shares which may be
issued under this Plan, except as provided in Section 4.3 herein;
or
(b) Materially modify the eligibility requirements to add a class of
Insiders; or
(c) Materially increase the benefits accruing to Insiders under the
Plan.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising or as a result of this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event hereunder, Participants may elect,
subject to the approval of the Committee, to satisfy the
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withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined
equal to the minimum statutory total tax which could be imposed on the
transaction. All elections shall be irrevocable, made in writing, signed by
the Participant, and elections by Insiders shall additionally comply with the
applicable requirement set forth in (a) or (b) of this Section 15.2.
(a) AWARDS HAVING EXERCISE TIMING WITHIN INSIDERS' DISCRETION. The
Insider must either:
(i) Deliver written notice of the stock withholding election to
the Committee at least six (6) months prior to the date
specified by the Insider on which the exercise of the Award
is to occur; or
(ii) Make the stock withholding election in connection with an
exercise of an Award which occurs during a Window Period.
(b) AWARDS HAVING A FIXED EXERCISE/PAYOUT SCHEDULE WHICH IS OUTSIDE
INSIDERS' CONTROL. The Insider must either:
(i) Deliver written notice of the stock withholding election to
the Committee at least six (6) months prior to the date on
which the taxable event (e.g., exercise or payout) relating
to the Award is scheduled to occur; or
(ii) Make the stock withholding election during a Window Period
which occurs prior to the scheduled taxable event relating
to the Award (for this purpose, an election may be made
prior to such a Window Period, provided that it becomes
effective during a Window Period occurring prior to the
applicable taxable event).
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in
26
<PAGE>
which he or she may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid by him or
her in settlement thereof, with the Company's approval, or paid by him or her
in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an opportunity,
at its own expense, to handle and defend the same before he or she undertakes
to handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of Incorporation or
By-laws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
27
<PAGE>
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security"
or "equity security" offered pursuant to the Plan to any Insider may not be
sold or transferred for at least six (6) months after the date of grant of
such Award. The terms "equity security" and "derivative security" shall have
the meanings ascribed to them in the then-current Rule 16(a) under the
Exchange Act.
18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of
the plan or action by the Committee fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.
18.5 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Wisconsin.
28
<PAGE>
UNITED WISCONSIN SERVICES, INC./
UNITY HEALTH PLANS
INSURANCE CORPORATION
1997 PROFIT SHARING PLAN
<PAGE>
1997 PROFIT SHARING PLAN
OBJECTIVES
1. To focus participant awareness on corporate and business unit
financial results and to motivate employees to strive for financial
success.
2. To motivate participants to focus on the importance of providing
excellent service to our customers and to maximize customer
satisfaction results.
ELIGIBILITY
In order to be a participant in the 1997 Profit Sharing Plan ("Plan"), the
following requirements must be met:
1. The employee must be actively at work on or before the first day of
the Plan Year, January 2, 1997, and have completed one full year of
service on the last day of the Plan Year, December 31, 1997.
2. The employee must be continuously employed by Unity Health Plans
Insurance Corporation ("Unity") or by one or more of the following
employers: Blue Cross & Blue Shield United of Wisconsin; United
Wisconsin Services, Inc.; Compcare Health Services Insurance
Corporation; United Wisconsin Insurance Company; United Wisconsin Life
Insurance Company; Meridian Resource Corporation; Valley Health Plan;
United Wisconsin Proservices, Inc.; United Heartland, Inc.; Meridian
Managed Care, Inc.; Meridian Marketing Services, Inc.; and Hometown
Insurance Services, Inc. through the date of payment (anticipated to
be in March 1998).
COMPONENTS OF THE PROGRAM
The components of the 1997 Profit Sharing Plan are as follows:
1. Profit Sharing of Combined Financial Results ("Corporate Component")
2. Profit Sharing of Unity Health Plans' Financial Results
3. Profit Sharing Based on Risk Pool Withhold Return
4. Customer Satisfaction Modifier
Profit sharing payouts for each eligible employee will be based on a percentage
of Base Earnings paid during the Plan Year. For purposes of this Plan, Base
Earnings shall be limited to: compensation for hours actually worked, not
including overtime; holiday pay; vacation pay, not including payouts for either
accrued or unused vacation time; benefits received under Unity's Short Term
Disability Plan; sick pay; funeral pay; total compensation
2
<PAGE>
received by a participant from Unity and from a third party for jury duty,
military service, and serving as a witness. To be considered Base Earnings,
the items must have actually been paid during the Plan Year.
PROFIT SHARING OF FINANCIAL RESULTS
Components 1 and 2 above provide eligible employees with profit sharing when
the financial objectives on the attached schedules are achieved. The
financial performance objectives and the payout schedules are established by
the Management Review Committee of the Board of Directors ("Management Review
Committee") of United Wisconsin Services, Inc. and the Board of Directors of
Unity Health Plans.
The Combined Financial Results component of this Plan can pay out a maximum
of 3% of a participant's Base Earnings. Combined Financial Results for
purposes of this Plan are based on net income as reported in the audited
combined financial statements for Blue Cross & Blue Shield United of
Wisconsin. For purposes of this Plan, Combined Financial Results shall
exclude net income or loss from "extraordinary items." "Extraordinary items"
include, but are not limited to, sale of one or more buildings, sale of one
or more subsidiaries, sale of one or more joint ventures, and sales of UWS
stock by Blue Cross & Blue Shield United of Wisconsin. The Management Review
Committee shall have sole and complete discretion to determine what
constitutes "extraordinary items."
The Unity Financial Results component of the Plan is based solely on the
performance of Unity. This component of the Plan can pay out a maximum of
3% of a participant's Base Earnings.
The Combined Financial Results component schedule and the Unity Financial
Results component schedule are on page 5 of this document.
PROFIT SHARING OF RISK POOL WITHHOLD RETURN
The Aggregate Risk Pool Withhold Return component of this Plan can pay out a
maximum of 3% of a participant's Base Earnings if 100% of the withhold is
returned. The Aggregate Risk Pool Withhold Return component schedule is also
found on page 5 of this document.
CUSTOMER SATISFACTION MODIFIER
The Customer Satisfaction Modifier can increase or decrease the amount paid
under the other Profit Sharing Components. The modifier is based on customer
satisfaction surveys conducted throughout the year. Unity will be measured
according to the following schedule:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-2% -1% No Change +1% +2% +3%
89.9% or 90.0% to 91.5% to 92.6% to 94.1% to 95.6% or
less 91.4% 92.5% 94.0% 95.5% more
</TABLE>
3
<PAGE>
PAYMENT OF AWARDS
No payments will be made under any other Plan components unless a payment is
earned under the Combined Financial Results component of the Plan.
Notwithstanding the previous sentence, the Management Review Committee, at
its discretion, may award a Profit Sharing payout if such a payout is
warranted.
Profit Sharing will be awarded in cash within 30 days following approval by
the Management Review Committee.
Participants who otherwise meet eligibility requirements for the Plan Year
but who die, become disabled or retire before the end of the Plan Year, will
be eligible for a pro rata payout. Participants who otherwise meet
eligibility requirements for the Plan Year but who die, become disabled or
retire before the payment date but after completing the full Plan Year of
service will be eligible for a full payout. In the case of death, payment
will be made to the participant's estate.
Employees who otherwise terminate employment with Unity prior to the payment
date will not be eligible for a Profit Sharing payout.
PLAN ADMINISTRATION
The Management Review Committee maintains overall responsibility for the
Profit Sharing Plan and is given complete discretion to administer the Plan
and to interpret and/or modify all terms and conditions of the Plan.
The Committee, at its discretion, reserves the right to amend, suspend or
terminate the Profit Sharing Plan provided that no such amendment, suspension
or termination shall reduce or impair the value of any awards after such
awards are made by the Management Review Committee at its first quarter 1998
meeting.
4
<PAGE>
UNITED WISCONSIN SERVICES, INC.
AND
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
1997 PROFIT SHARING PLAN
<PAGE>
1997 PROFIT SHARING PLAN
OBJECTIVES
1. To focus participant awareness on Corporate and Business Unit/Regional
Area financial results and to motivate employees to strive for
financial success.
2. To motivate participants to focus on the importance of providing
excellent service to our customers and to maximize customer
satisfaction results.
ELIGIBILITY
In order to be a participant in the 1997 Profit Sharing Plan ("Plan"), the
following requirements must be met:
1. The employee must be actively at work on or before the first day of
the Plan Year, January 2, 1997, and have completed one full year of
service on the last day of the Plan Year, December 31, 1997.
2. The employee must be continuously employed by the Corporation through
the date of payment (anticipated to be in March 1998). For the
purpose of this eligibility requirement, employees who are laid-off
with recall rights on the date of payment shall not be considered to
be employed by the Corporation. Further, employment by one or more of
the following employers shall constitute employment by the
Corporation: Blue Cross & Blue Shield United of Wisconsin; United
Wisconsin Services, Inc.; Compcare Health Services Insurance
Corporation; United Wisconsin Insurance Company; United Wisconsin Life
Insurance Company; Meridian Resource Corporation; Valley Health Plan;
United Wisconsin Proservices, Inc.; United Heartland, Inc.; Meridian
Managed Care, Inc.; Meridian Marketing Services, Inc.; Hometown
Insurance Services, Inc.; and Unity Health Plans.
COMPONENTS OF THE PROGRAM
The components of the 1997 Profit Sharing Plan are as follows:
1. Profit Sharing of Financial Results
a. Combined Financial Results ("Corporate Component")
b. Business Unit/Regional Area Financial Results ("Local Component")
2. Customer Satisfaction Modifier
PROFIT SHARING OF FINANCIAL RESULTS
This program provides eligible employees with profit sharing when the financial
objectives on the attached schedule are achieved. The financial performance
objectives and the payout schedule are established by the Management Review
Committees of the Boards
1
<PAGE>
of Directors of United Wisconsin Services, Inc. and Blue Cross & Blue Shield
United of Wisconsin (collectively the "Committee").
Payout potential will be based 50% on Combined Financial Results ("Corporate
Component") and 50% on Business Unit/Regional Area Financial Results ("Local
Component") as reflected in the attached schedule. The payout for those
employees in corporate UWS functions will be based 50% on the Corporate
Component and 50% on the weighted results of all the Local Components.
Profit sharing payouts for each eligible employee will be based on a
percentage of Base Earnings paid during the Plan Year. For purposes of this
Plan, Base Earnings shall be limited to: compensation for hours actually
worked, not including overtime; holiday pay; vacation pay, not including
payouts for either accrued or unused vacation time; benefits received under
the Corporation's Short Term Disability Plan; sick pay; pay for personal
days, not including pay for unused personal days; funeral pay; total
compensation received by a participant from the Corporation and from a third
party for jury duty, military service, and serving as a witness; and exam
pay. To be considered Base Earnings, the item must have actually been paid
during the Plan Year.
The Corporate Component of this Plan can pay out a maximum of 9% of a
participant's Base Earnings. The Corporate Component is based on net income
as reported in the audited combined financial statements for Blue Cross &
Blue Shield United of Wisconsin. For purposes of this Plan, Combined
Financial Results shall exclude net income or loss from "extraordinary
items." "Extraordinary items" include, but are not limited to, sale of one or
more buildings, sale of one or more subsidiaries, sale of one or more joint
ventures, and sales of UWS stock by Blue Cross & Blue Shield United of
Wisconsin. The Management Review Committee of the Board of Directors shall
have sole and complete discretion to determine what constitutes
"extraordinary items."
The Local Component of this Plan is established individually for each
Business Unit/Regional Area. This Component can also pay out a maximum of 9%
of a participant's Base Earnings. The financial results of the following
Business Units/Regional Areas will be measured to determine the Local
Component of the 1997 Plan:
1. Special Markets (includes Investigation and Recovery Services (IRS);
Information Support Services (ISS); Meridian Managed Care, Inc.;
Meridian Resource Corporation; Dentacare; and Pharmacy Services)
2. United Heartland
3. United Government Services (includes Proservices)
4. United Wisconsin Group
5. Western Region (Blue Cross & Valley Health Plan)
6. North Central Region (Blue Cross)
7. Northeast Region (Blue Cross)
8. Southeast Region (Blue Cross & Compcare)
9. Southwest Region (Blue Cross & Hometown Insurance Services)
10. Meridian Marketing Services, Inc.
11. Blue Cross Regional Services (support four Blue Cross out-state
regions)
2
<PAGE>
12. Regional Services Combined (support four Blue Cross out-state regions
and Meridian Marketing Services, Inc.)
United Wisconsin Services Corporate will be measured on the aggregate of the
Local Component Targets. In addition to regular UWS corporate functions,
"United Wisconsin Services Corporate" will include: Group Relations; Special
Markets Finance; Network Management; Quality Improvement; Compcare
Provider/Financial Services; Provider Utilization Analysis; HMO/Special
Markets Accounting; Blue Cross & Blue Shield Cash Adjustments, Cash Control,
Cash Receipts, Group Agreement, National Accounts and Accounting; and the
Core System Migration Team.
The Local Component schedule and the Corporate Component schedule are on Page
8 of this document.
CUSTOMER SATISFACTION MODIFIER
The Customer Satisfaction Modifier can increase or decrease the amount paid
under the other Profit Sharing Components. The modifier is based on customer
satisfaction surveys conducted throughout the year (except for United
Government Services which uses the ratio of program savings to program costs).
Each Business Unit/Regional Area will be measured individually against the
following targets:
TARGET FOR REGIONAL AREAS, COMPCARE
AND MERIDIAN MARKETING SERVICES
Each Regional Area will be measured individually against the schedule below.
The payout to Hometown Insurance Services, Inc. employees will be based on
the customer satisfaction survey results for the Southwestern Region. For
purposes of the Customer Satisfaction Modifier, the Western Regional Area
will not include Valley Health Plan which will be measured separately.
The Southeast Region of Blue Cross and Compcare (including Title 19
recipients) will be measured separately; however, the payout to employees of
each will be the same and will be based on a weighted average of the results
of both measurements.
Meridian Marketing Services will be measured separately against the schedule
below based on responses from individual policyholders.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-2% -1% NO CHANGE +1% +2% +3%
86% 86.1% to 87.6% to 90.5% to 92.0% to 93.5%
or less 87.5% 90.4% 91.9% 93.4% or more
</TABLE>
3
<PAGE>
TARGET FOR VALLEY HEALTH PLAN
Valley Health Plan employees will be measured on the basis of customer
satisfaction survey results collected from its customers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-2% -1% NO CHANGE +1% +2% +3%
89.9% 90.0% to 92.0% to 94.0% to 96.0% to 98.0% or
or less 91.9% 93.9% 95.9% 97.9% more
</TABLE>
TARGET FOR UNITED HEARTLAND
United Heartland employees will be measured on the basis of group satisfaction
according to the following scale:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-2% -1% NO CHANGE +1% +2% +3%
91.4% 91.5% to 92.8% to 95.8% to 97.3% to 98.8% to
or less 92.7% 95.7% 97.2% 98.7% or more
</TABLE>
TARGET FOR UNITED GOVERNMENT SERVICES
United Government Services employees will be measured on thebasis of a ratio
of program savings to program costs according to the following scale:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
-2% -1% NO CHANGE +1% +2% +3%
9.9:1 10:1 to 15.1:1 to 17.7:1 to 20.1:1 to 22.1:1
or less 15:1 17.6:1 20:1 22:1 or more
</TABLE>
4
<PAGE>
TARGET FOR UWG
UWG employees will be measured using the following schedules:
CLAIMANT SATISFACTION: A weighted average of survey responses from STD
and LTD and dental claimants.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -.667% -.333% NO CHANGE +.333% +.667% +1.0%
86.0% 86.1% to 87.3% to 90.0% to 91.5% to 93.0%
or less 87.2% 89.9% 91.4% 92.9% or more
</TABLE>
GROUP SATISFACTION: A weighted average of surveys of groups with claims
activity and group enrollments of new and existing groups.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -.667% -.333% NO CHANGE +.333% +.667% +1.0%
90.9% 91.0% to 92.5% to 94.0% to 95.6% to 97.1%
or less 92.4% 93.9% 95.5% 97.0% or more
</TABLE>
AGENT SATISFACTION: An average of surveys of agents who sold UWG products
to new groups.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -.667% -.333% NO CHANGE +.333% +.667% +1.0%
85.0% 85.1% to 87.1% to 92.0% to 94.1% to 97.1%
or less 87.0% 91.9% 94.0% 97.0% or more
</TABLE>
TARGET FOR MERIDIAN MANAGED CARE
Meridian Managed Care employees will be measured on the basis of customer
satisfaction survey results collected from its customers. The following
scale will be used:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -2% -1% NO CHANGE +1% +2% +3%
89.9% 90.0% to 91.5% to 93.6% to 95.1% to 96.5%
or less 91.4% 93.5% 95.0% 96.4% or more
</TABLE>
TARGET FOR BLUE CROSS REGIONAL SERVICES
The customer satisfaction modifier to be used for the Blue Cross Regional
Services staff who support all four Blue Cross out-state regions, will be
based on a weighted average of the combined customer satisfaction results for
the Western Region, the North Central Region, the Northeast Region, and the
Southwest Region. The customer satisfaction results will be weighted
according to the number of employees eligible to receive a profit sharing
payout in each of the above areas.
5
<PAGE>
TARGET FOR REGIONAL SERVICES COMBINED
The customer satisfaction modifier to be used for the Regional Services
Combined staff, who support the four Blue Cross out-state regions and
Meridian Marketing Services, Inc., will be based on a weighted average of the
combined customer satisfaction results for the Western Region, the North
Central Region, the Northeast Region, the Southwest Region and Meridian
Marketing Services, Inc. The customer satisfaction results will be weighted
according to the number of employees eligible to receive a profit sharing
payout in each of the above areas.
TARGET FOR UWS CORPORATE STAFF
The customer satisfaction modifier to be used for UWS Corporate staff will be
based on a weighted average of the combined customer satisfaction results for
all measured areas. The customer satisfaction results will be weighted
according to the number of employees eligible to receive a profit sharing
payout in each area which is separately measured for customer satisfaction
purposes. In addition to regular UWS corporate functions, Group Relations,
Investigation and Recovery Services, Dentacare, Pharmacy Services,
Information Support Services, Meridian Resource Corporation, Special Markets
Finance, Network Management, Quality Improvement, Compcare Provider/Financial
Services, Provider Utilization Analysis, HMO/Special Markets Accounting, Blue
Cross & Blue Shield Cash Adjustments, Cash Control, Cash Receipts, Group
Agreement, National Accounts and Accounting, and the Core System Migration
Team will be included in the UWS Corporate staff measurement.
PAYMENT OF AWARDS
No payments will be made under the Local Component or the Customer
Satisfaction Modifier unless a payment is earned under the Corporate
Component of the Plan. Notwithstanding the previous sentence, the Committee,
at its discretion, may selectively award Profit Sharing payouts to specified
Business Units/Regional Areas, or portions thereof, if such payouts are
warranted.
Profit Sharing will be awarded in cash within 30 days following approval by
the Committee.
The Local Component of the Plan will be prorated based on months of service
for participants who transfer from one Business Unit/Regional Area to another
during the Plan Year. The Customer Satisfaction Modifier will also be
prorated based on months of service for participants who transfer from one
individually rated entity (e.g. United Heartland, Meridian Marketing
Services, Valley Health Plan) to another individually rated entity during the
Plan Year. For purposes of proration, the results of the Local Components
and the Customer Satisfaction Modifier will be determined as of the end of
the Plan Year.
Participants who otherwise meet eligibility requirements for the Plan Year
but who die, become disabled or retire before the end of the Plan Year, will
be eligible for a prorata payout. Participants who otherwise meet
eligibility requirements for the Plan Year but who die, become disabled or
retire before the payment date but after completing the full Plan
6
<PAGE>
Year of service will be eligible for a full payout. In the case of death,
payment will be made to the participant's estate.
Employees who otherwise terminate employment with the Corporation prior to
the payment date will not be eligible for a profit sharing payout.
PLAN ADMINISTRATION
The Committee maintains overall responsibility for the Profit Sharing Plan
and is given complete discretion to administer the Plan and to interpret
and/or modify all terms and conditions of the Plan.
The Committee, at its discretion, reserves the right to amend, suspend or
terminate the Profit Sharing Plan provided that no such amendment, suspension
or termination shall reduce or impair the value of any awards after such
awards are made by the Committee at its first quarter 1998 meeting.
7
<PAGE>
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN/
UNITED WISCONSIN SERVICES, INC.
LONG-TERM INCENTIVE PLAN (THE "PLAN")
(1997-1999)
OBJECTIVES
To motivate executives toward the pursuit of activities which will materially
contribute to: the profitable growth of Blue Cross & Blue Shield United of
Wisconsin and United Wisconsin Services, Inc. (collectively "the Company"); the
diversification of the Company's businesses; the Company's leadership in
acquiring and maintaining contracts to provide services to federal and state
governmental entities; and effective teamwork among the Company's executives and
the businesses/departments for which they are responsible. For the 1997-1999
Plan Cycle, the Plan has been designed to emphasize profitability in order to
mitigate the effect of the anticipated underwriting cycle on the Company's
financial results and the anticipated cost of the computer system conversion.
To contribute to the establishment of a competitive compensation program to
support the attraction and retention of key executives.
PERFORMANCE MEASUREMENT
Performance shall be measured over the three year period beginning January 1,
1997 and ending December 31, 1999. This period shall be called the "Plan
Cycle." Performance goals for the Plan Cycle shall be established in 1996.
Performance will be measured by the average growth in each of the Plan's
components over the Plan Cycle. Components may include Surplus, Revenue,
Underwriting Results, Government Programs Reimbursement, or such others as the
Management Review Committees of Blue Cross & Blue Shield United of Wisconsin and
United Wisconsin Services, Inc. ("the Committees") deem appropriate.
Extraordinary transactions as determined by the Committees will be handled as
exclusions or adjustments in calculating the average annual increases.
Goals are set for minimum, target and maximum payouts for each component.
Minimum and maximum payouts and prorated payouts between the minimum and maximum
are determined as of the "Calculation Date" which shall be December 31, 1999.
AWARD DETERMINATION
Payout awards are based on a percentage of each participant's average salary
range midpoint during the Plan Cycle.
Each goal (minimum, target and maximum) has a specified percentage award.
Prorated awards are made for achieved results between the minimum and maximum.
-1-
<PAGE>
PAYMENT OF AWARDS
Calculation of awards will be made following the receipt of the Company's
financial statements at the end of the Plan Cycle and after approval by the
Boards of Directors of Blue Cross & Blue Shield United of Wisconsin ("BCBSUW")
and United Wisconsin Services, Inc. ("UWSI"). Actual payment will be made in
cash on or about April 1, 2000 (the "Payout Date").
Discretionary payment may be made for participants who die, become disabled or
retire before the end of the Plan Cycle. Employees who otherwise terminate
employment with the Company prior to the Payout Date will not be eligible for
payment except as provided in the Change In Control provisions below.
PLAN ADMINISTRATION
The Committees maintain overall responsibility for the Plan. The Committees
may, at their discretion, amend, suspend or terminate the Plan, provided that no
such amendment, suspension or termination which would reduce, alter or impair
the value of any awards can be made after the Calculation Date.
Upon the occurrence of a Change In Control the target value attainable under all
Goals shall be deemed to have been fully earned for the entire Plan Cycle as of
the effective date of the Change In Control, and shall be paid out in cash to
participants within thirty (30) days following the effective date of the Change
In Control; provided, however, that there shall not be an accelerated payout if
the effective date of the Change In Control is prior to July 1, 1997. For
purposes of this Plan, a "Change In Control" shall be defined as it is defined
in Article 2, Subsection (g) of the United Wisconsin Services, Inc. Equity
Incentive Plan dated February 1993 which definition is incorporated herein by
reference.
PARTICIPANTS
The following officers are eligible to participate in the 1997-1999 Long-Term
Incentive Plan. Payouts shall be made in accordance with the following
schedule:
Thomas R. Hefty, Roger Fomisano, C. Edward Mordy: 1/3 of the amount
payable for achievement of the BCBSUW/UWSI Executive Goals.
Essie Whitelaw, Timothy P. Cullen: 2/3 of the amount payable for
achievement of the BCBSUW/UWSI Executive Goals.
Penny Siewert: 1/3 of the amount payable for achievement of the Vice
President of Regional Services Goals.
Mark Granoff: 1/3 of the amount payable for achievement of the United
Wisconsin Group President Goals.
Emil Pfenninger: 1/3 of the amount payable for achievement of the United
Heartland President Goals.
-2-
<PAGE>
Thomas Liechty, Norman Keller, Christopher Bowen, Mary Traver: 100% of the
amount payable for achievement of the Regional Vice President Goals.
BCBSUW/UWSI EXECUTIVE GOALS
GOAL 1 - INCREASE IN BCBSUW GAAP SURPLUS
Average annual increase in BCBSUW GAAP surplus over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 12.0%
Target 14% 18.0%
Maximum 18% 30.0%
</TABLE>
GOAL 2 - INCREASE IN COMBINED PREMIUM AND OTHER REVENUE FOR BCBSUW AND UWSI
Average annual increase in total combined premium and other revenue for BCBSUW
and UWSI over the Plan Cycle. The definition of premium revenue includes all
fully insured and self-insured medical and dental business. For purposes of the
Plan, business related to the HIRSP contract, the State of Wisconsin Employees
contract and similar contracts secured during the Plan Cycle are excluded from
the BCBSUW Revenue component but are included in the Government Programs
Reimbursement component.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 5.0%
Target 12% 7.5%
Maximum 15% 12.5%
</TABLE>
GOAL 3 - GOVERNMENT PROGRAMS REIMBURSEMENT
Average annual increase in Government Programs reimbursement over the Plan
Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 3.0%
Target 15% 4.5%
Maximum 20% 7.5%
</TABLE>
VICE PRESIDENT OF REGIONAL SERVICES GOALS
GOAL 1 - INCREASE IN BCBSUW GAAP SURPLUS
Average annual increase in BCBSUW GAAP surplus over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 12.0%
Target 14% 18.0%
Maximum 18% 30.0%
</TABLE>
-3-
<PAGE>
GOAL 2 - INCREASE IN COMBINED PREMIUM AND OTHER REVENUE FOR BCBSUW AND UWSI
Average annual increase in total combined premium and other revenue for BCBSUW
and UWSI over the Plan Cycle. The definition of premium revenue includes all
fully insured and self-insured medical and dental business. For purposes of the
Plan, business related to the HIRSP contract, the State of Wisconsin Employees
contract and similar contracts secured during the Plan Cycle are excluded from
the BCBSUW Revenue component but are included in the Government Programs
Reimbursement component.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 5.0%
Target 12% 7.5%
Maximum 15% 12.5%
</TABLE>
GOAL 3 - GOVERNMENT PROGRAMS REIMBURSEMENT
Average annual increase in Government Programs reimbursement over the Plan
Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 3.0%
Target 15% 4.5%
Maximum 20% 7.5%
</TABLE>
UNITED WISCONSIN GROUP PRESIDENT GOALS
GOAL 1 - INCREASE IN BCBSUW GAAP SURPLUS
Average annual increase in BCBSUW GAAP surplus over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 12.0%
Target 14% 18.0%
Maximum 18% 30.0%
</TABLE>
GOAL 2 - INCREASE IN UNITED WISCONSIN GROUP PREMIUM REVENUE
Average annual increase in total United Wisconsin Group premium revenue over the
Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 5.0%
Target 12% 7.5%
Maximum 15% 12.5%
</TABLE>
-4-
<PAGE>
GOAL 3 - GOVERNMENT PROGRAMS REIMBURSEMENT
Average annual increase in Government Programs reimbursement over the Plan
Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 3.0%
Target 15% 4.5%
Maximum 20% 7.5%
</TABLE>
UNITED HEARTLAND PRESIDENT GOALS
GOAL 1 - INCREASE IN BCBSUW GAAP SURPLUS
Average annual increase in BCBSUW GAAP surplus over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 12.0%
Target 14% 18.0%
Maximum 18% 30.0%
</TABLE>
GOAL 2 - INCREASE IN WORKERS' COMPENSATION PREMIUM REVENUE
Average annual increase in total Workers' Compensation gross earned premium
revenue over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 5.0%
Target 12% 7.5%
Maximum 15% 12.5%
</TABLE>
GOAL 3 - GOVERNMENT PROGRAMS REIMBURSEMENT
Average annual increase in Government Programs reimbursement over the Plan
Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 3.0%
Target 15% 4.5%
Maximum 20% 7.5%
</TABLE>
-5-
<PAGE>
REGIONAL VICE PRESIDENT GOALS
GOAL 1 - INCREASE IN BCBSUW GAAP SURPLUS
Average annual increase in BCBSUW GAAP surplus over the Plan Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 12.0%
Target 14% 18.0%
Maximum 18% 30.0%
</TABLE>
GOAL 2 - INCREASE IN MEDICAL REVENUE
Average annual increase in total medical revenue for the participant's assigned
geographic region over the Plan Cycle. Medical revenue includes all fully
insured and self-insured medical and dental premiums for BCBSUW, Unity Health
Plan, Valley Health Plan, Compcare Health Services, and any similar business
produced over the Plan Cycle. Excluded are revenues associated with Blue Card
business which are not regionalized and revenues associated with American
Medical Security. For purposes of the Plan, business related to the HIRSP
contract, the State of Wisconsin Employees contract and similar contracts
secured during the Plan Cycle are excluded from the Medical Revenue component
but are included in the Government Programs Reimbursement component.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 2.50%
Target 12% 3.75%
Maximum 15% 6.25%
</TABLE>
GOAL 3 - INCREASE IN NON-MEDICAL REVENUE
Average annual increase in total non-medical revenue for the participant's
assigned geographic region over the Plan Cycle. Non-Medical revenue
includes: revenue attributable to all UWG business from all distribution
systems as reported by geographic region; and revenue attributable to United
Heartland business only where the President of United Heartland determines
that production of such revenue is facilitated by the regions' direct sales
personnel. Non-medical revenue does NOT include revenue from the sale of
other non-medical products, including but not limited to: Managed Care,
Benefits Administration, Proservices, Benefits Consulting, TPA Services and
Recovery Services.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 2.50%
Target 12% 3.75%
Maximum 15% 6.25%
</TABLE>
-6-
<PAGE>
GOAL 4 - GOVERNMENT PROGRAMS REIMBURSEMENT
Average annual increase in Government Programs reimbursement over the Plan
Cycle.
<TABLE>
<CAPTION>
GOAL PAYOUT
---- ------
<S> <C> <C>
Minimum 10% 3.0%
Target 15% 4.5%
Maximum 20% 7.5%
</TABLE>
-7-
<PAGE>
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
<PAGE>
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I. PURPOSE, DEFINITIONS AND CONSTRUCTION
1.1 Purpose 1
1.2 Definitions 1
(a) Administration Committee 1
(b) Adoption Agreement 2
(c) Beneficiary 2
(d) Board 2
(e) Company 2
(f) Deferral Account 2
(g) Deferral Contributions 2
(h) Deferral Form 3
(i) Disability 3
(j) Effective Date 3
(k) Insolvency 3
(l) Participant 3
(m) Plan 4
(n) Plan Year 4
(o) Trust 4
(p) Trust Agreement 4
(q) Trustee 4
1.3 Gender and Number 4
1.4 Headings 4
1.5 Plan Provisions Controlling 5
1.6 Severability 5
1.7 Applicable Law 5
(i)
<PAGE>
ARTICLE II. DEFERRAL ELECTIONS, CONTRIBUTIONS AND ACCOUNTING PROCEDURES
2.1 Availability of Deferral Election 5
2.2 Maintenance of Separate Deferral Accounts 6
2.3 Treatment of Amounts Deferred 6
2.4 Irrevocability and Nonassignability of Deferrals 6
2.5 Accounting Procedure 7
2.6 Earnings Allocation 7
ARTICLE III. DEFERRED COMPENSATION PAYMENTS
3.1 Eligibility for Deferred Compensation 8
(a) Retirement or Termination 8
(b) Disability 9
(c) Death 9
3.2 Amount and Method of Payment of Deferred Compensation 9
ARTICLE IV. TRUST FUND
4.1 Establishment of Trust 11
ARTICLE V. ADMINISTRATION
5.1 Committee to Administer Agreement 12
5.2 Claims Procedure 12
ARTICLE VI. MISCELLANEOUS
6.1 Employment Rights 13
6.2 Absence of Liability 13
6.3 Amendment and Termination 13
6.4 Company Not an Advisor 14
</TABLE>
(ii)
<PAGE>
UNITED WISCONSIN SERVICES, INC.
VOLUNTARY DEFERRED COMPENSATION PLAN
ARTICLE I. PURPOSE, DEFINITIONS AND CONSTRUCTION
SECTION 1.1 PURPOSE - United Wisconsin Services, Inc. (the
"Company"), acting for itself and on behalf of its subsidiaries, hereby adopts
this Voluntary Deferred Compensation Plan (the "Plan") and separate Trust to
permit certain salaried employees selected by the Company to defer a portion of
their anticipated salary and to have such deferred salary amounts held in the
separate Trust.
It is intended that the Plan and the Trust shall constitute, and shall be
construed and administered as, an unfunded plan of deferred compensation within
the meaning of the Employee Retirement Income Security Act of 1974 as amended
("ERISA") and the Internal Revenue Code of 1954, as amended (the "Code"). The
Plan and Trust are not intended to be qualified under Section 401(a) of the
Code.
SECTION 1.2 DEFINITIONS - For purposes of this Plan, the following words
and phrases shall have the meanings set forth below unless a different meaning
is plainly required by the context.
(a) ADMINISTRATION COMMITTEE (OR COMMITTEE) - means the persons from
time to time designated and appointed by the Board to have general charge of the
administration and interpretation of the Plan. In the absence of a specifically
appointed Committee, the Board itself shall serve as the Committee.
1
<PAGE>
(b) ADOPTION AGREEMENT (OR AGREEMENT) - means the separate Adoption
Agreement between a Participant and the Company, which forms a part of the Plan,
under which the Company has agreed to allow the Participant to participate in
the Plan and under which the Participant has agreed to his participation in the
Plan on the terms set forth herein.
(c) BENEFICIARY - means the person or persons designated by a
Participant in his most recent Beneficiary Designation Form to receive payments
under the Plan in the event of the Participant's death; provided that if the
Participant has failed to designate a Beneficiary, or if all designated
Beneficiaries predecease the Participant, any remaining distribution due under
the Plan shall be payable to the Participant's surviving spouse or, if none, to
his surviving issue PER STIRPES or, if none, then to his estate.
(d) BOARD - means the Board of Directors of the Company.
(e) COMPANY - means United Wisconsin Services, Inc., a Wisconsin
corporation, acting for itself and on behalf of its subsidiaries, and any
successor thereto which assumes the rights and obligations of the Company under
the Plan and Trust Agreement.
(f) DEFERRAL ACCOUNT - means the account maintained for a Participant
to record the total of his deferred compensation under the Plan and any
adjustments relating thereto.
(g) DEFERRAL CONTRIBUTIONS - means contributions to the Trust which
are made by the Company pursuant to this Plan and the then current Deferral
Form.
2
<PAGE>
3
<PAGE>
(h) DEFERRAL FORM - means a Participant's then current Deferral
Election Form, if any, to be executed by the Participant prior to the start of
each Plan Year specifying the percentage or dollar amount of salary elected to
be deferred during the upcoming Plan Year. The Deferral Form shall remain in
effect until the end of the Plan Year for which it is executed unless earlier
revoked or amended to reduce the percentage or dollar amount of the deferral for
amounts not yet earned during such year.
(i) DISABILITY - means such total and permanent physical or mental
disability as, in the Committee's sole and absolute discretion, would prevent
the Participant from engaging in substantially gainful employment.
(j) EFFECTIVE DATE - means December 1, 1995, the date as of which, by
resolution of the Board, the provisions of this Plan became effective and the
date after which Participants were permitted to participate in the Plan by
entering into an Adoption Agreement with the Company.
(k) INSOLVENCY - means (i) the Company is unable to pay its debts as
they become due, or (ii) the Company is subject to a pending proceeding as a
debtor under the United Sates Bankruptcy Code, or (iii) the Company is
determined to be insolvent by the Wisconsin Commissioner of Insurance.
(l) PARTICIPANT - means a person who is one of the Company-selected
salaried employees who, by having executed an Adoption Agreement with the
Company, is participating in the Plan. Such person shall cease to be a
Participant after his employment with the Company terminates, or the balance in
his Deferral Account is
4
<PAGE>
reduced to zero ($0), whichever is later.
(m) PLAN - means the United Wisconsin Services, Inc. Voluntary
Deferred Compensation Plan as set forth herein.
(n) PLAN YEAR - means the twelve (12) month period adopted under this
Plan for reporting purposes, which is the period commencing on January 1 and
ending on December 31.
(o) TRUST - means the United Wisconsin Services, Inc. Voluntary
Deferred Compensation Trust and the entire Trust estate as it may, from time to
time, be constituted, including but not limited to Deferral Contributions,
investments, income from any and all investments and any and all other assets,
property or money received by or held by the Trustee for the uses and purposes
of the Trust.
(p) TRUST AGREEMENT - means the separate agreement between the
Company and the Trustee under which the Trust is established and maintained.
(q) TRUSTEE - means the individual or individuals or entity or
entities appointed by the Board to administer the Trust; provided that an
individual who is a Participant, a member of the Board of Directors of the
Company or the Chief Executive Officer of the Company may not be a Trustee.
SECTION 1.3 GENDER AND NUMBER - Except when otherwise indicated by the
context, any masculine terminology used herein shall also include the feminine
and the definition of any term herein in the singular shall also include the
plural.
SECTION 1.4 HEADINGS - The headings of the various Articles, Sections and
Subsections are inserted for convenience of reference and are not to be regarded
as
5
<PAGE>
part of this Plan or as indicating or controlling the meaning or construction
of any provision.
SECTION 1.5 PLAN PROVISIONS CONTROLLING - In the event the terms or
provisions of the Trust Agreement or of any summary or description of the Plan
or of any other instrument, agreement, or document are in any construction
interpreted as being in conflict with the provisions of the Plan as herein set
forth, the provisions of the Plan shall be controlling.
SECTION 1.6 SEVERABILITY - In the event any provision of the Plan shall be
held illegal or invalid for any reason, this illegality or invalidity shall not
affect the remaining provisions of the Plan, and such remaining provisions shall
be fully severable and the Plan shall, to the extent practicable, be construed
and enforced as if the illegal or invalid provision had never been inserted
therein.
SECTION 1.7 APPLICABLE LAW - Subject to the intent that the Plan and Trust
be unfunded and non-qualified as provided in Section 1.1, the provisions of the
Plan shall be construed in accordance with the laws of the State of Wisconsin,
except to the extent, if any, preempted by federal law.
