UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X 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: 1-13248
RIGHTCHOICE MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1674052
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1831 Chestnut Street
St. Louis, Missouri 63103-2275
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 923-4444
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.01 par value New York Stock Exchange, Inc.
(Title of each class) (Name of each exchange on which
registered)
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 checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of Class A Common Stock (voting) held by
non-affiliates of the Registrant as of March 6, 1998, was
approximately $21,272,307* (based on last reported sale price of
$10.50 per share on March 6, 1998, on the New York Stock Exchange).
As of March 6, 1998, 3,709,000 shares of the Registrant's Class A
Common Stock, par value $.01 per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders of the Registrant to be held on May 12, 1998. Certain
information therein is incorporated by reference into Part III hereof.
*Only shares of Class A Common Stock held beneficially by directors
and executive officers of the Registrant and persons or entities
filing Schedules 13G and received by the Registrant have been excluded
in determining this number. All shares of Class B Common Stock have
been excluded.
PART I
ITEM 1. BUSINESS
General Description of Business
RightCHOICE Managed Care, Inc., (RightCHOICE, RIT or the company) is
the largest provider of managed health care benefits in Missouri, in
terms of members. As of December 31, 1997, RightCHOICE served
approximately 1.96 million commercial members, a large proportion of
whom reside in metropolitan St. Louis, Missouri. The company offers
a comprehensive array of managed health care products and services
which the company segregates into two distinct segments. Note 14
entitled "Segment information" of Part II, Item 8, Financial
Statements and Supplementary Data, contains financial information
relating to the company's segments. The company's underwritten
segment includes preferred provider organization (PPO), point-of-
service (POS), health maintenance organization (HMO), Medicare
supplement, and specialty managed care, as well as managed indemnity
benefit plans. The company's self-funded segment includes third-party
administrator (TPA), administrative services only (ASO), and network
rental services for self-insured organizations. The types of benefits
provided by the products and services are comprised of hospital care,
ambulatory and outpatient care, physician services, pharmacy, dental
care, eye care, mental health care and health education. The company
receives premium revenue in exchange for the assumption of both
medical and administrative risks for its PPO, POS, HMO, Medicare
supplement, specialty managed care and managed indemnity benefit
plans. With respect to the TPA, ASO, and network rental services, the
company generally assumes no responsibility for medical costs and
receives compensation for the provision of administrative services.
For the year ended December 31, 1997, approximately 62 percent of the
company's revenues were from sales to insured employer groups
(typically those with fewer than 100 employees); approximately 30
percent of the company's revenues were from underwritten sales to
individuals; and approximately 8 percent of the company's revenues
were from fees paid by self-funded employer groups (typically those
with more than 100 employees).
The company was organized to own and operate all of the managed health
care business of Blue Cross and Blue Shield of Missouri (BCBSMo).
BCBSMo is the sole holder of the company's Class B Common Stock. The
holders of Class A Common Stock have one vote per share and the
holders of Class B Common Stock have 10 votes per share. BCBSMo and
the holders of the Class A Common Stock have control over
approximately 97.6 percent and 2.4 percent, respectively, of the
combined voting power of both classes of common stock. The company is
a licensee of the Blue Cross and Blue Shield Association (BCBSA), the
national trade association of Blue Cross and Blue Shield licensees,
each of which holds exclusive right to use the Blue Cross and/or Blue
Shield names, trademarks and service marks in specific geographic
areas. Each licensee, including the company and BCBSMo, is an
independent legal organization and is not responsible for the
obligations of other BCBSA licensees. Pursuant to licenses from
BCBSA, the company has the exclusive right to do business under the
name Alliance Blue Cross Blue Shield and to use the Blue Cross and/or
Blue Shield names, trademarks and service marks for all of the managed
health care products and services it offers in 85 of the 115 counties
in Missouri making up its service area. This service area has a
population of approximately 3.9 million and includes four of the five
largest cities in Missouri and excludes Kansas City. The company
cannot, however, use those trademarks or service marks outside its
licensed service area and therefore currently does business in
unlicensed areas under the name Healthy Alliance Life Insurance
Company (HALIC) and RightCHOICE Insurance Company (RIC). The company
believes that the widespread and positive recognition of the Blue
Cross and Blue Shield names, trademarks and service marks will
continue to provide a significant marketing advantage in its service
area, particularly as health care reform and competitive pressures
narrow price differences among health care benefit plans.
Additionally, the company believes that the importance of the
trademarks and service marks may lead to cooperative affiliations of
Blue Cross and Blue Shield licensees and may alleviate the need for
unbranded products. If BCBSMo were to lose its right to use the names
and trademarks, the company might also be at risk to lose the use of
these names and trademarks. Note 13 entitled "Contingencies - Status
of Blue Cross and Blue Shield trademark licenses" of Part II, Item 8,
Financial Statements and Supplementary Data, contains information
describing litigation uncertainties with respect to the company's
continued use of these names, trademarks, and service marks.
RightCHOICE Managed Care, Inc. is a Missouri corporation, incorporated
in April 1994, doing business under the name Alliance Blue Cross Blue
Shield. Unless the context otherwise requires, the terms
"RightCHOICE", "RIT" and "the company" refer to RightCHOICE Managed
Care, Inc. and its subsidiaries. The company's corporate offices are
located at 1831 Chestnut Street, St. Louis, Missouri, 63103-2275;
telephone number (314) 923-4444.
Managed Care Products and Services
The company's established provider networks, substantial membership
base and extensive administrative and processing capabilities enable
the company to offer health care products and services tailored to
meet the full spectrum of customer needs and preferences. The chart
below illustrates the cost/choice characteristics of various managed
care benefits offered by the company.
The chart included in the company's hardcopy 10-K displays the range of
the company's managed care products relative to the product's flexibility
and health care costs. Generally, products that are more flexible in terms
of access to providers are also more expensive in terms of health care
costs. This chart can be depicted by the following table below in which
products are listed in order of flexibility (more to less) and health care
costs (higher to lower).