ARTICLE II. DEFERRAL ELECTIONS, CONTRIBUTIONS AND ACCOUNTING PROCEDURES
SECTION 2.1 AVAILABILITY OF DEFERRAL ELECTION - The Company shall make
available, in December of each Plan Year, to each Participant who is then an
employee, a Deferral Form which may be used by the Participant to designate for
deferral a portion of the salary he anticipates earning from the Company in the
upcoming Plan Year. All amounts elected to be deferred by a Participant shall
be subject to the terms and
6
<PAGE>
conditions of this Plan and shall be subject to FICA taxes. No requested
deferral shall be effective for any Plan Year unless the appropriate Deferral
Form is completed and filed with the Committee prior to January 1 of the Plan
Year for which the deferral is elected.
SECTION 2.2 MAINTENANCE OF SEPARATE DEFERRAL ACCOUNTS - If not done by the
Company, the Trustee shall create and maintain adequate records to disclose the
interest in the Trust of all Participants. Such records shall be in the form of
separate, individual Deferral Accounts, and credits and charges shall be made
thereto in the manner described in this Plan. The maintenance of individual
Deferral Accounts for Participants is only for accounting purposes and a
segregation of the assets of the Trust Fund to each account shall not be
required. Distribution made from an account shall be charged to that account as
of the date paid.
SECTION 2.3 TREATMENT OF AMOUNTS DEFERRED - Upon execution and filing by
the Participant of an effective Deferral Form, the Company shall make a Deferral
Contribution to such Participant's Deferral Account to be deposited in the Trust
no later than ten (10) days after the end of the payroll period(s) during which
the Participant would have otherwise been entitled to receive the amount to be
contributed by the Company except for the Participant's election pursuant to
this Plan and the Deferral Form.
SECTION 2.4 IRREVOCABILITY AND NONASSIGNABILITY OF DEFERRALS - All amounts
credited to a Participant's Deferral Account shall be treated as having been
irrevocably deferred and no payment based on such amounts may be received except
in
7
<PAGE>
accordance with the eligibility requirements, terms and conditions of this
Plan. Neither the Participant nor any Beneficiary shall have any right or
ability to alienate, sell, transfer, assign, pledge, encumber or submit to
garnishment, execution or levy, either voluntarily or involuntarily, any amount
due or expected to become due under this Plan. Amounts due under this Plan
shall be paid, transferred, delivered or otherwise conveyed only to the
Participant or his Beneficiary, subject to the limitations of Section 4.1.
Notwithstanding the foregoing, a Deferral Form election may be cancelled,
or amended not more than once annually to reduce the percentage or dollar amount
of the Deferral during a Plan Year for amounts not yet earned during such year,
provided that once the Deferral Form election is cancelled no further amounts
may be deferred under this Plan for such year.
SECTION 2.5 ACCOUNTING PROCEDURE - As of the close of each quarter of a
Plan Year after the Effective Date, the Committee shall:
(a) First, charge to the proper accounts all payments or
distributions made from the Deferral Accounts of Participants since the close of
the last preceding quarter of a Plan Year that have not been charged previously;
(b) Second, credit to the proper Deferral Accounts the Deferral
Contributions that were made since the close of the last preceding quarter of a
Plan Year that have not been credited previously;
(c) Third, adjust the net balances of the Deferral Accounts of
Participants upward or downward by allocating net Trust earnings to such
accounts in accordance with Section 2.6.
8
<PAGE>
SECTION 2.6 EARNINGS ALLOCATION - Subject to the provisions hereof
relative to separate accounts, the respective Deferral Accounts of Participants
shall be adjusted as soon as is practicable after, but as of, the close of each
quarter of a Plan Year (and as of any other date if the Committee determines it
advisable for any reason) to reflect the net income or loss of the Trust for the
period then completed, as follows: (i) the Committee shall at such times
determine the value of the Trust as of that date which determination shall be
final and not open to question by anyone; (ii) for purposes of allocating Trust
earnings under this Section 2.6, the balances of Participants' Deferral Accounts
as of the close of such quarter of a Plan Year, reflecting any distributions
made during such quarter, shall be adjusted downward by one-half (1/2) of any
salary deferred during such quarter of a Plan Year by any Participant; and (iii)
the percentage that such adjusted value bears to the aggregate amount of such
adjusted balances at that date of the accounts of all Participants shall be
applied to the net Trust earnings for the quarter and credited or charged by
appropriate entries to such accounts so that after such entries the aggregate
amount of the actual Deferral Account balances (i.e., adding back in any
adjustment described in this Section 2.6) shall equal the value of the Trust.
In the administration of the accounts of Participants and the allocation of
Trust income or loss, appropriate adjustment shall be made in the case of a
Participant, any of whose account is invested in investments held for his
separate benefit.
ARTICLE III. DEFERRED COMPENSATION PAYMENTS
SECTION 3.1 ELIGIBILITY FOR DEFERRED COMPENSATION - Subject to any
limiting conditions set forth in this Plan, the Participant, or in the event of
Participant's death his
9
<PAGE>
Beneficiary, will become eligible for receipt of deferred compensation under
this Plan as follows:
(a) RETIREMENT OR TERMINATION - Upon retirement or other termination of
regular employment with the Company, the Participant shall become eligible for
deferred compensation payments under this Plan.
10
<PAGE>
(b) DISABILITY - Upon cessation of active employment with the Company as a
result of Disability, Participant shall become eligible for deferred
compensation payments under this Plan.
(c) DEATH - In the event of Participant's death prior to the Participant's
receipt of deferred compensation payments under the Plan reducing Participant's
Deferral Account balance to zero ($0), the Participant's Beneficiary shall be
eligible for deferred compensation payments under the Plan.
SECTION 3.2 AMOUNT AND METHOD OF PAYMENT OF DEFERRED COMPENSATION - The
total deferred compensation to be paid to a Participant shall be distributed to
the Participant and, upon the Participant's death, to his Beneficiary, in one of
the following modes of distribution selected by the Participant: (i) lump sum
payment; or (ii) annual installments over a period not to exceed the life
expectancy of the Participant (as determined by the Committee as of the date
payment is to commence) or 15 years, whichever is greater. Each Participant
shall notify the Company in writing of the mode of distribution he has selected
prior to the commencement of the first Plan year for which such Participant has
made a deferral election hereunder; provided, however, that if a Participant
fails to notify the Company of a mode of distribution before the deadline
prescribed by this section, he shall be deemed to have selected the installment
mode of distribution described in (ii) above. Once the mode of distribution is
determined, it shall remain in force until the Participant's account balance is
reduced to zero, except that if the Participant has an unforeseeable emergency,
as hereunder defined, or if the Participant has died and his Beneficiary has an
unforeseeable
11
<PAGE>
emergency, the Committee may direct that any or all of the remaining account
balance be distributed at any time as the Committee may deem advisable and
proper, but only to the extent reasonably needed to satisfy the emergency
need. "Unforeseeable emergency" means a severe financial hardship resulting
from a sudden and unexpected illness or accident to the Participant, the
Beneficiary or a dependent (as defined in Section 152(a) of the Code), loss
of the Participant's or Beneficiary's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant or the Beneficiary.
If a lump sum mode of distribution is used, the total deferred compensation
to be paid to a Participant or Beneficiary shall be an amount equal to the
Participant's Deferral Account balance as of the close of the Plan Year which
coincides with or follows his retirement, termination, disability or death. A
lump sum payment of deferred compensation under this Plan shall be made within
sixty (60) days following the close of the Plan Year during which the
Participant retired, died, terminated or became disabled, or, if later, within a
reasonable time after the Participant's interest is determined pursuant to the
preceding sentence.
If an installment mode of distribution is used, the first installment
payment of deferred compensation under the Plan shall be made within sixty (60)
days following the close of the Plan Year during which the Participant retired,
died, terminated or became disabled, and each annual installment payable
thereafter shall be distributed within sixty (60) days after the close of
subsequent Plan Years. The installment amount to be distributed within sixty
(60) days after the close of any Plan Year shall equal the
12
<PAGE>
balance of the Participant's Deferral Account determined at the beginning of
such Plan Year, divided by the number of years remaining in the payment
period over which payment of benefits is being made.
ARTICLE IV. TRUST FUND
SECTION 4.1 ESTABLISHMENT OF TRUST - All Deferral Contributions under this
Plan shall be paid to the Trustee and deposited in the Trust Fund, and shall be
subject to the provisions of the Trust Agreement. Participants and
Beneficiaries have only an unsecured interest in the Trust assets in the event
of the Company's Insolvency (as defined in Section 1.2). The company makes only
an unsecured promise to pay any deferred amounts plus income thereon in the
event of the Company's Insolvency. Subject to the foregoing limitations, all
assets of the Trust Fund, including investment income, shall be retained for the
exclusive benefit of Participants and Beneficiaries (but the Company's general
creditors shall have access to Trust assets in the event of the Company's
Insolvency and shall be used to pay benefits to such persons and to pay
administrative expenses and taxes of the Trust Fund as provided in Section 8 of
the Trust Agreement to the extent not paid by the Company and shall not revert
to or accrue to the benefit of the Company, except to the extent that
contributions made by the Company by a mistake of fact shall revert and be paid
back to the Company provided the Company has made a timely demand therefor.
The Trustee shall be required to hold the Trust assets and income for the
benefit of the Company's general creditors in the event of the Company's
Insolvency and in such case no Participant or Beneficiary shall have a preferred
claim on the Trust
13
<PAGE>
assets. The Board of Directors and the Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency within three (3) days of such event. When so informed, the
Trustee shall suspend payments to all Participants and Beneficiaries, and
shall hold Trust assets for the benefit of the Company's general creditors.
In the case of the Trustee's actual knowledge of the Company's Insolvency,
the Trustee will deliver Trust assets to satisfy claims of the Company's
general creditors as directed by a court of competent jurisdiction.
ARTICLE V. ADMINISTRATION
SECTION 5.1 COMMITTEE TO ADMINISTER AGREEMENT - The Board shall appoint a
three (3) member Administration Committee whose responsibility it shall be to
provide for administration of this Plan. The Committee shall have full
authority to make decisions, issue directives, and take any and all actions
reasonable or necessary to effectuate this Plan and the Trust, including the
authority to prescribe the use of such forms as it may deem necessary and to
interpret the Plan and Trust and to resolve ambiguities, inconsistencies and
omissions in its interpretation.
SECTION 5.2 CLAIMS PROCEDURE - The Committee shall consider all claims by
the Participant or any Beneficiary for payments under this Plan and shall
promptly notify the claimant of its action on any such claim. In the event of
any question regarding handling of the claim, the Committee shall meet with the
claimant at the Company's offices to discuss such question and to attempt to
resolve any areas of possible disagreement. If the claimant's concerns remain
unresolved after such meeting with the Committee, the claimant may request the
Board to review the matter in dispute.
14
<PAGE>
15
<PAGE>
ARTICLE VI. MISCELLANEOUS
SECTION 6.1 EMPLOYMENT RIGHTS - Any payment under this Plan shall be
independent of, and in addition to, payments made under any other agreement or
under any qualified retirement plan which may be in force between the Company
and any Participant or Beneficiary, or any other compensation payable to
Participant or his Beneficiary by the Company. Neither this Plan nor any
Deferral Form executed in connection herewith shall be construed as (i)
constituting or creating a contract of employment, (ii) restricting either the
Company's right to discharge Participant with or without cause or Participant's
right to terminate his employment, or (iii) creating any guarantee or
representation as to the amount of compensation to be paid to Participant by the
Company during any period of regular employment.
SECTION 6.2 ABSENCE OF LIABILITY - Any and all liability created to
administer this Plan and the Trust or to provide any Participant or Beneficiary
with benefits under this Plan shall be exclusively and solely that of the
Company. No member of the Committee, officer, director or employee, past,
present or future, of the Company shall have any liability to any Participant or
Beneficiary, or to any other person or entity, to provide or pay such benefits,
such liability hereby being expressly and unconditionally denied.
SECTION 6.3 AMENDMENT AND TERMINATION - This Plan may be altered, amended,
or revoked by a written agreement signed by the Company and a Participant,
provided that no such action shall be taken that is not allowed by Article XIII
of the Trust
16
<PAGE>
Agreement, and provided further that if any amendment to the Plan or the
adoption of the Plan by the Participant would constitute a subsequent
Participant deferral election that would cause a Participant or Beneficiary
to be in constructive receipt of past deferred amounts, then such amendment
or adoption will only be applicable with respect to future deferrals.
Notwithstanding the foregoing, the Company may unilaterally amend the Plan to
provide that no future deferrals may be made by Participants and to conform
the Plan to ERISA and Code requirements with respect to unfunded plans of
deferred compensation.
The Plan may not be amended or terminated during the period immediately
preceding the Company's Insolvency if the intended result would be to accelerate
the payment of benefits to Participants or Beneficiaries so that the Trust
assets would be unavailable to the Company's general creditors.
SECTION 6.4 COMPANY NOT AN ADVISOR - The Company offers this Plan to
Participants without assuming any responsibility or liability as an advisor or
consultant relative to tax or other aspects of this Plan and the Trust or the
payment of benefits hereunder.
17
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
SECTION 1 - ESTABLISHMENT OF TRUST. . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2 - PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES. . . . . . . . . . . 3
SECTION 3 - TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT . . . . . . . . . . . . 5
SECTION 4 - PAYMENTS TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5 - INVESTMENT AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 6 - DISPOSITION OF INCOME . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 7 - ACCOUNTING BY TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 8 - RESPONSIBILITY OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 9 - COMPENSATION AND EXPENSES OF TRUSTEE. . . . . . . . . . . . . . . . . 13
SECTION 10 - RESIGNATION AND REMOVAL OF TRUSTEE. . . . . . . . . . . . . . . . . . 14
SECTION 11 - APPOINTMENT OF SUCCESSOR. . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 12 - AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 13 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 14 - EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION TRUST
This Agreement made this 1st day of December 1997, by and between United
Wisconsin Services, Inc. (the "Company") and Marshall & Ilsley Trust Company
(the "Trustee");
WHEREAS, Company has adopted the United Wisconsin Services, Inc.
Voluntary Deferred Compensation Plan and has entered into (and expects to
enter into in the future) other deferred compensation plans, contracts and
agreements providing deferred compensation to employees of the Company and
its subsidiaries (collectively referred to as the "Plans");
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plans with respect to the individuals participating in such
Plans;
WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined, until paid to the Plans' participants and
their beneficiaries in such manner and at such times as specified in the
Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plans as unfunded plans maintained for the purpose
1
<PAGE>
of providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plans;
NOW THEREFORE,
The parties do hereby establish the Trust and agree that the Trust shall be
comprised, held and disposed of as follows:
SECTION 1 - ESTABLISHMENT OF TRUST
(a) Company has deposited contributions with the Trustee to be held,
administered and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of the Plans' participants and general creditors as herein
set forth. The Plans' participants and their beneficiaries shall have no
2
<PAGE>
preferred claim on, or any beneficial ownership interest in, any assets of
the Trust. Any rights created under the Plans and this Trust Agreement shall
be mere unsecured contractual rights of the Plans' participants and their
beneficiaries against Company. Any assets held by the Trust will be subject
to the claims of Company's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any of the Plans'
participants or beneficiaries shall have any right to compel such additional
deposits.
(f) Company will promptly provide Trustee with copies of all Plans and any
amendments thereto.
SECTION 2 - PAYMENTS TO PARTICIPANTS AND THEIR BENEFICIARIES
(a) Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to Trustee for determining the amounts so payable, the form in which such amount
is to be paid (as provided for or available under the Plans), and the time of
commencement for payment of such amounts.
3
<PAGE>
Except as otherwise provided herein, Trustee shall make payments to the
Plans' participants and their beneficiaries in accordance with such Payment
Schedule. The Trustee shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of a Plan and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by Company.
(b) The entitlement of a Plan's participants or his or her
beneficiaries to benefits under a Plan shall be determined by Company or such
party as it shall designate under a Plan and any claim for such benefits
shall be considered and reviewed under the procedures set out in a Plan.
(c) Company may make payment of benefits directly to the Plans'
participants or their beneficiaries as they become due under the terms of the
Plans. Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plans, Company shall make the balance of each such payment as it
falls due. Trustee shall notify Company where principal and earnings are not
sufficient.
4
<PAGE>
SECTION 3 - TRUSTEE RESPONSIBILITY REGARDING
PAYMENTS TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
(a) Trustee shall cease payment of benefits to the Plans' participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code, or (iii) Company is
determined to be insolvent by the Wisconsin Commissioner of Insurance.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform Trustee in writing of Company's Insolvency. If a
person claiming to be a creditor of Company alleges in writing to Trustee that
Company has become Insolvent, Trustee shall determine whether Company is
Insolvent and, pending such determination, Trustee shall discontinue payment of
benefits to the Plans' participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency, or
has received notice from Company or a person
5
<PAGE>
claiming to be a creditor alleging that Company is Insolvent, Trustee shall
have no duty to inquire whether Company is Insolvent. Trustee may in all
events rely on such evidence concerning Company's solvency as may be
furnished to Trustee and that provides Trustee with a reasonable basis for
making a determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to the Plans' participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of the Plans' participants or their beneficiaries to pursue
their rights as general creditors of Company with respect to benefits due under
the Plans or otherwise.
(4) Trustee shall resume the payment of benefits to the Plans'
participants or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or is
no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Plans' participants
6
<PAGE>
or their beneficiaries under the terms of the Plans for the period of such
discontinuance, less the aggregate amount of any payments made to the Plans'
participants or their beneficiaries by Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
(d) As indicated in Section 13(d), the term "Company" includes where
appropriate each subsidiary which has adopted a Plan and been permitted to
contribute to the Trust. Accordingly, this Section 3 shall be applied on an
employer-by-employer basis in the event of the Insolvency of any employer which
has adopted a Plan and been permitted to contribute to the Trust. The portion
of the Trust that will be subject to claims of general creditors of an employer,
shall be the allocable share of contributions made by that employer (as adjusted
for income, losses and distributions).
7
<PAGE>
SECTION 4 - PAYMENTS TO COMPANY
Except as provided in Section 3 hereof Company shall have no right or power
to direct Trustee to return to Company or to direct to others any of the Trust
assets before all payment of benefits have been made to the Plans' participants
and their beneficiaries pursuant to the terms of the Plans.
SECTION 5 - INVESTMENT AUTHORITY
The Trustee may invest any part or all of the Trust assets in: any common
or preferred stocks, open-end or closed-end mutual funds, put and call options
traded on a national exchange, United States retirement plan bonds, corporate
bonds, debentures, convertible debentures, commercial paper, U.S. Treasury
bills, U.S. Treasury notes and other direct or indirect obligations of the
United States government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of any
type, mortgages, notes or other property of any kind, real or personal, options
on common stock on a nationally recognized exchange with or without holding the
underlying common stock, commodities, commodity options and contracts for the
future delivery of commodities, and any other investments the Trustee deems
appropriate, as a prudent man would do under like circumstances with due regard
for the purposes of this Trust. The Trustee may also retain in cash so much of
the Trust assets as it may deem advisable to satisfy
8
<PAGE>
liquidity needs of the Trust, to deposit any cash held in the Trust assets in a
bank account at reasonable interest, and to deposit in any type of deposit of
the Trustee (or of a bank related to the Trustee within the meaning of Internal
Revenue Code Section 414(b)) at a reasonable rate of interest.
Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets of
the Trust shall be exercised by Trustee or the person designated by Trustee and
shall in no event be exercisable by or rest with the Plans' participants, except
that voting rights with respect to Trust assets will be exercised by the
Company. Company shall have the right at anytime and from time to time in its
sole discretion to substitute the assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Company in a
non-fiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
SECTION 6 - DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
SECTION 7 - ACCOUNTING BY TRUSTEE
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions
9
<PAGE>
required to be made, including such specific records as shall be agreed upon in
writing between Company and Trustee. Within 90 days following the close of each
calendar quarter and within 90 days after the removal or resignation of Trustee,
Trustee shall deliver to Company a written account of its administration of the
Trust during such year or during the period from the close of the last preceding
year to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such year or as of the date of such removal or resignation,
as the case may be.
SECTION 8 - RESPONSIBILITY OF TRUSTEE
(a) Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct and with like aims,
provided, however, that Trustee shall incur no liability to any person for any
action taken pursuant to a direction, request or approval given by Company which
is contemplated by, and in conformity with, the terms of a Plan or this Trust
and is given in writing by Company. In the event of a dispute between Company
and a party, Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
10
<PAGE>
(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust, Company agrees to indemnify Trustee against Trustee's costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such payments. If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may, with the Company's prior written consent which may not be
unreasonably withheld, hire agents, accountants, actuaries, investment advisors,
financial consultants or other professionals to assist it in performing any of
its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such
11
<PAGE>
policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(g) INDEMNIFICATION - The Company recognizes that a burden of litigation,
claim or action may be imposed upon the Trustee as a result of some act or
transaction for which it has no responsibility or over which it has no control
under this Trust.
Therefore, in consideration of the Trustee agreeing to enter into this
Trust Agreement, the Company hereby agrees to indemnify and hold harmless the
Trustee and its Affiliates (as defined under Rule 10b-18 promulgated pursuant to
the Securities Exchange Act of 1934), directors, officers, employees, and agents
of the Trustee and its Affiliates (the "Indemnifiable Parties") from and against
all amounts, including, without limitation, taxes, expenses (including
reasonable counsel fees), liabilities, claims, damages, actions, suits or other
charges incurred by or assessed against the Trustee and/or the Indemnifiable
Parties (i) as a direct or indirect result of any act or omission done in good
faith, or alleged to have been done or omitted, by or on
12
<PAGE>
behalf of the Trustee in connection with the Plan or Trust in reliance upon the
directions (or absence of directions) of the Company, an advisory committee or
any investment advisor, or (ii) as a direct or indirect result of the failure of
the Company, any employee thereof or any other designated agent, directly or
through its agents, to adequately, carefully, and diligently discharge their
respective duties and responsibilities under the Plans, the Trust or applicable
law, provided that nothing herein shall be deemed to relieve the Trustee and/or
the Indemnifiable Parties from responsibility for their own negligence, willful
misconduct or lack of good faith.
SECTION 9 - COMPENSATION AND EXPENSES OF TRUSTEE
Company shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10 - RESIGNATION AND REMOVAL OF TRUSTEE
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon shorter
notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor Trustee.
The transfer shall be
13
<PAGE>
completed within 30 days after receipt of notice of resignation, removal or
transfer, unless Company extends the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
SECTION 11 - APPOINTMENT OF SUCCESSOR
(a) If Trustee resigns (or is removed) in accordance with Section 10(a) or
(b) hereof, Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law, as
a successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee, including ownership rights
in the Trust assets. The former Trustee shall execute any instrument necessary
or reasonably requested by Company or the successor Trustee to evidence the
transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing
14
<PAGE>
Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall
not be responsible for and Company shall indemnify and defend the successor
Trustee from any claim or liability resulting from any action or inaction of any
prior Trustee or from any other past event, or any condition existing at the
time it becomes successor Trustee.
SECTION 12 - AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of a Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which the Plans'
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans. Upon termination of the Trust any assets remaining
in the Trust shall be returned to the Company.
SECTION 13 - MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Plans' participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy,
15
<PAGE>
execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Wisconsin.
(d) The term "Company" as used herein shall include, where appropriate,
each subsidiary which has adopted a Plan and been permitted to contribute to the
Trust.
16
<PAGE>
SECTION 14 - EFFECTIVE DATE
The effective date of this Trust Agreement shall be December 1, 1997.
Attest:__________________ UNITED WISCONSIN SERVICES, INC.
By: __________________________________________
President
MARSHALL & ILSLEY TRUST COMPANY
Trustee
Attest:__________________ By: __________________________________________
Title:_________________________________________
17
<PAGE>
UWSI/BCBSUW HOURLY PENSION PLAN
(As Amended and Restated Effective January 1, 1997)
<PAGE>
CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS AND CONSTRUCTION 3
1.1 Definitions 3
1.2 Construction 10
ARTICLE 2. PARTICIPATION 11
2.1 Eligibility 11
2.2 Cessation of Participation 11
2.3 Participation Upon Reemployment 12
2.4 Transfers 13
ARTICLE 3. REQUIREMENTS FOR RETIREMENT BENEFITS 14
3.1 Normal Retirement 14
3.2 Early Retirement 14
3.3 Disability Retirement 14
3.4 Deferred Vested Pension 16
ARTICLE 4. AMOUNT OF RETIREMENT BENEFIT 17
4.1 Normal Retirement Pension 17
4.2 Early Retirement Pension 17
4.3 Disability Retirement Pension 18
4.4 Deferred Vested Pension 19
4.5 Reserved 19
4.6 Maximum Pension 19
4.7 No Duplication of Benefits 20
ARTICLE 5. MANNER OF PAYMENT AND OPTIONAL BENEFITS 21
5.1 Payment of Retirement Benefits 21
5.2 Optional Forms of Retirement Benefit Payments 21
5.3 Election Procedures For Optional Retirement Benefits 22
5.4 Employment After Normal Retirement Date 23
5.5 Payment of Death Benefits 24
5.6 Time of Distributions 26
5.7 Lump Sum Payment of Small Pensions 27
5.8 Eligible Rollover Distributions 27
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<PAGE>
ARTICLE 6. YEAR OF BENEFIT SERVICE; YEAR OF VESTING SERVICE 30
6.1 Year of Benefit Service 30
6.2 Year of Vesting Service 32
ARTICLE 7. PLAN FINANCING 33
7.1 Contributions 33
7.2 Trust Fund 33
ARTICLE 8. ADMINISTRATION OF THE PLAN 34
8.1 Plan Administrator 34
8.2 The Administrative Committee 34
8.3 Employment of Services by the Committee 35
8.4 Expenses of Administration 35
8.5 Acts of the Committee 35
8.6 Interpretations 35
8.7 Liability of the Committee 36
8.8 Applicable Law 36
8.9 Plan Fiduciaries: Allocation of Responsibilities Among Them 36
8.10 Reliance on Cofiduciaries 37
8.11 Fiduciary Duties 37
8.12 Prohibited Transaction to be Avoided 38
8.13 Records and Reports of the Plan Administrator 38
8.14 Data Supplied by Employer 38
8.15 Partial Exculpation 38
8.16 Information Required of Participants 38
8.17 Claims Procedure 39
8.18 Beneficiary Designations 40
ARTICLE 9. MISCELLANEOUS 42
9.1 Nonguarantee of Employment 42
9.2 Rights to Trust Fund Assets 42
9.3 Nonalienation of Benefits 42
9.4 Governing Law 43
9.5 Participant Information 43
9.6 Payments Pursuant to a Qualified Domestic Relations Order 43
ii
<PAGE>
ARTICLE 10. AMENDMENTS AND ACTIONS BY THE EMPLOYER 46
10.1 Amendments 46
10.2 Limitation on Amendments 46
10.3 Action by Employer 47
ARTICLE 11. SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS 48
11.1 Successor Employer 48
11.2 Plan Assets 48
ARTICLE 12. TEMPORARY RESTRICTIONS ON BENEFITS 49
12.1 Temporary Limitation on Benefits of Restricted Participants 49
ARTICLE 13. PLAN TERMINATION 50
13.1 Termination 50
13.2 Distribution on Termination and Partial Termination 51
13.3 Manner of Distribution 51
13.4 Residual Amounts 51
13.5 Effect of Bankruptcy and Other Contingencies Affecting an Employer 52
ARTICLE 14. TOP-HEAVY PROVISIONS 53
14.1 Top-Heavy Provisions 53
14.2 Top-Heavy Plan Definitions 53
14.3 Minimum Vesting Requirements 56
14.4 Minimum Benefits 56
14.5 Additional Accruals 57
14.6 Adjustment to Overall IRC Section 415 Limitations 58
ARTICLE 15. CASH BALANCE PROVISIONS RELATING TO NONUNION HOURLY
EMPLOYEES 59
15.1 Introduction 59
15.2 Definitions 59
15.3 Requirements for Retirement Benefits 62
15.4 Normal Retirement Pension 63
15.5 Amount and Manner of Payment; Optional Benefits 67
15.6 Year of Vesting Service 74
iii
<PAGE>
SCHEDULE A. ACTUARIAL ASSUMPTIONS 77
SCHEDULE B. PARTICIPATING EMPLOYERS 78
SCHEDULE C. EXCLUDED EMPLOYEE GROUPS 80
SPECIAL BENEFIT SCHEDULE NO. 1 81
SPECIAL BENEFIT SCHEDULE NO. 2 82
SPECIAL BENEFIT SCHEDULE NO. 3 83
SPECIAL BENEFIT SCHEDULE NO. 4 84
SPECIAL BENEFIT SCHEDULE NO. 5 86
SPECIAL BENEFIT SCHEDULE NO. 6 88
</TABLE>
iv
<PAGE>
INTRODUCTION
The UWSI/BCBSUW Hourly Pension Plan (formerly called the "Blue Cross & Blue
Shield United of Wisconsin Hourly Employees Retirement Plan") is hereby amended
and restated effective January 1, 1997 (unless stated to the contrary) in order
to adopt a cash balance formula affecting those hourly employees whose
retirement benefits are not subject to collective bargaining ("Nonunion Hourly
Employees").
It is intended that the Plan, as herein amended and restated, will continue to
comply with the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA") and will continue to qualify under the Internal Revenue Code of
1986 ("Code") and any later amendments to either ERISA or the Code.
Notwithstanding any provisions in this Plan to the contrary, the rights and
benefits, if any, provided to Participants whose termination of employment
occurred prior to January 1, 1997 (except as specifically provided herein) shall
be paid pursuant to the terms of the Plan in effect prior to that date.
The Plan provides for a uniform body of provisions found in Article 1 (if
applicable), 2, 3 (Sections 3.1 and 3.3 only), 5 (Section 5.6, 5.7, and 5.8
only), 7, 8, 9, 10, 11, 12, 13, and 14 that are applicable to all Participants
in the Plan, except as specified in Article 15 of the Plan. Article 15 describes
the retirement benefits provided to Nonunion Hourly Employees.
The following chart summarizes the principal changes or additions made to Plan
provisions since January 1, 1991, along with the applicable effective dates:
1
<PAGE>
EFFECTIVE DATE SUMMARY OF PLAN PROVISION
1/1/91 Plan now pays LTD benefits (see Section 4.3 of the Plan).
1/1/93 Withholding requirements added (see Section 5.8 of the
Plan).
7/1/94 Increased dollar multiplier to $23 for years of
service credited to Participant 1/1/90 and later (see
Section 4.1 of the Plan).
7/1/94 Revises description of Benefit Service to include a
Participant's unused credit sick time in year of retirement
(see Section 6.1 of the Plan).
7/1/94 Revises Hours of Service definition to include any hours a
Participant spends as a union representative or performing
union business while employed by an Employer since 1/1/90
(see Section 1.1(r) of the Plan).
1/1/97 Adopts a cash balance formula affecting benefits of
Nonunion Hourly Employees participating in the Plan (see
Article 15 of the Plan).
2
<PAGE>
ARTICLE 1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS
Where the following words and phrases appear in this Plan, they shall have the
respective meanings set forth below, unless otherwise provided for in Article 15
or the context clearly indicates to the contrary:
(a) ACCRUED BENEFIT. The amount determined in accordance with Section 4.1 or
Section 15.4, whichever is applicable, for Retirement at the Normal
Retirement Date.
(b) ACTUARIAL (OR ACTUARIALLY) EQUIVALENT. A benefit or amount that replaces
another and has the same value as the benefit or amount it replaces, based
on actuarial assumptions as set forth in Schedule A to this Plan or in
Section 15.2(a), whichever is applicable.
(c) ACTUARY. The individual actuary who is an enrolled actuary under ERISA or
firm of actuaries employing an enrolled actuary selected by the Employer
and approved by the Administrator, to provide actuarial services in
connection with the administration of the Plan.
(d) ADMINISTRATIVE COMMITTEE OR COMMITTEE. The Committee as described in
Article 8.
(e) ADMINISTRATIVE DELEGATE. One or more persons or institutions to whom the
Administrative Committee has delegated certain administrative functions
pursuant to a written agreement.
(f) BENEFICIARY. A person or persons (natural or otherwise) designated by a
Participant to receive any death benefits which shall be payable under this
Plan.
(g) CLAIMANT. Any individual who has made a claim as provided in Section 8.17.
(h) CODE. The Internal Revenue Code of 1986, as amended.
(i) COMPANY. United Wisconsin Services, Inc. and Blue Cross & Blue Shield
United of Wisconsin.
3
<PAGE>
(j) CONTINGENT ANNUITANT. The surviving spouse of a Participant who is eligible
for either a Qualified Joint and 50% Survivor Annuity, a Joint and 66-2/3%
Survivor Annuity, or the Qualified Preretirement Survivor Annuity.
(k) EARLY RETIREMENT DATE. The first day of the month coincident with or next
following the date on which the Participant has attained age 60 and has
completed 15 years of Vesting Service, provided he has terminated
employment.
(l) EARNINGS. A Participant's total regular wages from an Employer, including
shift differential and any short-term disability payments from the
Employer's disability plan that are made to the Participant for the
calendar year, excluding overtime and any other form of special
compensation paid or deferred; provided, however, if the Participant is
granted a leave with no pay or reduced pay for a continuous period of more
than 30 days, his Earnings shall be computed as if he had received his full
basic compensation during the period of such leave, as determined by his
Employer.
Earnings in excess of $150,000 (or such other amount as may be determined
by the Secretary of the Treasury in accordance with Section 401(a)(17) of
the Code to reflect increases in cost-of-living) for any calendar year
shall not be taken into account.
(m) EFFECTIVE DATE. The Effective Date of this amended and restated Plan is
January 1, 1997.
(n) EMPLOYEE. A person who, on or after the Effective Date, is actively
employed as a hourly employee by an Employer which participates in this
Plan (as set forth in Schedule B to this Plan), is not in a group of
employees specifically excluded from participating in the Plan (as set
forth in Schedule C to this Plan), and is receiving remuneration for
personal services rendered to such Employers (or would be receiving such
remuneration except for an authorized leave of absence). The term
"Employee" shall not include a "Leased Employee" as defined in Section
414(n) of the Code, except to the extent required by law.
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Notwithstanding anything in this Plan to the contrary, persons who are
classified by an Employer as independent contractors shall not be
considered Employees eligible to participate in the Plan.
(o) EMPLOYER. Employers which are participating in this Plan as set forth in
Schedule B to this Plan. Any Employers not included in Schedule B shall be
deemed nonparticipating Employers in this Plan.
For purposes of calculating the maximum benefit payable under Section 4.6,
determining when a One-Year Break in Service has occurred under Section
1.1(w) or 15.2(j), determining a Participant's rights upon an employment
transfer under Sections 2.4, 4.5, or 15.4(n), determining whether an
Employee has completed the service eligibility requirement under Section
2.1, and determining Years of Vesting Service under Section 6.2 or 15.6(a),
the term "Employer" shall, to the extent required by applicable law,
include--
(1) any corporation other than the Company or an Employer, i.e., either a
subsidiary corporation of an affiliated or associated corporation of
the Company or an Employer, which together with the Company or an
Employer is a member of a "controlled group" of corporations (as
defined in Code Section 414(b));
(2) any organization which together with the Company or an Employer is
under "common control" (as defined in Code Section 414(c));
(3) any organization which together with the Company or an Employer is an
"affiliated service group" (as defined in Code Section 414(m)); or
(4) any other entity required to be aggregated with the Company or an
Employer pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the
discretion of the Committee, be defined to include an entity described
in paragraphs (1) through (4) above for any purpose under the Plan.
(p) EMPLOYMENT COMMENCEMENT DATE. The date a Employee first performs an Hour of
Service.
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(q) ERISA. Public Law No. 93-406, the Employee Retirement Income Security Act
of 1974, as amended from time to time.
(r) HOURS OF SERVICE.
(1) An Hour of Service is each hour for which an Employee is paid, or
entitled to payment, for the performance of duties for the Employer
during the applicable computation period.
(2) An Hour of Service is each hour for which an Employee is paid, or
entitled to payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
personal day, illness, incapacity (including disability), layoff, Jury
duty, military duty, or leave of absence. Notwithstanding the
preceding sentence:
(A) An hour for which an Employee is directly or indirectly paid, or
entitled to payment, on account of a period during which no duties are
performed shall not be credited to the Employee if such payment is
made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation or unemployment
compensation or disability insurance laws; and
(B) Hours of Service shall not be credited for a payment which solely
reimburses an Employee for medical or medically-related expenses
incurred by the Employee; and
For purposes of this subsection (2)(B), a payment shall be deemed
to be made by or due from the Employer regardless of whether such
payment is made by or due from the Employer directly, or
indirectly, through, among others, a trust fund or insurer, to
which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer or
other entity are for the benefit of particular Employees or on
behalf of a group of Employees in the aggregate.
(C) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
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same Hours of Service shall not be credited both under
subparagraph (A) or (B) of this subsection, as the case may
be, and under this subparagraph (C). These hours shall be
credited to the Employee for the computation period or periods
to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is
made.
(D) Hours of Service for reasons other than performance of duties
shall be determined and Hours of Service shall be credited to
computation periods in accordance with Department of Labor
Regulations Section 2530.200b-2(b) and (c).
(E) Each hour that the Employee served since January 1, 1990 or
will serve as a union representative while employed by an
Employer, or each hour that the Employee performed since
January 1, 1990 or will perform administrative duties for the
union in an official capacity while employed by an Employer
shall be included as an Hour of Service.
For purpose of determining the Hours of Service which must be credited
to an Employee for a computation period, Hours of Service shall be
determined from records of hours worked and hours for which payment is
made if due.
(s) NONUNION HOURLY EMPLOYEE. An hourly employee whose retirement benefits are
not subject to collective bargaining.
(t) NORMAL FORM. The Normal Form of benefit at retirement under this Plan is a
Life with Ten Years Certain Annuity (as described in Article 5) or a Life
Annuity (as described in Article 15), whichever is applicable.
(u) NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age under this
Plan is age 65.
(v) NORMAL RETIREMENT DATE. The first day of the calendar month coincident with
or immediately following the Participant's 65th birthday.
(w) ONE-YEAR BREAK IN SERVICE. A One-Year Break in Service means a Plan Year in
which an Employee (or former Employee) is not credited with more than 500
Hours of Service. For purposes of determining whether
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there has been a Break in Service, an Employee shall be credited with Hours
of Service for the period during which he or she is on Parental Leave as
follows:
(1) the Employee shall be credited with the number of Hours of Service he
or she would normally be credited with but for the absence (or if the
Employee's normal Hours of Service cannot be determined, eight Hours
of Service for each day of the absence),
(2) the total number of Hours of service credited for the absence shall
not exceed 501, and
(3) the Hours of Service credited for the absence shall be credited to the
Plan Year in which the absence begins if the Employee would be
prevented from incurring a Break In Service in that Plan Year solely
because of the crediting of Hours of Service in accordance with
clauses (1) and (2) of this definition, or in any other case, the
immediately following Plan Year.
(x) PARENTAL LEAVE. An Employee's leave of absence from employment with the
Employer because of pregnancy, birth of the Employee's child, placement of
a child with the Employee in connection with adoption of the child or
caring for a child immediately following birth or adoption. The Employer
shall determine the first and last day of any Parental Leave.
(y) PARTICIPANT. An Employee participating in the Plan in accordance with the
provisions in Section 2.1.
(z) PENSION. A series of monthly amounts which are payable to a person who is
entitled to receive benefits under the Plan.
(aa) PLAN. UWSI/BCBSUW Hourly Pension Plan, the Plan as set forth herein, as
amended from time to time.
(bb) PLAN ADMINISTRATOR. The Company, within the meaning of ERISA. The Plan
Administrator shall have duties and responsibilities under the Plan as
described in Article 8.
(cc) PLAN YEAR. The term "Plan Year" means the 12-month period commencing
January 1 and ending on December 31.
(dd) PREDECESSOR PLAN. The retirement plan of the Employer before the Effective
Date, as explained in the Introduction.
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(ee) PRERETIREMENT DEATH BENEFIT. The death benefits payable under Section 5.5
or Section 15.5(f), whichever is applicable, to the Beneficiary of a
Participant who dies before his annuity starting date.
(ff) QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. A survivor annuity for the life
of the Participant's spouse. Each payment under the survivor annuity must
not be less than the payment that would have been made to the spouse.
(1) in the case of a Participant who dies after his earliest retirement
date, under the survivor annuity the Participant's spouse would have
received if the Participant had terminated employment or retired on
the day before his or her death and received distribution of benefits
in the form of an immediate Joint and 50% Survivor Annuity, or
(2) in the case of a Participant who dies on or before his earliest
retirement date, under the survivor annuity the Participant's spouse
would have received if the Participant had terminated employment on
the day of his or her death, survived to his earliest Retirement Date,
received distribution of benefits in the form of a Joint and 50%
Survivor Annuity on his earliest Retirement Date and died on the day
after his earliest Retirement Date.
(gg) REEMPLOYMENT COMMENCEMENT DATE. The first day an Employee is credited with
an Hour of Service for performing duties following his return to employment
with the Employer.
(hh) RETIREMENT. Termination of employment with the Employer for reason other
than death after a Participant has fulfilled all requirements for a Normal,
Early or Disability Retirement Pension. Retirement shall be considered as
commencing on the day immediately following a Participant's last day of
employment.
(ii) SERVICE. The period of a Participant's employment considered in the
determination of his eligibility to participate in the Plan, eligibility
for benefits and amount of benefits payable under the Plan in accordance
with Article 6 or Article 15, whichever is applicable.
(jj) SPECIAL BENEFIT SCHEDULE. A set of supplementary Plan provisions adopted by
the Administrative Committee setting forth any special Plan provisions in
effect for a specific Employer or group of Employees covered by the Plan.
If any provisions contained in a Special Benefit Schedule conflict
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with the remaining provisions of the Plan, the Special
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Benefit Schedule shall govern. The existence of Special Benefit Schedules
shall not be construed as the creation of different plans for purposes of
the Code or ERISA.
(kk) TRUST. The Blue Cross & Blue Shield United of Wisconsin Master Trust
maintained in accordance with the terms of the Trust Agreement as from time
to time amended, which constitutes part of this Plan. The term "Trust"
shall also refer to any custodial account established pursuant to a
custodial agreement entered into between the Company and an authorized
custodian.
(ll) TRUST AGREEMENT. The agreement which provides for the continuation of the
Trust, as that agreement may from time to time be amended or supplemented.
(mm) TRUST FUND. All cash, securities and other property arising from
contributions under this Plan and the Predecessor Plan received by the
Trustee, all increments thereto, and receipts from any other sources
whatsoever.
(nn) TRUSTEE. The trustee from time to time acting under the Trust Agreement.
(oo) YEAR OF SERVICE. A Plan Year for which an Employee has been credited with
at least 1,000 Hours of Service.
1.2 CONSTRUCTION
The masculine gender, where appearing in the Plan, shall be deemed to include
the feminine gender, and the singular may include the plural, unless the context
clearly indicates to the contrary. The words "hereof", "herein", "hereunder" and
other similar compounds of the word "here" shall mean and refer to the entire
Plan, not to any particular provision or Section.
"The words "terminate," "terminated," "termination of employment," "retire,"
"retired," or "retirement" shall be interpreted to mean the termination of
employment or retirement of the Participant from employment with all
participating Employers and nonparticipating Employers."
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ARTICLE 2. PARTICIPATION
2.1 ELIGIBILITY
(a) Any Employee on December 31, 1996, who was a Participant in the Plan on
December 31, 1996 shall continue to participate under this Plan on
January 1, 1997.
(b) Any other Employee who was not a Participant under the Predecessor Plan as
of December 31, 1996 shall participate in this Plan on the first day of the
month coincident with or next following the first anniversary of his date
of hire, provided the Employee has been credited with at least 1,000 Hours
of Service. If an Employee does not complete 1,000 Hours of Service in the
12-month period commencing with the Employee's first Hour of Service, he
shall become a Participant on the first day of the Plan Year following the
Plan Year in which he has been credited with at least 1,000 Hours of
Service.
(c) An Employee on leave for service in the Armed Forces of the United States
will be considered an Employee on a leave of absence for purposes of Plan
participation and will continue to participate in the Plan during such
leave.
2.2 CESSATION OF PARTICIPATION
An Employee will cease to be a Participant on the earlier of the following:
(a) the date of his death,
(b) the date he receives a single sum distribution which is in lieu of all his
benefits under the Plan if his Accrued Benefit were 100% vested,
(c) the earlier of the date an Employee incurs a One-Year Break in Service or
the date he is deemed to receive a lump sum distribution of his Accrued
Benefit, if such Accrued Benefit were 0% vested, or
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(d) the date on which he is transferred from a position with the Employer in
which he was eligible to participate in the Plan to a position in which he
is excluded from participation.
2.3 PARTICIPATION UPON REEMPLOYMENT
(a) Subject to Section 2.3(b), if a rehired Employee satisfies the requirements
of Section 2.1 as of the date he is reemployed by an Employer, the rehired
Employee shall again become a Participant as of that day. If the rehired
Employee has not satisfied the requirements of Section 2.1 as of the day he
or she is reemployed, the rehired Employee shall become a Participant in
accordance with Section 2.1.
(b) If the rehired Employee incurred a One-Year Break in Service before his
reemployment. The rehired Employee shall not become a Participant as
provided in Section 2.3(a) until (1) the first day of the month following
the anniversary at his date of rehire, provided he is credited with at
least 1,000 Hours of Service for the 12-month period commencing with his
first Hour of Service after reemployment or (2) the first day of the Plan
Year after which he has been credited with at least 1,000 Hours of Service
for any Plan Year commencing after that first Hour of Service.
(c) In determining whether a rehired Employee has satisfied the requirements of
Section 2.1 as of the day the rehired Employee is reemployed, if the
rehired Employee has no vested Accrued Benefit and has a number of
consecutive One-Year Breaks in Service equal to (or greater than) the
greater of five and the number of his or her previous Years of Service
(excluding Years of Service previously disregarded under this Section
2.3(c)), the rehired Employee's previous service as an Employee shall be
disregarded for purposes of determining when he again becomes a
Participant. for purposes of determining Years of Service under this
Section 2.3(c), any Employee who is credited with at least 1,000 Hours of
Service in both the 12-month period commencing with his first Hour of
Service and the first Plan Year beginning after his first Hour of Service
shall be credited with two Years of Service.
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2.4 TRANSFERS
If an Employee is transferred from a position with the Employer in which he was
excluded from participation in tile Plan to a position in which he is not so
excluded, he shall be eligible to participate under the Plan as of the first day
of the month coincident with or next following such transfer, provided he has
first met the requirements of Section 2.1.
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ARTICLE 3. REQUIREMENTS FOR RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT
A Participant shall be eligible for a Normal Retirement Pension if his
employment is terminated on or after his 65th birthday. Payment of a Normal
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the date of Retirement.
3.2 EARLY RETIREMENT
A Participant shall be eligible for an Early Retirement Pension if his
employment is terminated on or after his 60th birthday and after he has
completed 15 or more Years of Vesting Service. Payment of an Early Retirement
Pension shall commence as of the Participant's Normal Retirement Date.
However, a retired Participant who is eligible for an Early Retirement
Pension may request the commencement of the Participant's Early Retirement
Pension as of the first day of any calendar month following the Participant's
early retirement but before the Participant's Normal Retirement Date.
3.3 DISABILITY RETIREMENT
An Employee shall be eligible for a Disability Retirement Pension if, after
completing the requirements for participation, outlined in Article 2, and one
hundred and fifty (150) days of continuous full-time employment, such Employee's
employment is terminated by disability which causes his complete inability, due
to injury and/or illness, and based upon objective medical documentation, to
perform with reasonable continuity any of the material and substantial duties of
his regular occupation during the elimination period of one hundred and fifty
(150) days and the first 24 months of each benefit period; and thereafter, such
duties of any occupation for which the Employee may be or become qualified by
reason of education and/or training and/or experience. Payment of the monthly
Disability Retirement Pension shall commence as of the end of the elimination
period, provided the Employee is under the regular care and treatment of a
physician.
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<PAGE>
Such payments shall continue until the earliest to occur of the following:
(a) the date the Employee ceases to be totally disabled; or
(b) the date the Employee is no longer under the regular care and treatment of
a physician for the disabling condition; or
(c) the date the Employee returns to active work, unless such active work is
part of an approved program of rehabilitation; or
(d) the date the Employee dies; or
(e) the date the maximum benefit period has been paid according to the
Employer's insurance policy schedule; or
(f) the date the Employee fails to provide adequate proof of total disability
or fails to agree to an independent medical exam; or
(g) the date the Employee is determined not to be totally disabled based on the
objective medical findings of an independent medical exam; or
(h) the date the Employee is determined not to be totally disabled based on the
review of the objective medical findings by a medical case examiner; or
(i) the date the Employee fails to cooperate in rehabilitation; or
(j) the Employee's attainment of age 65, if the Employee became disabled prior
to age 60; or
(k) the date on which the Employee has received disability retirement benefits
for a period of five years, if the Employee became disabled after the
attainment of age 60, but before the attainment of age 69; or
(l) the date on which the Employee has received disability retirement benefits
for a period of one year, if the Employee became disabled after attainment
of age 69.
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3.4 DEFERRED VESTED PENSION
A Participant shall be eligible for a Deferred Vested Pension in accordance
with the provisions of Section 4.4 if his employment is terminated with the
Employer before death or Retirement after he has completed at least 5 Years
of Vesting Service (as set forth in Section 6.2). Payment of a Deferred
Vested Pension shall commence as of the Participant's Normal Retirement Date.
However, a retired Participant who is eligible for a Deferred Vested Pension
may request the commencement of a reduced amount as of the first day of any
calendar month coinciding with or next following the date he satisfies the
requirements for an Early Retirement Pension under Section 3.2 and prior to
his Normal Retirement Date.
Notwithstanding the above, a Participant's right to his Accrued Benefit will be
nonforfeitable upon his attainment of Normal Retirement Age.
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ARTICLE 4. AMOUNT OF RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT PENSION
Subject to the provisions of Section 4.6, the monthly Normal Retirement
Pension payable in the Normal Form shall be an amount equal to:
(a) an amount equal to the Participant's accrued benefit as of December 31,
1989 calculated in accordance with the provisions of the Plan as of that
date plus
(b) for retirements prior to July 1, 1994, an amount equal to $21.00 times the
Participant's Years of Benefit Service (as set forth in Section 6.1) not in
excess of thirty, less the Years of Benefit Service credited prior to
January 1, 1990.
(c) for retirements on or after July 1, 1994, an amount equal to $23.00 times
the Participant's Years of Benefit Service (as set forth in Section 6.1)
not in excess of thirty, less the Years of Benefit Service credited prior
to January 1, 1990.
If a Participant retires subsequent to his Normal Retirement Date, his
Pension shall be equal to the Pension to which he is entitled under this
Section upon his actual Retirement, taking into account the Participant's
Years of Benefit Service earned as of his actual Retirement.
4.2 EARLY RETIREMENT PENSION
Subject to the provisions of Section 4.6, a Participant's retirement benefit
on his Early Retirement Date will be equal to his Accrued Benefit on his
Early Retirement Date, reduced as follows for each full month that the
commencement date of the Pension precedes the Participant's Normal Retirement
Date:
(a) .25 of 1% for the first 36 months, and
(b) 2/3 of 1% for each month in excess of 36 months.
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4.3 DISABILITY RETIREMENT PENSION
Subject to the provisions of Section 4.6, the amount of the monthly
Disability Retirement Pension shall be equal to fifty percent (50%) of the
Employee's average monthly salary, but not less than fifty dollars ($50.00)
per month. For purposes of this Section 4.3, the term "average monthly
salary" shall mean the Employee's monthly rate of compensation in effect at
the date of the Employee's disability, excluding overtime pay, commissions,
bonuses and other extra compensation.
Notwithstanding the preceding, in no event shall an Employee's benefit under
this Section exceed the benefit he would be entitled to receive under Section
4.1 or 15.4, whichever is applicable, if he terminated employment as of his
Normal Retirement Date.
The monthly benefit amount for which an Employee is eligible will be reduced
equally by the amount of any payment the, Employee may either be entitled to,
whether applied for or not, or receive from any of the sources listed below:
(a) primary Social Security benefits under the Federal Social Security Act or
similar statute of any state or country; or
(b) family Social Security benefits under the Federal Social Security Act or
similar statute of any state or country; or
(c) any workers' compensation act; or
(d) any Employer liability law; or
(e) any occupational disease law; or
(f) any state or federally sponsored disability or retirement plan; or
(g) any Employer or policyholder sponsored salary continuation plan or sick
leave pay plan; or
(h) any Employer or policyholder sponsored disability plan under a group master
policy, other than the Employer sponsored plan designed to provide
disability benefits that would be payable by this Plan except for the
limitations of Section 411(a)(9), of the Code; or
(i) any retirement benefits payable under Sections 4.1, 4.2, or 15.4; or
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(j) any Veteran's Administration disability plan; or
(k) any disability benefit payable under any no fault insurance plan provided,
however, that the payment received from any such source, exclusive of
retirement benefits, are payable as a result of the total disability for
which a benefit is payable under this Plan.
4.4 DEFERRED VESTED PENSION
Subject to the provisions of Section 4.6, the amount of a Participant's
Deferred Vested Pension payable in the Normal Form, commencing as of his
Normal Retirement Date, shall be equal to his Accrued Benefit, determined as
of the date he terminated employment with the Employer.
If payment of a Deferred Vested Pension commences prior to the Participant's
Normal Retirement Date, the amount of the Pension otherwise payable at Normal
Retirement Date shall be reduced by .5 of 1% for each full month by which the
benefit commencement date precedes the Normal Retirement Date.
4.5 RESERVED.
4.6 MAXIMUM PENSION
Notwithstanding any provisions of the Plan to the contrary, in no event shall
the amount of a benefit payable to a Participant (or the spouse of a deceased
Participant) each year together with any and all other benefits which are
paid to him under any other qualified plan exceed the maximum benefits that
are payable pursuant to Sections 415(b) and (e) of the Code and regulations
thereunder.
If a Participant is also a participant in a defined contribution plan
maintained by the Employer, then the benefits under this Plan shall be
reduced to the extent required to satisfy the limitation contained in Section
415(e) of the Code.
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4.7 NO DUPLICATION OF BENEFITS
(a) Application by a Participant, spouse or Beneficiary for a Plan benefit for
which he is eligible will prevent such person from becoming simultaneously
eligible for any other Plan benefit.
(b) Any retirement benefit payable to a person under the Plan shall be reduced
by any other retirement benefit payable to such person under any other
qualified defined benefit retirement plan (except Social Security to which
contributions have been made on behalf of the Participant) to the extent
that such other retirement plan benefit is based on Benefit Service used in
computing such retirement benefit payable under the Plan.
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ARTICLE 5. MANNER OF PAYMENT AND OPTIONAL BENEFITS
5.1 PAYMENT OF RETIREMENT BENEFITS
If a Participant does not have a spouse at the time of the commencement of
payment of a Normal, Early, or Deferred Vested Pension, he will receive the
value of his vested Accrued Benefit in the form of a Life with Ten Years
Certain Annuity, as described in Section 5.2(b) below, unless he elects an
optional form of benefits under Section 5.2.
If a Participant is married as of the date his benefits commence, he shall
receive the value of his vested Accrued Benefit in the form of a Qualified
Joint and 50% Survivor Annuity, as described in Section 5.2(d) below, unless
he elects an optional form of benefits under Section 5.2, in accordance with
the provisions of Section 5.3.
5.2 OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS
Subject to the written election procedures described below, a Participant may
receive his Normal, Early, or Deferred Vested Pension under any of the following
optional methods:
(a) LIFE ONLY ANNUITY. This optional form provides a monthly annuity for the
Participant's lifetime, with no further benefits being paid upon his
death. Each payment to a Participant under this option will be equal to the
otherwise payable benefit, increased by 6%.
(b) LIFE WITH TEN YEARS CERTAIN ANNUITY. This optional form provides a monthly
annuity for the lifetime of the Participant, and if the Participant's
death occurs within a period of 10 years after the commencement date of his
benefits, payment of the benefits will be continued in an amount equal to
70% of the original amount to the beneficiary or beneficiaries designated
by the Participant for the balance of the 10-year period.
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(c) JOINT AND SURVIVOR ANNUITY. This optional form provides a reduced monthly
annuity for the lifetime of the Participant and, upon his death, a
percentage of 66-2/3% of such annuity will continue for the lifetime of his
spouse. If the Participant and his spouse were born in the same calendar
year, the reduced benefit payable to the Participant shall be 90% of the
benefit otherwise payable. The 90% factor will be increased or decreased by
7/10 of 1% for each full year that the date of birth of the spouse precedes
or Follows the Participant's date of birth, provided the adjusted benefit
payable to the Participant shall not exceed the benefit otherwise payable.
(d) QUALIFIED JOINT AND 50% SURVIVOR ANNUITY. This form of payment is an
annuity for the life of a Participant with a survivor annuity for the life
of the Participant's spouse where the survivor annuity is 50% of the amount
of the annuity payable during the joint lives of the Participant and the
Participant's spouse and shall be 93% of the benefit otherwise payable, if
the Participant and his spouse were born in the same calendar year. The 93%
factor will be increased or decreased by 6/10 of 1% for each full year that
the date of birth of the spouse precedes or follows the Participant's date
of birth, provided the adjusted benefit payable to the Participant shall
not exceed the benefit otherwise payable.
5.3 ELECTION PROCEDURES FOR OPTIONAL RETIREMENT BENEFITS
In lieu of receiving benefits in the form of a Life with Ten Years Certain
Annuity or a Qualified Joint and 50% Survivor Annuity, the Participant may make
an election to receive benefits in an optional form described in Section 5.2.
However, such an election must be made in writing by the Participant during the
election period. If he is married, the election MUST BE CONSENTED TO BY THE
PARTICIPANT'S SPOUSE and must meet the following requirements:
(a) The spouse's consent must acknowledge the effect of such election and be
witnessed by a Plan representative or a notary public. Such consent will
not be required if it is established to the Plan Administrator that the
required consent cannot be obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may be prescribed by
Treasury regulations. The election may be revoked by the Participant in
writing without the consent of the spouse at any time during the
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election period described in subparagraph (b) below. Any new election midst
comply with the requirements of this subparagraph (a). A former spouse's
waiver shall not be binding on a new spouse.
(b) The election period to waive the Qualified Joint and Survivor Annuity shall
be the 90-day period, the last day of which is the "annuity starting date".
For purposes of this Section, "annuity starting date" means the first day
of the first period for which an amount is received as an annuity. Any
elections may not be changed after the Participant's annuity starting date.
(c) A Participant's failure to waive the Qualified Joint and 50% Survivor
Annuity. will not result in a decrease in any Plan accrued benefit with
respect to such Participant.
5.4 EMPLOYMENT AFTER NORMAL RETIREMENT DATE
Subject to the provisions of Section 5.6, payment of the Pension of a
Participant who either (a) becomes reemployed after his annuity starting date or
(b) remains in employment after his Normal Retirement Date shall be suspended
during each calendar month of the Participant's reemployment or continued
employment during which the Participant is credited with at least 40 Hours of
Service. In the case of a Participant who becomes reemployed after his annuity
starting date, upon his ceasing to be employed on the basis described in the
previous sentence he shall be entitled to resume receiving distribution of his
Pension in accordance with the following rules: (a) payments shall resume no
later than the third calendar month after the calendar month in which the
Participant ceases to be so employed provided the Participant has notified the
Employer of the cessation, (b) payment shall be retroactive to the day the
Participant ceased such employment, (c) payment shall be in the same form as
before the suspension, and (d) the pension payable upon his subsequent
retirement shall be reduced by the Actuarial Equivalent of previous pension
payments received prior to Normal Retirement Date. The Plan Administrator shall
notify any Participant who is affected by this Section 5.4 in accordance with
the notification requirements of Department of Labor Regulations Section
2530.203-3(b)(4).
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<PAGE>
5.5 PAYMENT OF DEATH BENEFITS
(a) PRERETIREMENT DEATH BENEFIT.
(1) In the event of the death of a Participant on or after the date he has
attained the age of thirty (30) years and completed five (5) Years of
Vesting Service or completed ten (10) Years of Vesting Service
(regardless of age), his beneficiary shall be eligible to receive a
death benefit as described in paragraph (2).
(2) If the Participant would have accrued at least twenty (20) Years of
Vesting Service had he remained in the service of the Employer until
his Normal. Retirement Date, the amount of such death benefit shall be
equivalent to a single sure equal to the excess of:
(A) 36 times the Participant's monthly Earnings (as defined at
Section 1.1(l)) as of October 1 of the calendar year immediately
preceding the calendar year of death less $7,500, over
(B) the Actuarial Equivalent of the Qualified Preretirement Survivor
Annuity that is payable under subsection (3), below.
If the Participant would have accrued less than twenty (20) Years of
Vesting Service had he remained in the service of the Employer to his
Normal Retirement Date, the amount of such death benefit shall be
computed as provided in (1) above, reduced by 5% per year
(five-twelfths of one percent for each full month) by which the
Vesting Service which he would have accrued if he had remained in the
service of the Employer to his Normal Retirement Date, is less than
twenty (20) years and shall then be reduced in the manner provided in
(2) above.
(3) Upon the death of a Participant who (A) is entitled to a Deferred
Vested Pension, (B) has not yet had an annuity starting date and (C)
is survived by a spouse to whom the Participant is married for at
least one year at the time of the Participant's death, the
Participant's spouse shall be entitled to receive as a Preretirement
Death Benefit, a Qualified Preretirement Survivor Annuity.
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<PAGE>
(b) FORM OF PRERETIREMENT DEATH BENEFIT. The Preretirement Death Benefit in
paragraph (a)(2) shall be paid in a single sum distribution. Subject to the
following sentence, the Participant's Qualified Preretirement Survivor
Annuity shall be paid to the Participant's spouse in the form of an annuity
for the spouse's life. If the Actuarial Equivalent present value of a
Participant's Qualified Preretirement Survivor Annuity as of the annuity
starting date does not exceed $3,500 (or, effective January 1, 1998,
$5,000), the method of distribution to the Participant's spouse of the
Qualified Preretirement Survivor Annuity shall be as a single cash
distribution which is the Actuarial Equivalent of the full amount payable.
(c) TIMING OF DISTRIBUTION: ANNUITY STARTING DATE. Distribution of a
Participant's Qualified Preretirement Survivor Annuity shall commence as of
the annuity starting date of the Participant's spouse. The annuity starting
date of the Participant's spouse shall be the earliest of:
(1) the first day of the month coincident with or next following the
Participant's death if the Participant's death occurs after his Normal
Retirement Date,
(2) the first day of the month coincident with or next following the
Participant's Normal Retirement Date if the Participant's death occurs
prior to that time unless the spouse elects under subsection (d) to
commence to receive distribution before that date, or
(3) in the case of a Participant who dies before his Normal Retirement
Date and the Actuarial Equivalent present value of his Preretirement
Death Benefit does not exceed $3,500 (or, effective January 1, 1998,
$5,000), the first day of the month coincident with or next following
the Participant's death. Notwithstanding the previous sentence and
subject to Section 5.6, distribution of a spouse's Qualified
Preretirement Survivor Annuity shall not commence before he files a
claim for benefits with the Plan Administrator.
(d) ELECTION TO RECEIVE PRERETIREMENT DEATH BENEFIT BEFORE NORMAL RETIREMENT
DATE. In the case of a Participant who dies before his Normal Retirement
Date with a Qualified Preretirement Survivor Annuity, his spouse may elect
to have distribution of the Qualified Preretirement Survivor Annuity
commence before the Participant's Normal Retirement
26
<PAGE>
Date had he lived. In that event, distribution shall
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<PAGE>
commence as of the first day of any month coincident with or following the
date the Participant satisfied (or would have satisfied, had he lived) the
requirements for an Early Retirement Pension.
5.6 TIME OF DISTRIBUTIONS
Notwithstanding any provision of the Plan to the contrary, the payment of
benefits under this Plan shall be made in accordance with Section 401(a) (9)
of the Code and regulations thereunder. In accordance with those provisions,
in no event may the distribution of a Participant's benefits commence later
than the April 1 of the calendar year following the year in which--
(a) the Participant reaches age 70 1/2; or
(b) the Participant retires, if later;
provided, however, that paragraph (2) shall not apply in the case of a
Participant who is a 5% owner (as defined in Code Section 416) with respect
to the period preceding the calendar year in which the Participant attains
age 70 1/2.
The amount of the benefit payable under this Section to a Participant who has
not yet terminated employment with the Employer shall be determined in
accordance with Section 4.1 or 15.4, whichever is applicable, as if the
Participant had terminated employment immediately before such payments
commence. The Participant's Years of Benefit Service after payments commence
will be taken into account in determining the amount of benefit to which the
Participant is entitled in subsequent years, and any increase in the benefit
payable to such Participant shall be offset by the Actuarial Equivalent of
the total amount of pension payments made to such Participant during the Plan
Year.
However, in no event, unless a Participant elects otherwise, shall the
distribution of his Accrued Benefit begin later than the 60th day after the
latest of the close of the Plan Year in which the Participant (a) attains
Normal Retirement Age, (b) reaches the tenth (10th) anniversary of the year
in which he commenced participation in the Plan, or (c) terminates his
service with the Employer.
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<PAGE>
5.7 LUMP SUM PAYMENT OF SMALL PENSIONS
If a Participant terminates employment prior to his Normal Retirement Date
and is entitled to a Deferred Vested Pension, and if the Actuarial Equivalent
present value of his vested Accrued Benefit exceeds $3,500 (effective January
1, 1998, $5,000), but is less than $10,000 as of his termination date, such
Participant may elect within 90 days of his termination of employment to have
his Accrued Benefit distributed in a lump sum. Such distribution shall be
made as of the first day of the month following the election. The
Participant's election shall be subject to the spousal consent requirements
of Section 5.3.
If, prior to the annuity starting date, the Actuarial Equivalent present
value of a Qualified Joint and 50% Survivor Annuity or a Qualified
Preretirement Survivor Annuity does not exceed $3,500 (effective January 1,
1998, $5,000) (or such higher amount as may be permitted by law), the Plan
Administrator shall direct that such amount be distributed as a single sum
payment within a reasonable period of time following the Participant's
termination of employment.
If a Participant who receives such a lump sum payment is thereafter
reemployed by the Employer, he shall not receive credit for any Years of
Benefit Service earned prior to the date of his reemployment.
Upon termination of employment, a nonvested Participant shall be deemed to
have received a lump sum payment of $0 and the nonvested portion of such a
Participant's benefit shall be treated as an immediate forfeiture. This
deemed distribution shall represent the entire benefit to which such
Participant was entitled under the Plan, in lieu of all other benefits under
the Plan.
5.8 ELIGIBLE ROLLOVER DISTRIBUTIONS
(a) DIRECT ROLLOVERS.
(1) IN GENERAL. In the case of a distribution (or a withdrawal) that would
be an eligible rollover distribution within the meaning of Code
Section 402 if made to the Participant or Beneficiary ("distributee"),
the distributee may elect (subject to spousal consent
29
<PAGE>
requirements if applicable) to the extent required by law and
regulation and in the manner prescribed by the Committee, to have such
distribution paid directly to an eligible retirement plan (as defined
in Code Section 401(a)(31)). The amount of such direct rollover shall
be limited to the amount of the eligible rollover distribution which
would otherwise be includible in the distributee's gross income in the
absence of a direct transfer and without regard to the rollover rules
of Code Sections 402 and 403. No election may be made by a distributee
pursuant to this Section unless the distributee has received the
notice prescribed by paragraph (2).
(2) NOTICE. The Committee shall furnish to a distributee a written notice
at the time prescribed in paragraph (3) which describes--
(A) the rules under which the distributee may elect to have an
eligible rollover distribution paid in a direct rollover to an
eligible retirement plan;
(B) the rules that require withholding of tax on the eligible
rollover distribution if it is not paid in a direct rollover;
(C) the rules under which the distributee will not be subject to tax
if the distribution is contributed to an eligible retirement plan
within 60 days of the distribution; and
(D) if applicable, special rules regarding the taxation of the
distribution as specified in Code Sections 402(d) and (e)
(relating to income averaging and other tax rules).
(3) NOTIFICATION PERIOD. The notice required by paragraph (2) shall be
furnished to the distributee not more than 90 days and not less than
30 days before the Benefit Starting Date. The Plan shall make no
payment for 30 days following the date the Participant has been
furnished with the notice unless the distribution is subject to
Section 5.7 and the Participant, after receipt of the notice, has
affirmatively elected to make or not to make a direct rollover, but in
no event shall the Plan make a distribution before the date benefits
are otherwise payable under the rules of the Committee.
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<PAGE>
(b) WITHHOLDING. In the case of an eligible rollover distribution which is not
directly transferred to an eligible retirement plan pursuant to subsection
(a), the Plan shall reduce the amount of the distribution by the amount of
the tax required to be withheld by law and regulations.
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<PAGE>
ARTICLE 6. YEAR OF BENEFIT SERVICE; YEAR OF VESTING SERVICE
6.1 YEAR OF BENEFIT SERVICE
(a) A Participant will be credited with Years of Benefit Service, for Service
prior to January 1, 1997, in accordance with the terms of the Predecessor
Plan.
(b) For Service after December 31, 1996, a Participant will be credited with a
Year of Benefit Service for each Plan Year in which the Participant is
credited with at least 1,720 Hours of Service of the Employer except that
the following Years of Benefit Service shall be disregarded:
(1) Years of Benefit Service preceding Breaks in Service if the
Participant is not entitled to a Deferred Vested Pension and has a
number of consecutive One Year Breaks in Service equal to (or greater
than) the greater of five or the number of the Participant's Years of
Benefit Service (excluding Years of Benefit Service);
(2) Years of Benefit Service preceding a One Year Break In Service until
the Participant is credited with at least a Year of Service after that
Break in Service; and
(3) Years of Benefit Service earned after completing 30 Years of Vesting
Service.
(c) For purposes of determining Benefit Service, a Participant shall be
credited with any hours remaining in his accumulated bank sick days under
the former sick pay program (which were used for sick leave and were frozen
as of June 30, 1994) as of his date of retirement, as follows:
(1) the Participant shall be credited with such hours only in the Plan
Year of his retirement;
(2) the total number of hours credited from the Accumulated Bank Sick Days
under the former sick pay program plus the Hours of Service credited
to the Participant pursuant to Section 1.1(q) shall not exceed 1,720
in such Plan Year; and
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<PAGE>
(3) a Participant who terminates employment before becoming eligible for
retirement under the Plan shall not receive any credit for any hours
remaining in the Accumulated Bank Sick Days under the former sick pay
program at the time of his termination of employment.
(d) If a Participant is credited with at least 1,000 Hours of Service from the
Employer but less than 1,720 Hours of Service for any Plan Year, the
Participant shall be given credit for a partial Year of Benefit Service for
that Plan Year per the following schedule:
<TABLE>
<CAPTION>
MONTHLY BENEFIT
RETIREMENTS RETIREMENTS
HOURS OF SERVICE ON & AFTER 7/1/94 BEFORE 7/1/94
---------------- ----------------- -------------
<S> <C> <C>
1,720 or more $23.00 $21.00
1,560 to 1,720 $20.00 $18.00
1,050 to 1,560 $19.00 $17.00
1,000 to 1,050 $17.50 $16.00
Under 1,000 $0 $0
</TABLE>
(e) A Participant shall not receive more than one Year of Benefit Service
credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(f) If a Participant is employed during a Plan Year by both a participating
Employer and a nonparticipating Employer, and is credited with less than
1,000 Hours of Service for any Plan Year, the Participant shall be given
credit for a partial Year of Benefit Service determined by multiplying (1)
the monthly benefit the Participant would have been entitled to had he
completed 1,000 hours of Service for the Plan Year by (2) a fraction, the
numerator of which is the Participant's actual hours of Service for the
Plan Year and the denominator of which is 1,000.
(g) A leave of absence due to service in the Armed Forces of the United States
shall be included as Benefit Service under the Plan, provided that the
Employee complies with all the requirements of federal
33
<PAGE>
law in order to be entitled to reemployment and provided further that such
Employee returns to employment with the Employer within the period provided
by such law.
6.2 YEAR OF VESTING SERVICE
A Participant will be credited with a Year of Vesting Service for all Years of
Service credited to the Participant as an Employee (and any periods that are
required by law to be credited to the Participant for his period of military
service), except that the following Years of Service are disregarded:
(a) Years of Service preceding at least five consecutive One-Year Breaks in
Service, if the Participant is not entitled to a Deferred Vested Pension
and has a number of consecutive One Year Breaks in Service equal to (or
greater than) the number of his Years of Service (excluding Years of
Service previously disregarded under this clause (a) preceding the Breaks
in Service; and,
(b) Years of Service preceding a One-Year Break in Service unless the
Participant has been credited with a Year of Service after that Break in
Service.
(c) A Participant shall not receive more than one Year of Vesting Service
credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(d) A leave of absence due to service in the Armed Forces of the United States
shall be included as Vesting Service under the Plan, provided that the
Employee complies with all the requirements of federal law in order to be
entitled to reemployment and provided further that such Employee returns to
employment with the Employer within the period provided by such law.
Notwithstanding the preceding, in no event shall a Participant's Years of
Vesting Service be less than his Years of Vesting Service as of December 31,
1989.
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<PAGE>
ARTICLE 7. PLAN FINANCING
7.1 CONTRIBUTIONS
All contributions will be made by the Employer and in such amounts as will be
determined based on periodic actuarial valuations and recommendations as to
the amount or amounts required to fund retirement benefits and other benefits
payable in accordance with this Plan. All contributions shall be conditioned
on deductibility under Section 404 of the Code. Forfeitures arising under
this Plan because of severance of employment, before a Participant becomes
eligible for a Deferred Vested Pension, or for any other reason, shall be
applied to reduce the Employer contributions to the Plan, not to increase the
benefits otherwise payable to Participants. A return of Employer
Contributions (or the assets thereof, if less) shall be made within one year
after:
(a) the contribution is made by the Employer by a mistake of fact, or
(b) the contribution is disallowed as a deduction under Section 404 of the
Code.
7.2 TRUST FUND
All contributions made by the Employer under the Plan shall be paid to the
Trustee and deposited in the Trust Fund. Except as otherwise provided in
Section 13.2, all assets of the Trust Fund, including investment income,
shall be retained for the exclusive benefit of Participants and their
beneficiaries, shall be used to pay benefits to such persons or to pay
administrative expenses to the extent not paid by the Employer, and shall not
revert or inure to the benefit of the Employer.
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<PAGE>
ARTICLE 8. ADMINISTRATION OF THE PLAN
8.1 PLAN ADMINISTRATOR
"The Plan Administrator," within the meaning of ERISA, is the Company. The
Company shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA. In general, the
Company shall have the responsibility to appoint and remove the Trustee and
any investment manager which may be provided for under the Trust Agreement.
The Plan Administrator shall have the authority to direct the Trustee to
invest all or a portion of the Trust Fund through any common or collective
trust fund or pooled investment fund, or any other legally permissible
investment under the Code or ERISA.
8.2 THE ADMINISTRATIVE COMMITTEE
The day-to-day administration of the Plan shall be the responsibility of the
Company's Employee Benefits Committee--herein called the "Committee." Each
member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 8.17. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
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<PAGE>
8.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE
The Committee may appoint a Secretary who may, but need not be, a member of
the Committee. The Committee may employ such agents and such clerical and
other services, and such legal counsel, other consultants, and accountants as
may, in the opinion of the Committee, be required for the purposes of
properly administering the Plan.
8.4 EXPENSES OF ADMINISTRATION
The Employer is not required, but may, at its discretion, pay the expenses of
administration of the Plan, including the fees and expenses of the Trustee.
If such expenses of administration are not so paid by the Employer, they
shall be paid by the Trustee from the Trust Fund. The Trustee, investment
advisors, advisors, Actuary, and recordkeeper, and auditors of the Plan
(collectively referred to as "Service Providers") will receive reasonable
compensation as may be agreed upon from time to time between the Company or
the Committee and such Service Providers. To the extent permitted by law,
such compensation shall be paid from the Trust Fund unless paid by the
Company.
8.5 ACTS OF THE COMMITTEE
The Committee shall give to the Trustee any order, direction, consent or
advice required under the terms of the Plan or the Trust Agreement, and the
Trustee shall be entitled fully to rely on any instrument delivered to it
evidencing the action of the Committee as hereinabove described.
8.6 INTERPRETATIONS
The Committee shall have the exclusive right to make any finding of fact
necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right
to interpret the terms and provisions of the Plan and to determine any and
all questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right to remedy or resolve
possible ambiguities, inconsistencies, or omissions, by general rule or
particular decision, with such interpretations or determinations to be
finally conclusive and binding on all parties affected thereby. The Committee
shall make, or cause to be made, all reports or other filings necessary to
meet the reporting and disclosure requirements of ERISA which are
37
<PAGE>
the responsibility of "plan administrator"
38
<PAGE>
under ERISA. To the extent permitted by law, all findings of fact,
determinations, interpretations, and decisions of the Committee shall be
conclusive and binding upon all persons having or claiming to have any
interest or right under the Plan.
8.7 LIABILITY OF THE COMMITTEE
The members of the Committee, and each of them, shall be free from liability
for their acts and conduct in the administration of the Plan, and the
Employer shall indemnify them and hold them, and each of them, harmless from
the effects and consequences of their acts and conduct in their official
capacity, except to the extent that such effects and consequences result from
their failure to exercise ordinary care and reasonable diligence. In any
event, the Committee shall be deemed to have exercised ordinary care and
reasonable diligence if it shall have relied in good faith upon any written
information furnished to it by an Employee or Participant, the Employer, the
investment advisor, the Trustee, or by any Actuary, employee benefit plan
consultant, counsel, accountant or other person employed, with or without
remuneration, by the Employer for purposes of the Plan.
8.8 APPLICABLE LAW
The Plan will be construed and enforced in accordance with the laws of the
State of Wisconsin and all provisions of the Plan will be administered in
accordance with the laws of the said State, to the extent not superseded by
ERISA.