Product Type of Network
Traditional Managed Indemnity Open Network
Alliance Programs Broad Network PPO
AllianceChoice Non-Gatekeeper POS
BlueCHOICE POS Plus Gatekeeper POS
BlueCHOICE Gatekeeper HMO
Underwritten Products
PPO Product Group
Alliance PPO
The company's Alliance PPO is one of the largest PPOs in Missouri in
terms of members and offers services to approximately 232,200 members
(including approximately 89,300 members on a self-funded basis). The
company believes that the Alliance PPO also has the most extensive
geographic coverage in Missouri, servicing 100 of the 115 counties in
the state. In the St. Louis metropolitan area, the Alliance PPO
network includes approximately 90 percent of all hospital beds.
The company's Alliance products incorporate many of the managed care
characteristics of the company's POS and HMO products, including
physician incentives, per diem hospital rates, large case management,
pre-admission certification, concurrent review of hospital admissions
and retrospective claims review. Alliance benefit plans also offer
members optional well-child care, vision, and mental health and
chemical dependency programs. This broad range of Alliance benefit
plans enables the subscriber to choose the mix of benefits that is
suited to the subscriber's needs. Higher deductibles, coinsurance and
out-of-pocket maximums and other financial incentives encourage
subscribers to use network provider services.
The company's Alliance network is one of the largest in Missouri in
terms of geographic scope and number of providers. The company has
Alliance contracts with approximately 7,000 physicians and 96
hospitals. Alliance benefit plans are offered in the central region
of Missouri through Preferred Health Plans of Missouri, a PPO network
owned by the company as of December 31, 1997. A HealthNet Blue PPO
product is also offered to both groups and individuals in southeast
Missouri. There were approximately 4,200 members enrolled in the
company's HealthNet Blue PPO products as of December 31, 1997. See
"HMO Product Group - HealthNet Blue POS" for recent information
related to changes in the company's HealthNet Blue products.
Through a network access and financial reinsurance agreement with Blue
Cross and Blue Shield of Kansas City (BCBSKC), RightCHOICE has members
residing in the Kansas City plan's license area that are able to
access the BCBSKC's preferred networks and likewise, members of a
BCBSKC subsidiary residing in RightCHOICE's Alliance trade area can
access the Alliance preferred provider networks in that area. As a
result of the agreements, members of either plan who are enrolled
through state-wide employers or associations will be able to use the
provider network of the Blue Cross and Blue Shield company where they
live. Through the financial reinsurance transaction, RightCHOICE now
shares underwriting risks and profits on the affected members, while
reducing administrative costs.
Illinois PPO
The company began offering group and individual PPO coverage through
its RightCHOICE Insurance Company subsidiary in southern Illinois in
the first quarter of 1997. The company utilizes the HealthLink
provider network to offer these products to the approximately one
million residents in this region. HealthLink is the company's network
rental subsidiary. These PPO products accounted for approximately
2,200 members as of December 31, 1997.
AllianceChoice POS
AllianceChoice POS is RightCHOICE's non-gatekeeper model POS with a
selective hospital network comprised of cost-effective providers in
the St. Louis metropolitan area who benefit from a comprehensive
physician incentive model. AllianceChoice provides flexibility in
selecting a provider at a premium level that is generally higher than
HMO but less than PPO premiums. The AllianceChoice network serves
approximately 131,900 members, including both group and individual
members, and includes contractual arrangements in the St. Louis
metropolitan area with 5,000 physicians and 17 hospitals.
HMO Product Group
BlueCHOICE HMO and POS Products
The company's subsidiary, HMO Missouri, Inc. (BlueCHOICE) offers a
federally qualified HMO with a service area that currently includes 60
counties in Missouri and two counties in Illinois. BlueCHOICE's
operations are concentrated in the St. Louis metropolitan area, where
it currently is the third largest HMO based upon number of members.
BlueCHOICE is an independent practice association (IPA) model network,
through which the company contracts directly with local providers for
plan members' health services. The BlueCHOICE network, which supports
both HMO and POS products, has contractual arrangements with
approximately 3,700 physicians and 60 hospitals.
The company offers its BlueCHOICE POS Plus products in metropolitan
St. Louis, southwest Missouri, and the central region of Missouri
through the BlueCHOICE HMO network. BlueCHOICE POS Plus is a
gatekeeper model POS plan that provides members with comprehensive
coverage for network health care services with modest copayment
requirements. When using their primary care physician as coordinator
of benefits, members receive maximum financial benefits for preventive
care, referred specialist services, and inpatient services.
The BlueCHOICE and BlueCHOICE POS programs are now available in
Springfield, Missouri, for both individuals and groups through an
arrangement with Primrose Health Care Services, a physician-hospital
organization jointly owned by physicians and Cox Hospitals, one of the
leading tertiary care centers in the area.
Through an arrangement with Freeman Hospitals and Health System,
beginning in July 1995, BlueCHOICE HMO and POS products are offered in
the six-county area surrounding Joplin, Missouri.
HealthNet Blue POS
HealthNet Blue POS is a non-gatekeeper HMO product offered to employee
groups within a seven-county region in southeast Missouri that
provides members with comprehensive coverage for network health care
services, including preventive care, in-office physician care, and
maternity coverage for a minimal office visit copay charge. At
December 31, 1997, there were approximately 21,800 group members
enrolled in the underwritten HealthNet Blue HMO product.
Prior to December 31, 1997, the company offered the HealthNet Blue
products pursuant to a joint venture agreement with MedAmerica
HealthNet, Inc. (MHI), a physician-hospital organization. MHI filed
for bankruptcy and voted to dissolve the physician hospital
organization. Consequently, the pertinent provisions of the provider
contracts between MHI and the southeast Missouri doctors, hospitals,
and ancillary service providers were selectively assigned to the
company in early 1998. These providers include approximately 262
physicians (representing 90 percent of the region's physician
providers) and five area hospitals and medical centers. The company
is currently negotiating with these providers for their participation
in the Alliance network.
BlueCHOICE Senior
BlueCHOICE provides medical benefits at least as comprehensive as
Medicare benefits for persons eligible to receive Medicare (parts A
and B) at no or minimal cost to the member. Under this program, the
Health Care Financing Administration of the United States Department
of Health and Human Services (HCFA) pays a fixed premium for coverage
of each member at a rate approximating 95 percent of the Medicare area
average per capita cost, subject to annual review and adjustment by
HCFA.