8.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES AMONG THEM
Under ERISA and Regulations pursuant to ERISA, the Employer, the Trustee, the
Committee, the Plan Administrator and the Investment Adviser are "Plan
Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them
under the Plan document and the Trust Agreement. In general, the Employer,
acting through a majority of its Board of Directors or its designated
committee, shall have the sole responsibility to terminate the Plan, in whole
or in part, in accordance with Article 13 hereof and sole responsibility to
appoint and remove the Trustee. The Plan Administrator shall have ultimate
responsibility for the administration of the Plan. The Committee shall
determine an allocation of Plan assets in consideration of Plan liabilities,
establish investment guidelines, select and
39
<PAGE>
evaluate money managers and investment alternatives and review and approve
investment transactions and strategy. The Committee shall also have such
other duties and responsibilities as are described in the applicable
provisions of this Article 13 together with such other duties and
responsibilities as may be delegated to them by a majority of the Board of
Directors of the Employer or its designated committee or the Plan
Administrator from time to time. The Trustee shall have the responsibility of
the administration of the Trust and for the custody and management of the
assets held in the Trust Fund to the extent provided in the Trust Agreement
and any contracts or agreements entered into by and between the Trustee and
the Investment Adviser.
8.10 RELIANCE ON COFIDUCIARIES
Each Fiduciary may rely upon any direction, information or action of another
Fiduciary as being proper under the Plan, and shall not, under normal
circumstances, be required to inquire into the propriety of any such
direction, information or action. Each Fiduciary shall be responsible for the
proper exercise of his own powers, duties, responsibilities and obligations
under this Plan and shall not be responsible for any breach of fiduciary by
another Fiduciary ("other Fiduciary") unless he participates knowingly in, or
knowingly undertakes to conceal an act or omission of such other Fiduciary,
knowing such act or omission is a breach; or by his failure to comply with
Article 8 hereof in the administration of his specific responsibilities
hereunder he has enabled such other Fiduciary to commit a breach; or by his
failure to comply with Article 8 hereof in the administration of his specific
responsibilities hereunder he has enabled such other Fiduciary to commit a
breach; or he has knowledge of a breach by such other Fiduciary and fails to
make reasonable efforts under the circumstances to remedy the breach. No
Fiduciary guarantees the Trust Fund in any manner against investment loss or
depreciation in asset value.
8.11 FIDUCIARY DUTIES
All fiduciaries shall discharge their duties solely and exclusively in the
interest of the Participants and Beneficiaries and for the exclusive purposes
of providing benefits to Participants and their Beneficiaries and defraying
the reasonable expenses of administering the Plan and Trust. They shall
discharge their duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man, acting in a like capacity
and familiar with such
40
<PAGE>
matters, would use in the conduct of an enterprise of a like character and
with like aims.
41
<PAGE>
8.12 PROHIBITED TRANSACTION TO BE AVOIDED
The Fiduciaries shall not do any action prohibited under or in violation of
Part 4 of Title I of ERISA or which would subject any person or the Employer
to imposition of a tax under Section 4975 of the Code.
8.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR
The Plan Administrator shall prepare, or cause to be prepared, and shall
furnish, or cause to be furnished, to Participants and Beneficiaries, and to
the Secretary of Labor or his delegate, and to the Secretary of the Treasury
or his delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required
by ERISA and the Code and regulations thereunder. The Plan Administrator
shall exercise such authority and responsibility as it deems appropriate in
order to comply with ERISA and the Code and regulations thereunder relating
to records of the Service of all Participants and the percentage of their
Accrued Benefit which is nonforfeitable under the Plan.
8.14 DATA SUPPLIED BY EMPLOYER
The Employer shall advise the Committee, in writing, of all data which may be
reasonably necessary in order to administer the Plan and to determine the
amount of respective Employer contributions; or to determine the eligibility,
Earnings, Service, and other matters required to be determined relating to
Employees of the Employer. The Plan Administrator or Committee shall be fully
protected in acting upon any such data.
8.15 PARTIAL EXCULPATION
The Committee or the Plan Administrator (as appropriate) shall incur no
personal liability of any nature in connection with any failure to act or in
respect of any act taken in good faith in the management and administration
of the Plan and in carrying out the directions of the Employer, except as may
otherwise be provided by ERISA. The Committee or the Plan Administrator shall
be indemnified and held harmless by the Employer from and against any such
personal liability, including all expenses reasonably incurred in its defense.
8.16 INFORMATION REQUIRED OF PARTICIPANTS
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant,
42
<PAGE>
shall furnish the Committee (or the Plan Administrator) with such information
as
43
<PAGE>
the Committee (or the Plan Administrator) shall deem necessary and desirable
for purposes of administering the Plan, and the provisions of the Plan
relating to any payments hereunder to or on account of any Participant,
former or deceased Participant are conditional upon such person's furnishing
promptly such true, full and complete information as the Committee (or the
Plan Administrator) may request.
8.17 CLAIMS PROCEDURE
(a) APPLICATIONS FOR BENEFITS NOT REQUIRED: A formal request for a distribution
under the Plan is not required of any Participant or Beneficiary entitled
thereto.
(b) CLAIMS FOR BENEFITS NOT RECEIVED: Any claim for benefits not received shall
be made in writing to the Committee (or the Plan Administrator). The
Committee (or the Plan Administrator) shall consider such claim and shall,
within sixty (60) days next following receipt of same either approve it or
deny it. If the Committee (or the Plan Administrator) shall deny such
claim, it shall, by written notice directed to the claimant at the address
shown on the claim (or in the absence thereof, the last known address of
the claimant, as shown on the records of the Employer) inform the claimant
of such denial, including such written notice, as a minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan, on which such denial
is based;
(3) A description of any additional material or information necessary for
the claimant to perfect his claim and a brief description of why such
additional information is necessary; and
(4) A brief explanation of the appeals procedure which is available to
him, which, in essence, is described in paragraph (c) below.
(c) APPEALS PROCEDURE FOLLOWING INITIAL DENIAL OF CLAIM: Each claimant whose
claim for a benefit under the Plan has been denied shall have the right to
appeal the decision to the Committee (or the Plan Administrator) in
accordance with the following procedures:
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<PAGE>
(1) Such appeal must be in writing, over the signature of the claimant
whose claim was so denied, and filed with the Committee (or the Plan
Administrator), addressed and delivered within the 60-day period next
following the initial denial of same, either by hand or by the United
States Postal Service, postage fully prepaid.
(2) The claimant, or his duly authorized representative (such as, but not
by way of limitation, legal counsel) shall have the right at all
reasonable times to examine Plan documents related to his claim and to
submit to the Committee (or the Plan Administrator), issues, comments
and responses, provided that they shall be in writing and delivered to
the Committee (or the Plan Administrator) as described in subparagraph
(1) above.
(3) The Committee (or the Plan Administrator) shall render its decision as
promptly as practicable, but not later than sixty (60) days after
receipt of the claimant's appeal from the initial denial by the
Committee (or the Plan Administrator).
(d) NATURE OF CONTENT OF WRITTEN NOTICES TO CLAIMANTS: Notwithstanding any
provision hereof to the contrary, all written notices to claimants
regarding their claims for benefits under the Plan, shall be expressed in
terms calculated to be understood by the average claimant and shall include
specific reasons for the decision--whether for or against the claimant--and
specific references to the pertinent provisions of the Plan on which the
decision was based.
8.18 BENEFICIARY DESIGNATIONS
Each Participant may name a Beneficiary to receive any death benefit (other
than any income payable to a Contingent Annuitant) which may arise out of his
participation in the Plan. If there is no contingent Beneficiary, or if the
contingent Beneficiary dies before receiving all death benefit payments to
which he is entitled, the balance of such payments shall be paid to the
estate of the last to die of such Beneficiaries. A designation or change of
Beneficiary shall be made in writing on such form or forms as the Committee
may require.
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Notwithstanding the above, if a married Participant designates someone other
than his or her spouse as the primary Beneficiary, the spouse must consent to
such designation. Any non-spouse Beneficiary designation made before the
Participant's death must be made by the Participant in writing and shall
require the spouse's irrevocable consent in the same manner provided for in
Section 5.4 or 15.5(d), whichever is applicable. Further, the spouse's
consent must acknowledge the specific non-spouse Beneficiary.
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ARTICLE 9. MISCELLANEOUS
9.1 NONGUARANTEE OF EMPLOYMENT
Nothing contained in this Plan shall be construed as a contract of employment
between the Employer and any Employee, or as a right of any Employee to be
continued in the employment of the Employer, or as a limitation of the right of
the Employer to discharge any of its Employees, with or without cause.
9.2 RIGHTS TO TRUST FUND ASSETS
No Participant shall have any right to, or interest in, any assets of the Trust
Fund upon termination of his employment or otherwise, except as provided from
time to time under this Plan, and then only to the extent of the benefits
payable under the Plan to such Participant out of the assets of the Trust Fund.
Except as otherwise may be provided under Title IV of ERISA, all payments of
benefits as provided for in this Plan shall be made solely out of the assets of
the Trust Fund and none of the Fiduciaries shall be liable therefor in any
manner.
9.3 NONALIENATION OF BENEFITS
Except as provided below, no benefits payable under this Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to so anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be null and void;
nor shall the Trust Fund be liable for, or subject to, the debts, contracts,
liabilities, engagement, or torts of the person entitled to benefits hereunder.
The sole exception to the prohibition against alienation of an Employee's
benefits under the Plan shall be a distribution thereof made pursuant to a
Qualified Domestic Relations Order (called "QDRO" for convenience of reference).
For all purposes of the Plan, a QDRO is a judgment, decree or order (including
approval of a property settlement agreement) issued by a court of competent
jurisdiction which: (a) relates to the provisions of child support,
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alimony payments, or marital-property rights, to a Spouse, former spouse,
child, or other dependent or a Participant; and (b) is made pursuant to a
State domestic relations law (including community property law). A domestic
relations order is a "Qualified Domestic Relations Order" if it creates or
recognizes the existence of an alternate payee's right to, or assigns to an
alternate payee the right to, receive all or a portion of the benefits which
would otherwise be payable to a participant under the plan, and which
complies with the requirements of Section 414(p) of the Code.
9.4 GOVERNING LAW
The provisions of this Plan shall be governed by and construed and administered
in accordance with ERISA, the Code, and, where not inconsistent, the laws of the
State of Wisconsin.
9.5 PARTICIPANT INFORMATION
Each Participant shall notify the Plan Administrator of (a) his mailing
address and each change of mailing address, (b) the Participant's, the
Participant's Beneficiary's and, if applicable, the Participant's spouse's
date of birth, (c) the Participant's marital status and any change of his
marital status, and (d) any other information required by the Plan
Administrator. The information provided by the Participant under this Section
9.5 shall be binding upon the Participant's Beneficiary for all purposes of
the Plan.
9.6 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER
Notwithstanding the provisions of Section 9.3, the Plan will recognize a
"qualified domestic relations order" which shall be a judgment, decree or
order (including approval of a property settlement agreement) that meets the
requirements of (a), (b), and (c) below:
(a) the contribution is disallowed as a deduction under Section 404 of the
Code;
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(b) the order must relate to child support, alimony, property rights to a
spouse, former spouse, child or dependent of a Participant, and must be
issued pursuant to a state domestic relations law;
(c) the order must include (1) the name and address of the Participant and
alternate payee, (2) the amount or percentage of benefits payable to the
alternate payee (or the manner in which the amount or percentage is to be
determined), (3) the period or number of payments involved, and (4) the
exact name of the plan to which the order applies; and
(d) the order cannot require a type or form of benefit or option not otherwise
offered under the Plan, cannot require the Plan to provide increased
benefits (determined on an actuarial basis), and cannot affect benefits
already the subject of a previous qualified domestic relations order.
A qualified domestic relations order can order the Plan to commence payments
to an alternate payee an of or following the earliest date the Participant
could elect to receive benefits under the Plan even though the Participant is
still employed by an Employer. If the Participant dies before the
above-mentioned date, benefits are payable to the alternate payee only if the
order specifically provides for such benefits. Notwithstanding the foregoing,
the Plan may make a distribution to an alternate payee prior to the date the
Participant attains earliest retirement age if the qualified domestic
relations order provides that the Plan and alternate payee may agree in
writing to an earlier distribution of an immediate lump sum payment and the
distribution is made pursuant to such a written agreement.
If the Participant is still employed by an Employer, the benefit payable to
the alternate payee is to be based on the Participant's Accrued Benefit
payable at his Normal Retirement Date. The Accrued Benefit shall be reduced
to an Actuarial Equivalent (based on the Participant's age, not the alternate
payee's age at the alternate payee's payment date). If payment is made
pursuant to a qualified domestic relations order before the Participant has
separated from service and the benefit is determined as of or after an early
commencement date under Section 3.2, 3.4, 15.3(a), or 15.3(b), whichever is
applicable, the benefit payable pursuant to Section 3.2, 3.4, 15.3(a), or
15.3(b), whichever is applicable,
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<PAGE>
will be reduced for early commencement based on the applicable definition of
actuarial equivalence contained in Schedule A or Section 15.2(a), whichever
is applicable.
An alternate payee may elect any form of payment to which the Participant
would be entitled at the time of the alternate payee's benefit commencement;
provided, however, an alternate payee cannot elect to cover such payee's
spouse under any joint and survivor form of payment.
The Committee shall notify any Participant and alternate payee of the receipt
of any order by the Plan and shall inform such Participant and alternate
payee of the Elan's procedures for determining whether the order meets the
requirements described above in this Section 9.6. Such procedures shall
comply with the requirements set forth in Code Section 414(p) and Section
206(d) of ERISA, and the Plan's Procedures Upon Receipt of a Domestic
Relations Order.
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ARTICLE 10. AMENDMENTS AND ACTIONS BY THE EMPLOYER
10.1 AMENDMENTS
The Company does hereby expressly and specifically reserve the sole and
exclusive right at any time by action of the Committee or its designee to
amend, modify, or terminate the Plan. The Company's right of amendment,
modification, or termination as aforesaid shall not require the assent,
concurrence, or any other action by any Employer notwithstanding that such
action by the Company may relate in whole or in part to persons in the employ
of an Employer.
10.2 LIMITATION ON AMENDMENTS
The provisions of this Article are subject to and limited by the following
restrictions:
(a) Except to the extent necessary to produce conformity to the laws and
regulations described in Section 10.1 or to the extent permitted by any
applicable law or regulation, no such amendment shall operate either
directly or indirectly to reduce either the nonforfeitable percentage of
any Participant's Accrued Benefit or the Accrued Benefit of any Participant
as they are constituted at the time of the amendment. For purposes of this
subsection (a), an amendment which has the effect of (1) eliminating or
reducing any early retirement benefit or a retirement-type subsidy, or (2)
eliminating an optional form of benefit, with respect to benefits
attributable to Service before the amendment, shall be treated as reducing
Accrued Benefit.
(b) No such amendment shall change any vesting schedule unless each Participant
who has completed three or more Years of Service is permitted to elect to
have his nonforfeitable Accrued Benefit computed under the Plan without
regard to such amendment. Such election shall be made within such
reasonable period as the Employer may designate after adoption of the
amendment; but in no event earlier than 60 days after the
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later of: (1) the date the amendment is adopted, or (2) the date the
amendment becomes effective; or (3) the date the Participant receives
written notice of the amendment from the Committee.
(c) No amendment shall operate either directly or indirectly to give any
Employer any interest whatsoever in any funds or property held by the
Trustee under the terms hereof, or to permit the corpus or income of the
True to be used for or diverted to purposes other than the exclusive
benefit of Participants or their Beneficiaries.
10.3 ACTION BY EMPLOYER
Any action by the Employer under this Plan may be by resolution of its
Committee, or by any person or persons duly authorized by resolution of said
Board to take such action.
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ARTICLE 11. SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS
11.1 SUCCESSOR EMPLOYER
In the event of the dissolutions merger, consolidation or reorganization of
the Employer, provision may be made by which the Plan will be continued by
the successor; and, in that event, such successor shall be substituted for
the Employer under the Plan. The substitution of the successor shall
constitute an assumption of Plan liabilities by the successor and the
successor shall have all the powers, duties and responsibilities of the
Employer under the Plan.
11.2 PLAN ASSETS
In the event of any merger or consolidation of the Plan with, or transfer, in
whole or in part, of the assets and liabilities of the Trust Fund to another
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants in this Plan, the
assets of the Trust fund applicable to such Participants shall be transferred to
the other fund only if:
(a) Each Participant would (if either this Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he would have
been entitled to receive immediately before the merger, consolidation or
transfer (if this Plan had then terminated).
(b) Resolutions of the Committee of the Employer, and of any new or successor
employer of the affected Participants, shall authorize such transfer of
assets; and, in the case of the new or successor employer of the affected
Participants, its resolutions shall include an assumption of liabilities
with respect to such Participant's inclusion in the new employer's plan.
(c) Such other plan and fund are qualified under Sections 401(a) and 501(a) of
the Code.
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ARTICLE 12. TEMPORARY RESTRICTIONS ON BENEFITS
12.1 TEMPORARY LIMITATION ON BENEFITS OF RESTRICTED PARTICIPANTS
(a) RESTRICTION. Notwithstanding any Plan provision to the contrary, the
retirement benefits provided under the Plan from Employer contributions for
Participants described in subsection (b) below will be restricted to an
amount equal to the payments that would be made on the Participant's behalf
under a straight life annuity that is the Actuarial Equivalent of the sum
of the Participant's Accrued Benefit and the Participant's other benefits
(if any) under the Plan.
(b) RESTRICTED PARTICIPANTS. The Participants subject to the restrictions set
forth in subsection (a) are those Participants who are the 25 Highly
Compensated Employees (within the meaning of Code Section 414(q)) and
former Highly Compensated Employees with the greatest compensation (as
defined in Code Section 414(s)).
(c) NONAPPLICABILITY. The restrictions in this Section 12.1 will not apply,
however, if--
(1) After payment to such a Participant of all benefits described in
proposed Treasury regulations Section 1.401(a)(4)-5(c)(3)(iii), the
value of Plan assets equals or exceeds 110% of the value of current
liabilities as defined in Code Section 412(l)(7);
(2) The value of the benefits described in proposed Treasury regulations
Section 1.401(a)(4)-5(c)(3)(iii) for such a Participant is less than
1% of the value of current liabilities; or
(3) The Commissioner of Internal Revenue determines that such restrictions
are not necessary to prevent the prohibited discrimination that may
occur in the event of an early termination of the Plan.
(d) PLAN TERMINATION. In the event of the termination of the Plan, the benefit
of any Highly Compensated Employee (and any former Highly Compensated
Employee) is limited to a benefit that is nondiscriminatory under Code
Section 401(a)(4).
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ARTICLE 13. PLAN TERMINATION
13.1 TERMINATION
While each Employer contemplates carrying out the provisions of the Plan
indefinitely with respect to its Employees, no Employer shall be under any
obligation or liability whatsoever to maintain the Plan for any minimum or
other period of time.
The Plan may be terminated in whole or in part at any time by appropriate
action of the Board of Directors of the Company or its designee. Upon any
termination of the Plan in its entirety, or with respect to any Employer, the
Company shall give written notice thereof to the Plan Administrator, the
Trustee, and any Employer involved. Upon termination or partial termination
of the Plan, each Participant will become fully vested in his Accrued
Benefit, no further Employees will become Participants.
Except as provided by law or contract, upon any termination of the Plan, no
Employer with respect to whom the Plan is terminated (including the Company)
shall thereafter by under any obligation, liability, or responsibility
whatsoever to make any contribution or payment to the Trust Fund, the Plan,
any Participant, any Beneficiary, or any other person, trust, or fund
whatsoever, for any purpose whatsoever under or in connections with the Plan.
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13.2 DISTRIBUTION ON TERMINATION AND PARTIAL TERMINATION
On termination of the Plan, the Trustee will liquidate the Trust Fund. After
payment of all expenses of liquidation, the Administrator shall allocate the
remainder of the Trust Fund assets and cause them to be distributed by the
Trustee in the manner and order set forth in Section 4044 of ERISA to the
extent of the sufficiency of such assets. On partial termination of the Plan
by operation of law, the Trustee shall segregate and liquidate the portion of
the Trust Fund assets allocable to affected Participants and beneficiaries.
After payment of all expenses of liquidation, the Administrator shall
allocate the remainder of the portion of the Trust Fund assets and cause them
to be distributed to affected Participants by the Trustee in the manner and
order set forth in Section 4044 of ERISA to the extent of the sufficiency of
such assets.
13.3 MANNER OF DISTRIBUTION
Subject to the foregoing provisions of this Article 13, any distribution
after termination of the Plan may be made, in whole or in part, to the extent
that no discrimination in value results, in cash, in securities or other
assets in kind, or in nontransferable annuity contracts, as the
Administrator, in its discretion, shall determine.
13.4 RESIDUAL AMOUNTS
In no event shall the Employer receive any amounts from the Trust Fund upon
termination of the Plan; except that, and notwithstanding any other provision
of the Plan, the Employer shall receive such amounts, if any, as may remain
after the satisfaction of all liabilities of the Plan and arising out of any
variations between actual requirements and expected actuarial requirements.
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13.5 EFFECT OF BANKRUPTCY AND OTHER CONTINGENCIES AFFECTING AN EMPLOYER
In the event an Employer terminates its connection with the Plan, or in the
event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event
judicial proceedings of any kind result in the involuntary dissolution of an
Employer, the Plan shall be terminated with respect to such Employer. The
merger, consolidation, or reorganization of an Employer, or the sale by it of
all or substantially all of its assets, shall not terminate the Plan if there
is delivery to such Employer by the Employer's successor or by the purchaser
of all or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer
and agreeing to perform all the provisions hereof which such Employer is
required to perform. Upon the receipt of said instrument, with the approval
of the Company, the successor, or the purchaser shall be substituted for such
Employer herein, and such Employer shall be relieved and released from any
obligations of any kind, character, or description herein or in any trust
agreement imposed upon it.
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ARTICLE 14. TOP-HEAVY PROVISIONS
14.1 TOP-HEAVY PROVISIONS
In order to comply with the requirements of Code Section 416, the following
provisions of this Section shall be applicable to the Plan in the event it
should ever become a "Top Heavy Plan", as contemplated by the said Code
provisions.
14.2 TOP-HEAVY PLAN DEFINITIONS
Definitions relating to Top Heavy Plan provisions are as follows:
(a) TOP-HEAVY. This Plan shall be considered "Top-Heavy" if, as of the
Determination Date, the Top-Heavy Ratio exceeds 60%. The Top-Heavy Ratio is
a fraction, the numerator of which is the sum of the present value of
Accrued Benefit of all Key Employees as of the Determination Date
(including distributions made within the 5 Plan Year period ending on the
Determination Date) determined as if the Participant terminated service as
of such Determination Date, and the denominator of which is a similar sum
determined for all Participants. This ratio shall be calculated without
regard to any Non-Key Employee who was formerly a Key Employee. The
Top-Heavy Ratio, including the extent to which it must take into account
distributions, rollovers and transfers, shall be calculated in accordance
with Section 416 of the Code and regulations thereunder.
Notwithstanding the foregoing, if the Employer maintains other qualified
plans, this Plan is Top-Heavy only if it is part of the Required
Aggregation Group (as defined in Section 14.2(e) of the Plan), and the
Top-Heavy Ratio for both the Required Aggregation Group and the Permissive
Aggregation Group (as defined in Section 14.2(f) of the Plan) exceeds 60%.
The Top-Heavy Ratio will be calculated in the same manner as required by
the preceding paragraph, taking into account all plans within either the
Required or Permissive Aggregation Group, as applicable. The present value
of Accrued Benefit and the other amounts that must be taken into account
under defined contribution plans included within either the Required or
Permissive Aggregation Group, as
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applicable, shall be calculated in accordance with the terms of those
plans, Code Section 416 and the regulations thereunder. The Top-Heavy Ratio
shall be calculated with reference to the Determination Date and fall
within the same calendar year. In order to determine the present value
under this paragraph, an interest rate assumption of 5% and the Mortality
Table specified in Schedule A shall be used to compute the present value of
benefits.
The Accrued Benefit of any Participant who has not performed any services
for the Employer at any time during the 5 year period ending on the
Determination Date will be disregarded for purposes of calculating the Top
Heavy Ratio.
(b) DETERMINATION DATE. For purposes of determining whether the Plan is
Top-Heavy for a particular Plan Year, the "Determination Date" shall be the
last day of the preceding Plan Year.
(c) KEY EMPLOYEE. A "Key Employee" is any Employee (or former Employee),
including a Beneficiary of such Employee, who at any time during the Plan
Year or any four (4) preceding Plan Years is one of the following:
(1) An officer of the Employer (but in no event shall more than 50
Employees, or if less, the greater of 3 or 10% of all Employees, be
taken into account under this paragraph (3) as Key Employees).
Notwithstanding, an officer of the Employer will not be considered a
"Key Employee" under this paragraph (3) unless he earned more than 50%
of the amount in effect under Code Section 415(b)(1)(A) adjusted each
Plan Year to take into account any applicable cost of living
adjustments promulgated by the Secretary of the Treasury or his
delegate, under Section 415(d) of the Code; or
(2) One of the 10 Employees whose annual Compensation is in excess of the
$30,000 dollar limit (adjusted for cost-of-living), as set forth in
Subparagraph (3)(A) above, and owning (or considered as owning within
the meaning of Code Section 318) both more than a 1/2% interest and
the largest interests in the Employer. If two (2)
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Employees have the same interest in the Employer, the Employee having
greater annual Compensation from the Employer shall be treated as
having a larger interest; or
(3) A person owning (or considered as owning within the meaning of Code
Section 318) more than 5% of the total combined voting power of all
stock of the Employer; or
(4) A person who has an annual Compensation from the Employer of more than
$150,000 and would be described in subparagraph (C) hereof if 1% were
substituted for 5%.
Notwithstanding, for purposes of applying Code Section 318 to the
provisions of this paragraph (3), subparagraph (C) of Code Section
318(a)(2) shall be applied by substituting 5% for 50%. In addition, the
rules of subsection (b), (d) and (m) of Code Section 414 shall not apply
for purposes of determining ownership in the Employer under this paragraph
(3).
The constructive ownership rules of Code Section 318 shall apply to this
paragraph (3) in order to determine ownership in the Employer. The
Committee shall make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations thereunder.
(d) NON-KEY EMPLOYEE. A "Non-Key Employee" is any Employee who does not meet
the definition of a Key Employee.
(e) REQUIRED AGGREGATION GROUP. "Required Aggregation Group" is (i) each
qualified plan of the Employer in which at least one Key Employee
participates, plus (ii) any other qualified plan of the Employer which
enables a plan described in (i) above, to meet the requirements of Section
401(a)(4) or 410 of the Code.
(f) PERMISSIVE AGGREGATION GROUP. "Permissive Aggregation Group" is the
Required Aggregation Group plus any qualified plans maintained by the
Employer, but only if such Group would satisfy, in the aggregate, the
requirement of Sections 401(a)(4) and 410 of the Code. The Committee shall
determine which plan(s) to take into account in determining the
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Permissive Aggregation Group.
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(g) AVERAGE TOP-HEAVY COMPENSATION. "Average Top-Heavy Compensation" is the
Participant's average Compensation (with Compensation defined in accordance
with Code regulation 1.415-2(d)) for a period of 5 consecutive years during
which the Participant had the greatest aggregate Compensation in the
testing period. Years ending in a Plan Year beginning before January 1,
1984 and years beginning after the close of the last Plan Year in which the
Plan was Top-Heavy shall not be taken into account.
(h) VALUATION DATE. "Valuation Date" shall mean the date on which the Plan's
assets and liabilities are valued for purposes of calculating the Top-Heavy
Ratio. The Valuation Date shall be the same date as the Determination Date.
14.3 MINIMUM VESTING REQUIREMENTS
Notwithstanding the Vesting Schedule as set forth in Section 3.4 or 15.3(b)
of this Plan, if the Plan is a "Top-Heavy Plan" as determined pursuant to
Code Section 416 for any Plan Year beginning after December 31, 1983, vesting
of the Participant's Accrued Benefit shall be determined in accordance with
the following schedule (for the Plan Year in which the Plan is "Top Heavy"
only):
<TABLE>
<CAPTION>
YEARS OF SERVICE VESTED PERCENTAGE
---------------- -----------------
<S> <C>
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years or More 100%
</TABLE>
14.4 MINIMUM BENEFITS
If the Plan is Top-Heavy in any Plan Year beginning after December 31, 1983, the
Plan shall provide a minimum benefit for each Participant who is a Non-Key
Employee. The minimum normal retirement benefit (in the form of a Life Only
Benefit) shall be equal to the applicable percentage of the Non-Key Employee's
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Average Top-Heavy Compensation. The applicable percentage is the lesser of 2%
multiplied by the number of Years of Service that the Non-Key Employee
completes in Top Heavy Plan Years, or 20%.
The Plan satisfies the minimum benefit for a Non-Key Employee if the Non-Key
Employee's Accrued Benefit at the end of the Top-Heavy Plan Year is at least
equal to the minimum normal retirement benefit.
Notwithstanding the above minimum benefit requirements, if a Non-Key Employee
participates in both this plan and another Top-Heavy tax qualified defined
contribution plan maintained by the Employer, no minimum contribution will be
required under the defined contribution Plan on behalf of the Non-Key
Employee, for any Plan Year, if the Employer provides a minimum benefit under
this Plan on behalf of the Non-Key Employee, for such Plan Year, in
accordance with Code Section 416(c).
14.5 ADDITIONAL ACCRUALS
If, at the end of any Top-Heavy Plan Year, a Non-Key Employee Participant's
Accrued Benefit is not at least equal to his minimum normal retirement benefit,
the Non-Key Employee Participant shall earn an additional accrual. Such Non-Key
Employee Participant's Accrued Benefit shall be increased by the lesser of:
(a) 2% of the Non-Key Employee's Average Top Heavy Compensation minus the
benefit the Non-Key Employee would otherwise accrue under the Plan for the
Plan Year; or
(b) The minimum normal retirement benefit to which the Non-Key Employee should
be entitled under subsection (c) minus the Non-Key Employee's Accrued
Benefit under the Plan at the end of the Plan Year (without regard to any
additional accrual which this subsection (d) may require for the Plan
Year).
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A Non-Key Employee Participant shall receive an additional accrual if he
completes a Year of Service during the Plan Year. The Employer shall not
impute Social Security benefits to determine whether it has satisfied its
obligation to provide the minimum normal retirement benefit.
14.6 ADJUSTMENT TO OVERALL IRC SECTION 415 LIMITATIONS
If, during any Limitation Year, the Plan is Top Heavy, the Committee shall
apply the limitations of Section 4.4 to the Participant by substituting 1.0
for 1.25 each place it appears in the fractions described in Code Sections
415(e)(2) and (e)(3). This Section 14.6 shall not apply if:
(a) The Plan could satisfy subsection (c) of this Section 14.6 if 3% were
substituted for 2%; and
(b) The Top Heavy Ratio does not exceed 90%.
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ARTICLE 15. CASH BALANCE PROVISIONS RELATING TO NONUNION HOURLY EMPLOYEES
15.1 INTRODUCTION
This Article 15 describes the cash balance provisions of the Plan in
connection with the determination of service, eligibility for benefits, and
amount of benefits for those Nonunion Hourly Employees. This Article is
effective January 1, 1997.
15.2 DEFINITIONS
Where the following words and phrases appear in this Article, they shall have
the respective meanings set forth below, unless the context clearly indicates to
the contrary:
(a) ACTUARIAL (OR ACTUARIALLY) EQUIVALENT. A benefit or amount that replaces
another and has the same value as the benefit or amount it replaces, based
on the following actuarial assumptions:
(1) Except as provided in subsections (2)-(3), actuarial equivalence shall
be based on the 1983 GAM Table with annuity values weighted 50% male
and 50% female, and an interest rate equal to the annual average rate
of interest on 30-year U.S. Treasury securities for November of the
Plan Year immediately preceding the Plan Year of distribution.
(2) For purposes of reducing the age 65 minimum benefit to an immediate
annuity payable to a Participant prior to his Early Retirement Age (as
defined in Section 3.2 of the Plan), the actuarial assumptions
specified in subsection (1) shall be used. However, for purposes of
reducing the age 65 minimum benefit to an immediate annuity payable to
a Participant who has attained his Early Retirement Age (as defined in
Section 3.2 of the Plan), the early retirement reduction factors
defined in Section 4.2 of the Plan shall be used.
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(3) In cases where specific assumptions or factors are identified by the
Plan as being applicable to a particular benefit or situation (for
example, in Section 15.4), the specified assumptions or factors shall
be used.
(b) ANNUAL CREDIT. For any calendar year commencing on or after January 1,
1997, 4% of Earnings for the calendar year.
(c) ANNUAL INTEREST CREDITING RATE. The rate of interest used in determining
the amount of the Interest Credit to be added to Participant's Cash Balance
Account each Plan Year. The Annual Interest Crediting Rate shall be
determined for each Plan Year based on the simple average of the annual
rate of interest on 10-year U.S. Treasury Securities for the close of each
business day in the month of October of the prior calendar year. In no
event shall the Annual Interest Crediting Rate be less than 3%.
(d) ANNUAL TRANSITION CREDIT. For any calendar year commencing on or after
January 1, 1997, an amount equal to 4% of a Participant's Earnings for the
calendar year, as further described in Section 15.4(h) of this Plan.
(e) CASH BALANCE ACCOUNT. The notional account deemed to have been established
for each Participant for the amount determined pursuant to Section 15.4.
(f) CASH BALANCE BENEFIT. That part of the Participant's Accrued Benefit which
accrues in accordance with the provisions of Section 15.4.
(g) EARLY RETIREMENT DATE. The first day of the month coincident with or next
following the date on which the Participant has completed 5 Years of
Vesting Service, provided he has terminated employment.
(h) INTEREST CREDIT. The credit specified in Section 15.4(i).
(i) MINIMUM BENEFIT. The portion of the Participant's Accrued Benefit which
accrues in accordance with the provisions of Section 15.4(b).
(j) ONE-YEAR BREAK IN SERVICE. For participation, a One-Year Break in Service
means a Plan Year in which an Employee (or former Employee) is not credited
with more than 500 Hours of Service. For purposes of
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determining whether there has been a One-Year Break in Service, an Employee
shall be credited with Hours of Service for the period during which he or
she is on Parental Leave as follows:
(1) the Employee shall be credited with the number of Hours of Service
with which he or she would normally be credited but for the absence
(or if the Employee's normal Hours of Service cannot be determined,
eight Hours of Service for each day of the absence),
(2) the total number of Hours of Service credited for the absence shall
not exceed 501, and
(3) the Hours of Service credited for the absence shall be credited to the
Plan Year in which the absence begins if the Employee would be
prevented from incurring a One-Year Break in Service in that Plan Year
solely because of the crediting of Hours of Service in accordance with
clauses (1) and (2) of this definition, or in any other case, the
immediately following Plan Year.
For vesting purposes, a One-Year Break in Service is a Period of Severance
of at least 12 consecutive months.
(k) PERIOD OF SEVERANCE. A Period of Severance is a continuous period of time
during which the Participant is not employed by the Employer. Such period
begins on the date the Participant retires, quits or is discharged, or if
earlier, the 12-month anniversary of the date on which the Participant was
otherwise first absent from service.
(l) PRIOR PLAN BENEFIT. The Participant's "Accrued Benefit" within the meaning
of that term under the Plan as it existed on December 31, 1996 and as
documented in the prior amendment and restatement of the Plan (effective
January 1, 1990) and any amendments thereto.
(m) REEMPLOYMENT COMMENCEMENT DATE. The first day an Employee is credited with
an Hour of Service for performing duties following his Severance from
Service.
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(n) SEVERANCE FROM SERVICE. The earlier of the date on which an Employee quits,
retires, is discharged, or dies, or the first anniversary of the date on
which the Employee ceases active employment for any other reason.
(o) YEAR OF SERVICE. For purposes of determining participation, a Plan Year for
which an Employee has been credited with at least 1,000 Hours of Service.
15.3 REQUIREMENTS FOR RETIREMENT BENEFITS
(a) EARLY RETIREMENT. A Participant shall be eligible for an Early Retirement
Pension in accordance with the provisions of Section 15.5 if his employment
is terminated after he has completed 5 or more Years of Vesting Service.
Payment of an Early Retirement Pension shall commence as of the first day
of the calendar month coincident with or next following the Participant's
Normal Retirement Date. However, a retired Participant who is eligible for
an Early Retirement Pension may request the commencement of the
Participant's Early Retirement Pension as of the first day of any calendar
month following the Participant's early retirement but before the
Participant's Normal Retirement Date.
(b) DEFERRED VESTED PENSION.
(1) A Participant shall be eligible for a Deferred Vested Pension in
accordance with the provisions of Section 15.5 if his employment is
terminated with the Employer before death or Retirement after he has
completed at least 5 Years of Vesting Service (as set forth in Section
15.6). A Participant whose employment is terminated with the Employer
before death or Retirement and before he has completed 5 Years of
Vesting Service (as set forth in Section 15.6) shall not be eligible
for a Deferred Vested Pension in accordance with the provisions of
Section 15.5.
(2) Payment of a Deferred Vested Pension shall commence as of the first
day of the calendar month coincident with or next following the
Participant's Normal Retirement Date. However, a retired Participant
who is eligible for Deferred Vested Pension may request the
commencement of the Participant's deferred vested pension as of the
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first day of any calendar month following the Participant's
termination of employment, but before the Participant's Normal
Retirement Date.
(3) Notwithstanding the above, a Participant's right to his Accrued
Benefit will be nonforfeitable upon his attainment of Normal
Retirement Age.
(4) If a Participant has terminated employment with the Employer, any
portion of his Accrued Benefit in which the Participant is not vested
shall be forfeited and canceled as of the Participant's termination of
employment, subject to reinstatement as provided in Section 15.6(b).
Forfeitures of an Employer's Participants arising under the Plan for
any reason shall be used as soon as possible to reduce the Employer's
contributions under the Plan.
15.4 NORMAL RETIREMENT PENSION
(a) NORMAL FORM. In the case of--
(1) any Participant on January 1, 1997 who was a Participant in the Plan
on December 31, 1996 and who is actively employed as a Nonunion Hourly
Employee on or after January 1, 1997, and
(2) any Nonunion Hourly Employee who becomes a Participant in the Plan on
or after January 1, 1997,
such Participant's Accrued Benefit as of any date shall be a monthly
amount, payable to the Participant on the Participant's Normal Retirement
Date and continuing through the first day of the calendar month which
includes the date of the Participant's death, equal to the greater of--
(A) the Participant's Minimum Benefit; or
(B) the Participant's Cash Balance Benefit.
(b) MINIMUM BENEFIT. The Minimum Benefit shall be equal to the Participant's
accrued benefit as of December 31, 1996 as determined under the terms of
the Plan in effect on December 31, 1996.
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(c) CASH BALANCE BENEFIT. Effective January 1, 1997, the monthly amount of the
Participant's Cash Balance Benefit shall equal the Actuarial Equivalent of
the Participant's Cash Balance Account at such Participant's Normal
Retirement Date.
(d) CASH BALANCE ACCOUNT. The Cash Balance Account shall be equal to the sum of
the Participant's:
(1) initial Cash Balance Account, if any, as described in Section 15.4(e);
(2) Annual Credits, if any, as described in Section 15.4(g);
(3) Transition Credits, if any, as described in Section 15.4(h); and
(4) Interest Credits as described in Section 15.4(i).