BlueCHOICE Medicaid (MC+)
The company has made a decision to discontinue its Medicaid product in
the 18-county central Missouri region as of March 1998. This
determination was made due to what the company believes were
unacceptable terms proposed by the State of Missouri. As of December
31, 1997, the company had approximately 5,100 members enrolled in its
Medicaid product.
Medicare Supplement Product Group
The company currently offers Medicare supplement coverage to
individuals eligible to enroll in Medicare for medical expenses in
excess of the coverage limitations of Medicare.
Managed Indemnity Product Group
The company also offers managed indemnity coverage where consumer and
market demands require the provision of indemnity coverage,
particularly to individuals in geographic areas where the penetration
of managed care has been low. The company's managed indemnity
products include fee-for-service indemnity benefits that include
utilization management and other cost control measures, but do not
require use of network providers. These products include certain cost-
containment features, such as the use of deductibles, coinsurance, pre-
admission certification, concurrent review, large case management and
retrospective review.
Specialty Products
The company offers various products to supplement its medical coverage
products. These products include dental care, eye care, mental health
care and health care education. In addition, the company also manages
mental health and substance abuse services through its Harmony
program. The company also provides prescription benefits through its
AllianceRx managed care product. In March 1997, the company entered
into a three-year agreement with a pharmacy benefits manager, Express
Scripts, Inc. The contract covers approximately 480,100 members,
under most of the company's plans. The company continues its efforts
to control rising prescription drug costs while offering members
freedom of choice. The company provides a three-tier copayment
program that encourages physicians and members to use the most cost
effective drugs within a drug class. The program includes a higher
member copay for brand name drugs that are included on the company's
formulary as compared to their generic equivalents. The program also
allows for the purchase of brand name drugs that are not included on
the company's formulary by requiring an even higher (third-tier)
member copayment.
Self-funded Products
Administrative and Network Services
As of December 31, 1997, the company serviced self-funded health plans
covering approximately 1,461,100 members (including 1,112,400
HealthLink members). These arrangements include TPA, ASO and network
rental contracts of varying complexity. The company assists self-
funded employers in designing benefit packages, claims processing,
adjudication and administration, utilization management, generation of
management reports and other related matters. The company also
enables employees with self-funded health plans to access the
company's aforementioned PPO and HMO provider networks and to realize
savings through the company's favorable provider arrangements, while
allowing employers the ability to design certain health benefit plans
in accordance with their own requirements and objectives.
HealthLink, Inc.
HealthLink, Inc. (HealthLink), a regional managed health care
organization, serves a seven-state area in the Midwest, providing
health care network rental and utilization review services primarily
to unions, commercial insurers and corporations that fund their own
health plans. HealthLink is not an insurance company and does not
assume any underwriting risks. Its revenues are derived from network
rentals and administrative services fees. HealthLink had 746,800 PPO
administrative services members and 344,700 workers' compensation
members as of December 31, 1997. In addition, HealthLink owns
HealthLink HMO, Inc. (HealthLink HMO), a Missouri HMO with
approximately 20,900 members as of December 31, 1997, all located in
the greater St. Louis area. HealthLink HMO is a state-qualified
health maintenance organization that provides health care services
principally for a predetermined, prepaid periodic fee to enrolled
subscriber groups and individuals of selected insurance companies.
HealthLink HMO's primary service area currently includes the St.
Louis, Missouri, metropolitan area.
The acquisition of HealthLink in August 1995 provided RightCHOICE with
an effective and flexible network rental vehicle, particularly for the
large group segment; established brand name and respected reputation;
an HMO network that includes a leading St. Louis provider network not
previously included in RightCHOICE's HMO product offerings and an
established network in Missouri and central and southern Illinois,
with a presence in Indiana, Iowa, Kentucky, Arkansas, and West
Virginia. In the first quarter of 1997, the company began utilizing
the HealthLink network in central and southern Illinois by selling
underwritten PPO products to both groups and individuals.
The EPOCH Group, L.C.
The EPOCH Group, L.C. (Epoch), a limited liability company, is a joint
venture between the company and BCBSKC combining their third-party
administrator (TPA) businesses to streamline operations, develop new
geographic markets, and provide new administrative services to new
types of businesses, such as health care provider organizations.
Epoch is owned equally by the company and a subsidiary of BCBSKC.
Three TPA companies were combined to form Epoch--Healthy Benefit
Alliance, Inc. and Pension Associates Incorporated (both formerly
owned by the company) and LaHood & Associates (20 percent owned by the
company and 80 percent owned by BCBSKC prior to the transaction). The
company invested cash and other net assets of $5.3 million in this
joint venture. Epoch serves approximately 260 businesses primarily in
the Midwest, representing 628,200 members as of December 31, 1997.
"Safe Harbor" Statement
Except for the historical information contained herein, this Annual
Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements
typically, but not exclusively, are identified by the inclusion of
phrases such as "the company anticipates," "the company believes,"
"the company expects," "the company plans," "the company intends," and
other phrases of similar meaning. Such forward-looking statements
involve known and unknown risks, uncertainties, contingencies and
other factors that may cause the company's actual results of
operations, financial condition or business performance to be
materially different from the results of operation, financial
condition or business performance expressed or implied by such forward-
looking statements. Factors that could cause or contribute to such
differences include, but are not limited to: the Office of Personnel
Management audit of BlueCHOICE, pending litigation including the
subscriber class action litigation, litigation with Missouri
Department of Insurance and Missouri Attorney General, administrative
action initiated by the Department of Insurance, the outcome of
litigation with Missouri Consolidated Health Care Plan, other
litigation, potential loss of "Blue Cross" and "Blue Shield" licenses
by BCBSMo, the company and its controlled affiliates, government
regulation and health care reform, market competition and
consolidation, escalating health care costs, dependence on sales to
individuals, recontracting efforts and potential nonrenewal of
subscriber and provider agreements, voting control by BCBSMo, changes
in key management, variability of operating results and stock price,
credit facility restrictions, the year 2000 issue, and other factors
discussed below in the section entitled "Factors that May Affect
Future Results of Operations, Financial Condition or Business" as well
as those discussed elsewhere in the company's SEC reports.