(e) INITIAL CASH BALANCE ACCOUNT.
(1) The initial Cash Balance Account as of January 1, 1997, for any
Nonunion Hourly Employee who was a Participant on December 31, 1996,
shall be equal to the single sum value of such Participant's accrued
benefit as of December 31, 1996 determined under Section 4.1 of the
Plan in effect as of December 31, 1996, using the Employee's actual
Benefit Service as of December 31, 1996 and an interest rate of 6.5%
and mortality based upon the 1983 Group Annuity Mortality Table, with
annuity values weighted 50% male and 50% female, and assuming
commencement of the retirement benefit at age 65 (or later, if
applicable).
(2) The initial Cash Balance Account for any Participant whose
participation begins on or after January 1, 1997, will be equal to the
Annual Credit for the calendar year the Employee becomes a Participant
and for the calendar year immediately preceding such year. Such Annual
Credit shall be credited as of the end of the calendar year in which
participation begins.
(f) ANNUAL ACCRUAL. A Participant's initial Cash Balance Account shall then--
(1) increase pursuant to Section 15.4(g), each calendar year the
Participant is still a Participant until benefit payments commence,
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(2) further increase pursuant to Section 15.4(h) each calendar year if
such Participant is entitled to receive a Transition Credit, and
(3) further increase automatically each calendar year pursuant to Section
15.4(i), regardless of whether the Participant is a Participant, an
inactive Participant, or a former Participant, until benefit payments
commence.
(g) ANNUAL CREDIT. For calendar years beginning on or after January 1, 1997,
the Participant's Cash Balance Account described in Section 15.4(d) shall
increase by an amount equal to the Participant's Annual Credit for that
calendar year. This amount shall be credited as of the last day of the
calendar year (December 31), or on the date benefit payments commence, if
earlier.
(h) TRANSITION CREDIT. In addition, in the case of any Participant who was an
Employee on December 31, 1996, such Participant will receive an annual
Transition Credit, in addition to his Annual Credit. The amount of the
Transition Credit will be credited as of the last day of the calendar year
(December 31), or on the date benefit payments commence, if earlier. This
Transition Credit will be credited each year until the number of years the
Participant's Cash Balance Account receives a Transition Credit equals the
number of years of Benefit Service such Participant had as of December 31,
1996 (as defined in Section 6.1 of the Plan as in effect on December 31,
1996; any partial year of Benefit Service will be rounded to a full year of
Benefit Service), up to a maximum of 15 years. In no event shall any
Transition Credit be credited for years beginning on or after January 1,
2012. If such Participant has a Severance from Service on or after
January 1, 1997, his eligibility for a Transition Credit will end, and upon
rehire, he will not be eligible to receive a Transition Credit. If such
Participant is on a leave of absence from an Employer for a year and
receives no Earnings during that year he will not receive a Transition
Credit for that year. Notwithstanding the foregoing, Transition Credit may
also be given to a Participant who was not an Employee on December 31,
1996, if deemed appropriate by the Plan Administrator and set forth in
Special Benefit Schedules which may be adopted and made a part of the Plan
from time to time.
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(i) INTEREST CREDIT. Beginning January 1, 1997, the amount by which each
Participant's Cash Balance Account described in Section 15.4(d) shall be
increased until benefits commence. At the end of each calendar year, the
Interest Credit shall be determined by multiplying each Participant's Cash
Balance Account balance at the beginning of the calendar year by the Annual
Interest Crediting Rate. The resulting Interest Credit amount shall be
added to the Participant's Cash Balance Account. If benefits commence
before the last day of a calendar year, the Interest Crediting Rate will be
applied as a monthly nominal rate of interest to reflect the portion of the
calendar year preceding the date such benefits commence.
(j) MILITARY LEAVE. The Cash Balance Account of a Participant who is on a leave
of absence due to service in the Armed Forces of the United States shall be
credited as described in Section 15.4(f) for the period of such absence,
provided that such Participant complies with all the requirements of
federal law in order to be entitled to reemployment and provided further
that such Participant returns to employment with an Employer within the
period provided by such law.
(k) IMPACT OF REEMPLOYMENT ON CASH BALANCE ACCOUNT.
(1) If a Participant is reemployed and he is treated as a new Employee
pursuant to Section 15.6(b) (rule of parity), his prior Cash Balance
Account shall not be restored upon reemployment.
(2) If a Participant has received a distribution of his entire Cash
Balance Account, his prior Cash Balance Account shall not be restored
upon reemployment.
(3) If paragraphs (1) and (2) are not applicable and the Participant did
not receive any distribution, upon reemployment, his entire Cash
Balance Account shall be restored, including any amounts that may have
been forfeited upon a Break in Service, including interest thereon
equal to the amount of the Interest Credit in effect from the date of
the forfeiture to the date of the restoration of the forfeiture.
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(l) COORDINATION WITH LONG-TERM DISABILITY. If a Participant is receiving
benefits under a long-term disability program maintained by an Employer,
the Participant shall continue to be treated as an active Participant and
shall be deemed to be receiving Earnings at the rate in effect at the time
he ceased to be an active Employee.
(m) RESERVED.
15.5 AMOUNT AND MANNER OF PAYMENT; OPTIONAL BENEFITS
(a) AMOUNT OF RETIREMENT BENEFITS. Subject to the provisions of Section 4.6, a
Participant's monthly retirement benefit on his Early Retirement Date or
Normal Retirement Date, or the retirement benefit of a Participant who is
eligible for a Deferred Vested Pension in accordance with the provisions of
Section 15.3(b) shall be equal to his Cash Balance Account, which is deemed
to be the lump sum Actuarial Equivalent value of the Cash Balance Benefit,
payable at the Participant's Normal Retirement Date.
(b) PAYMENT OF RETIREMENT BENEFITS. Subject to the provisions of Section 4.6, a
Participant's monthly retirement benefit on his Early Retirement Date or
Normal Retirement Date, or the retirement benefit of a Participant who is
eligible for a Deferred Vested Pension in accordance with the provisions of
Section 15.3(b) shall be equal to his Cash Balance Account, which is deemed
to be the lump sum Actuarial Equivalent value of the Cash Balance Benefit,
payable at the Participant's Normal Retirement Date.
If a Participant does not have a spouse at the time of the commencement of
payment of a Normal, Early, or Deferred Vested Pension, he will receive the
value of his vested Accrued Benefit in the form of a Life Annuity, as
described in Section 15.5(c)(1) below, unless he elects an optional form of
benefits under Section 15.5(c).
If a Participant is married as of the date his benefits commence, he shall
receive the value of his vested Accrued Benefit in the form of a Joint and
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50% Survivor Annuity, as described in Section 15.5(c)(4) below, unless he
elects an optional form of benefits under Section 15.5(c), in accordance
with the provisions of Section 15.5(d).
(c) OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS. Subject to the written
election procedures described below, a Participant may receive his Normal,
Early, or Deferred Vested Pension under any of the following optional
methods (all optional methods are the Actuarial Equivalent of a Life Only
Annuity):
(1) LIFE ONLY ANNUITY. This optional form provides a monthly annuity for
the Participant's lifetime, with no further benefits being paid upon
his death.
(2) LIFE WITH 10 YEARS CERTAIN ANNUITY. This form provides a monthly
annuity for the lifetime of the Participant, and if the Participant's
death occurs within a period of 10 years after the commencement date
of his benefits, payment of the benefits will be continued in an
amount equal to 70% of the original amount to the Beneficiary or
Beneficiaries designated by the Participant for the balance of the
10-year period.
(3) JOINT AND 66-2/3% SURVIVOR ANNUITY. This form provides a reduced
monthly annuity for the life of a Participant, with a survivor annuity
for the life of the Participant's spouse, where the survivor annuity
is 66-2/3% of the amount of the annuity payable during the joint lives
of the Participant and the Participant's spouse.
(4) JOINT AND 50% SURVIVOR ANNUITY. This optional form of payment is a
reduced monthly annuity for the life of a Participant, with a survivor
annuity for the life of the Participant's spouse, where the survivor
annuity is 50% of the amount of the annuity payable during the joint
lives of the Participant and the Participant's spouse.
(5) SINGLE SUM OPTION. This optional form of payment is an immediate
single sum payment equal to the Actuarial Equivalent of the
Participant's Accrued Benefit or the Participant's Cash Balance
Account, if greater.
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If the Participant elects to receive the value of the benefit in a single
sum payment, this payment shall be in lieu of all other benefits under the
Plan.
A Participant who retires pursuant to the provisions of Sections 15.3(a) or
15.3(b), may elect an immediately payable annuity in the Normal Form.
(d) ELECTION PROCEDURES FOR OPTIONAL RETIREMENT BENEFITS. In lieu of receiving
benefits in the form of a Life Annuity or a Joint and 50% Survivor Annuity,
the Participant may make an election to receive benefits in an optional
form described in Section 15.5(c). However, such an election must be made
in writing by the Participant during the election period. If he is married,
the election MUST BE CONSENTED TO BY THE PARTICIPANT'S SPOUSE and must meet
the following requirements:
(1) The spouse's consent must acknowledge the effect of such election and
be witnessed by a Plan representative or a notary public. Such consent
will not be required if it is established to the Committee that the
required consent cannot be obtained because there is no spouse, the
spouse cannot be located, or other circumstances that may be
prescribed by Treasury regulations. The election may be revoked by the
Participant in writing without the consent of the spouse at any time
during the election period described in subparagraph (b) below. Any
new election must comply with the requirements of this subparagraph
(a). A former spouse's waiver shall not be binding on a new spouse.
(2) The election period to waive the Joint and 50% Survivor Annuity shall
be the 90-day period, the last day of which is the "annuity starting
date". For purposes of this Section, "annuity starting date" means the
first day of the first period for which an amount is received as an
annuity. Any elections may not be changed after the Participant's
annuity starting date.
(3) A Participant's failure to waive the Joint and 50% Survivor Annuity
will not result in a decrease in any Plan accrued benefit with respect
to such Participant.
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(e) EMPLOYMENT AFTER NORMAL RETIREMENT DATE. Subject to the provisions of
Section 5.6, payment of the Pension of a Participant who either (a) becomes
reemployed after his annuity starting date or (b) remains in employment
after his Normal Retirement Date shall be suspended during each calendar
month of the Participant's reemployment or continued employment during
which the Participant is credited with at least 40 Hours of Service. In the
case of a Participant who becomes reemployed after his annuity starting
date, upon his ceasing to be employed on the basis described in the
previous sentence he shall be entitled to resume receiving distribution of
his Pension in accordance with the following rules: (a) payments shall
resume no later than the third calendar month after the calendar month in
which the Participant ceases to be so employed provided the Participant has
notified the Employer of the cessation, (b) payment shall be retroactive to
the day the Participant ceased such employment, (c) payment shall be in the
same form as before the suspension, and (d) the pension payable upon his
subsequent retirement shall be reduced by the Actuarial Equivalent of
previous pension payments received prior to Normal Retirement Date. The
Committee shall notify any Participant who is affected by this Section
15.5(e) in accordance with the notification requirements of Department of
Labor Regulations Section 2530.203-3(b)(4).
(f) PAYMENT OF DEATH BENEFITS.
(1) PRIOR TO TERMINATION OF EMPLOYMENT.
(A) In the event of the death of a Participant while employed by the
Employer as a salaried employee but after the date he completes
5 years of Vesting Service, his Beneficiary shall be eligible to
receive a death benefit payable in the manner described below.
(B) If the Participant would have accrued at least 20 years of
Vesting Service had he remained in the service of his Employer
until his Normal Retirement Date, the amount of such death
benefit shall be paid as a single sum equal to the greater of
(i) and (ii):
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(i) 36 times the Participant's monthly regular compensation (defined as
base pay, excluding any bonuses, overtime, and incentive pay) for the
calendar month immediately preceding the calendar month of death, and
(ii) the greater of:
(I) the Participant's Cash Balance Account, or
(II) the single sum Actuarial Equivalent of the Qualified
Pre-retirement Survivor Annuity that is payable under this
Section 15.5(f).
If the Participant would have accrued less than twenty years of Vesting
Service had he remained in the service of his Employer to his Normal
Retirement Date, the amount of such death benefit shall be computed as
provided in (A) above, reduced by 5% per year (5/12 of 1% for each full
month) by which the Vesting Service which he would have accrued if he had
remained in the service of his Employer to his Normal Retirement Date, is
less than 20 years and shall then be reduced in the manner provided in (B)
above. The amount of the death benefit, determined in this Section
15.5(f)(1)(B), shall be reduced to the extent that said death benefit, when
added to the Actuarial Equivalent of the Qualified Pre-retirement Survivor
Annuity, exceeds an amount equal to 100 times the projected monthly Normal
Retirement Pension to which the Participant would have been entitled had he
continued in his employment, at his most recent rate of Earnings, until he
attained his Normal Retirement Age.
(C) If a Participant described in (B) above had completed at least 5 years
of Vesting Service and is survived by a spouse, such spouse shall be
entitled to a Qualified Pre-retirement Survivor Annuity in an amount
equal to the Actuarial Equivalent of the benefit which would have been
payable to such spouse if the Participant had terminated employment
with the Employer immediately prior to his death but survived to his
Earliest Retirement Age, retired with an immediate Joint and 66-2/3%
Survivor Annuity form described in Section 15.5(f) on his
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Earliest Retirement Age, and died on the date after the day on
which such Participant would have attained his Earliest
Retirement Age.
(D) Unless the Participant has elected another form of payment pursuant to
Section 15.5(c), the Qualified Pre-retirement Survivor Annuity
determined under (C) above shall be payable as a monthly benefit
commencing on the date selected by the surviving spouse, which shall
be the first day of a calendar month. In the case of a surviving
spouse not electing an immediate benefit, such date shall occur no
earlier than the date on which the deceased Participant would have
attained his Earliest Retirement Age applicable, or the date of the
Participant's death, and no later than the first day of the month next
following the later of the Participant's death or the date the
Participant would have attained Normal Retirement Age.
(E) The surviving spouse may elect to receive the Qualified Pre-retirement
Survivor Annuity in the form of a single sum payment. Such immediate
single sum payment equal to the greater of--
(i) the Participant's Cash Balance Account as of the first day of the
calendar month preceding the date of distribution; or
(ii) the single sum Actuarial Equivalent of the Participant's Accrued
Benefit.
(2) DEATH BENEFIT AFTER TERMINATION OF EMPLOYMENT.
(A) If a married Participant who has a deferred vested pension dies while
not employed by the Employer and before his benefit commenced payment
under Section 4.1, 4.2, 4.4, 15.4, or 15.5(a), his surviving spouse
shall be eligible to receive a Qualified Pre-retirement Survivor
Annuity in an amount equal to the greater of:
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(i) the Participant's Cash Balance Account; or
(ii) the single sum Actuarial Equivalent of the Qualified
Pre-retirement Survivor Annuity that is payable under this
Section 15.5(f).
(B) If an unmarried Participant who has a deferred vested pension dies
while not employed by the Employer and before his benefit commenced
payment under Section 15.4 or 15.5(a), his Beneficiary shall be
eligible to receive a benefit, equal to the Actuarial Equivalent of
the Participant's Cash Balance Account.
(3) The death benefit payable under this Section shall be payable as a
monthly benefit commencing on the date selected by the surviving
spouse or the designated Beneficiary which shall be the first day of a
calendar month. In the case of a surviving spouse not electing an
immediate benefit, such date shall occur no earlier than the date on
which the deceased Participant would have attained his Earliest
Retirement Age, or the date of the Participant's death, and no later
than the first day of the month next following the later of the
Participant's death or the date the Participant would have attained
Normal Retirement Age.
The surviving spouse or the designated Beneficiary may elect to
receive the death benefit in the form of a immediate single sum
payment. Such immediate single sum payment equal to the greater of--
(i) the Participant's Cash Balance Account as of the first day of the
calendar month preceding the date of distribution; or
(ii) the single sum Actuarial Equivalent of the Participant's Accrued
Benefit.
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15.6 YEAR OF VESTING SERVICE
(a) A Participant will be credited with Years of Vesting Service for Service
prior to January 1, 1997, in accordance with Section 6.2 of the Plan. For
Service after December 31, 1996, a Participant will receive credit for the
aggregate of all time periods commencing with the Participant's Employment
Commencement Date or Reemployment Commencement Date, and ending on the date
his Period of Severance begins, subject to the limitations below:
(1) A Participant shall not receive more than one Year of Vesting Service
credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(2) An Employee may also receive Vesting Service for employment with any
related entity. The Committee may determine that Service may be
credited for such employment if it is credited on a uniform and
nondiscriminatory basis.
(3) A leave of absence due to service in the Armed Forces of the
United States shall be included as Vesting Service under the Plan,
provided that the Employee complies with all the requirements of
federal law in order to be entitled to reemployment and provided
further that such Employee returns to employment with the Employer
within the period provided by such law.
(b) CANCELLATION AND REINSTATEMENT OF SERVICE.
(1) If a Participant terminates employment with the Employer prior to the
earlier of:
(A) the Participant's death, or
(B) the date the Participant is credited with 5 years of Vesting Service,
all his Vesting Service shall be cancelled. Notwithstanding the
foregoing, a Participant's right to his Accrued Benefit will be
nonforfeitable upon his attainment of Normal Retirement Age.
(2) If an Employee incurs a Severance from Service and is subsequently
reemployed as an Employee, and--
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(A) if he received a lump sum distribution of the present value of his
Accrued Benefit at his Severance from Service, the Years of Vesting
Service he had at such date will be reinstated upon the date of his
rehire, unless he is reemployed after a One-Year Break in Service, in
which case his prior Years of Vesting Service will not be reinstated
unless he is an Employee on the first anniversary of the date of his
rehire;
(B) if he was entitled to receive a benefit under Section 15.4 at his
Severance from Service but has not received distribution of the
present value of his Accrued Benefit at the date of his rehire, his
benefits will be suspended in accordance with the provisions of
Section 5.4 and adjusted in accordance with the provisions of Section
5.4, and the Years of Vesting Service he had at his Severance from
Service will be reinstated upon the date of his rehire, unless he is
reemployed after a One-Year Break in Service, in which case his prior
Years of Vesting Service will not be reinstated unless he is an
Employee on the first anniversary of the date of his rehire;
(C) if he was not entitled to receive a benefit under Section 15.4 at his
Severance from Service and he is rehired after a 5-Year Period of
Severance, the Years of Vesting Service he had at his Severance from
Service will not be reinstated;
(D) if he was not entitled to receive a benefit under Section 15.4 at his
Severance from Service and he is reemployed before a 5-Year Period of
Severance, the Years of Vesting Service he had at his Severance from
Service will be reinstated upon the date of his rehire, unless he is
rehired after a One-Year Break in Service, in which case his prior
Years of Vesting Service will not be reinstated unless he is an
Employee on the first anniversary of the date of his rehire; or
(E) if he is reemployed before a One-Year Break in Service and his
Severance from Service resulted from resignation, discharge, or
retirement, he shall receive credit (but not in excess of 12 months)
for Years of Vesting Service for the period between his Severance from
Service and the date of his rehire.
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IN WITNESS WHEREOF, United Wisconsin Services, Inc., and Blue Cross & Blue
Shield United of Wisconsin, by their duly authorized officers, have caused
these presents to be signed on this _____ day of ____________________, 1998.
UNITED WISCONSIN SERVICES, INC.
_____________________________________________
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
_____________________________________________
CORPORATE SEAL
ATTEST:
______________________________
Secretary
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SCHEDULE A--ACTUARIAL ASSUMPTIONS
SINGLE SUM CASH DISTRIBUTIONS
(a) MORTALITY--The Unisex Pension 1984 Mortality Table, with the ages in said
table set back four years.
(b) INTEREST--Subject to paragraph (c) of this Schedule A. The interest rates
on January 1, immediately preceding the date of payment that is used by the
Pension Benefit Guaranty Corporation to determine the present value of
benefits for terminating plans.
(c) MINIMUM ACTUARIAL EQUIVALENT PRESENT VALUE--In no event shall the Actuarial
Equivalent present value of a Participant's vested Accrued Benefit be less
than the greater of:
(1) such present value determined based on the interest assumption set
forth in paragraph (b) of this Schedule A, and
(2) such present value determined based on the Applicable Interest Rate
(as defined below).
For purposes of this Schedule A, the Applicable Interest Rate shall be (A)
if such present value does not exceed $25,000, the interest rates which
would be used as of the first day of the Plan Year in which the
Participant's annuity starting date occurs, by the Pension Benefit Guaranty
Corporation for a trusteed single employer plan or (B) if that present
value exceeds $25,000, 120% of the rate described in paragraph (A). In no
event shall the present value determined by using the rate in paragraph (B)
be less than $25,000.
OTHER THAN SINGLE SUM CASH DISTRIBUTIONS
(a) MORTALITY--The Unisex Pension 1984 Mortality Table with the ages in said
table set back four years.
(b) INTEREST-- 9%.
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<PAGE>
SCHEDULE B--PARTICIPATING EMPLOYERS
(As of January 1, 1993)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Take Control, Inc.
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
(As of January 1, 1995)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
(Including West Allis Dental Group)
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
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SCHEDULE B--PARTICIPATING EMPLOYERS (cont'd.)
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
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SCHEDULE C--EXCLUDED EMPLOYEE GROUPS
(As of January 1, 1993)
West Allis Dental Group (a division of Compcare Health Services
Insurance Corporation)
(As of January 1, 1995)
HMO of Wisconsin Insurance Corporation
HMO-W, Inc.
United Heartland, Inc.
(As of January 1, 1997)
Accountable Health Plans, Inc.
Accountable Health Plan of the Carolinas, Inc.
Advance Medical Security, Inc.
American Medical Security Holdings, Inc.
American Medical Security, Inc.
AMS HMO Holdings, Inc.
AMS Provider Partnerships, Inc.
American Medical Security Health Plans, Inc.
American Medical Security Insurance Company
American Medical Security Health Plan, Inc. (DBA American Medical
Healthcare)
Atlantic Health Plans, Inc.
CNR Health, Inc.
Community Health Plan, Inc.
Continental Plan Services, Inc.
Crescent Medical Partnerships, Inc.
HMO-W, Inc.
Nurse Healthline, Inc.
Personal Physician Care, Inc.
U&C Real Estate Partnership
United Wisconsin Life Insurance Company
Unity Health Plans Insurance Corporation (formerly HMO of
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<PAGE>
Wisconsin Insurance Corporation)
Unity HMO of Illinois, Inc
87
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 1
Participants Terminating Employment between March 1, 1996 and December 31, 1996.
Any Participant who was a Nonunion Hourly Employee, who terminated employment on
or after March 1, 1996 and before January 1, 1997, and who did not receive a
distribution of his vested prior Plan Benefit during 1996 shall receive his
retirement benefit in accordance with Section 15.4 of this Plan as if he had
been actively employed as of January 1, 1997. In the event any of the
Participants described above are reemployed, they shall not be eligible to
receive a Transition Credit.
88
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 2
HOMETOWN INSURANCE SERVICES EMPLOYEES
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is
made a part of the Plan as of January 1, 1995 and supersedes any provisions
of the Plan which are not consistent with this Special Benefit Schedule. The
Participants covered by this Special Benefit Schedule are the Participants
listed below ("Hometown Employees") who were employed by the Employer (doing
business as Hometown Insurance Services) on December 31, 1994.
Lisa Tranberg
1. ELIGIBILITY. A Hometown Employee shall participate in the Plan as of the
later of (a) January 1, 1995 or (b) the first day of the month coincident
or next following the first anniversary of his date of hire with HMO of
Wisconsin Insurance Corporation, HMO-W, Inc., University Health Care, Inc.,
U-Care HMO, Inc., or Unity Health Plans Insurance Corporation (a "Hometown
Related Employer").
2. VESTING. For purposes of determining the Years of Vesting Service pursuant
to Section 15.6, the Plan shall recognize, in addition to his Service with
an Employer on and after January 1, 1995, all periods of a Participant's
employment with a Hometown Related Employer prior to January 1, 1995.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 3
CERTAIN UNITED HEARTLAND, INC. EMPLOYEES
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain Employees of United
Heartland, Inc. ("UH"). The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective Date
were actively employed by UH and were active participants in the United
Heartland, Inc. Pension Plan ("UH Pension").
2. EFFECTIVE DATE. January 1, 1997.
3. ELIGIBILITY. A participant in the UH Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee of UH shall become eligible to participate in the
Plan on the later of the Effective Date or the date such employee would
otherwise become eligible to participate in accordance with the provisions
of Article 2 of the Plan, taking into account such employee's service with
UH prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT. A Participant covered by this Special Benefit
Schedule shall have no initial Cash Balance Account as of January 1, 1997.
The initial Cash Balance Account for such participants shall be established
in accordance with Section 15.4(e)(2).
5. NO TRANSITION CREDITS. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
6. VESTING. For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with UH, as
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<PAGE>
computed under the elapsed time method used by the UH Plan.
91
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 4
FORMER EDS EMPLOYEES IN THE MEDICAID CLAIMS PROCESSING UNIT
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain former EDS employees. The
Participants covered by this Special Benefit Schedule are the Participants
who immediately prior to the Effective Date were actively employed by EDS
in the Medicaid Claims Processing Unit and became Employees of the Company
on the Effective Date.
2. EFFECTIVE DATE. January 1, 1997.
3. ELIGIBILITY. A Participant covered by this Special Benefit Schedule who was
a Participant in the EDS Retirement Plan immediately prior to the Effective
Date shall become a Participant in the Plan on the Effective Date. Any
other employee in the Medicaid Claims Processing Unit shall become eligible
to participate in the Plan on the later of the Effective Date or the date
such employee would otherwise become eligible to participate in accordance
with the provisions of Article 2 of the Plan, taking into account such
employee's service with EDS prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT. A Participant covered by this Special Benefit
Schedule shall have no initial Cash Balance Account as of January 1, 1997.
The initial Cash Balance Account for such participants shall be established
in accordance with Section 15.4(e)(2).
5. NO TRANSITION CREDITS. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive Transition Credits
as described in Section 15.4(h) of this Plan.
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<PAGE>
6. VESTING. For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with EDS, as
computed under the method used by EDS Plan.
93
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 5
FORMER EDS EMPLOYEES IN THE PRINT CENTER
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain former EDS employees. The
Participants covered by this Special Benefit Schedule are the Participants
who immediately prior to the Effective Date were actively employed by EDS
in the Print Center who became Employees of the Company on the Effective
Date.
2. EFFECTIVE DATE. August 1, 1997.
3. ELIGIBILITY. A Participant covered by this Special Benefit Schedule who was
a participant in the EDS Retirement Plan immediately prior to the Effective
Date shall become a Participant in the Plan on the Effective Date. Any
other employee in the Print Center shall become eligible to participate in
the Plan on the later of the Effective Date or the date such employee would
otherwise become eligible to participate in accordance with the provisions
of Article 2 of the Plan, taking into account such employee's service with
EDS prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT. A Participant covered by this Special Benefit
Schedule shall have no initial Cash Balance Account as of January 1, 1997.
The initial Cash Balance Account for such participants shall be established
in accordance with Section 4.1(e)(2).
5. ANNUAL CREDITS. A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 4% of Earnings. Annual Credits
shall be determined and credited to such Participants' Cash Balance
Accounts as described in Section 15.4(g) of the Plan, except as described
in
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<PAGE>
Section 6 of this Special Benefit Schedule.
95
<PAGE>
6. 1997 ANNUAL CREDIT. A Participant covered by this Special Benefit Schedule
shall receive an Annual Credit for the calendar year ended December 31,
1997 in an amount equal to 4% of Earnings for the period from August 1,
1997 to December 31, 1997.
7. NO TRANSITION CREDITS. A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
8. VESTING. For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with EDS, as
computed under the method used by EDS Plan.
96
<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 6
UNITY HEALTH PLANS INSURANCE CORPORATION EMPLOYEES
Pursuant to Section 1.1(jj) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED. This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of benefit accrual, participation and vesting service for Employees of
Unity Health Plans Insurance Corporation ("Unity").
2. EFFECTIVE DATE. October 1, 1997.
3. ELIGIBILITY. A participant in the Unity Health Plans Insurance Corporation
Retirement Plan ("Unity Plan") who was actively employed by Unity
immediately prior to the Effective Date shall become a Participant in the
Plan on the Effective Date. Any other Employee of Unity shall become
eligible to participate in the Plan on the later of the Effective Date or
the date such employee would otherwise become eligible to participate in
accordance with the provisions of Article 2 of the Plan, taking into
account such employee's service with Unity prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT. A Participant covered by this Special Benefit
Schedule shall have no initial Cash Balance Account as of October 1, 1997.
The initial Cash Balance Account for such participants shall be established
in accordance with Section 4.1(e)(2).
5. ANNUAL CREDITS. A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 3% of Earnings. Annual Credits
shall be determined and credited to such Participants' Cash Balance
Accounts as described in Section 15.4(g) of the Plan, except as described
in Section 6 of this Special Benefit Schedule.
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<PAGE>
6. 1997 ANNUAL CREDIT. A Participant covered by this Special Benefit Schedule
shall receive an Annual Credit for the calendar year ended December 31,
1997 in an amount equal to 3% of Earnings for the period from October 1,
1997 to December 31, 1997.
7. NO TRANSITION CREDITS. A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 15.4(h) of this Plan.
8. VESTING. For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with Unity, as
computed under the elapsed time method used by the Unity Plan.
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UWSI/BCBSUW SALARIED PENSION PLAN
---------------------------------
(As Amended and Restated Effective January 1, 1997)
<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
---------------------------------
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
<C> <S> <C>
1.1 DEFINITIONS 2
1.2 CONSTRUCTION 12
ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY 14
2.2 CESSATION OF PARTICIPATION 14
2.3 PARTICIPATION UPON REEMPLOYMENT 15
2.4 TRANSFERS 16
ARTICLE III
REQUIREMENTS FOR RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT 17
3.2 EARLY RETIREMENT 17
3.3 DISABILITY RETIREMENT 17
3.4 DEFERRED VESTED PENSION 19
ARTICLE IV
AMOUNT OF RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT PENSION 20
4.2 DISABILITY RETIREMENT PENSION 24
4.3 RESERVED 26
4.4 MAXIMUM PENSION 26
4.5 NO DUPLICATION OF BENEFITS 27
ARTICLE V
MANNER OF PAYMENT AND OPTIONAL BENEFITS
5.1 AMOUNT OF RETIREMENT BENEFITS 28
5.2 PAYMENT OF RETIREMENT BENEFITS 28
5.3 OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS 28
5.4 ELECTION PROCEDURES FOR OPTIONAL RETIREMENT
BENEFITS 29
5.5 EMPLOYMENT AFTER NORMAL RETIREMENT DATE 30
5.6 PAYMENT OF DEATH BENEFITS 31
5.7 TIME OF DISTRIBUTIONS 35
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<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
---------------------------------
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
5.8 LUMP SUM PAYMENT OF SMALL PENSIONS 36
5.9 EFFECT OF REEMPLOYMENT 36
5.10 DIRECT ROLLOVERS; WITHHOLDING 37
ARTICLE VI
YEAR OF BENEFIT SERVICE; YEAR OF VESTING SERVICE
6.1 YEAR OF VESTING SERVICE 39
6.2 CANCELLATION AND REINSTATEMENT OF SERVICE 39
ARTICLE VII
PLAN FINANCING
7.1 CONTRIBUTIONS 42
7.2 TRUST FUND 42
ARTICLE VIII
ADMINISTRATION OF THE PLAN
8.1 PLAN ADMINISTRATOR 43
8.2 THE ADMINISTRATIVE COMMITTEE 43
8.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE 44
8.4 EXPENSES OF ADMINISTRATION 44
8.5 ACTS OF THE COMMITTEE 44
8.6 INTERPRETATIONS 44
8.7 LIABILITY OF THE COMMITTEE 45
8.8 APPLICABLE LAW 45
8.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES AMONG THEM 46
8.10 RELIANCE ON CO-FIDUCIARIES 46
8.11 FIDUCIARY DUTIES 47
8.12 PROHIBITED TRANSACTIONS TO BE AVOIDED 47
8.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR 48
8.14 DATA SUPPLIED BY EMPLOYER 48
8.15 PARTIAL EXCULPATION 48
8.16 INFORMATION REQUIRED OF PARTICIPANTS 48
8.17 CLAIMS PROCEDURE 49
8.18 BENEFICIARY DESIGNATIONS 51
ARTICLE IX
MISCELLANEOUS
9.1 NONGUARANTEE OF EMPLOYMENT 52
9.2 RIGHTS TO TRUST FUND ASSETS 52
9.3 NONALIENATION OF BENEFITS 52
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<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
---------------------------------
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
9.4 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC
RELATIONS ORDER 52
9.5 GOVERNING LAW 54
9.6 PARTICIPANT INFORMATION 54
ARTICLE X
AMENDMENTS AND ACTIONS BY THE EMPLOYER
10.1 AMENDMENTS 56
10.2 LIMITATION ON AMENDMENTS 56
10.3 ACTION BY EMPLOYER 57
ARTICLE XI
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION
OF PLANS
11.1 SUCCESSOR EMPLOYER 58
11.2 PLAN ASSETS 58
ARTICLE XII
TEMPORARY RESTRICTIONS ON BENEFITS
12.1 TEMPORARY LIMITATION ON BENEFITS OF RESTRICTED
MEMBERS 59
ARTICLE XIII
PLAN TERMINATION
13.1 TERMINATION OF THE PLAN 61
13.2 DISTRIBUTION ON TERMINATION AND PARTIAL TERMINATION 61
13.3 MANNER OF DISTRIBUTION 62
13.4 RESIDUAL AMOUNTS 62
13.5 EFFECT OF BANKRUPTCY AND OTHER CONTINGENCIES
AFFECTING AN EMPLOYER 62
ARTICLE XIV
TOP HEAVY PROVISIONS
14.1 TOP HEAVY PROVISIONS 64
14.2 TOP HEAVY PLAN DEFINITIONS 64
14.3 MINIMUM VESTING REQUIREMENTS 67
14.4 MINIMUM BENEFITS 68
14.5 ADDITIONAL ACCRUALS 68
14.6 ADJUSTMENT TO OVERALL IRC SECTION 415 LIMITATIONS 69
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<PAGE>
UWSI/BCBSUW SALARIED PENSION PLAN
---------------------------------
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
(Continued)
SCHEDULE A - PARTICIPATING EMPLOYERS 71
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS 72
SPECIAL BENEFIT SCHEDULE NO. 1 73
SPECIAL BENEFIT SCHEDULE NO. 2 74
SPECIAL BENEFIT SCHEDULE NO. 3 75
SPECIAL BENEFIT SCHEDULE NO. 4 76
SPECIAL BENEFIT SCHEDULE NO. 5 77
SPECIAL BENEFIT SCHEDULE NO. 6 79
</TABLE>
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<PAGE>
INTRODUCTION
The UWSI/BCBSUW Salaried Pension Plan (formerly called the Blue Cross &
Blue Shield United of Wisconsin Salaried Employees Retirement Plan) (the
"Plan") is hereby amended and restated effective January 1, 1997 (unless
stated to the contrary) in order to adopt a cash balance formula.
It is intended that the Plan, as herein amended and restated, will
continue to comply with the requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA") and will continue to qualify under the Code of
1986 ("Code") and any later amendments to either ERISA or the Code.
Notwithstanding any provisions in this Plan to the contrary, the rights
and benefits, if any, provided to Participants whose termination of
employment occurred prior to January 1, 1997 (except as specifically provided
herein) shall be paid pursuant to the terms of the Plan in effect prior to
that date.
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<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS:
Where the following words and phrases appear in this Plan, they shall
have the respective meanings set forth below, unless the context clearly
indicates to the contrary:
(a) ACCRUED BENEFIT: The amount determined in accordance with
Section 4.1 for Retirement at the Normal Retirement Date.
(b) ACTUARIAL (OR ACTUARIALLY) EQUIVALENT: A benefit or amount that
replaces another and has the same value as the benefit or amount it
replaces, based on the following actuarial assumptions:
(i) Except as provided in subsection (ii)-(iv), actuarial
equivalence shall be based on the 1983 GAM Table with annuity values
weighted 50% male and 50% female, and an interest rate equal to the
annual average rate of interest on 30-year U.S. Treasury securities
for November of the Plan Year immediately preceding the Plan Year of
distribution.
(ii) For purposes of determining the lump sum value of the
accrued benefit as of December 31, 1992, the interest rate
specified in the preceding subsection will be reduced by 2-1/2% to
reflect cost-of-living adjustments.
(iii) For purposes of reducing the age 65 minimum benefit to an
immediate annuity payable to a Participant prior to his Early
Retirement Age (as defined in the Plan as in effect on December 31,
1996), the actuarial assumptions specified in subsection (i) shall be
used. However, for purposes of reducing the age 65 minimum benefit to
an immediate annuity payable to a Participant who has attained his
Early Retirement Age (as defined in the Plan as in effect on
December 31,
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<PAGE>
1996), the early retirement reduction factors defined in Section 4.2
of the Plan as in effect on December 31, 1996 shall be used.
(iv) In cases where specific assumptions or factors are
identified by the Plan as being applicable to a particular benefit or
situation (for example, in Section 4.1), the specified assumptions or
factors shall be used.
(c) ACTUARY: The individual actuary who is an enrolled actuary under
ERISA or firm of actuaries employing an enrolled actuary selected by the
Employer and approved by the Committee, to provide actuarial services in
connection with the administration of the Plan.
(d) ADMINISTRATIVE COMMITTEE or COMMITTEE: The Committee as
described in Article VIII.
(e) ADMINISTRATIVE DELEGATE: One or more persons or institutions to
whom the Administrative Committee has delegated certain administrative
functions pursuant to a written agreement.
(f) ANNUAL CREDIT: For any calendar year commencing on or after
January 1, 1997, 4% of Earnings for the calendar year, unless otherwise
specified in a Special Benefit Schedule.
(g) ANNUAL TRANSITION CREDIT: For any calendar year commencing on or
after January 1, 1997, an amount equal to 4% of a Participant's Earnings
for the calendar year, as further described in Section 4.1(h) of this Plan.
(h) ANNUAL INTEREST CREDITING RATE: The rate of interest used in
determining the amount of the Interest Credit to be added to Participant's
Cash Balance Account each Plan Year. The Annual Interest Crediting Rate
shall be determined for each Plan Year based on the simple average of the
annual rate of interest on 10-year U.S. Treasury Securities for the close
of each business day in the month of October of the prior calendar year.
In no event shall the Annual Interest Crediting Rate be less than 3%.
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<PAGE>
(i) BENEFICIARY: A person or persons (natural or otherwise)
designated by a Participant to receive any death benefits which shall be
payable under this Plan.
(j) CASH BALANCE ACCOUNT: The notional account deemed to have been
established for each Participant for the amount determined pursuant to
Section 4.1.
(k) CASH BALANCE BENEFIT: That part of the Member's Accrued Benefit
which accrues in accordance with the provisions of Section 4.1.