Factors that May Affect Future Results of Operations, Financial
Condition or Business
Pursuant to the safe harbor provisions for forward-looking statements
contained in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
added to those Acts by the Private Securities Litigation Reform Act of
1995, the company is identifying important risks and uncertainties
that could cause the company's actual results of operations, financial
condition or business to differ materially from its historical results
of operations, financial condition or business, or the results of
operations, financial condition or business contemplated by forward-
looking statements made herein or elsewhere orally or in writing.
Factors that could cause or contribute to such differences include,
but are not limited to, those factors described below.
OPM audit
The company, through its subsidiary, HMO Missouri, Inc. (BlueCHOICE),
received a draft audit report from the Office of Personnel Management
(OPM) in November 1995 in connection with services provided by
BlueCHOICE under the Federal Employee Health Benefit Program. This
report indicated that BlueCHOICE had a potential liability of $7.5
million. In 1998, BlueCHOICE received correspondence from the U.S.
Department of Justice requesting a meeting with BlueCHOICE regarding
in excess of $6.5 million in payments (alleged overcharges) received
during the reconciliation process for the years 1990 through 1994.
If it is found that BlueCHOICE knowingly received overpayments,
BlueCHOICE could be subject to civil penalties of up to $10,000 per
certified reconciliation statement, treble damages for the amount of
such overcharges and interest. These items are
further described under the same caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data. At this time, management is unable to determine
the final dollar amount which may be required to resolve the audit
findings. There can be no assurance that the resolution of these
findings will not have a material adverse effect on the company and
the market for the company's stock.
Subscriber class action litigation
On March 15, 1996, a class action suit was filed against the company,
BCBSMo, HealthLink, Inc., and certain officers of the company as
described under the same caption in Note 13 entitled "Contingencies"
of Part II, Item 8, Financial Statements and Supplementary Data. The
plaintiffs' claims relate to an alleged conversion of BCBSMo from a
not-for-profit entity to a for-profit entity and payment of excessive
compensation to management. The complaint further alleges that
certain amendments to BCBSMo's Articles of Incorporation were
improper, that the purchase of HealthLink was at an excessive price,
and that HealthLink operates under contracts providing for illegal
discounts by health care providers. The plaintiffs seek restitution,
compensatory damages, and punitive damages in unspecified amounts, as
well as injunctive and other equitable relief. BCBSMo and the company
believe the claims are without merit and intend to vigorously defend
the action; however, there can be no assurance that BCBSMo and the
company will be successful and that the ultimate outcome will not have
a material adverse affect on the company and the market for the
company's stock.
Litigation with DOI and Attorney General
BCBSMo has filed an action against the Missouri Department of
Insurance (DOI), the Director of the DOI, and the Missouri Attorney
General seeking a declaratory judgment and other relief with respect
to the Reorganization and Public Offering, as described under the same
caption in Note 13 entitled "Contingencies" of Part II, Item 8,
Financial Statements and Supplementary Data. While BCBSMo has
prevailed on most issues, the Circuit Court of Cole County, Missouri
(the Court) has ruled that BCBSMo has continued to exceed or abuse its
statutorily permissible purposes and is subject to judicial
dissolution proceedings or alternative remedies if found to be in the
public interest or the interest of its members. This issue and the
prior rulings favorable to BCBSMo are on appeal and additional claims
are pending at the trial court. With oral arguments presented before
the Missouri Appeals Court - Western District on February 24, 1998, an
opinion is not expected before summer.
BCBSMo has filed an action against the Missouri Attorney General
seeking declarations that (1) BCBSMo is a mutual benefit type of
nonprofit corporation under Chapter 355 of the Missouri Revised
Statutes and (2) BCBSMo does not hold its assets in a constructive,
charitable or other trust for the benefit of the public generally, but
rather holds its assets for the benefit of its subscribers. This
action was filed in response to continued public and private
statements by the Attorney General, the DOI and others that BCBSMo is
a public benefit type of nonprofit corporation that holds its assets
for the benefit of the public generally.
The Missouri Attorney General and the Missouri DOI have also filed
actions against BCBSMo and the company relating to discontinued
copayment practices and the DOI's market conduct study, respectively,
as described under the same caption in Note 13, entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data.
While the company believes, after reviewing these matters with legal
counsel, that BCBSMo's and the company's legal positions are strong,
the risks and uncertainties of litigation are such that there can be
no assurance that BCBSMo and the company will prevail on all issues,
that the appellate court hearing the appeal of the judgments relating
to the Reorganization and Public Offering will affirm all the rulings
of the trial court favorable to BCBSMo and will reverse the rulings of
the trial court adverse to BCBSMo, that the DOI and Attorney General
will not pursue administrative action during or after these
proceedings, or that any of such actions would not have a material
adverse impact on the company or the market for the company's stock.
If BCBSMo or the company does not prevail in all of these matters, it
is possible that actions could be taken by BCBSMo, the Attorney
General, the DOI, the BCBSA or others which could have a material
adverse impact on the company or the market for the company's stock,
as described under the same caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data.
Status of Blue Cross and Blue Shield Trademark Licenses
The company and certain of its subsidiaries have licenses granted by
the Blue Cross and Blue Shield Association (BCBSA) (reinstated from
temporary licenses previously granted) to use the "Blue Cross" and
"Blue Shield" names, trademarks and service marks as described under
the same caption in Note 13 entitled "Contingencies" of Part II, Item
8, Financial Statements and Supplementary Data. The company believes
that the right to use the Blue Cross and Blue Shield names and marks
provides it with a significant marketing advantage in its licensed
service area. As explained in Note 13, if BCBSMo's and the company's
litigation against the DOI and the Attorney General is not resolved in
a manner that is in the best interests of the BCBSA, the marks and the
other Blue plans, then the company's licenses to use such names and
marks may be terminated. The loss of such licenses and the obligation
of the company to pay a $25 per enrollee termination fee and provide
notice of termination to enrollees would have a material adverse
effect on the company and the market for the company's stock. See
"Litigation with DOI and Attorney General."
Litigation with MCHCP
The company and the Missouri Consolidated Health Care Plan (MCHCP)
have filed lawsuits against one another as described under the same
caption in Note 13 entitled "Contingencies" of Part II, Item 8,
Financial Statements and Supplementary Data. On March 16, 1998, MCHCP
voluntarily dismissed its suit against the company which had accused
the company of anticipatory breach of contract and tortious
interference with MCHCP's members. On March 19, 1998, the trial court
made certain rulings adverse to the company on summary judgment which
are described in Note 13 referred to in the preceding sentence. The
company is considering its options in light of those rulings,
including a possible appeal. If the trial court's order becomes
final, the company would be contractually bound to serve the MCHCP
members through the year 2000 at the rates contracted for in 1995,
with annual rate increases, if any, which are no more than the annual
increase in the medical cost component of the Consumer Price Index and
far less than necessary to permit the company to recover its costs in
serving those members. In the third quarter of 1997, the company
recorded a pre-tax charge of $29.5 million, which was based on
actuarial estimates, including projected limited rate increases, and
projected enrollment and medical cost trends accounted for through the
year 2000 in accordance with generally accepted accounting principles.
The company was advised by the DOI in March, 1998, that the entire
amount of the reserve for the MCHCP contract recorded by the company
for projected losses under the contract through the year 2000 must,
for statutory accounting purposes, be recorded by the company's
subsidiary, HMO Missouri, Inc. (BlueCHOICE), on its statutory filings
with the DOI. With the prior regulatory approval of the DOI,
BlueCHOICE issued surplus notes to the company in the amount of $29
million to ensure the statutory solvency of BlueCHOICE. The MCHCP is
currently the largest customer group served by BlueCHOICE. While
management of the company believes the current provision for losses is
adequate, if the actual public entity membership in MCHCP grows at a
rate in excess of the rate used in the actuarial estimates, or if the
projected limited rate increases and medical cost trends should differ
materially from those assumed in the actuarial estimates, then the
amount of the reserve recorded to date could be insufficient to cover
all future losses which may be associated with the MCHCP contract, and
such losses could have a material adverse effect on the company and
the market for the company's stock. In addition, the company's Credit
Agreement described elsewhere herein provides that the company's
subsidiaries, including BlueCHOICE, may not issue surplus notes to the
company in an aggregate principal amount in excess of $40 million. As
the aggregate principal amount of surplus notes issued by such
subsidiaries to the company currently approximates $40 million, any
additional funding required by any subsidiaries of the company,
including BlueCHOICE, as a result of additional losses or reserves
associated with the MCHCP contract, or otherwise, would require
approval of the lenders under the Credit Agreement. See "Credit
Agreement Restrictions."
Government Regulations and Health Care Reform
The company operates its managed health care business principally
through wholly-owned subsidiaries whose business is subject to
extensive federal, state and local laws and regulations. To date,
these laws and regulations have not had a significant negative impact
on the growth of the company's business. However, there can be no
assurance that the company will be able to obtain or maintain required
governmental approvals or licenses or that any current or proposed
federal and state legislation or other regulatory reform such as the
Health Insurance Portability and Accountability Act of 1996 (HIPAA),
Missouri's House Bill 335 (HB335), and mandatory benefits (e.g.
mandatory maternity benefits), which have all increased the regulatory
requirements imposed on the company and its subsidiaries, will not
have a material adverse effect on the company's business or results of
operations in the future.
Competition and Consolidation
The health care industry is highly competitive. The company has
numerous types of competitors in its PPO, POS and HMO operations, many
of which have substantially greater financial and other resources than
the company. Because the company's existing business operations are
confined to markets within or contiguous to the state of Missouri, the
company currently is unable to subsidize losses in these markets with
profits from other markets. The company believes that certain larger,
national competitors are able to subsidize losses in the Missouri
market with profits from other markets in which they operate and may
pursue such a strategy in the company's markets in an effort to
increase their market share. Health care providers are consolidating
into larger health care delivery enterprises and their increased
bargaining power may lead to a reduction in the gross margins of the
company's products and services. The company also faces competition
in its markets from a trend among some health care providers to
combine and form their own networks in order to contract directly with
employer groups and other prospective customers for the delivery of
health care services.
Escalating Health Care Costs
The company's profitability depends in large part on predicting and
effectively managing medical costs under its managed care plans. A
variety of external factors affecting the delivery and cost of health
care, including increased costs and utilization of high-technology
diagnostic testing and treatments, the increasing cost and utilization
of prescription medications, the rising costs of malpractice
insurance, efforts in the medical community to avoid malpractice
claims, higher operating costs of hospitals and physicians, the aging
of the population and other demographic characteristics, changes in
federal and state health care regulations and major epidemics may
adversely affect the company's ability to predict and control health
care costs and claims. Other relevant factors affecting the company's
ability to control health care costs include higher outpatient and
drug utilization, medical and drug cost trends, and growth of business
in regions with less cost efficient networks.
Dependence on Sales to Individuals
Sales of the company's health care benefit products to individuals
comprise a substantial portion of the company's business. The medical
loss ratio attributable to some components of the company's individual
business is significantly lower than that of the company's insured
group business. As a result, individual business accounts for a
proportionately greater percent of the company's operating income.
The company's overall margins would be adversely impacted by a
reduction in the relative percent of its business represented by
certain individual products or by an increase in the medical loss
ratio for individuals enrolled in those products. The company
believes that the success of the individual business is more dependent
than that of its group business on the management of health care costs
through product design, pricing decisions and the application of
appropriate underwriting standards. There can be no assurance that
the profitability of this business will be sustained or that the
company will not experience unanticipated increases in claims.