(l) CLAIMANT: Any individual who has made a claim as provided in
Section 8.17.
(m) CODE: The Internal Revenue Code of 1986, as amended.
(n) COMPANY: United Wisconsin Services, Inc. and Blue Cross & Blue
Shield United of Wisconsin.
(o) CONTINGENT ANNUITANT: The surviving spouse of a Participant who
is eligible for either a Joint and 50% Survivor Annuity, a Joint and
66-2/3% Survivor Annuity, or the Qualified Pre-retirement Survivor Annuity.
(p) EARLIEST RETIREMENT AGE: means the earliest date on which, under
the Plan, a Participant could elect retirement benefits in the form of an
annuity.
(q) EARLY RETIREMENT DATE: The first day of the month coincident
with or next following the date on which the Participant has completed 5
Years of Vesting Service, provided he has terminated employment.
(r) EARNINGS: For purposes of Section 4.1, annual Earnings shall be
defined as the sum total of items (1) through (9):
(1) a Participant's regular compensation paid by the Employer
for the calendar year (including holiday, vacation, and personal days
paid),
(2) any shift differential paid by the Employer for the calendar
year,
(3) any overtime paid by the Employer for the calendar year,
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<PAGE>
(4) any cash distributions from the Employer's profit sharing
plan that are paid during the calendar year,
(5) any management incentive bonuses that are paid during the
calendar year,
(6) any other performance-related bonuses (exclusive of any
management incentive bonuses under Section 1.1(r)(5) or any
entitlement under any Employer approved sales incentive compensation
program under Section 1.1(r)(8)) that are paid during the calendar
year,
(7) any short-term disability payments from the Employer's
disability plan that are made to the Participant for the calendar
year,
(8) any Employer approved sales incentive compensation program
awards that are paid during the calendar year,
(9) any salary reduction contributions to a qualified retirement
plan maintained by the Company pursuant to Section 401(k) of the Code
or to a cafeteria plan maintained by the Company pursuant to Section
125 of the Code during the calendar year.
Any compensation received under the Employer's long term incentive
program, any lump sum vacation pay paid for reasons of termination of
employment or retirement, any severance pay, and any unused personal days
paid in cash shall not be included in the definition of Earnings.
Earnings in excess of $150,000 (or such other amount as may be
determined by the Secretary of the Treasury in accordance with Section
401(a)(17) of the Code to reflect increases in cost-of-living) for any
calendar year shall not be taken into account.
(s) EFFECTIVE DATE: The Effective Date of this amended and restated
Plan is January 1, 1997.
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<PAGE>
(t) EMPLOYEE: A person who, on or after the Effective Date, is
actively employed as a salaried employee by an Employer which participates
in this Plan (as set forth in Schedule A to this Plan), is not in a group
of employees specifically excluded from participating in the Plan (as set
forth on Schedule B to this Plan), and is receiving such remuneration for
personal services rendered to such Employers (or would be receiving such
remuneration except for an Authorized Leave of Absence). The term
"Employee" shall not include a "Leased Employee" as defined in Section
414(n) of the Code, except to the extent required by law. Notwithstanding
anything in this Plan to the contrary, persons who are classified by an
Employer as independent contractors shall not be considered Employees
eligible to participate in the Plan.
(u) EMPLOYER: Employers which are participating in this Plan as set
forth on Schedule A to this Plan. Any Employers not included on Schedule A
to this Plan shall be deemed nonparticipating Employers in this Plan.
For purposes of calculating the maximum benefit payable under
Section 4.4, determining when a One-Year Break in Service has occurred
under Section 1.1(dd), determining a Participant's rights upon an
employment transfer under Sections 2.4 and 4.3, determining whether an
Employee has completed the service eligibility requirement under
Section 2.1, and determining Years of Vesting Service under Section 6.1,
the term "Employer" shall, to the extent required by applicable law,
include--
(1) any corporation other than the Company or an Employer, i.e.,
either a subsidiary corporation of an affiliated or associated
corporation of the Company or an Employer, which together with the
Company or an Employer is a member of a "controlled group" of
corporations (as defined in Code Section 414(b));
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<PAGE>
(2) any organization which together with the Company or an
Employer is under "common control" (as defined in Code Section
414(c));
(3) any organization which together with the Company or an
Employer is an "affiliated service group" (as defined in Code Section
414(m)); or
(4) any other entity required to be aggregated with the Company
or an Employer pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, the term Employer may, in the
discretion of the Committee, be defined to include an entity described in
paragraphs (1) through (4) above for any purpose under the Plan.
(v) EMPLOYMENT COMMENCEMENT DATE: The date an Employee first
performs an Hour of Service.
(w) ERISA: Public Law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(x) HOURS OF SERVICE:
(1) (A) An Hour of Service is each hour for which an
Employee is paid, or entitled to payment, for the performance of
duties for the Employer during the applicable computation period;
and
(B) An Hour of Service is each hour for which an
Employee is paid, or entitled to payment, by the Employer on
account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has
terminated) due to vacation, holiday, personal day, illness,
incapacity (including disability), layoff, jury duty, military
duty, or leave of absence. Notwithstanding the preceding
sentence:
(i) An hour for which an Employee is directly or
indirectly paid, or entitled to payment, on account of
a period during which no duties are performed
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shall not be credited to the Employee if such payment
is made or due under a plan maintained solely for the
purpose of complying with applicable worker's
compensation or unemployment compensation or disability
insurance laws; and
(ii) Hours of Service shall not be credited for a
payment which solely reimburses an Employee for medical
or medically-related expenses incurred by the Employee;
and
For purposes of this subsection (1)(B), a payment shall
be deemed to be made by or due from the Employer regardless of
whether such payment is made by or due from the Employer
directly, or indirectly, through, among others, a trust fund or
insurer, to which the Employer contributes or pays premiums and
regardless of whether contributions made or due to the trust
fund, insurer or other entity are for the benefit of particular
Employees or on behalf of a group of Employees in the aggregate;
and
(C) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the
Employer. The same Hours of Service shall not be credited both
under subparagraph (A) or (B) of this subsection, as the case may
be, and under this subparagraph (C). These hours shall be
credited to the Employee for the computation period or periods to
which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
(2) Hours of Service for reasons other than performance of
duties shall be determined and
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Hours of Service shall be credited to computation periods in
accordance with Department of Labor Regulations Section
2530.200b-2(b) and (c).
When no time records are available, the Employee shall
be given credit for 10 Hours of Service for each day, 45 Hours of
Service for each week, or 190 Hours of Service for each month
that he is credited with at least one Hour of Service or,
pursuant to Committee rules, given credit for such number of
Hours of Service for a period of employment under an equivalency
method prescribed by the Department of Labor regulation
2530.200b-3.
(y) INTEREST CREDIT: The credit specified in Section 4.1(i).
(z) MINIMUM BENEFIT: The portion of the Participant's Accrued
Benefit which accrues in accordance with the provisions of Section 4.1(b).
(aa) NORMAL FORM: The Normal Form of benefit at retirement under this
Plan is a Life Annuity (as described in Article V).
(bb) NORMAL RETIREMENT AGE: A Participant's Normal Retirement Age
under this Plan is age 65.
(cc) NORMAL RETIREMENT DATE: The first day of the calendar month
coincident with or immediately following the Participant's 65th birthday.
(dd) ONE-YEAR BREAK IN SERVICE: For participation, a One-Year Break
in Service means a Plan Year in which an Employee (or former Employee) is
not credited with more than 500 Hours of Service. For purposes of
determining whether there has been a One-Year Break in Service, an Employee
shall be credited with Hours of Service for the period during which he or
she is on Parental Leave as follows:
(1) the Employee shall be credited with the number of Hours of
Service with which he or she would
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normally be credited but for the absence (or if the Employee's normal
Hours of Service cannot be determined, eight Hours of Service for each
day of the absence),
(2) the total number of Hours of Service credited for the
absence shall not exceed 501, and
(3) the Hours of Service credited for the absence shall be
credited to the Plan Year in which the absence begins if the Employee
would be prevented from incurring a One-Year Break in Service in that
Plan Year solely because of the crediting of Hours of Service in
accordance with clauses (1) and (2) of this definition, or in any
other case, the immediately following Plan Year.
For vesting purposes, a One-Year Break in Service is a Period of
Severance of at least 12 consecutive months.
(ee) PARENTAL LEAVE: An Employee's leave of absence from employment
with the Employer because of pregnancy, birth of the Employee's child,
placement of a child with the Employee in connection with adoption of the
child or caring for a child immediately following birth or adoption. The
Employer shall determine the first and last day of any Parental Leave.
(ff) PARTICIPANT: An Employee participating in the Plan in accordance
with the provisions in Section 2.1.
(gg) PENSION: A series of monthly amounts which are payable to a
person who is entitled to receive benefits under the Plan.
(hh) PERIOD OF SEVERANCE: A Period of Severance is a continuous
period of time during which the Participant is not employed by the
Employer. Such period begins on the date the Participant retires, quits or
is discharged, or if earlier, the 12-month anniversary of the date on which
the Participant was otherwise first absent from service.
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(ii) PLAN: UWSI/BCBSUW Salaried Pension Plan, the Plan as set forth
herein, as amended from time to time.
(jj) PLAN ADMINISTRATOR: The Company, within the meaning of ERISA.
The Plan Administrator shall have duties and responsibilities under the
Plan as described in Article VIII.
(kk) PLAN YEAR: The term "Plan Year" means the
12-month period commencing January 1 and ending on December 31.
(ll) PREDECESSOR PLAN: The retirement plan of the Employer before the
Effective Date, as explained in the Introduction.
(mm) PRIOR PLAN BENEFIT: The Participant's "Accrued Benefit" within
the meaning of that term under the Plan as it existed on December 31, 1996
and as documented in the prior amendment and restatement of the Plan
(effective January 1, 1989) and any amendments thereto.
(nn) REEMPLOYMENT COMMENCEMENT DATE: The first day an Employee is
credited with an Hour of Service for performing duties following his
Severance from Service.
(oo) RETIREMENT: Termination of employment with the Employer for any
reason other than death after a Participant has fulfilled all requirements
for a Normal, Early or Disability Retirement Pension.
(pp) SERVICE: The period of a Participant's employment considered in
the determination of his eligibility to participate in the Plan,
eligibility for benefits and amount of benefits payable under the Plan in
accordance with Article VI.
(qq) SEVERANCE FROM SERVICE: The earlier of the date on which an
Employee quits, retires, is discharged, or dies, or the first anniversary
of the date on which the Employee ceases active employment for any other
reason.
(rr) SPECIAL BENEFIT SCHEDULE: A set of supplementary Plan provisions
adopted by the Administrative Committee setting forth any special Plan
provisions in effect for a specific Employer or group of Employees covered
by the Plan.
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If any provisions contained in a Special Benefit Schedule conflict with the
remaining provisions of the Plan, the Special Benefit Schedule shall
govern. The existence of Special Benefit Schedules shall not be construed
as the creation of different plans for purposes of the Code or ERISA.
(ss) TRUST: The Blue Cross & Blue Shield United of Wisconsin Master
Trust maintained in accordance with the terms of the Trust Agreement as
from time to time amended, which constitutes part of this Plan. The term
"Trust" shall also refer to any custodial account established pursuant to a
custodial agreement entered into between the Company and an authorized
custodian.
(tt) TRUST AGREEMENT: The agreement which provides for the
continuation of the Trust, as that agreement may from time to time be
amended or supplemented.
(uu) TRUST FUND: All cash, securities and other property arising from
contributions under this Plan and the Predecessor Plan received by the
Trustee, all increments thereto, and receipts from any other sources
whatsoever.
(vv) TRUSTEE: The trustee from time to time acting under the Trust
Agreement.
(ww) YEAR OF SERVICE: For purposes of determining participation, a
Plan Year for which an Employee has been credited with at least 1,000 Hours
of Service.
1.2 CONSTRUCTION:
The masculine gender, where appearing in the Plan, shall be deemed to
include the feminine gender, and the singular may include the plural, unless
the context clearly indicates to the contrary. The words "hereof", "herein",
"hereunder" and other similar compounds of the word "here" shall mean and
refer to the entire Plan, not to any particular provision or Section. The
words "terminate," "terminated," "termination of employment," "retire,"
"retired," or "retirement" shall be interpreted to mean
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the termination of employment or retirement of the Participant from
employment with all Employers and nonparticipating Employers.
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ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY:
(a) Each Employee on December 31, 1996, who was a Participant in the
Plan on December 31, 1996 shall continue to participate under this Plan on
January 1, 1997.
(b) Any other Employee who was not a Participant in the Plan as of
December 31, 1996 shall participate in this Plan on the first day of the
month coincident with or next following the first anniversary of his date
of hire, provided the Employee has been credited with at least 1,000 Hours
of Service. If an Employee does not complete 1,000 Hours of Service in the
12-month period commencing with the Employee's first Hour of Service, he
shall become a Participant on the first day of the Plan Year following the
Plan Year in which he has been credited with at least 1,000 Hours of
Service.
(c) An Employee on leave for service in the Armed Forces of the
United States will be considered an Employee on leave of absence for
purposes of Plan participation and will continue to participate in the Plan
during such leave.
2.2 CESSATION OF PARTICIPATION:
An Employee will cease to be a Participant on the earlier of the following:
(a) the date of his death,
(b) the date he receives a single sum distribution which is in lieu
of all his benefits under the Plan if his Accrued Benefit were 100% vested,
(c) the earlier of the date an Employee incurs a One-Year Break in
Service or the date he is deemed to receive a lump sum distribution of his
Accrued Benefit, if such Accrued Benefit were 0% vested, or
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(d) the date on which he is transferred from a position with the
Employer in which he was eligible to participate in the Plan to a position
in which he is excluded from participation.
2.3 PARTICIPATION UPON REEMPLOYMENT:
(a) Subject to Section 2.3(b), if an Employee is reemployed by an
Employer within one year of his Severance from Service, the rehired
Employee shall again become a Participant as of his Reemployment
Commencement Date.
(b) If the rehired Employee incurred a One-Year Break in Service
before his reemployment, the rehired Employee shall not become a
Participant as provided in Section 2.3(a) until (i) the first day of the
month following the anniversary of his Reemployment Commencement Date,
provided he is credited with at least 1,000 Hours of Service for the
12-month period commencing with his first Hour of Service after
reemployment or (ii) the first day of the Plan Year after which he has been
credited with at least 1,000 Hours of Service for any Plan Year commencing
after that first Hour of Service after reemployment.
(c) In determining whether a rehired Employee has satisfied the
requirements of Section 2.1 as of the Reemployment Commencement Date, if
the rehired Employee has no vested Accrued Benefit under the Plan and has a
number of consecutive One-Year Breaks in Service equal to (or greater than)
5 (excluding Years of Service previously disregarded under this Section
2.3(c)), the rehired Employee's previous service as an Employee shall be
disregarded for purposes of determining when he again becomes a
Participant. For purposes of determining Years of Service under this
Section 2.3(c), any Employee who is credited with at least 1,000 Hours of
Service in both the 12-month period commencing with his Reemployment
Commencement Date and the first Plan Year beginning after his Reemployment
Commencement Date shall be credited with two Years of Service.
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2.4 TRANSFERS:
If an Employee is transferred from a position with the Employer in which he
was excluded from participation in the Plan to a position in which he is not so
excluded, he shall be eligible to participate under the Plan as of the first day
of the month coincident with or next following such transfer, provided he has
first met the requirements of Section 2.1.
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ARTICLE III
REQUIREMENTS FOR RETIREMENT BENEFITS
3.1 NORMAL RETIREMENT:
A Participant shall be eligible for a Normal Retirement Pension if his
employment is terminated on or after his 65th birthday. Payment of a Normal
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the date of Retirement.
3.2 EARLY RETIREMENT:
A Participant shall be eligible for an Early Retirement Pension in
accordance with the provisions of Section 5.1 if his employment is terminated
after he has completed 5 or more Years of Vesting Service. Payment of an Early
Retirement Pension shall commence as of the first day of the calendar month
coincident with or next following the Participant's Normal Retirement Date.
However, a retired Participant who is eligible for an Early Retirement Pension
may request the commencement of the Participant's Early Retirement Pension as of
the first day of any calendar month following the Participant's early retirement
but before the Participant's Normal Retirement Date.
3.3 DISABILITY RETIREMENT:
An Employee shall be eligible for a Disability Retirement Pension if, after
completing the requirements for participation, outlined in Article II, such
Employee's employment is terminated by disability which causes his complete
inability, due to injury and/or illness, and based upon objective medical
documentation, to perform with reasonable continuity any of the material and
substantial duties of his regular occupation during the elimination period of
one hundred and fifty (150) days and the first 24 months of each benefit period;
and thereafter, such duties of any occupation for which the Employee may be or
become qualified by reason of education and/or training and/or experience.
Payment
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of the monthly Disability Retirement Pension shall commence as of the end of the
elimination period, provided the Employee is under the regular care and
treatment of a physician.
Such payments shall continue until the earliest to occur of the following:
(a) the date the Employee ceases to be totally disabled; or
(b) the date the Employee is no longer under the regular care and
treatment of a physician for the disabling condition; or
(c) the date the Employee returns to active work, unless such active
work is part of an approved program of rehabilitation; or
(d) the date the Employee dies; or
(e) the date the maximum benefit period has been paid according to
the Employer's insurance policy schedule; or
(f) the date the Employee fails to provide adequate proof of total
disability or fails to agree to an independent medical exam; or
(g) the date the Employee is determined not to be totally disabled
based on the objective medical findings of an independent medical exam; or
(h) the date the Employee is determined not to be totally disabled
based on the review of the objective medical findings by a medical case
examiner; or
(i) the date the Employee fails to cooperate in rehabilitation; or
(j) the Employee's attainment of age 65, if the Employee became
disabled prior to attainment of age 60; or
(k) the date on which the Employee has received disability retirement
benefits for a period of 5 years, if the Employee became disabled after the
attainment of age 60, but before the attainment of age 69; or
(l) the date on which the Employee has received disability retirement
benefits for a period of one year, if the Employee became disabled after
attainment of age 69.
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3.4 DEFERRED VESTED PENSION:
(a) A Participant shall be eligible for a Deferred Vested Pension in
accordance with the provisions of Section 5.1 if his employment is
terminated with the Employer before death or Retirement after he has
completed at least 5 Years of Vesting Service (as set forth in Section
6.1). A Participant whose employment is terminated with the Employer
before death or Retirement and before he has completed 5 Years of Vesting
Service (as set forth in Section 6.1) shall not be eligible for a Deferred
Vested Pension in accordance with the provisions of Section 5.1.
(b) Payment of a Deferred Vested Pension shall commence as of the
first day of the calendar month coincident with or next following the
Participant's Normal Retirement Date. However, a retired Participant who is
eligible for a Deferred Vested Pension may request the commencement of the
Participant's deferred vested pension as of the first day of any calendar
month following the Participant's termination of employment, but before the
Participant's Normal Retirement Date.
(c) Notwithstanding the above, a Participant's right to his Accrued
Benefit will be nonforfeitable upon his attainment of Normal Retirement
Age.
(d) If a Participant has terminated employment with the Employer, any
portion of his Accrued Benefit in which the Participant is not vested shall
be forfeited and canceled as of the Participant's termination of
employment, subject to reinstatement as provided in Section 6.2.
Forfeitures of an Employer's Participants arising under the Plan for any
reason shall be used as soon as possible to reduce the Employer's
contributions under the Plan.
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ARTICLE IV
AMOUNT OF RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT PENSION:
(a) NORMAL FORM. In the case of--
(1) any Participant on January 1, 1997 who was a Participant in
the Plan on December 31, 1996 and who is actively employed on or after
January 1, 1997, and
(2) any Employee who becomes a Participant in the Plan on or
after January 1, 1997,
such Participant's Accrued Benefit as of any date shall be a monthly
amount, payable to the Participant on the Participant's Normal Retirement
Date and continuing through the first day of the calendar month which
includes the date of the Participant's death, equal to the greater of--
(A) the Participant's Minimum Benefit; or
(B) the Participant's Cash Balance Benefit.
(b) MINIMUM BENEFIT. The Minimum Benefit shall be equal to the
Participant's accrued benefit as determined under the terms of the Plan in
effect on December 31, 1996 (including any cost-of-living increases on
benefits accrued as of December 31, 1992 under the terms of the Plan in
effect on December 31, 1996).
(c) CASH BALANCE BENEFIT. Effective January 1, 1997, the monthly
amount of the Participant's Cash Balance Benefit shall equal the Actuarial
Equivalent of the Participant's Cash Balance Account at such Participant's
Normal Retirement Date.
(d) CASH BALANCE ACCOUNT. The Cash Balance Account shall be equal to
the sum of the Participant's:
(1) initial Cash Balance Account, if any, as described in
Section 4.1(e);
(2) Annual Credits, if any, as described in Section 4.1(g);
(3) Transition Credits, if any, as described in Section 4.1(h);
and
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(4) Interest Credits as described in Section 4.1(i).
(e) INITIAL CASH BALANCE ACCOUNT.
(1) The initial Cash Balance Account as of January 1, 1997, for
any Employee who was a Participant on December 31, 1996, shall be
equal to the single sum value of such Participant's accrued benefit as
of December 31, 1996 determined under Section 4.1(b)(1) of the Plan in
effect as of December 31, 1996, using the Employee's actual Benefit
Service as of December 31, 1996 and an interest rate of 6.5% and
mortality based upon the 1983 Group Annuity Mortality Table, with
annuity values weighted 50% male and 50% female, and assuming
commencement of the retirement benefit at age 62 (or later, if
applicable). Final Average Earnings will be equal to the greater of--
(A) Final Average Earnings (as defined in the Plan in effect as
of December 31, 1996) through December 31, 1995, or
(B) Final Average Earnings (as defined in the Plan in effect as
of December 31, 1996) through December 31, 1996,
using a Participant's highest Final Average Earnings for any five
consecutive calendar years during the period from January 1, 1988
until December 31, 1995 or December 31, 1996, whichever is applicable.
(2) The initial Cash Balance Account for any Participant whose
participation begins on or after January 1, 1997 will be equal to the
Annual Credit for the calendar year the Employee becomes a Participant
and for the calendar year immediately preceding such year. Such
Annual Credit shall be credited as of the end of the calendar year in
which participation begins.
(f) ANNUAL ACCRUAL. A Participant's initial Cash Balance Account
shall then--
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(1) increase pursuant to Section 4.1(g), each calendar year the
Participant is still a Participant until benefit payments commence,
(2) further increase pursuant to Section 4.1(h) each calendar
year if such Participant is entitled to receive a Transition Credit,
and
(3) further increase automatically each calendar year pursuant
to Section 4.1(i), regardless of whether the Participant is a
Participant, an inactive Participant, or a former Participant, until
benefit payments commence.
(g) ANNUAL CREDIT. For calendar years beginning on or after
January 1, 1997, the Participant's Cash Balance Account described in
Section 4.1(d) shall increase by an amount equal to the Participant's
Annual Credit for that calendar year. This amount shall be credited as of
the last day of the calendar year (December 31), or on the date benefit
payments commence, if earlier.
(h) TRANSITION CREDIT. In addition, in the case of any Participant
who was an Employee on December 31, 1996, such Participant will receive an
annual Transition Credit, in addition to his Annual Credit. The amount of
the Transition Credit will be credited as of the last day of the calendar
year (December 31), or on the date benefit payments commence, if earlier.
This Transition Credit will be credited each year until the number of years
the Participant's Cash Balance Account receives a Transition Credit equals
the number of years of Benefit Service such Participant had as of
December 31, 1996 (as defined in Plan as in effect on December 31, 1996;
any partial year of Benefit Service will be rounded to a full year of
Benefit Service), up to a maximum of 15 years. In no event shall any
Transition Credit be credited for years beginning on or after January 1,
2012. If such Participant has a Severance from Service on or after
January 1, 1997, his eligibility for a Transition Credit will end, and upon
rehire, he will not be eligible to receive a Transition Credit. If such
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Participant is on a leave of absence from an Employer for a year and
receives no Earnings during that year he will not receive a Transition
Credit for that year. Notwithstanding the foregoing, Transition Credit may
also be given to a Participant who was not an Employee on December 31,
1996, if deemed appropriate by the Plan Administrator and set forth in
Special Benefit Schedules which may be adopted and made a part of the Plan
from time to time.
(i) INTEREST CREDIT. Beginning January 1, 1997, the amount by which
each Participant's Cash Balance Account described in Section 4.1(d) shall
be increased until benefits commence. At the end of each calendar year,
the Interest Credit shall be determined by multiplying each Participant's
Cash Balance Account balance at the beginning of the calendar year by the
Annual Interest Crediting Rate. The resulting Interest Credit amount shall
be added to the Participant's Cash Balance Account. If benefits commence
before the last day of a calendar year, the Interest Crediting Rate will be
applied as a monthly nominal rate of interest to reflect the portion of the
calendar year preceding the date such benefits commence.
(j) MILITARY LEAVE. The Cash Balance Account of a Participant who is
on a leave of absence due to service in the Armed Forces of the
United States shall be credited as described in Section 4.1(f) for the
period of such absence, provided that such Participant complies with all
the requirements of federal law in order to be entitled to reemployment and
provided further that such Participant returns to employment with an
Employer within the period provided by such law.
(k) EARNINGS LIMITATION. In addition to other applicable limitations
which may be set forth in the Plan and notwithstanding any other contrary
provisions of the Plan, Earnings taken into account under the Plan shall
not exceed $150,000, adjusted for changes in the cost of living as provided
in Code Sections 415(d) and 401(a)(17), for the
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purpose of calculating a Participant's Accrued Benefit (including the right
to any optional benefit provided under the Plan) for any Plan Year
commencing after December 31, 1993.
(l) IMPACT OF REEMPLOYMENT ON CASH BALANCE ACCOUNT.
(1) If a Participant is reemployed and he is treated as a new
Employee pursuant to Section 6.2(b) (rule of parity), his prior Cash
Balance Account shall not be restored upon reemployment.
(2) If a Participant has received a distribution of his entire
Cash Balance Account, his prior Cash Balance Account shall not be
restored upon reemployment.
(3) If paragraphs (1) and (2) are not applicable and the
Participant did not receive any distribution, upon reemployment, his
entire Cash Balance Account shall be restored, including any amounts
that may have been forfeited upon a Break in Service, including
interest thereon equal to the amount of the Interest Credit in effect
from the date of the forfeiture to the date of the restoration of the
forfeiture.
(m) COORDINATION WITH LONG-TERM DISABILITY. If a Participant is
receiving benefits under a long-term disability program maintained by an
Employer, the Participant shall continue to be treated as an active
Participant and shall be deemed to be receiving Earnings at the rate in
effect at the time he ceased to be an active Employee.
4.2 DISABILITY RETIREMENT PENSION:
Subject to the provisions of Section 4.4, the amount of the monthly
disability retirement pension shall be equal to 60% of the Employee's average
monthly salary, but not less than $50 per month. For purposes of this Section
4.2, the term "average monthly salary" shall mean the Employee's monthly rate of
compensation in effect at the date of the Employee's disability, including the
Participant's entitlement under any Employer approved sales incentive
compensation program accrued in the
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immediately preceding calendar year, up to a maximum of 100% of the midpoint of
the Participant's highest salary range. Amounts received under any Employer
approved sales incentive compensation program will be averaged for the 12-month
period of employment immediately preceding the date of the disability, or the
Employee's period of employment, if less. Overtime pay, commissions, bonuses
and other extra compensation shall be excluded from the Employee's compensation
for purposes of this Section 4.2. In determining an Employee's average monthly
salary, such Employee's monthly rate of compensation in excess of 1/12 of
$150,000 (or such other amount as may be determined by the Secretary of the
Treasury in accordance with Code Section 401(a)(17) to reflect increases in the
cost of living) shall not be taken into account. Notwithstanding the preceding,
in no event shall an Employee's benefit under this Section exceed the benefit he
would be entitled to receive under Section 4.1 if he terminated employment as of
his Normal Retirement Date.
The monthly benefit amount for which an Employee is eligible will be
reduced equally by the amount of any payment the Employee may either be entitled
to, whether applied for or not, or receive from any of the sources listed below:
(a) primary Social Security benefits under the Federal Social
Security Act or similar statute of any state or country; or
(b) family Social Security benefits under the Federal Social Security
Act or similar statute of any state or country; or
(c) any workers' compensation act; or
(d) any Employer liability law; or
(e) any occupational disease law; or
(f) any state or federally sponsored disability or retirement plan;
or
(g) any Employer or policyholder sponsored salary continuation plan
or sick leave pay plan; or
(h) any Employer or policyholder sponsored disability plan under a
group master policy, other than the Employer
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sponsored plan designed to provide disability benefits that would be
payable by this Plan except for the limitations of Section 411(a)(9) of the
Code; or
(i) any retirement benefits payable under Sections 4.1 or 5.1; or
(j) any Veteran's Administration disability plan; or
(k) any disability benefit payable under any no fault insurance plan
provided, however, that the payment received from any such source,
exclusive of retirement benefits, are payable as a result of the total
disability for which a benefit is payable under this Plan.
4.3 RESERVED:
4.4 MAXIMUM PENSION:
Notwithstanding any provisions of the Plan to the contrary, in no event
shall the amount of a benefit payable to a Participant (or the spouse of a
deceased Participant) each year together with any and all other benefits which
are paid to him under any other qualified plan exceed the maximum benefits that
are payable pursuant to Sections 415(b) and (e) of the Code and regulations
thereunder.
If a Participant is also a participant in a defined contribution plan
maintained by the Employer, then the benefits under this Plan shall be reduced
to the extent required to satisfy the limitation contained in Section 415(e) of
the Code.
4.5 NO DUPLICATION OF BENEFITS:
(a) Application by a Participant, spouse or Beneficiary for a Plan
benefit for which he is eligible will prevent such person from becoming
simultaneously eligible for any other Plan benefit.
(b) Any retirement benefit payable to a person under the Plan shall
be reduced by any other retirement benefit payable to such person under any
other qualified defined benefit retirement plan (except Social Security to
which
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contributions have been made on behalf of the Participant) to the extent
that such other retirement plan benefit is based on Benefit Service used in
computing such retirement benefit payable under the Plan.
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ARTICLE V
AMOUNT AND MANNER OF PAYMENT; OPTIONAL BENEFITS
5.1 AMOUNT OF RETIREMENT BENEFITS:
Subject to the provisions of Section 4.4, a Participant's monthly
retirement benefit on his Early Retirement Date or Normal Retirement Date, or
the retirement benefit of a Participant who is eligible for a Deferred Vested
Pension in accordance with the provisions of Section 3.4 shall be equal to his
Cash Balance Account, which is deemed to be the lump sum Actuarial Equivalent
value of the Cash Balance Benefit, payable at the Participant's Normal
Retirement Date.
5.2 PAYMENT OF RETIREMENT BENEFITS:
If a Participant does not have a spouse at the time of the commencement of
payment of a Normal, Early, or Deferred Vested Pension, he will receive the
value of his vested Accrued Benefit in the form of a Life Annuity, as described
in Section 5.3 below, unless he elects an optional form of benefits under
Section 5.3.
If a Participant is married as of the date his benefits commence, he shall
receive the value of his vested Accrued Benefit in the form of a Joint and 50%
Survivor Annuity, as described in Section 5.3(e) below, unless he elects an
optional form of benefits under Section 5.3, in accordance with the provisions
of Section 5.4.
5.3 OPTIONAL FORMS OF RETIREMENT BENEFIT PAYMENTS:
Subject to the written election procedures described below, a Participant
may receive his Normal, Early, or Deferred Vested Pension under any of the
following optional methods (all optional methods are the Actuarial Equivalent of
a Life Only Annuity):
(a) LIFE ONLY ANNUITY: This optional form provides a monthly annuity
for the Participant's lifetime, with no further benefits being paid upon
his death.
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(b) LIFE WITH 10 YEARS CERTAIN ANNUITY: This form provides a monthly
annuity for the lifetime of the Participant, and if the Participant's death
occurs within a period of 10 years after the commencement date of his
benefits, payment of the benefits will be continued in an amount equal to
70% of the original amount to the Beneficiary or Beneficiaries designated
by the Participant for the balance of the 10-year period.
(c) JOINT AND 66-2/3% SURVIVOR ANNUITY: This form provides a reduced
monthly annuity for the life of a Participant, with a survivor annuity for
the life of the Participant's spouse, where the survivor annuity is 66-2/3%
of the amount of the annuity payable during the joint lives of the
Participant and the Participant's spouse.
(d) JOINT AND 50% SURVIVOR ANNUITY: This optional form of payment is
a reduced monthly annuity for the life of a Participant, with a survivor
annuity for the life of the Participant's spouse, where the survivor
annuity is 50% of the amount of the annuity payable during the joint lives
of the Participant and the Participant's spouse.
(e) SINGLE SUM OPTION: This optional form of payment is an immediate
single sum payment equal to the Actuarial Equivalent of the Participant's
Accrued Benefit or the Participant's Cash Balance Account, if greater.
If the Participant elects to receive the value of the benefit in a
single sum payment, this payment shall be in lieu of all other benefits
under the Plan.
A Participant who retires pursuant to the provisions of Sections 3.2
or 3.4, may elect an immediately payable annuity in the Normal Form.
5.4 ELECTION PROCEDURES FOR OPTIONAL RETIREMENT BENEFITS:
In lieu of receiving benefits in the form of a Life Annuity or a Joint and
50% Survivor Annuity, the Participant may make an election to receive benefits
in an optional form described in
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Section 5.3. However, such an election must be made in writing by the
Participant during the election period. If he is married, the election MUST BE
CONSENTED TO BY THE PARTICIPANT'S SPOUSE and must meet the following
requirements:
(a) The spouse's consent must acknowledge the effect of such election
and be witnessed by a Plan representative or a notary public. Such consent
will not be required if it is established to the Committee that the
required consent cannot be obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may be prescribed by
Treasury regulations. The election may be revoked by the Participant in
writing without the consent of the spouse at any time during the election
period described in subparagraph (b) below. Any new election must comply
with the requirements of this subparagraph (a). A former spouse's waiver
shall not be binding on a new spouse.
(b) The election period to waive the Joint and 50% Survivor Annuity
shall be the 90-day period, the last day of which is the "annuity starting
date". For purposes of this Section, "annuity starting date" means the
first day of the first period for which an amount is received as an
annuity. Any elections may not be changed after the Participant's annuity
starting date.
(c) A Participant's failure to waive the Joint and 50% Survivor
Annuity will not result in a decrease in any Plan accrued benefit with
respect to such Participant.
5.5 EMPLOYMENT AFTER NORMAL RETIREMENT DATE:
Subject to the provisions of Section 5.7, payment of the Pension of a
Participant who either (a) becomes reemployed after his annuity starting date or
(b) remains in employment after his Normal Retirement Date shall be suspended
during each calendar month of the Participant's reemployment or continued
employment during which the Participant is credited with at least 40 Hours of
Service. In the case of a Participant who becomes reemployed after his annuity
starting date, upon his ceasing to be employed on the basis described in the
previous sentence he shall be
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entitled to resume receiving distribution of his Pension in accordance with
the following rules: (a) payments shall resume no later than the third
calendar month after the calendar month in which the Participant ceases to be
so employed provided the Participant has notified the Employer of the
cessation, (b) payment shall be retroactive to the day the Participant ceased
such employment, (c) payment shall be in the same form as before the
suspension, and (d) the pension payable upon his subsequent retirement shall
be reduced by the Actuarial Equivalent of previous pension payments received
prior to Normal Retirement Date. The Committee shall notify any Participant
who is affected by this Section 5.5 in accordance with the notification
requirements of Department of Labor Regulations Section 2530.203-3(b)(4).
5.6 PAYMENT OF DEATH BENEFITS:
(a) PRIOR TO TERMINATION OF EMPLOYMENT
(1) In the event of the death of a Participant while employed by
the Employer as a salaried employee but after the date he completes 5
years of Vesting Service, his Beneficiary shall be eligible to receive
a death benefit payable in the manner described below.
(2) If the Participant would have accrued at least 20 years of
Vesting Service had he remained in the service of his Employer until
his Normal Retirement Date, the amount of such death benefit shall be
paid as a single sum equal to the greater of (A) and (B):
(A) 36 times the Participant's monthly regular compensation
(defined as base pay, excluding any bonuses, overtime, and
incentive pay) for the calendar month immediately preceding the
calendar month of death, and
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(B) the greater of:
(i) the Participant's Cash Balance Account, or
(ii) the single sum Actuarial Equivalent of the
Qualified Pre-retirement Survivor Annuity that is payable
under this Section 5.6.
If the Participant would have accrued less than twenty years of
Vesting Service had he remained in the service of his Employer to his
Normal Retirement Date, the amount of such death benefit shall be
computed as provided in (A) above, reduced by 5% per year (5/12 of 1%
for each full month) by which the Vesting Service which he would have
accrued if he had remained in the service of his Employer to his
Normal Retirement Date, is less than 20 years and shall then be
reduced in the manner provided in (B) above. The amount of the death
benefit, determined in this Section 5.6(a)(2), shall be reduced to the
extent that said death benefit, when added to the Actuarial Equivalent
of the Qualified Pre-retirement Survivor Annuity, exceeds an amount
equal to 100 times the projected monthly Normal Retirement Pension to
which the Participant would have been entitled had he continued in his
employment, at his most recent rate of Earnings, until he attained his
Normal Retirement Age.
(3) If a Participant described in (1) above had completed at
least 5 years of Vesting Service and is survived by a spouse, such
spouse shall be entitled to a Qualified Pre-retirement Survivor
Annuity in an amount equal to the Actuarial Equivalent of the benefit
which would have been payable to such spouse if the Participant had
terminated employment with the Employer immediately prior to his death
but survived to his Earliest Retirement Age, retired with an immediate
Joint and 66-2/3% Survivor Annuity form described in
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Section 5.3(c) on his Earliest Retirement Age, and died on the date
after the day on which such Participant would have attained his
Earliest Retirement Age.
(4) Unless the Participant has elected another form of payment
pursuant to Section 5.3, the Qualified Pre-retirement Survivor Annuity
determined under (3) above shall be payable as a monthly benefit
commencing on the date selected by the surviving spouse, which shall
be the first day of a calendar month. In the case of a surviving
spouse not electing an immediate benefit, such date shall occur no
earlier than the date on which the deceased Participant would have
attained his Earliest Retirement Age applicable, or the date of the
Participant's death, and no later than the first day of the month next
following the later of the Participant's death or the date the
Participant would have attained Normal Retirement Age.
(5) The surviving spouse may elect to receive the Qualified
Pre-retirement Survivor Annuity in the form of a single sum payment.
Such immediate single sum payment equal to the greater of--
(i) the Participant's Cash Balance Account as of the first
day of the calendar month preceding the date of distribution; or
(ii) the single sum Actuarial Equivalent of the
Participant's Accrued Benefit.
(b) DEATH BENEFIT AFTER TERMINATION OF EMPLOYMENT.