Potential Nonrenewal of Subscriber and Provider Agreements
The company's profitability is dependent upon its ability to obtain
and maintain contracts with employee groups and individual consumers
which generally are renewable annually. The company's profitability
is also dependent, in large part, on its ability to contract on
favorable terms with hospitals, physicians and other health care
providers. There can be no assurance that the subscribers or
providers will renew their contracts or enter into new contracts with
the company or, in the case of provider contracts, will not seek terms
that are less profitable to the company in connection with any such
renewal.
Control by BCBSMo
BCBSMo has voting control on all stockholder actions, including the
sale or merger of the company, a sale of substantially all of its
assets and the election of all of the company's directors. BCBSMo may
have interests with respect to its ownership of the company that
diverge from those of the company's public shareholders. There can be
no assurance that the company will not be adversely impacted by the
control that BCBSMo has with respect to matters affecting the company.
Dependence on Key Management
The company depends to a significant extent on key management members.
Although the company has experienced turnover in certain key
management positions in the past, those positions have been
successfully filled. However, there can be no assurance that the loss
of current key management would not result in a material adverse
effect on the company's results of operations, financial condition or
business.
Variability of Operating Results and Stock Price
The company's results of operations could be adversely affected by the
timing of new product and service introductions, competitive pricing
pressures, contract renegotiations with customers and providers,
fluctuations in the medical loss ratio (due to changes in utilization,
timing of submission of claims presented for payment in the period and
the unpredictability of unusually large claims), increases in
commission expense and general and administrative expenses, changes in
interest rates, acquisitions, governmental and regulatory actions,
overall market conditions, and other factors. The company's stock
price may experience significant price and volume fluctuations in
response to these and other internal and external factors which cause
variations in its results of operations and in the volatility of the
stock markets generally.
Credit Agreement Restrictions
The company's revolving credit agreement with its existing lenders
contains certain restrictions on the company and its subsidiaries,
including requirements as to the maintenance of net worth and certain
financial ratios, restrictions on payment of cash dividends or
purchases of stock, restrictions on acquisitions, dispositions and
mergers, restrictions on additional indebtedness and liens, and
limitations on indebtedness of the company's subsidiaries and certain
other matters. There can be no assurance that the company will be
able to achieve and maintain compliance with the prescribed financial
ratio tests or other requirements of the revolving credit agreement.
As discussed elsewhere herein, the company amended its credit facility
in the fourth quarter of 1997. The failure to obtain any waivers or
similar amendments that might be needed in the future to remain in
compliance with such requirements would reduce the company's ability
to respond to adverse industry conditions and could have a material
adverse effect on the company's results of operations, financial
condition or business.
Year 2000 Issue
In January 1996, the company began converting its computer systems to
be year 2000 compliant (e.g. to recognize the difference between 1999
and 2000 as one year instead of negative 99 years). The company
believes that at December 31, 1997, approximately 25 percent of the
company's systems were compliant, with all systems expected to be
compliant by March 31, 1999. In addition, the company's plan for
completion of this project is partially dependent upon the work of
third parties. The company's operations would be significantly
impacted by incomplete or untimely resolution of the problem as the
company utilizes automated systems to process claims, prepare
invoices, retain membership data, perform utilization management, and
many other processes.
Additional Factors
Additional risk and uncertainties that may affect future results of
operations, financial condition or business of the company include,
but are not limited to: demand for and market acceptance of the
company's products and services; the effect of economic and industry
conditions on prices for the company's products and services and its
cost structure; the ability to develop and deliver new products and
services and adapt existing products and services to meet customer
needs and expectations; the ability to keep pace with technological
change including developing and implementing technological advances
timely and cost effectively in order to lower its cost structure, to
provide better service and remain competitive; adverse publicity, news
coverage by the media, or negative reports by brokerage firms,
industry and financial analysts regarding the company, its parent or
BCBSA or their products or services which may have the effect of
reducing the reputation, goodwill or customer demand for, or
confidence in, the company's products or services; the ability to
attract and retain capital for growth and operations on competitive
terms; and changes in accounting policies and practices.
Strategies
In general, the company's strategy for 1998 involves (i) improving
service levels and the effectiveness and efficiency of automated and
manual processes, (ii) entering into shared risk and financial
incentive arrangements with providers, (iii) resolving issues with the
Missouri Department of Insurance and Missouri Attorney General (see
"Litigation with DOI and Attorney General" caption in Note 13 entitled
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data) and (iv) implementing additional functionality of
the company's information and operations strategy (IOS) and data
warehouse capabilities. The company also has an operating strategy in
place intended to improve the company's financial performance by (i)
reducing medical costs, (ii) increasing premium rates significantly
more than in recent past years, and (iii) reducing core overhead
expenses. In addition, on an ongoing basis, the company plans to
continue to evaluate and consider potential combinations with other
health care benefit plans.
Sales and marketing strategy
The company's strategy includes retaining current underwritten member
levels through target marketing efforts. The company's marketing
operations vary depending upon the segment at which sales efforts are
directed; individuals (i.e., direct pay), small employer groups (which
the company defines as groups from 2 to 99 employees) and large
employer groups (which the company defines as groups of 100 employees
or more). These efforts include the recent implementation of a small
group marketing unit to improve the company's ability to support sales
in an efficient manner. The company's independent broker networks and
direct sales staff market the full range of the company's managed care
products and services to new customers, and manage existing accounts
to ensure client satisfaction and retention. Independent brokers are
compensated pursuant to commission arrangements that vary depending on
the particular company products and services sold.
Marketing efforts are supported by market research conducted
internally as well as public relations efforts and advertising
programs that utilize telemarketing, radio, television, direct mail,
and other media.
Medical management
In general, the company controls medical costs by increasing financial
incentives to members to use network providers and partnering with
providers to ensure the economic delivery of quality health care. The
company believes that the development of common economic incentives
with certain hospitals, physician groups and other selected health
care providers will be a key element in gaining a competitive
advantage and future growth. As evidenced with the introduction of
AllianceChoice, the company is currently pursuing arrangements with
providers that are intended to develop a cooperative relationship
through shared risk, financial incentives and joint input into
decision-making processes in order to manage the medical and
administrative costs of health care delivery more efficiently.
The company recognizes the physician's expertise in managing patient
care and wants to ensure that physicians maintain autonomy in the
practice of medicine by offering physician groups incentives to lower
medical costs while achieving high levels of patient satisfaction and
quality care. The company's BlueCHOICE HMO Physician Group Partners
Program (PGPP) provides incentives to primary care physicians to
improve quality, patient satisfaction, and cost savings while
providing physician-participants with an appealing incentive package.
Currently, approximately 36 percent of the BlueCHOICE Commercial panel
of 647 primary care physicians in metropolitan St. Louis are enrolled
in the program. Approximately 15,500 BlueCHOICE Commercial members,
or 24 percent of the assigned metropolitan St. Louis membership, are
served by primary care physicians who are participants in PGPP. The
company is also in the preliminary stages of expanding the PGPP model
to specialists.
General and administrative cost reductions
Throughout the past several years, the company has made significant
investments in technologies designed to re-engineer many customer
service and claims processes which are expected to result in
significant savings in administrative costs. See "Technology and
Information Systems" that follows for additional detail. The company
plans to continue to pursue initiatives to streamline operations and
reduce general and administrative expenses. In 1997, the company
completed the relocation of its St. Louis-based claims, customer
service, billing and provider services functions to the company's
Springfield, Missouri, facility and a new facility in Cape Girardeau,
Missouri. Approximately 200 jobs were relocated to Cape Girardeau
with an additional 100 relocated to Springfield. The move is expected
to result in annual salary and benefit cost savings of $3.0 million
beginning in 1998. The company incurred total charges to earnings of
$7.8 million during 1996 and 1997 for costs associated with the
relocation.
Competition
The managed care industry is highly competitive, both nationally and
in the company's current market area. Participants compete for
members primarily on the basis of price (considering premium rates,
copayments, coinsurance and deductibles), scope and design of
benefits, access to providers and reputation of the plan sponsor and
participants. The company also competes with other managed care
organizations for contracts with hospitals, independent physicians,
physician groups and other providers.
In the metropolitan areas of St. Louis and Kansas City and other
regions in Missouri, the managed care market is highly competitive
with a number of established competitors offering a variety of benefit
plans. The penetration of managed health care is substantially less
in other regions of Missouri where the company competes more with
traditional indemnity plans and smaller networks. The company's major
competitors include: commercial insurance carriers, other HMOs, PPOs,
POSs, TPAs, utilization review companies, and others, many of which
are operated as part of a regional or national network. Many
competitors that have regional or national networks have broader
geographic coverage, larger total memberships, and in many instances
have greater financial resources than the company. The company also
faces competition in its markets from a trend among some health care
providers to combine and form their own networks in order to contract
directly with employer groups and other prospective customers for the
delivery of health care services.
The company expects, as previously reported, to increase premium rates
on a per member per month basis by approximately 9 percent to 10
percent during 1998. The company believes that these price increases
will be accepted by the market as indicated by the company's January
1998 underwritten enrollment consisting of 504,800 members. Since
approximately one-third of the company's underwritten business
historically renews during the first month of each year, the company
believes that the January results are an early indication that the
company's strategy of maintaining membership at increased premium
levels is working. In addition, the company has become aware that
many of its competitors are also significantly increasing rates which
also points to an alleviation of the intense price competition in the
company's service areas over the past several years.
In issuing its approval of the company's HealthLink acquisition, the
Missouri Department of Insurance required that the company not
restrict access by qualified commercial insurers to the HealthLink
network for a minimum of two years; that employer fees not increase
faster than the percentage change in the non-medical consumer price
index through December 31, 1996; that rate changes for existing
RightCHOICE HMO and PPO subscribers in the St. Louis Metropolitan area
be limited to 90 percent of the annual percentage increase in the St.
Louis medical consumer price index over a two year period; that rates
be guaranteed for new subscribers in that market for 18 months; and
that the company not enter into new agreements with hospitals that
include clauses requiring the hospitals to give the company rates
lower (by a specified amount or percentage) than those rates such
hospitals provide to others. These rate increase limitations expired
as of September 1, 1997.
Technology and Information Systems
Document imaging technology and re-engineering efforts are improving
the efficiency with which the company handles the massive volume of
claims it receives and processes each day. More than 72 percent of
all claims received by the company are currently electronic
transactions that are processed by the automated systems, requiring
little or no manual intervention. As a result, the company maintained
an inventory of unprocessed provider claims as of December 31, 1997,
of approximately 4.5 days.
The company believes that its management information systems represent
a key component of the company's medical and administrative cost
reduction operating strategy by providing the company with extensive
detailed information regarding customer and provider utilization.
These systems also facilitate quality service to members and providers
in connection with the company's claims and customer service
functions. In 1995, the company embarked on a multi-year information
and operations strategy (IOS) project that is designed to further
improve how the company delivers managed care to members. See
"Outlook - Information and operations strategy" of Part II, Item 7 for
more information on the IOS project.
The primary business functions of the company are currently supported
by an integrated transaction processing system. This interactive
system supports the company's core processing functions (claims
processing, customer services, enrollment, member billing and claim
disbursements) under a set of integrated databases. The company
believes that this integrated approach helps to assure product
flexibility across a broad range of managed care products and provides
an integrated, consistent source of claim and subscriber information.
As IOS brings RightCHOICE new managed care capabilities, it will
replace the company's core processing systems and the company believes
that IOS will generate savings in both medical and administrative
expenses.
The company's strategic data initiative (SDI) allows the company to
turn information about providers, members, and claims into a solid
foundation upon which to make strategic business decisions. This data
warehouse initiative underscores the company's commitment to putting
information directly in the hands of the people who manage the
business. Company employees now have access to many levels of
detailed data focusing on medical expenses, revenues, and membership.
In January 1996, the company began converting its computer systems to
be year 2000 compliant - see "Outlook - Year 2000 issue" of Part II,
Item 7 for more information related to the company's year 2000
compliance efforts.