(1) If a married Participant who has a deferred vested pension
dies while not employed by the Employer and before his benefit
commenced payment under Section 4.1, 4.2, or 4.4, his surviving spouse
shall be eligible to receive a Qualified Pre-retirement Survivor
Annuity in an amount equal to the greater of:
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(i) the Participant's Cash Balance Account; or
(ii) the single sum Actuarial Equivalent of the Qualified
Pre-retirement Survivor Annuity that is payable under this
Section 5.6.
(2) If an unmarried Participant who has a deferred vested
pension dies while not employed by the Employer and before his benefit
commenced payment under Section 4.1 or 5.1, his Beneficiary shall be
eligible to receive a benefit, equal to the Actuarial Equivalent of
the Participant's Cash Balance Account.
(c) The death benefit payable under this Section shall be payable as
a monthly benefit commencing on the date selected by the surviving spouse
or the designated Beneficiary which shall be the first day of a calendar
month. In the case of a surviving spouse not electing an immediate
benefit, such date shall occur no earlier than the date on which the
deceased Participant would have attained his Earliest Retirement Age, or
the date of the Participant's death, and no later than the first day of the
month next following the later of the Participant's death or the date the
Participant would have attained Normal Retirement Age.
The surviving spouse or the designated Beneficiary may elect to
receive the death benefit in the form of a immediate single sum payment.
Such immediate single sum payment equal to the greater of--
(i) the Participant's Cash Balance Account as of the first
day of the calendar month preceding the date of distribution; or
(ii) the single sum Actuarial Equivalent of the
Participant's Accrued Benefit.
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5.7 TIME OF DISTRIBUTIONS:
Notwithstanding any provision of the Plan to the contrary, the payment of
benefits under this Plan shall be made in accordance with Section 401(a)(9) of
the Code and regulations thereunder. In accordance with those provisions, in no
event may the distribution of a Participant's benefits commence later than the
April 1 of the calendar year following the year in which--
(a) the Participant reaches age 70 1/2; or
(b) the Participant retires, if later;
provided, however, that paragraph (2) shall not apply in the case of a
Participant who is a 5% owner (as defined in Code Section 416) with respect
to the period preceding the calendar year in which the Participant attains
age 70 1/2.
The amount of the benefit payable under this Section to a Participant who
has not yet terminated employment with the Employer shall be determined in
accordance with Section 4.1 as if the Participant had terminated employment
immediately before such payments commence. The Participant's Earnings after
payments commence will be taken into account in determining the amount of
benefit to which the Participant is entitled in subsequent years, and any
increase in the benefit payable to such Participant shall be offset by the
Actuarial Equivalent of the total amount of pension payments made to such
Participant during the Plan Year.
However, in no event, unless a Participant elects otherwise, shall the
distribution of his Accrued Benefit begin later than the 60th day after the
latest of the close of the Plan Year in which the Participant (a) attains Normal
Retirement Age, (b) reaches the 10th anniversary of the year in which he
commenced participation in the Plan, or (c) terminates his service with the
Employer.
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5.8 LUMP SUM PAYMENT OF SMALL PENSIONS:
Any other provision of the Plan notwithstanding, the Participant's vested
benefit under the Plan (or Qualified Pre-retirement survivor annuity) shall be
paid in a single sum if, prior to the commencement of distributions, its single
sum value does not exceed $3,500 (effective January 1, 1998, $5,000) (or such
higher amount as may be permitted by law). The single sum value shall equal the
Actuarial Equivalent of the Participant's vested Accrued Benefit (or the
Qualified Pre-retirement survivor annuity).
Upon termination of employment, a nonvested Participant shall be deemed to
have received a lump sum payment of $0 and the nonvested portion of such an
Participant's benefit shall be treated as an immediate forfeiture. This deemed
distribution shall represent the entire benefit to which such Participant was
entitled under the Plan, in lieu of all other benefits under the Plan.
5.9 EFFECT OF REEMPLOYMENT:
(a) A Participant who is reemployed after having received a lump sum
distribution of the present value of his Accrued Benefit shall have his
Years of Vesting Service restored or continued in accordance with the
provisions of Section 6.2. Any benefit to which he is entitled at his
subsequent Severance from Service will be determined on the basis of his
Years of Vesting Service he accrued from the date of his reemployment to
the date of his subsequent Severance from Service.
(b) A reemployed Participant who has not received the present value
of his Accrued Benefit shall have his benefits suspended in accordance with
the provisions of Section 5.5 and his Years of Vesting Service and Years of
Benefit Service restored or continued in accordance with the provisions of
Section 6.3 and any optional form of payment he had chosen at his Severance
from Service shall be revoked. Upon his subsequent Severance from Service,
his eligibility for a
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benefit and the amount of the benefit shall be determined on the basis of
his Years of Vesting Service, and Years of Benefit Service as of such date,
reduced by the Actuarial Equivalent of any benefits he previously received.
In no event will a Participant's retirement benefit at his subsequent
retirement be less than his benefit at his prior retirement.
5.10 DIRECT ROLLOVERS; WITHHOLDING:
(a) DIRECT ROLLOVERS.
(1) IN GENERAL. In the case of a distribution (or a withdrawal)
that would be an eligible rollover distribution within the meaning of
Code Section 402 if made to the Participant or Beneficiary
("distributee"), the distributee may elect (subject to spousal consent
requirements if applicable) to the extent required by law and
regulation and in the manner prescribed by the Committee, to have such
distribution paid directly to an eligible retirement plan (as defined
in Code Section 401(a)(31)). The amount of such direct rollover shall
be limited to the amount of the eligible rollover distribution which
would otherwise be includible in the distributee's gross income in the
absence of a direct transfer and without regard to the rollover rules
of Code Sections 402 and 403. No election may be made by a
distributee pursuant to this Section unless the distributee has
received the notice prescribed by paragraph (2).
(2) NOTICE. The Committee shall furnish to a distributee a
written notice at the time prescribed in paragraph (3) which
describes--
(A) the rules under which the distributee may elect to have
an eligible rollover distribution paid in a direct rollover to an
eligible retirement plan;
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(B) the rules that require withholding of tax on the
eligible rollover distribution if it is not paid in a direct
rollover;
(C) the rules under which the distributee will not be
subject to tax if the distribution is contributed to an eligible
retirement plan within 60 days of the distribution; and
(D) if applicable, special rules regarding the taxation of
the distribution as specified in Code Sections 402(d) and (e)
(relating to income averaging and other tax rules).
(3) NOTIFICATION PERIOD. The notice required by paragraph (2)
shall be furnished to the distributee not more than 90 days and not
less than 30 days before the Benefit Starting Date. The Plan shall
make no payment for 30 days following the date the Participant has
been furnished with the notice unless the distribution is subject to
Section 5.8 and the Participant, after receipt of the notice, has
affirmatively elected to make or not to make a direct rollover, but in
no event shall the Plan make a distribution before the date benefits
are otherwise payable under the rules of the Committee.
(b) WITHHOLDING. In the case of an eligible rollover distribution
which is not directly transferred to an eligible retirement plan pursuant
to subsection (a), the Plan shall reduce the amount of the distribution by
the amount of the tax required to be withheld by law and regulations.
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ARTICLE VI
YEAR OF VESTING SERVICE
6.1 YEAR OF VESTING SERVICE:
A Participant will be credited with Years of Vesting Service for Service
prior to January 1, 1997, in accordance with the terms of the Predecessor Plan.
For Service after December 31, 1996, a Participant will receive credit for the
aggregate of all time periods commencing with the Participant's Employment
Commencement Date or Reemployment Commencement Date, and ending on the date his
Period of Severance begins, subject to the limitations below:
(a) A Participant shall not receive more than one Year of Vesting
Service credit for any Plan Year irrespective of the number of Employers a
Participant is employed by during such Plan Year.
(b) An Employee may also receive Vesting Service for employment with
any related entity. The Committee may determine that Service may be
credited for such employment if it is credited on a uniform and
nondiscriminatory basis.
(c) A leave of absence due to service in the Armed Forces of the
United States shall be included as Vesting Service under the Plan, provided
that the Employee complies with all the requirements of federal law in
order to be entitled to reemployment and provided further that such
Employee returns to employment with the Employer within the period provided
by such law.
6.2 CANCELLATION AND REINSTATEMENT OF SERVICE:
(a) If a Participant terminates employment with the Employer prior to
the earlier of:
(1) the Participant's death, or
(2) the date the Participant is credited with 5 years of Vesting
Service, all his Vesting Service shall be cancelled. Notwithstanding
the foregoing, a Participant's right to his Accrued Benefit will be
nonforfeitable upon his attainment of Normal Retirement Age.
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(b) If an Employee incurs a Severance from Service and is
subsequently reemployed as an Employee, and--
(1) if he received a lump sum distribution of the present value
of his Accrued Benefit at his Severance from Service, the Years of
Vesting Service he had at such date will be reinstated upon the date
of his rehire, unless he is reemployed after a One-Year Break in
Service, in which case his prior Years of Vesting Service will not be
reinstated unless he is an Employee on the first anniversary of the
date of his rehire;
(2) if he was entitled to receive a benefit under Section 4 at
his Severance from Service but has not received distribution of the
present value of his Accrued Benefit at the date of his rehire, his
benefits will be suspended in accordance with the provisions of
Section 5.5 and adjusted in accordance with the provisions of Section
5.9, and the Years of Vesting Service he had at his Severance from
Service will be reinstated upon the date of his rehire, unless he is
reemployed after a One-Year Break in Service, in which case his prior
Years of Vesting Service will not be reinstated unless he is an
Employee on the first anniversary of the date of his rehire;
(3) if he was not entitled to receive a benefit under Section 4
at his Severance from Service and he is rehired after 5 consecutive
One-Year Breaks in Service, the Years of Vesting Service he had at his
Severance from Service will not be reinstated;
(4) if he was not entitled to receive a benefit under Section 4
at his Severance from Service and he is reemployed before a 5-Year
Period of Severance, the Years of Vesting Service he had at his
Severance from Service will be reinstated upon the date of his rehire,
unless he is rehired after a One-Year Break in Service, in which case
his prior Years of Vesting Service will not be reinstated unless he is
an Employee on the first anniversary of the date of his rehire; or
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(5) if he is reemployed before a One-Year Break in Service and
his Severance from Service resulted from resignation, discharge, or
retirement, he shall receive credit (but not in excess of 12 months)
for Years of Vesting Service for the period between his Severance from
Service and the date of his rehire.
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ARTICLE VII
PLAN FINANCING
7.1 CONTRIBUTIONS:
All contributions will be made by the Employer and in such amounts as will
be determined based on periodic actuarial valuations and recommendations as to
the amount or amounts required to fund retirement benefits and other benefits
payable in accordance with this Plan. All contributions shall be conditioned on
deductibility under Section 404 of the Code. Forfeitures arising under this
Plan because of severance of employment, before a Participant becomes eligible
for a Deferred Vested Pension, or for any other reason, shall be applied to
reduce the Employer contributions to the Plan, not to increase the benefits
otherwise payable to Participants. A return of Employer Contributions (or the
assets thereof, if less) shall be made within one year after:
(a) the contribution is made by the Employer by a mistake of fact, or
(b) the contribution is disallowed as a deduction under Section 404
of the Code.
7.2 TRUST FUND:
All contributions made by the Employer under the Plan shall be paid to the
Trustee and deposited in the Trust Fund. Except as otherwise provided in
Section 13.2, all assets of the Trust Fund, including investment income, shall
be retained for the exclusive benefit of Participants and their Beneficiaries,
shall be used to pay benefits to such persons or to pay administrative expenses
to the extent not paid by the Employer, and shall not revert or inure to the
benefit of the Employer.
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ARTICLE VIII
ADMINISTRATION OF THE PLAN
8.1 PLAN ADMINISTRATOR:
"The Plan Administrator," within the meaning of ERISA, is the Company. The
Company shall have complete charge of the administration of the Plan. The
Company is the "named fiduciary" within the meaning of ERISA. In general, the
Company shall have the responsibility to appoint and remove the Trustee and any
investment manager which may be provided for under the Trust Agreement.
The Plan Administrator shall have the authority to direct the Trustee to
invest all or a portion of the Trust Fund through any common or collective trust
fund or pooled investment fund or any other legally permissible investment under
the Code or ERISA.
8.2 THE ADMINISTRATIVE COMMITTEE:
The day-to-day administration of the Plan shall be the responsibility of
the Company's Employee Benefits Committee--herein called the "Committee." Each
member of the Committee shall serve without remuneration, but shall be
reimbursed for expenses incurred in the performance of his duties.
The Committee shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, day-to-day administrative functions within the framework of policies,
interpretations, rules, practices, and procedures made by the Committee or other
Plan Fiduciary. Any action made or taken by the Administrative Delegate may be
appealed by an affected Participant to the Committee in accordance with the
claims review procedures provided in Section 8.17. Any decisions which call for
interpretations of Plan provisions not previously made by the Committee shall be
made only by the Committee. The Administrative Delegate shall not be considered
a fiduciary with respect to the services it provides.
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8.3 EMPLOYMENT OF SERVICES BY THE COMMITTEE:
The Committee may appoint a Secretary who may, but need not be, a member of
the Committee. The Committee may employ such agents and such clerical and other
services, and such legal counsel, other consultants, and accountants as may, in
the opinion of the Committee, be required for the purposes of properly
administering the Plan.
8.4 EXPENSES OF ADMINISTRATION:
The Employer is not required, but may, at its discretion, pay the expenses
of administration of the Plan, including the fees and expenses of the Trustee.
If such expenses of administration are not so paid by the Employer, they shall
be paid by the Trustee from the Trust Fund. The Trustee, investment advisors,
Actuary, recordkeeper, advisors and auditors of the Plan (collectively referred
to as "Service Providers") will receive reasonable compensation as may be agreed
upon from time to time between the Company or the Committee and such Service
Providers. To the extent permitted by law, such compensation shall be paid from
the Trust Fund unless paid by the Company.
8.5 ACTS OF THE COMMITTEE:
The Committee shall give to the Trustee any order, direction, consent or
advice required under the terms of the Plan or the Trust Agreement, and the
Trustee shall be entitled fully to rely on any instrument delivered to it
evidencing the action of the Committee as hereinabove described.
8.6 INTERPRETATIONS:
The Committee shall have the exclusive right to make any finding of fact
necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of the eligibility for and the amount of any
benefit payable under the Plan. The Committee shall have the exclusive right to
interpret the terms and provisions of the Plan and to determine any and all
questions arising under the Plan or in connection with the administration
thereof, including, without limitation, the right
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to remedy or resolve possible ambiguities, inconsistences, or omissions, by
general rule or particular decision, with such interpretations or
determinations to be finally conclusive and binding on all parties affected
thereby. The Committee shall make, or cause to be made, all reports or other
filings necessary to meet the reporting and disclosure requirements of ERISA
which are the responsibility of "plan administrator" under ERISA. TO the
extent permitted by law, all findings of fact, determinations,
interpretations, and decisions of the Committee shall be conclusive and
binding upon all persons having or claiming to have any interest or right
under the Plan.
8.7 LIABILITY OF THE COMMITTEE:
The members of the Committee, and each of them, shall be free from
liability for their acts and conduct in the administration of the Plan, and the
Employer shall indemnify them and hold them, and each of them, harmless from the
effects and consequences of their acts and conduct in their official capacity,
except to the extent that such effects and consequences result from their
failure to exercise ordinary care and reasonable diligence. In any event, the
Committee shall be deemed to have exercised ordinary care and reasonable
diligence if it shall have relied in good faith upon any written information
furnished to it by an Employee or Participant, the Employer, the investment
advisor, the Trustee, or by any Actuary, employee benefit plan consultant,
counsel, accountant or other person employed, with or without remuneration, by
the Employer for purposes of the Plan.
8.8 APPLICABLE LAW:
The Plan will be construed and enforced in accordance with the laws of the
State of Wisconsin and all provisions of the Plan will be administered in
accordance with the laws of the said State, to the extent not superseded by
ERISA.
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8.9 PLAN FIDUCIARIES: ALLOCATION OF RESPONSIBILITIES AMONG THEM:
Under ERISA and Regulations pursuant to ERISA, the Employer, the Trustee,
the Committee, the Plan Administrator and the Investment Adviser are "Plan
Fiduciaries." All Plan Fiduciaries shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to them under
the Plan document and the Trust Agreement. In general, the Employer, acting
through a majority of its Board of Directors or its designated committee, shall
have the sole responsibility to terminate the Plan, in whole or in part, in
accordance with Article XIII hereof and sole responsibility to appoint and
remove the Trustee. The Plan Administrator shall have ultimate responsibility
for the administration of the Plan. The Committee shall determine an allocation
of Plan assets in consideration of Plan liabilities, establish investment
guidelines, select and evaluate money managers and investment alternatives and
review and approve investment transactions and strategy. The Committee shall
also have such other duties and responsibilities as are described in the
applicable provisions of this Article VIII together with such other duties and
responsibilities as may be delegated to them by a majority of the Board of
Directors of the Employer or its designated committee or the Plan Administrator
from time to time. The Trustee shall have the responsibility of the
administration of the Trust and for the custody and management of the assets
held in the Trust Fund to the extent provided in the Trust Agreement and any
contracts or agreements entered into by and between the Trustee and the
Investment Adviser.
8.10 RELIANCE ON CO-FIDUCIARIES:
Each Fiduciary may rely upon any direction, information or action of
another Fiduciary as being proper under the Plan, and shall not, under normal
circumstances, be required to inquire into the propriety of any such direction,
information or action. Each Fiduciary shall be responsible for the proper
exercise of
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his own powers, duties, responsibilities and obligations under this Plan and
shall not be responsible for any breach of fiduciary by another Fiduciary
("other Fiduciary") unless he participates knowingly in, or knowingly
undertakes to conceal an act or omission of such other Fiduciary, knowing
such act or omission is a breach; or by his failure to comply with Article
VIII hereof in the administration of his specific responsibilities hereunder
he has enabled such other Fiduciary to commit a breach; or by his failure to
comply with Article VIII hereof in the administration of his specific
responsibilities hereunder he has enabled such other Fiduciary to commit a
breach; or he has knowledge of a breach by such other Fiduciary and fails to
make reasonable efforts under the circumstances to remedy the breach. No
Fiduciary guarantees the Trust Fund in any manner against investment loss or
depreciation in asset value.
8.11 FIDUCIARY DUTIES:
All fiduciaries shall discharge their duties solely and exclusively in the
interest of the Participants and Beneficiaries and for the exclusive purposes of
providing benefits to Participants and their Beneficiaries and defraying the
reasonable expenses of administering the Plan and Trust. They shall discharge
their duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man, acting in a like capacity and
familiar with such matters, would use in the conduct of an enterprise of a like
character and with like aims.
8.12 PROHIBITED TRANSACTIONS TO BE AVOIDED:
The Fiduciaries shall not do any action prohibited under or in violation of
Part 4 of Title I of ERISA or which would subject any person or the Employer to
imposition of a tax under Section 4975 of the Code.
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8.13 RECORDS AND REPORTS OF THE PLAN ADMINISTRATOR:
The Plan Administrator shall prepare, or cause to be prepared, and shall
furnish, or cause to be furnished, to Participants and Beneficiaries, and to the
Secretary of Labor or his delegate, and to the Secretary of the Treasury or his
delegate, such plan descriptions, summaries, annual and other reports,
registration statements, notifications and other documents as may be required by
ERISA and the Code and regulations thereunder. The Plan Administrator shall
exercise such authority and responsibility as it deems appropriate in order to
comply with ERISA and the Code and regulations thereunder relating to records of
the Service of all Participants and the percentage of their Accrued Benefit
which is nonforfeitable under the Plan.
8.14 DATA SUPPLIED BY EMPLOYER:
The Employer shall advise the Committee, in writing, of all data which may
be reasonably necessary in order to administer the Plan and to determine the
amount of respective Employer contributions; or to determine the eligibility,
Earnings, Service, and other matters required to be determined relating to
Employees of the Employer. The Plan Administrator or Committee shall be fully
protected in acting upon any such data.
8.15 PARTIAL EXCULPATION:
The Committee or the Plan Administrator (as appropriate) shall incur no
personal liability of any nature in connection with any failure to act or in
respect of any act taken in good faith in the management and administration of
the Plan and in carrying out the directions of the Employer, except as may
otherwise be provided by ERISA. The Committee or the Plan Administrator shall
be indemnified and held harmless by the Employer from and against any such
personal liability, including all expenses reasonably incurred in its defense.
8.16 INFORMATION REQUIRED OF PARTICIPANTS:
Each Participant, and, if applicable, each Beneficiary of a deceased
Participant, shall furnish the Committee (or the Plan
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Administrator) with such information as the Committee (or the Plan
Administrator) shall deem necessary and desirable for purposes of administering
the Plan, and the provisions of the Plan relating to any payments hereunder to
or on account of any Participant, former or deceased Participant are conditional
upon such person's furnishing promptly such true, full and complete information
as the Committee (or the Plan Administrator) may request.
8.17 CLAIMS PROCEDURE:
(a) APPLICATIONS FOR BENEFITS NOT REQUIRED: A formal request for a
distribution under the Plan is not required of any Participant or
Beneficiary entitled thereto.
(b) CLAIMS FOR BENEFITS NOT RECEIVED: Any claim for benefits not
received shall be made in writing to the Committee (or the Plan
Administrator). The Committee (or the Plan Administrator) shall consider
such claim and shall, within sixty (60) days next following receipt of same
either approve it or deny it. If the Committee (or the Plan Administrator)
shall deny such claim, it shall, by written notice directed to the claimant
at the address shown on the claim (or in the absence thereof, the last
known address of the claimant, as shown on the records of the Employer)
inform the claimant of such denial, including such written notice, as a
minimum, the following:
(1) The specific reason or reasons for the denial;
(2) Reference to the specific provisions of the Plan, on which
such denial is based;
(3) A description of any additional material or information
necessary for the claimant to perfect his claim and a brief
description of why such additional information is necessary; and
(4) A brief explanation of the appeals procedure which is
available to him, which, in essence, is described in paragraph (c)
below.
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(c) APPEALS PROCEDURE FOLLOWING INITIAL DENIAL OF CLAIM: Each
claimant whose claim for a benefit under the Plan has been denied shall
have the right to appeal the decision to the Committee (or the Plan
Administrator) in accordance with the following procedures:
(1) Such appeal must be in writing, over the signature of the
claimant whose claim was so denied, and filed with the Committee (or
the Plan Administrator), addressed and delivered within the 60-day
period next following the initial denial of same, either by hand or by
the United States Postal Service, postage fully prepaid.
(2) The claimant, or his duly authorized representative (such
as, but not by way of limitation, legal counsel) shall have the right
at all reasonable times to examine Plan documents related to his claim
and to submit to the Committee (or the Plan Administrator), issues,
comments and responses, provided that they shall be in writing and
delivered to the Committee (or the Plan Administrator) as described in
subparagraph (1) above.
(3) The Committee (or the Plan Administrator) shall render its
decision as promptly as practicable, but not later than sixty (60)
days after receipt of the claimant's appeal from the initial denial by
the Committee (or the Plan Administrator).
(d) NATURE OF CONTENT OF WRITTEN NOTICES TO CLAIMANTS:
Notwithstanding any provision hereof to the contrary, all written notices
to claimants regarding their claims for benefits under the Plan, shall be
expressed in terms calculated to be understood by the average claimant and
shall include specific reasons for the decision--whether for or against the
claimant--and specific references to the pertinent provisions of the Plan
on which the decision was based.
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8.18 BENEFICIARY DESIGNATIONS:
Each Participant may name a Beneficiary to receive any death benefit (other
than any income payable to a Contingent Annuitant) which may arise out of his
participation in the Plan. If there is no contingent Beneficiary, or if the
contingent Beneficiary dies before receiving all death benefit payments to which
he is entitled, the balance of such payments shall be paid to the estate of the
last to die of such Beneficiaries. A designation or change of Beneficiary shall
be made in writing on such form or forms as the Committee may require.
Notwithstanding the above, if a married Participant designates someone
other than his or her spouse as the primary Beneficiary, the spouse must consent
to such designation. Any non-spouse Beneficiary designation made before the
Participant's death must be made by the Participant in writing and shall require
the spouse's irrevocable consent in the same manner provided for in Section 5.4.
Further, the spouse's consent must acknowledge the specific non-spouse
Beneficiary.
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ARTICLE IX
MISCELLANEOUS
9.1 NONGUARANTEE OF EMPLOYMENT:
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
9.2 RIGHTS TO TRUST FUND ASSETS:
No Participant shall have any right to, or interest in, any assets of the
Trust Fund upon termination of his employment or otherwise, except as provided
from time to time under this Plan, and then only to the extent of the benefits
payable under the Plan to such Participant out of the assets of the Trust Fund.
Except as otherwise may be provided under Title IV of ERISA, all payments of
benefits as provided for in this Plan shall be made solely out of the assets of
the Trust Fund and none of the Fiduciaries shall be liable therefor in any
manner.
9.3 NONALIENATION OF BENEFITS:
Except as provided in Code Section 401(a)(13), no benefits payable under
this Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the
same shall be null and void; nor shall the Trust Fund be liable for, or subject
to, the debts, contracts, liabilities, engagement, or torts of the person
entitled to benefits hereunder.
9.4 PAYMENTS PURSUANT TO A QUALIFIED DOMESTIC RELATIONS ORDER:
Notwithstanding the provisions of Section 9.3, the Plan will recognize a
"qualified domestic relations order" which shall be a judgment, decree or order
(including approval of a property settlement agreement) that meets the
requirements of (a), (b), and (c) below:
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(a) the order must relate to child support, alimony, property rights
of a spouse, former spouse, child or dependent of a Participant, and must
be issued pursuant to a state domestic relations law;
(b) the order must include (1) the name and address of the
Participant and alternate payee, (2) the amount or percentage of benefits
payable to the alternate payee (or the manner in which the amount or
percentage is to be determined), (3) the period or number of payments
involved, and (4) the exact name of the plan to which the order applies;
and
(c) the order cannot require a type or form of benefit or option not
otherwise offered under the Plan, cannot require the Plan to provide
increased benefits (determined on an actuarial basis), and cannot affect
benefits already the subject of a previous qualified domestic relations
order.
A qualified domestic relations order can order the Plan to commence
payments to an alternate payee as of or following the earliest date the
Participant could elect to receive benefits under the Plan even though the
Participant is still employed by an Employer. If the Participant dies before
the above-mentioned date, benefits are payable to the alternate payee only if
the order specifically provides for such benefits. Notwithstanding the
foregoing, the Plan may make a distribution to an alternate payee prior to the
date the Participant attains earliest retirement age if the qualified domestic
relations order provides that the Plan and alternate payee may agree in writing
to an earlier distribution of an immediate lump sum payment and the distribution
is made pursuant to such a written agreement.
If the Participant is still employed by an Employer, the benefit payable to
the alternate payee is to be based on the Participant's Accrued Benefit payable
at his Normal Retirement Date. The Accrued Benefit shall be reduced to an
Actuarial Equivalent (based on the Participant's age, not the alternate
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payee's age) at the alternate payee's payment date. If payment is made pursuant
to a qualified domestic relations order before the Participant has separated
from service and the benefit is determined as of or after an early commencement
date under Section 3.2 or 3.4, the benefit payable pursuant to Section 3.2 or
3.4 will be reduced for early commencement based on the applicable definition of
actuarial equivalence contained in Section 1.1(b).
An alternate payee may elect any form of payment to which the Participant
would be entitled at the time of the alternate payee's benefit commencement;
provided, however, an alternate payee cannot elect to cover such payee's spouse
under any joint and survivor form of payment.
The Committee shall notify any Participant and alternate payee of the
receipt of any order by the Plan and shall inform such Participant and alternate
payee of the Plan's procedures for determining whether the order meets the
requirements described above in this Section 9.4. Such procedures shall comply
with the requirements set forth in Code Section 414(p) and Section 206(d) of
ERISA, and the Plan's Procedures Upon Receipt of a Domestic Relations Order.
9.5 GOVERNING LAW:
The provisions of this Plan shall be governed by and construed and
administered in accordance with ERISA, the Code, and, where not inconsistent,
the laws of the State of Wisconsin.
9.6 PARTICIPANT INFORMATION:
Each Participant shall notify the Committee of (a) his mailing address and
each change of mailing address, (b) the Participant's, the Participant's
Beneficiary's and, if applicable, the Participant's spouse's date of birth, (c)
the Participant's marital status and any change of his marital status, and (d)
any other information required by the Committee.
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The information provided by the Participant under this Section 9.5 shall be
binding upon the Participant's Beneficiary for all purposes of the Plan.
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ARTICLE X
AMENDMENTS AND ACTIONS BY THE EMPLOYER
10.1 AMENDMENTS:
The Company does hereby expressly and specifically reserve the sole and
exclusive right at any time by action of the Committee or its designee to amend,
modify, or terminate the Plan. The Company's right of amendment, modification,
or termination as aforesaid shall not require the assent, concurrence, or any
other action by any Employer notwithstanding that such action by the Company may
relate in whole or in part to persons in the employ of an Employer.
10.2 LIMITATION ON AMENDMENTS:
The provisions of this Article are subject to and limited by the following
restrictions:
(a) Except to the extent necessary to produce conformity to the laws
and regulations described in Section 10.1 or to the extent permitted by any
applicable law or regulation, no such amendment shall operate either
directly or indirectly to reduce either the non-forfeitable percentage of
any Participant's Accrued Benefit or the Accrued Benefit of any Participant
as they are constituted at the time of the amendment. For purposes of this
subsection (a), an amendment which has the effect of (1) eliminating or
reducing any early retirement benefit or a retirement-type subsidy, or (2)
eliminating an optional form of benefit, with respect to benefits
attributable to Service before the amendment, shall be treated as reducing
accrued benefits.
(b) No such amendment shall change any vesting schedule unless each
Participant who has completed three or more Years of Service is permitted
to elect to have his non-forfeitable Accrued Benefit computed under the
Plan without regard to such amendment. Such election shall be made within
such reasonable period as the Employer may designate after adoption of the
amendment but in no event earlier than 60 days after the later of: (1) the
date the
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amendment is adopted, or (2) the date the amendment becomes effective, or
(3) the date the Participant receives written notice of the amendment from
the Committee.
(c) No amendment shall operate either directly or indirectly to give
any Employer any interest whatsoever in any funds or property held by the
Trustee under the terms hereof, or to permit the corpus or income of the
Trust to be used for or diverted to purposes other than the exclusive
benefit of Participants or their Beneficiaries.
10.3 ACTION BY EMPLOYER:
Any action by the Employer under this Plan may be by resolution of its
Committee, or by any person or persons duly authorized by resolution of said
Board to take such action.
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ARTICLE XI
SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS
11.1 SUCCESSOR EMPLOYER:
In the event of the dissolution, merger, consolidation or reorganization of
the Employer, provision may be made by which the Plan will be continued by the
successor; and, in that event, such successor shall be substituted for the
Employer under the Plan. The substitution of the successor shall constitute an
assumption of Plan liabilities by the successor and the successor shall have all
the powers, duties and responsibilities of the Employer under the Plan.
11.2 PLAN ASSETS:
In the event of any merger or consolidation of the Plan with, or transfer,
in whole or in part, of the assets and liabilities of the Trust Fund to another
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants in this Plan, the
assets of the Trust Fund applicable to such Participants shall be transferred to
the other fund only if:
(a) Each Participant would (if either this Plan or the other plan
then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he
would have been entitled to receive immediately before the merger,
consolidation or transfer (if this Plan had then terminated).
(b) Resolutions of the Committee of the Employer, and of any new or
successor employer of the affected Participants, shall authorize such
transfer of assets; and, in the case of the new or successor employer of
the affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participant's inclusion in the new
employer's plan.
(c) Such other plan and fund are qualified under Sections 401(a) and
501(a) of the Code.
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ARTICLE XII
TEMPORARY RESTRICTIONS ON BENEFITS
12.1 TEMPORARY LIMITATION ON BENEFITS OF RESTRICTED PARTICIPANT:
(a) RESTRICTION. Notwithstanding any Plan provision to the contrary,
the retirement benefits provided under the Plan from Employer contributions
for Participants described in subsection (b) below will be restricted to an
amount equal to the payments that would be made on the Participant's behalf
under a straight life annuity that is the Actuarial Equivalent of the sum
of the Participant's Accrued Benefit and the Participant's other benefits
(if any) under the Plan.
(b) RESTRICTED PARTICIPANTS. The Participants subject to the
restrictions set forth in subsection (a) are those Participants who are the
25 Highly Compensated Employees (within the meaning of Code Section 414(q))
and former Highly Compensated Employees with the greatest compensation (as
defined in Code Section 414(s)).
(c) NONAPPLICABILITY. The restrictions in this Section 12.1 will not
apply, however, if--
(1) After payment to such a Participant of all benefits
described in proposed Treasury regulations
Section 1.401(a)(4)-5(c)(3)(iii), the value of Plan assets equals or
exceeds 110% of the value of current liabilities as defined in Code
Section 412(l)(7);
(2) The value of the benefits described in proposed Treasury
regulations Section 1.401(a)(4)-5(c)(3)(iii) for such a Participant is
less than 1% of the value of current liabilities; or
(3) the Commissioner of Internal Revenue determines that such
restrictions are not necessary to prevent the prohibited
discrimination that may occur in the event of an early termination of
the Plan.
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(d) PLAN TERMINATION. In the event of the termination of the Plan,
the benefit of any Highly Compensated Employee (and any former Highly
Compensated Employee) is limited to a benefit that is nondiscriminatory
under Code Section 401(a)(4).
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ARTICLE XIII
PLAN TERMINATION
13.1 TERMINATION OF THE PLAN:
While each Employer contemplates carrying out the provisions of the Plan
indefinitely with respect to its Employees, no Employer shall be under any
obligation or liability whatsoever to maintain the Plan for any minimum or other
period of time.
The Plan may be terminated in whole or in part at any time by appropriate
action of the Board of Directors of the Company or its designee. Upon any
termination of the Plan in its entirety, or with respect to any Employer, the
Company shall give written notice thereof to the Plan Administrator, the
Trustee, and any Employer involved. Upon termination or partial termination of
the Plan, each Participant will become fully vested in his Accrued Benefit, no
further Employees will become Participants.
Except as provided by law, upon any termination of the Plan, no Employer
with respect to whom the Plan is terminated (including the Company) shall
thereafter by under any obligation, liability, or responsibility whatsoever to
make any contribution or payment to the Trust Fund, the Plan, any Participant,
any Beneficiary, or any other person, trust, or fund whatsoever, for any purpose
whatsoever under or in connections with the Plan.
13.2 DISTRIBUTION ON TERMINATION AND PARTIAL TERMINATION:
On termination of the Plan, the Trustee will liquidate the Trust Fund.
After payment of all expenses of liquidation, the Committee shall allocate the
remainder of the Trust Fund assets and cause them to be distributed by the
Trustee in the manner and order set forth in Section 4044 of ERISA to the extent
of the sufficiency of such assets. On partial termination of the Plan by
operation of law, the Trustee shall segregate and liquidate the portion of the
Trust Fund assets allocable to affected Participants and Beneficiaries. After
payment of all expenses of liquidation, the Committee shall allocate the
remainder of the
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portion of the Trust Fund assets and cause them to be distributed to affected
Participants by the Trustee in the manner and order set forth in Section 4044
of ERISA to the extent of the sufficiency of such assets.
13.3 MANNER OF DISTRIBUTION:
Subject to the foregoing provisions of this Article XIII, any distribution
after termination of the Plan may be made, in whole or in part, to the extent
that no discrimination in value results, in cash, in securities or other assets
in kind, or in nontransferable annuity contracts, as the Committee, in its
discretion, shall determine.
13.4 RESIDUAL AMOUNTS:
In no event shall the Employer receive any amounts from the Trust Fund upon
termination of the Plan; except that, and notwithstanding any other provision of
the Plan, the Employer shall receive such amounts, if any, as may remain after
the satisfaction of all liabilities of the Plan and arising out of any
variations between actual requirements and expected actuarial requirements.
13.5 EFFECT OF BANKRUPTCY AND OTHER CONTINGENCIES AFFECTING AN EMPLOYER:
In the event an Employer terminates its connection with the Plan, or in the
event an Employer is dissolved, liquidated, or shall by appropriate legal
proceedings be adjudged bankrupt or declared insolvent, or in the event judicial
proceedings of any kind result in the involuntary dissolution of an Employer,
the Plan shall be terminated with respect to such Employer. The merger,
consolidation, or reorganization of an Employer, or the sale by it of all or
substantially all of its assets, shall not terminate the Plan if there is
delivery to such Employer by the Employer's successor or by the purchaser of all
or substantially all of the Employer's assets, of a written instrument
requesting that the successor or purchaser be substituted for the Employer and
agreeing to perform all the provisions hereof which such
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Employer is required to perform. Upon the receipt of said instrument, with the
approval of the Company, the successor, or the purchaser shall be substituted
for such Employer herein, and such Employer shall be relieved and released from
any obligations of any kind, character, or description herein or in any trust
agreement imposed upon it.
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ARTICLE XIV
TOP HEAVY PROVISIONS
14.1 TOP HEAVY PROVISIONS:
In order to comply with the requirements of Code Section 416, the following
provisions of this Section shall be applicable to the Plan in the event it
should ever become a "Top Heavy Plan", as contemplated by the said Code
provisions.
14.2 TOP HEAVY PLAN DEFINITIONS:
--------------------------
Definitions relating to Top Heavy Plan provisions are as follows:
(a) TOP HEAVY: This Plan shall be considered "Top Heavy" if, as of
the Determination Date, the Top Heavy Ratio exceeds 60%. The Top Heavy
Ratio is a fraction, the numerator of which is the sum of the present value
of Accrued Benefit of all Key Employees as of the Determination Date
(including distributions made within the 5 Plan Year period ending on the
Determination Date) determined as if the Participant terminated service as
of such Determination Date, and the denominator of which is a similar sum
determined for all Participants. This ratio shall be calculated without
regard to any Non-Key Employee who was formerly a Key Employee. The Top
Heavy Ratio, including the extent to which it must take into account
distributions, rollovers and transfers, shall be calculated in accordance
with Section 416 of the Code and regulations thereunder.
Notwithstanding the foregoing, if the Employer maintains other
qualified plans, this Plan is Top Heavy only if it is part of the Required
Aggregation Group (as defined in Section 14.2(e) of the Plan), and the Top
Heavy Ratio for both the Required Aggregation Group and the Permissive
Aggregation Group (as defined in Section 14.2(f) of the Plan) exceeds 60%.
The Top Heavy Ratio will be calculated in the same manner as required by
the preceding paragraph, taking into account all plans within either the
Required or
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Permissive Aggregation Group, as applicable. The present value of Accrued
Benefit and the other amounts that must be taken into account under defined
contribution plans included within either the Required or Permissive
Aggregation Group, as applicable, shall be calculated in accordance with
the terms of those plans, Code Section 416 and the regulations thereunder.
The Top Heavy Ratio shall be calculated with reference to the Determination
Date and fall within the same calendar year. In order to determine the
present value under this paragraph, an interest rate assumption of 5% and
the Mortality Table specified in Schedule A shall be used to compute the
present value of benefits.
The Accrued Benefit of any Participant who has not performed any
services for the Employer at any time during the 5 year period ending on
the Determination Date will be disregarded for purposes of calculating the
Top Heavy Ratio.
(b) DETERMINATION DATE: For purposes of determining whether the Plan
is Top Heavy for a particular Plan Year, the "Determination Date" shall be
the last day of the preceding Plan Year.
(c) KEY EMPLOYEE: A "Key Employee" is any Employee (or former
Employee), including a Beneficiary of such Employee, who at any time during
the Plan Year or any four (4) preceding Plan Years is one of the following:
(1) An officer of the Employer (but in no event shall more than
50 Employees, or if less, the greater of 3 or 10% of all Employees, be
taken into account under this paragraph (3) as Key Employees).
Notwithstanding, an officer of the Employer will not be considered a
"Key Employee" under this paragraph (3) unless he earned more than 50%
of the amount in effect under Code Section 415(b)(1)(A) adjusted each
Plan Year to take into account any applicable cost of living
adjustments promulgated by the Secretary of the Treasury or his
delegate, under Section 415(d) of the Code; or
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(2) One of the 10 Employees whose annual Compensation is in
excess of the $30,000 dollar limit (adjusted for cost-of-living), as
set forth in Subparagraph (3)(A) above, and owning (or considered as
owning within the meaning of Code Section 318) both more than a 1/2%
interest and the largest interests in the Employer. If two (2)
Employees have the same interest in the Employer, the Employee having
greater annual Compensation from the Employer shall be treated as
having a larger interest; or
(3) A person owning (or considered as owning within the meaning
of Code Section 318) more than 5% of the total combined voting power
of all stock of the Employer; or
(4) A person who has an annual Compensation from the Employer of
more than $150,000 and would be described in subparagraph (C) hereof
if 1% were substituted for 5%.
Notwithstanding, for purposes of applying Code Section 318 to the
provisions of this paragraph (3), subparagraph (C) of Code Section
318(a)(2) shall be applied by substituting 5% for 50%. In addition, the
rules of subsection (b), (d) and (m) of Code Section 414 shall not apply
for purposes of determining ownership in the Employer under this paragraph
(3).
The constructive ownership rules of Code Section 318 shall apply to
this paragraph (3) in order to determine ownership in the Employer. The
Committee shall make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations thereunder.
(d) NON-KEY EMPLOYEE: A "Non-Key Employee" is any Employee who does
not meet the definition of a Key Employee.
(e) REQUIRED AGGREGATION GROUP: "Required Aggregation Group" is (i)
each qualified plan of the Employer in
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which at least one Key Employee participates, plus (ii) any other qualified
plan of the Employer which enables a plan described in (i) above, to meet
the requirements of Section 401(a)(4) or 410 of the Code.
(f) PERMISSIVE AGGREGATION GROUP: "Permissive Aggregation Group" is
the Required Aggregation Group plus any qualified plans maintained by the
Employer, but only if such Group would satisfy, in the aggregate, the
requirement of Sections 401(a)(4) and 410 of the Code. The Committee shall
determine which plan(s) to take into account in determining the Permissive
Aggregation Group.
(g) AVERAGE TOP HEAVY COMPENSATION: "Average Top Heavy Compensation"
is the Participant's average Compensation (with Compensation defined in
accordance with Code regulation 1.415-2(d)) for a period of 5 consecutive
years during which the Participant had the greatest aggregate Compensation
in the testing period. Years ending in a Plan Year beginning before
January 1, 1984 and years beginning after the close of the last Plan Year
in which the Plan was Top Heavy shall not be taken into account.
(h) VALUATION DATE: "Valuation Date" shall mean the date on which
the Plan's assets and liabilities are valued for purposes of calculating
the Top Heavy Ratio. The Valuation Date shall be the same date as the
Determination Date.
14.3 MINIMUM VESTING REQUIREMENTS: Notwithstanding the Vesting Schedule as set
forth in Section 3.4 of this Plan, if the Plan is a "Top Heavy Plan" as
determined pursuant to Code Section 416 for any Plan Year beginning after
December 31, 1983, vesting of the Participant's Accrued Benefit shall be
determined in accordance with the following schedule (for the Plan Year in which
the Plan is "Top Heavy" only):
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<TABLE>
<CAPTION>
Vested
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years or More 100%
</TABLE>
14.4 MINIMUM BENEFITS: If the Plan is Top Heavy in any Plan Year beginning
after December 31, 1983, the Plan shall provide a minimum benefit for each
Participant who is a Non-Key Employee. The minimum normal retirement benefit
(in the form of a Life Only Benefit) shall be equal to the applicable percentage
of the Non-Key Employee's Average Top Heavy Compensation. The applicable
percentage is the lesser of 2% multiplied by the number of Years of Service that
the Non-Key Employee completes in Top Heavy Plan Years, or 20%.
The Plan satisfies the minimum benefit for a Non-Key Employee if the
Non-Key Employee's Accrued Benefit at the end of the Top Heavy Plan Year is at
least equal to the minimum normal retirement benefit.
Notwithstanding the above minimum benefit requirements, if a Non-Key
Employee participates in both this plan and another Top Heavy tax qualified
defined contribution plan maintained by the Employer, no minimum contribution
will be required under the defined contribution Plan on behalf of the Non-Key
Employee, for any Plan Year, if the Employer provides a minimum benefit under
this Plan on behalf of the Non-Key Employee, for such Plan Year, in accordance
with Code Section 416(c).
14.5 ADDITIONAL ACCRUALS: If, at the end of any Top Heavy Plan Year, a Non-Key
Employee Participant's Accrued Benefit is not at least equal to his minimum
normal retirement benefit, the Non-Key Employee Participant shall earn an
additional accrual. Such Non-Key Employee Participant's Accrued Benefit shall
be increased by the lesser of:
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(a) 2% of the Non-Key Employee's Average Top Heavy Compensation minus
the benefit the Non-Key Employee would otherwise accrue under the Plan for
the Plan Year; or
(b) The minimum normal retirement benefit to which the Non-Key
Employee should be entitled under subsection (c) minus the Non-Key
Employee's Accrued Benefit under the Plan at the end of the Plan Year
(without regard to any additional accrual which this subsection (d) may
require for the Plan Year).
A Non-Key Employee Participant shall receive an additional accrual if he
completes a Year of Service during the Plan Year. The Employer shall not impute
Social Security benefits to determine whether it has satisfied its obligation to
provide the minimum normal retirement benefit.
14.6 ADJUSTMENT TO OVERALL IRC SECTION 415 LIMITATIONS: If, during any
Limitation Year, the Plan is Top Heavy, the Committee shall apply the
limitations of Section 4.4 to the Participant by substituting 1.0 for 1.25 each
place it appears in the fractions described in Code Sections 415(e)(2) and
(e)(3). This Section 14.6 shall not apply if:
(1) The Plan could satisfy subsection (c) of this Section 14.6
if 3% were substituted for 2%; and
(2) The Top Heavy Ratio does not exceed 90%.
* * * * * * * * * *
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IN WITNESS WHEREOF, United Wisconsin Services, Inc., and Blue Cross & Blue
Shield United of Wisconsin, by their duly authorized officers, have caused these
presents to be signed on this _____ day of ____________________, 1998.
UNITED WISCONSIN SERVICES, INC.
_____________________________________________
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
_____________________________________________
CORPORATE SEAL
ATTEST:
______________________________
Secretary
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<PAGE>
SCHEDULE A - PARTICIPATING EMPLOYERS
(As of January 1, 1993)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Take Control, Inc.
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
(As of January 1, 1995)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
(Including West Allis Dental Group)
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
United Wisconsin Life Insurance Company
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
(As of January 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
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<PAGE>
SCHEDULE B - EXCLUDED EMPLOYEE GROUPS
(As of January 1, 1993)
West Allis Dental Group (a division of Compcare Health Services
Insurance Corporation)
(As of January 1, 1995)
HMO of Wisconsin Insurance Corporation
HMO-W, Inc.
United Heartland, Inc.
(As of January 1, 1997)
Accountable Health Plans, Inc.
Accountable Health Plan of the Carolinas, Inc.
Advance Medical Security, Inc.
American Medical Security Holdings, Inc.
American Medical Security, Inc.
AMS HMO Holdings, Inc.
AMS Provider Partnerships, Inc.
American Medical Security Health Plans, Inc.
American Medical Security Insurance Company
American Medical Security Health Plan, Inc. (DBA American Medical
Healthcare)
Atlantic Health Plans, Inc.
CNR Health, Inc.
Community Health Plan, Inc.
Continental Plan Services, Inc.
Crescent Medical Partnerships, Inc.
HMO-W, Inc.
Nurse Healthline, Inc.
Personal Physician Care, Inc.
U&C Real Estate Partnership
United Wisconsin Life Insurance Company
Unity Health Plans Insurance Corporation (formerly HMO of
Wisconsin Insurance Corporation)
Unity HMO of Illinois, Inc.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 1
Participants Terminating Employment between March 1, 1996 and December 31, 1996.
Any Participant who terminated employment on or after March 1, 1996 and before
January 1, 1997 and who did not receive a distribution of his vested prior Plan
Benefit during 1996 shall receive his retirement benefit in accordance with
Section 4.1 of this Plan as if he had been actively employed as of January 1,
1997. In the event any of the Participants described above are reemployed, they
shall not be eligible to receive a Transition Credit.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 2
Hometown Insurance Services Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of January 1, 1995 and supersedes any provisions of the Plan
which are not consistent with this Special Benefit Schedule. The Participants
covered by this Special Benefit Schedule are the Participants listed below
("Hometown Employees") who were employed by the Employer (doing business as
Hometown Insurance Services) on December 31, 1994.
<TABLE>
<S> <C>
Chris Bruni Cindy Olson
Tom Burns Bruce Ohlsen
Bev Comer George Tervalon
Debrah Gunderson Christine Walder
Richard Laufenberg
Jim Malicki
</TABLE>
1. ELIGIBILITY. A Hometown Employee shall participate in the Plan as of the
later of (a) January 1, 1995 or (b) the first day of the month coincident
or next following the first anniversary of his date of hire with HMO of
Wisconsin Insurance Corporation, HMO-W, Inc., University Health Care, Inc.,
U-Care HMO, Inc., or Unity Health Plans Insurance Corporation (a "Hometown
Related Employer").
2. VESTING. For purposes of determining pursuant to Section 6.1 the Years of
Vesting Service, the Plan shall recognize, in addition to his Service with
an Employer on and after January 1, 1995, all periods of a Participant's
employment with a Hometown Related Employer prior to January 1, 1995.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 3
Certain United Heartland, Inc. Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain Employees of United
Heartland, Inc. ("UH"). The Participants covered by this Special Benefit
Schedule are the Participants who immediately prior to the Effective Date
were actively employed by UH and were active participants in the United
Heartland, Inc. Pension Plan ("UH Pension").
2. EFFECTIVE DATE: January 1, 1997.
3. ELIGIBILITY: A participant in the UH Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee of UH shall become eligible to participate in the
Plan on the later of the Effective Date or the date such employee would
otherwise become eligible to participate in accordance with the provisions
of Article II of the Plan, taking into account such employee's service with
UH prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. NO TRANSITION CREDITS: A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
6. VESTING: For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with UH, as computed
under the elapsed time method used by the UH Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 4
Former EDS Employees in the Medicaid Claims Processing Unit
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain former EDS employees. The
Participants covered by this Special Benefit Schedule are the Participants
who immediately prior to the Effective Date were actively employed by EDS
in the Medicaid Claims Processing Unit and became Employees of the Company
on the Effective Date.
2. EFFECTIVE DATE: January 1, 1997.
3. ELIGIBILITY: A Participant covered by this Special Benefit Schedule who
was a participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Medicaid Claims Processing Unit shall
become eligible to participate in the Plan on the later of the Effective
Date or the date such employee would otherwise become eligible to
participate in accordance with the provisions of Article II of the Plan,
taking into account such employee's service with EDS prior to the Effective
Date.
4. INITIAL CASH BALANCE ACCOUNT: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. NO TRANSITION CREDITS: A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive Transition Credits
as described in Section 4.1(h) of this Plan.
6. VESTING: For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with EDS, as
computed under the method used by EDS Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 5
Former EDS Employees in the Print Center
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule for
certain former Electronic Data Systems Corporation ("EDS") employees is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of participation and vesting service for certain former EDS employees. The
Participants covered by this Special Benefit Schedule are the Participants
who immediately prior to the Effective Date were actively employed by EDS
in the Print Center who became Employees of the Company on the Effective
Date.
2. EFFECTIVE DATE: August 1, 1997.
3. ELIGIBILITY: A Participant covered by this Special Benefit Schedule who
was a participant in the EDS Retirement Plan immediately prior to the
Effective Date shall become a Participant in the Plan on the Effective
Date. Any other employee in the Print Center shall become eligible to
participate in the Plan on the later of the Effective Date or the date such
employee would otherwise become eligible to participate in accordance with
the provisions of Article II of the Plan, taking into account such
employee's service with EDS prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
January 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. ANNUAL CREDITS: A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 4% of Earnings. Annual Credits
shall be determined and credited to such Participants' Cash Balance
Accounts as described in Section 4.1(g) of the Plan, except as described in
Section 6 of this Special Benefit Schedule.
6. 1997 ANNUAL CREDIT: A Participant covered by this Special Benefit Schedule
shall receive an Annual Credit for the calendar year ended December 31,
1997 in an amount equal to 4% of Earnings for the period from August 1,
1997 to December 31, 1997.
7. NO TRANSITION CREDITS: A Participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
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<PAGE>
8. VESTING: For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with EDS, as
computed under the method used by EDS Plan.
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<PAGE>
SPECIAL BENEFIT SCHEDULE NO. 6
Unity Health Plans Insurance Corporation Employees
Pursuant to Section 1.1(ss) of the Plan, this Special Benefit Schedule is made a
part of the Plan as of the Effective Date set forth below and supersedes any
provisions of the Plan which are not consistent with this Special Benefit
Schedule.
1. PARTICIPANTS COVERED: This Special Benefit Schedule modifies and
supplements the provisions of the Plan in connection with the determination
of benefit accrual, participation and vesting service for Employees of
Unity Health Plans Insurance Corporation ("Unity").
2. EFFECTIVE DATE: October 1, 1997.
3. ELIGIBILITY: A participant in the Unity Health Plans Insurance Corporation
Retirement Plan ("Unity Plan") who was actively employed by Unity
immediately prior to the Effective Date shall become a Participant in the
Plan on the Effective Date. Any other Employee of Unity shall become
eligible to participate in the Plan on the later of the Effective Date or
the date such employee would otherwise become eligible to participate in
accordance with the provisions of Article II of the Plan, taking into
account such employee's service with Unity prior to the Effective Date.
4. INITIAL CASH BALANCE ACCOUNT: A Participant covered by this Special
Benefit Schedule shall have no initial Cash Balance Account as of
October 1, 1997. The initial Cash Balance Account for such participants
shall be established in accordance with Section 4.1(e)(2).
5. ANNUAL CREDITS: A Participant covered by this Special Benefit Schedule
shall receive Annual Credits at a rate of 3% of Earnings. Annual Credits
shall be determined and credited to such Participants' Cash Balance
Accounts as described in Section 4.1(g) of the Plan, except as described in
Section 6 of this Special Benefit Schedule.
6. 1997 ANNUAL CREDIT: A Participant covered by this Special Benefit Schedule
shall receive an Annual Credit for the calendar year ended December 31,
1997 in an amount equal to 3% of Earnings for the period from October 1,
1997 to December 31, 1997.
7. NO TRANSITION CREDITS: A participant covered by this Special Benefit
Schedule shall not be eligible for, nor shall he receive, Transition
Credits as described in Section 4.1(h) of this Plan.
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<PAGE>
8. VESTING: For vesting purposes hereunder, service of a Participant covered
by this Special Benefit Schedule shall include service with Unity, as
computed under the elapsed time method used by the Unity Plan.
-80-
<PAGE>
UWSI/BCBSUW SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
(Amended and Restated Effective
January 1, 1997)
<PAGE>
CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. THE PLAN 1
1.1 The Plan 1
1.2 Purpose of the Plan 1
1.3 Applicability of the Plan 1
1.4 Applicability of the Prior Plan 1
ARTICLE 2. DEFINITIONS 2
2.1 Definitions 2
2.2 Gender and Number 4
ARTICLE 3. PARTICIPATION 5
3.1 Participation 5
3.2 Duration 5
ARTICLE 4. BENEFITS 6
4.1 Retirement Benefits 6
4.2 Form of Payment 7
4.3 Disability Benefits 7
ARTICLE 5. DEATH BENEFITS 9
5.1 Eligibility 9
5.2 Amount 9
5.3 Payment 9
ARTICLE 6. FINANCING 10
6.1 Financing 10
6.2 No Trust Created 10
6.3 Unsecured Interest 10
6.4 "Rabbi" Trust 10
i
<PAGE>
ARTICLE 7. ADMINISTRATION 11
7.1 Administration 11
7.2 Appeals from Denial of Claims 11
7.3 Tax Withholding 12
7.4 Expenses 12
ARTICLE 8. ADOPTION OF THE PLAN BY AFFILIATE; AMENDMENT AND TERMINATION
OF THE PLAN 13
8.1 Adoption of the Plan by Affiliate 13
8.2 Amendment and Termination 13
ARTICLE 9. MISCELLANEOUS PROVISIONS 14
9.1 No Contract of Employment 14
9.2 Severability 14
9.3 Applicable Law 14
SUPPLEMENT A. ADOPTING EMPLOYERS (AS OF JANUARY 1, 1997) 16
</TABLE>
ii
<PAGE>
ARTICLE 1. THE PLAN
1.1 THE PLAN
United Wisconsin Services, Inc. and Blue Cross & Blue Shield United of Wisconsin
heretofore maintained a supplemental retirement plan known as the Supplemental
Benefit Restoration Plan (the "Prior Plan"). The Prior Plan is hereby amended
and restated to hereafter be known as the UWSI/BCBSUW Supplemental Executive
Retirement Plan (the "Plan").
1.2 PURPOSE OF THE PLAN
This Plan is intended to supplement benefits that are provided by the
UWSI/BCBSUW Salaried Pension Plan and the UWSI/BCBSUW Hourly Pension Plan
(the "Pension Plans").
The Plan is intended to be a plan maintained for the purpose of providing
deferred compensation to a "select group of management or highly compensated
employees" within the meaning of ERISA section 201(2).
Benefits provided under this Plan shall be paid solely from the general
assets of the Company and participating Affiliates. The Plan is intended to
be exempt from the participation, vesting, funding, and fiduciary
requirements of Title I of ERISA.
1.3 APPLICABILITY OF THE PLAN
This Plan applies only to eligible Employees who are in the active employ of the
Company or a participating Affiliate on or after January 1, 1997.
1.4 APPLICABILITY OF THE PRIOR PLAN
The Prior Plan applies only to those individuals who are Participants in the
Prior Plan as of December 31, 1996, and applies only for purposes of determining
the minimum benefit under section 4.1(b)(3) of this Plan. There shall be no new
Participants in the Prior Plan after December 31, 1996.
ARTICLE 2.
2.1 DEFINITIONS Whenever used in the Plan, the following terms shall have the
meanings set forth below unless otherwise expressly provided. When the defined
meaning is intended, the term is capitalized. The definition of any term in the
singular shall also include the plural and any masculine terminology shall be
deemed to refer to either a male or female.
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<PAGE>
(a) "ACTUARIAL EQUIVALENT" means a benefit having the same value as the benefit
which it replaces, computed on the bases of the actuarial equivalence
assumptions in effect under section 1.1(b)(i) of the UWSI/BCBSUW Salaried
Pension Plan.
(b) "AFFILIATE" means--
(1) any corporation while it is a member of the same "controlled group" of
corporations (within the meaning of Code section 414(b)) as the
Company;
(2) any other trade or business (whether or not incorporated) while it is
under "common control" (within the meaning of Code section 414(c))
with the Company;
(3) any organization during any period in which it (along with the
Company) is a member of an "affiliated service group" (within the
meaning of Code section 414(m)); or
(4) any other entity during any period in which it is required to be
aggregated with the Company under Code section 414(o).
Notwithstanding the foregoing, the term Employer may, in the discretion of
the Administrator, be defined to include an entity described in paragraphs
(1) through (4) above for any purpose under the Plan.
(c) "BENEFICIARY" means the individual designated by a Participant to receive
any death benefits payable on the Participant's behalf under the Pension
Plans.
(d) "BENEFIT COMMENCEMENT DATE" means the date on which a Participant's
benefits shall commence under Article IV and shall be the date the
Participant's benefits commence under the Pension Plans.
(e) "BOARD" means the Board of Directors of the Company.
(f) "CODE" means the Internal Revenue Code of 1986, as amended, or as it may be
amended from time to time. A reference to a particular section of the Code
shall also be deemed to refer to the regulations under that Code section.
(g) "COMPANY" means both United Wisconsin Services, Inc. and Blue Cross & Blue
Shield United of Wisconsin, and any successors thereto that agree to adopt
and continue this Plan.
(h) "EMPLOYEE" means any person who is employed by an Employer.
(i) "EMPLOYER" means the Company and each Affiliate which has adopted this Plan
for the benefit of its eligible Employees as set forth in Schedule A to
this Plan.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or as it may be amended from time to time. A reference to a
particular section of ERISA shall also be deemed to refer to the
regulations under that section.
(k) "FINAL AVERAGE EARNINGS" means one-twelfth of the Participant's average
annual
2
<PAGE>
Earnings for the highest five consecutive calendar years of Earnings
during the last ten calendar years of Earnings. For this purpose, Earnings
shall be as determined under the UWSI/BCBSUW Salaried Pension Plan except
that the Code section 401(a)(17) limit shall not apply and any deferrals
under a voluntary deferred compensation plan shall be included in the year
of the deferral and not included in the year of payment.
(l) "NORMAL RETIREMENT DATE" means the first day of the month coincident with
or next following the Participant's sixty-fifth birthday.
(m) "PARTICIPANT" means an Employee who has met, and continues to meet, the
eligibility requirements of section 3.1.
(n) "PLAN" means this UWSI/BCBSUW Supplemental Executive Retirement Plan, as
amended from time to time.
(o) "PLAN ADMINISTRATOR" means the Company's Employee Benefits Committee.
(p) "PLAN YEAR" means the calendar year.
(q) "PRIMARY SOCIAL SECURITY BENEFIT" means the estimated monthly primary
insurance amount that a Participant is or would be entitled to receive
commencing at age 62 under the Social Security Act, whether or not he
applies for or actually receives such benefit. For purposes of the Plan,
such estimated amount shall be determined as of any date on the following
bases:
(1) the Social Security Act as in effect on the January 1 of the Plan Year
with respect to which a calculation is made (regardless of any
retroactive changes made by legislation enacted after said January 1);
(2) the rate of the Participant's past wage increases equaled a level
percentage per year of 5 percent;
(3) in the case of a Participant who terminates from employment of the
Employer and all Affiliates prior to his sixty-second birthday, such
Participant has annual wages for the period from his termination to
the attainment of age 62 equal to his wages for the last full year of
employment with the Employer or Affiliate;
(4) in the case of a Participant who terminates employment from the
Employer and all Affiliates after his sixty-second birthday, such
Participant has no wages for the period following his termination of
employment; and
(5) no change (by amendment to the Social Security Act or by application
of the provisions of the Act) in the primary insurance amount occurs
after the earlier of termination of employment or a Participant's
sixty-second birthday.
(r) "SERVICE" means the sum of--
(1) with respect to Plan Years of the Pension Plans beginning before
January 1, 1997, the Participant's Years of Benefit Service under the
Pension Plans; and
3
<PAGE>
(2) with respect to Plan Years of the Pension Plans beginning on and after
January 1, 1997, any calendar years with respect to which the
Participant receives an Annual Credit.
(s) "TERMINATION OF SERVICE" means an Employee's death or resignation,
discharge, or retirement from the Company and its Affiliates.
2.2 GENDER AND NUMBER
Except when otherwise indicated by the context, any masculine terminology shall
also include the feminine, and the definition of any term in the singular shall
also include the plural.
4
<PAGE>
ARTICLE 3.
PARTICIPATION
3.1 PARTICIPATION
An Employee shall become a Participant on--
(a) January 1, 1997, if he is employed by the Employer as a vice president or
officer on a full-time basis and is designated as a Participant by the Plan
Administrator; or
(b) on such date the Employee becomes employed by the Employer as a vice
president or officer on a full-time basis and is designated as a
Participant by the Plan Administrator, but not before January 1, 1997.
3.2 DURATION
An Employee who becomes a Participant under section 3.1 shall remain an active
Participant until the earlier of--
(a) his Termination of Service; or
(b) his ceasing to be employed by the Employer as a vice president or officer
on a full-time basis.
An individual whose active participation is terminated under this section 3.2
shall continue to be an inactive Participant until all benefits to which he is
entitled to under this Plan have been paid.
5
<PAGE>
ARTICLE 4.
BENEFITS
4.1 RETIREMENT BENEFITS
(a) ELIGIBILITY. A Participant who has five years of Service shall be eligible
for a retirement benefit under this section 4.1. Except as otherwise
provided in section 4.4, this normal retirement benefit shall be calculated
as a life with ten years certain at 70 percent annuity commencing on the
Participant's Normal Retirement Date. However, if the Participant's Benefit
Commencement Date precedes his Normal Retirement Date, the benefit
determined under this section 4.1 shall be reduced in accordance with
subsection (b)(2).
(b) AMOUNT.
(1) IN GENERAL. Subject to paragraphs (2), (3), and (4) below, a
Participant who is eligible for a retirement benefit under subsection
(a) shall be entitled to a monthly benefit equal to (A) minus (B)
where--
(A) is 60 percent of the Participant's Final Average Earnings
multiplied by a fraction, not greater than one, the numerator of
which is the Participant's months of Service under the Pension
Plans and the denominator of which is 360; and
(B) is the Participant's Primary Social Security Benefit multiplied
by a fraction, not greater than one, the numerator of which is
the Participant's months of Service under the Pension Plans and
the denominator of which is 360.
(2) EARLY COMMENCEMENT. In the case of a Participant whose Benefit
Commencement Date precedes his or her Normal Retirement Date, the
monthly benefit determined under paragraph (1) shall be reduced
one-fourth of 1 percent for each month the Benefit Commencement Date
precedes the Participant's sixty-second birthday (up to a maximum of
6 percent reduction) and one-half of 1 percent for each month the
Benefit Commencement Date precedes the Participant's sixtieth birthday
(up to a maximum of 30 percent reduction) and Actuarial Equivalent
reductions for each month the Benefit Commencement Date precedes the
Participant's fifty-fifth birthday.
(3) PENSION PLANS OFFSET. The monthly benefit determined under paragraphs
(1) and (2) shall be offset by the life with ten years certain at
70 percent annuity, payable as of the Participant's Benefit
Commencement Date, which is the Actuarial Equivalent of the
Participant's Cash Balance Account under the Pension Plans as of the
Participant's Benefit Commencement Date.
(4) MINIMUM BENEFIT. The monthly benefit determined above shall in no
event be less for any given month than the monthly benefit determined
under the provisions of the Prior Plan as of December 31, 1996. This
minimum benefit shall only apply to those that were Participants in
the Prior Plan.
6
<PAGE>
(5) ADJUSTMENTS. The Plan Administrator may adjust (A) the Service
included in determining a Participant's benefits pursuant to section
4.1(b)(1)(A) and (B), and (B) the qualified retirement plan benefits
to be offset against the Participant's benefits pursuant to section
4.1(b)(3), to take into account service with Affiliates which is not
considered Service under this Plan and to make appropriate offsets for
qualified retirement plan benefits earned during such service.
4.2 FORM OF PAYMENT
(a) UNMARRIED PARTICIPANT. The form of payment for a Participant who is not
married on his or her Benefit Commencement Date shall be a life with ten
years certain at 70 percent annuity.
(b) MARRIED PARTICIPANT. The form of payment for a Participant who is married
on his or her Benefit Commencement Date shall be a joint and 50 percent
surviving spouse annuity. A joint and 50 percent surviving spouse annuity
provides--
(1) a reduced monthly benefit to the Participant for life; and
(2) upon the Participant's death, a monthly benefit to the Participant's
surviving spouse for life equal to 50 percent of the amount payable
during the Participant's lifetime.
This joint and 50 percent surviving spouse annuity shall be the Actuarial
Equivalent of the life with ten years certain at 70 percent annuity
described in subsection (a). The reduced benefit payable to the Participant
shall be 93 percent of the benefit otherwise payable.
(c) OPTIONAL PAYMENT FORMS. At the election of the Participant, payment may be
made either in the form of a single life annuity or a lump sum. In that
event, the benefit payable under the optional payment form shall be the
Actuarial Equivalent of the life with ten years certain at 70 percent
annuity described in subsection (a). One full calendar year must elapse
between the date of the election and the beginning date of the optional
payment form. Upon the request of a Participant, the Plan Administrator
may, in its sole discretion, make an exception to the required time lapse
by accelerating the beginning date of the optional payment form, but not to
a date earlier than the Participant's Benefit Commencement Date.
4.3 DISABILITY BENEFITS
(a) ELIGIBILITY. A Participant who is receiving a disability retirement benefit
under the Pension Plans shall be eligible for a disability benefit under
this section 4.3.
(b) AMOUNT. A Participant who is eligible for a disability benefit under
subsection (a) shall be entitled to a monthly disability benefit equal to
(1) minus (2) where--
(1) is the disability benefit that would be payable under the Pension
Plans but for the limitations of Code sections 401(a)(17) and 415; and
(2) is the disability benefit that in fact is payable under the Pension
Plans.
(c) PAYMENT. A Participant's disability benefit shall be paid in the same form
and for the
7
<PAGE>
same period of time as the disability benefit is paid to the Participant
under the Pension Plans.
8
<PAGE>
ARTICLE 5.
DEATH BENEFITS
5.1 ELIGIBILITY
The Beneficiary of a Participant under the Pension Plans who is eligible for a
death benefit under the Pension Plans shall be eligible for a death benefit
under this Article 5.
5.2 AMOUNT
A Beneficiary who is eligible for a death benefit under section 5.1 shall be
entitled to a death benefit equal to (a) minus (b) where--
(a) is the death benefit that would be payable under the Pension Plans but for
the limitations of Code sections 401(a)(17) and 415; and
(b) is the death benefit that in fact is payable under the Pension Plans.
5.3 PAYMENT
Payment shall be in the same form and for the same period of time as the death
benefit payable to the Beneficiary under the Pension Plans.
9
<PAGE>
ARTICLE 6.
FINANCING
6.1 FINANCING
The benefits under this Plan shall be paid out of the general assets of the
Employers. The benefits shall not be funded in advance of payment in any way.
6.2 NO TRUST CREATED
Nothing contained in this Plan, and no action taken pursuant to the provisions
of this Plan, shall create a trust of any kind or a fiduciary relationship
between an Employer and any Participant, Participant's spouse, or Beneficiary.
6.3 UNSECURED INTEREST
No Participant shall have any interest whatsoever in any specific asset of the
Company or an Affiliate. To the extent that any person acquires a right to
receive payments under this Plan, such right shall be no greater than the right
of any unsecured general creditor of an Employer.
6.4 "RABBI" TRUST
The Company may utilize one or more "rabbi" trusts provided they are not
inconsistent with any of the above sections of this Article 6.
10
<PAGE>
ARTICLE 7.
ADMINISTRATION
7.1 ADMINISTRATION
The Plan shall be administered by the Plan Administrator.
The Plan Administrator shall have all powers necessary or appropriate to carry
out the provisions of the Plan. It may, from time to time, establish rules for
the administration of the Plan and the transaction of the Plan's business.
The Plan Administrator shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of eligibility for and amount of any benefit.
The Plan Administrator shall have the exclusive right to interpret the terms and
provisions of the Plan and to determine any and all questions arising under the
Plan or in connection with its administration, including, without limitation,
the right to remedy or resolve possible ambiguities, inconsistencies, or
omissions by general rule or particular decision, all in its sole and absolute
discretion.
To the extent permitted by law, all findings of fact, determinations,
interpretations, and decisions of the Plan Administrator shall be conclusive and
binding upon all persons having or claiming to have any interest or right under
the Plan.
7.2 APPEALS FROM DENIAL OF CLAIMS
If any claim for benefits under the Plan is wholly or partially denied, the
claimant shall be given notice of the denial. This notice shall be in writing,
within a reasonable period of time after receipt of the claim by the Plan
Administrator. This period shall not exceed 90 days after receipt of the claim,
except that if special circumstances require an extension of time, written
notice of the extension shall be furnished to the claimant, and an additional 90
days will be considered reasonable.
This notice shall be written in a manner calculated to be understood by the
claimant and shall set forth the following information:
(a) the specific reasons for the denial;
(b) specific reference to the Plan provisions on which the denial is based;
(c) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why this material or
information is necessary;
(d) an explanation that a full and fair review by the Plan Administrator of the
decision denying the claim may be requested by the claimant or an
authorized representative by filing with the Plan Administrator, within
60 days after the notice has been received, a written request for the
review; and
(e) if this request is so filed, an explanation that the claimant or an
authorized representative
11
<PAGE>
may review pertinent documents and submit issues and comments in writing
within the same 60-day period specified in subsection (d).
The decision of the Plan Administrator upon review shall be made promptly, and
not later than 60 days after the Plan Administrator's receipt of the request for
review, unless special circumstances require an extension of time for
processing. In this case the claimant shall be so notified, and a decision shall
be rendered as soon as possible, but not later than 120 days after receipt of
the request for review. If the claim is denied, wholly or in part, the claimant
shall be given a copy of the decision promptly. The decision shall be in
writing, shall include specific reasons for the denial, shall include specific
references to the pertinent Plan provisions on which the denial is based, and
shall be written in a manner calculated to be understood by the claimant.
7.3 TAX WITHHOLDING
The Employer may withhold from wages or any payment under this Plan any federal,
state, or local taxes required by law to be withheld with respect to the payment
and any sum the Employer may reasonably estimate as necessary to cover any taxes
for which it may be liable and that may be assessed with regard to the payment.
7.4 EXPENSES
All expenses incurred in the administration of the Plan shall be paid by the
Employer.
12
<PAGE>
ARTICLE 8.
ADOPTION OF THE PLAN BY AFFILIATE; AMENDMENT AND TERMINATION OF THE PLAN
8.1 ADOPTION OF THE PLAN BY AFFILIATE
An Affiliate may adopt the Plan by appropriate action of its board of directors
or authorized officers or representatives, subject to the approval of the
Employee Benefits Committee.
8.2 AMENDMENT AND TERMINATION
The Company hereby reserves the right to amend, modify, or terminate the Plan
with respect to its Employees at any time, and for any reason, by action of the
Employee Benefits Committee. However, no amendment or termination shall have the
effect of reducing the benefits accrued by a Participant prior to the date of
the amendment or termination.
13
<PAGE>
ARTICLE 9.
MISCELLANEOUS PROVISIONS
9.1 NO CONTRACT OF EMPLOYMENT
Nothing contained in the Plan shall be construed to give any Participant the
right to be retained in the service of the Company or its Affiliates or to
interfere with the right of the Company or its Affiliates to discharge a
Participant at any time.
9.2 SEVERABILITY
If any provision of this Plan shall be held illegal or invalid, the illegality
or invalidity shall not affect its remaining parts. The Plan shall be construed
and enforced as if it did not contain the illegal or invalid provision.
9.3 APPLICABLE LAW
Except to the extent preempted by applicable federal law, this Plan shall be
governed by and construed in accordance with the laws of the state of Wisconsin.
* * * * * * * * * *
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers, effective as of the date specified above.
UNITED WISCONSIN SERVICES, INC.
ATTEST:
By
-------------------------------------
Title
----------------------------------
By
---------------------------------
Title
------------------------------
BLUE CROSS & BLUE SHIELD UNITED OF
WISCONSIN
ATTEST:
By
-------------------------------------
Title
----------------------------------
By
---------------------------------
Title
------------------------------
15
<PAGE>
SUPPLEMENT A.
ADOPTING EMPLOYERS
(AS OF JANUARY 1, 1997)
Blue Cross & Blue Shield United of Wisconsin
United Wisconsin Services, Inc.
United Wisconsin Insurance Company
Compcare Health Services Insurance Corporation
Meridian Managed Care, Inc. (formerly Take Control, Inc.)
Valley Health Plan, Inc.
Meridian Resource Corporation
United Wisconsin Proservices, Inc.
Meridian Marketing Services, Inc.
Hometown Insurance Services, Inc.
United Heartland, Inc.
16
<PAGE>
SUBSIDIARIES OF REGISTRANT
United Wisconsin Insurance Company - a Wisconsin insurance corporation
United Wisconsin Proservices, Inc. - a Wisconsin corporation
United Heartland Life Insurance Company - a Wisconsin insurance company
Compcare Health Services Insurance Corporation - a Wisconsin corporation
Meridian Managed Care, Inc. - a Wisconsin corporation
Meridian Resource Corporation - a Wisconsin corporation
Meridian Marketing Services, Inc. - a Wisconsin corporation
Valley Health Plan, Inc. - a Wisconsin corporation
American Medical Security Holdings, Inc. - a Wisconsin corporation
United Heartland, Inc. - a Wisconsin corporation
CNR Health, Inc. - a Wisconsin corporation
HMO-W, Incorporated - a Wisconsin corporation
Unity Health Plans Insurance Corporation - a Wisconsin corporation
Hometown Insurance Services, Inc. - a Wisconsin corporation
American Medical Security, Inc. - a Delaware corporation
Continental Plan Services, Inc. - a Wisconsin corporation
United Wisconsin Life Insurance Company - a Wisconsin insurance corporation
Plaines Health Networks, Inc. - a Wisconsin corporation
Accountable Health Plans, Inc. - a Texas corporation
AMS HMO Holdings, Inc. - a Delaware corporation
Heartland Dental Plan, Inc. - a Wisconsin corporation
American Medical Security Insurance Company of Georgia - a Georgia corporation
Unity HMO of Illinois, Inc. - an Illinois corporation
Accountable Health Plan of the Carolinas, Inc. - a North Carolina corporation
Atlantic Health Plans, Inc. - a North Carolina corporation
American Medical Security Health Plan, Inc. - a Florida corporation
Nurse Healthline, Inc. - a Wisconsin corporation
U&C Real Estate Partnership - a Wisconsin partnership
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 (AUDITED) AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 (AUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 62,324
<SECURITIES> 431,114
<RECEIVABLES> 0
<ALLOWANCES> 394
<INVENTORY> 0
<CURRENT-ASSETS> 572,998
<PP&E> 44,147
<DEPRECIATION> 20,585
<TOTAL-ASSETS> 795,662
<CURRENT-LIABILITIES> 308,161
<BONDS> 123,378
0
0
<COMMON> 16,510
<OTHER-SE> 309,867
<TOTAL-LIABILITY-AND-EQUITY> 795,662
<SALES> 0
<TOTAL-REVENUES> 1,615,282
<CGS> 0
<TOTAL-COSTS> 1,564,702
<OTHER-EXPENSES> 12,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,311
<INCOME-PRETAX> 29,095
<INCOME-TAX> 10,945
<INCOME-CONTINUING> 18,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,150
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