Regulation
Government regulation of the products and services offered by the
company varies from jurisdiction to jurisdiction and is subject to
change. The company and its subsidiaries are primarily subject to the
insurance laws and regulations of the states of Missouri and Illinois,
the insurance laws and regulations of the other jurisdictions in which
the company and its subsidiaries are licensed or authorized to do
business and certain federal laws and regulations. These insurance
laws and regulations generally give state regulatory authorities broad
supervisory, regulatory and administrative powers over insurance
companies and insurance holding companies with respect to most aspects
of their insurance businesses. This regulation is intended primarily
for the benefit of the policyholders of the insurance companies. The
company is in litigation relating to its compliance with various
federal and state regulations - see Note 13 entitled "Contingencies"
of Part II, Item 8.
Insurance Holding Company Regulation
The company is subject to regulation as an insurance holding company.
Missouri insurance holding company laws and regulations generally
require insurance holding companies and their subsidiaries to register
with the Missouri Department of Insurance and to file with the
Missouri Department of Insurance certain reports describing capital
structure, ownership, financial condition, certain intercompany
transactions and general business operations. Missouri 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 insurance companies, their parent holding companies and
affiliates.
Insurance Company Regulation
The operations of the company's subsidiaries, Healthy Alliance Life
Insurance Company (HALIC), HMO Missouri, Inc. (BlueCHOICE), HealthLink
HMO, Inc. (HealthLink HMO), and RightCHOICE Insurance Company (RIC)
are subject to regulation and supervision by regulatory authorities of
the various jurisdictions in which they are licensed to conduct
business. Regulatory authorities exercise extensive supervisory power
over insurance companies and health maintenance organizations in
regard to licensing; the amount of reserves that 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 aforementioned
subsidiaries of the company are required to file periodic statutory
financial statements in each jurisdiction in which they are licensed.
Additionally, these subsidiaries are periodically examined by the
insurance departments of the jurisdictions in which they are licensed
to do business.
Risk-Based Capital Requirements
In 1993, Missouri adopted statutory risk-based capital (RBC)
requirements for life and health insurance companies. The formula for
calculating such RBC requirements, set forth in instructions adopted
by the National Association of Insurance Commissioners (NAIC), is
designed to take into account asset risks, insurance risks, interest
rate risks and other relevant risks with respect to the individual
insurance company's business. Under these laws, a life and health
insurance company must submit a report of its RBC level as of the end
of the previous calendar year. The NAIC has not currently extended
the RBC requirements to HMOs.
Because the total adjusted capital of HALIC and RIC, determined in
accordance with the RBC instructions adopted by the NAIC on a fully
phased-in basis, exceed all RBC minimum requirements, the company
believes that the RBC requirements will not have any immediate impact
upon HALIC or RIC or their operations. If in the future the RBC
results of HALIC or RIC were to decline, the RBC requirements could
have a material effect upon their operations and the amount of
regulatory oversight to which they are subject.
Restrictions on Dividends
Missouri insurance laws and regulations restrict the payment of
dividends by life insurance companies and health maintenance
organizations in a holding company structure. Such laws generally
limit the dividends which a life insurance company may pay to an
amount which, together with the amount of dividends and distributions
paid by the insurance company during the immediately preceding 12
months, does not exceed the greater of (i) 10 percent of the insurance
company's surplus as regards policyholders as of the preceding
December 31 or (ii) the insurance company's net gain from operations
for the preceding calendar year. For all other insurers (including
HMOs), such laws generally limit the dividends which a company may pay
to an amount which, together with the amount of dividends and
distributions paid by the company during the immediately preceding 12
months, does not exceed the lesser of (i) 10 percent of the insurer's
surplus as regards policyholders as of the preceding December 31 or
(ii) the net investment income for the 12 month period ending as of
the preceding December 31. Any proposed dividend in excess of these
amounts is deemed to be an ''extraordinary dividend'' and requires
approval by the Missouri Directors of Insurance.
At December 31, 1997, HALIC, BlueCHOICE, RIC, and HealthLink HMO had
surplus of approximately $69.1 million, $11.0 million, $2.0 million,
and $3.5 million, respectively. At December 31, 1997, the company's
insurance subsidiaries did not have a significant amount of dividends
available for payment without the prior approval of the Missouri or
Illinois Directors of Insurance.
HMO Regulation
Federally qualified HMOs, such as BlueCHOICE, are subject to health
care related regulation by both state and federal regulatory
authorities. State-qualified HMOs, such as HealthLink HMO, Inc., are
also subject to state regulatory authorities. As a federally
qualified HMO, BlueCHOICE must file periodic reports with, and is
subject to, regulation and review by the U.S. Department of Health and
Human Services and certain other federal authorities. Among the areas
regulated by federal and state law are procedures for quality
assurance, enrollment requirements, covered benefits, relationships
between the HMO and its health care providers and the company's
financial condition, including reserves and cash flow requirements.
Third-party Administrator (TPA) Regulation
Under Missouri laws and regulations, the company and Epoch are
required to obtain a certificate of authority from the Department of
Insurance and are subject to various statutory requirements, including
record-keeping and retention; fiduciary obligations with respect to
premiums collected; limitations on commissions and fees; and certain
notice and reporting requirements. Certificates of authority are also
required by certain other states in which Epoch conducts business.
Certain TPA activities are also subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
Employees
The company employed approximately 1,700 full time employees
(including 300 HealthLink employees) as of December 31, 1997, compared
to 1,700 full time employees (including 250 HealthLink employees) as
of December 31, 1996, none of whom is subject to a collective
bargaining agreement. The company believes that its employee
relations are good.
Executive Officers
Name Age Position
John A. O'Rourke 54 Chairman of the Board,
President, Chief
Executive Officer and
Director
Sandra A. Van Trease 37 Executive Vice President
and Chief Operating
Officer, Chief Financial
Officer
Stuart K. Campbell 36 Senior Vice President,
Client Services
Michael Fulk 50 Senior Vice President and
Chief Marketing
Officer
Herbert B. Schneiderman 52 Senior Vice President, Medical
Delivery Systems
Connie L. Van Fleet 45 Senior Vice President and
Chief Information
Officer
David T. Ott 43 President, Chief Executive
Officer and
Director of HealthLink
Courtney B. Walter 42 Executive Vice President and
Chief Financial Officer of
HealthLink
Edward J. Tenholder 46 Executive Vice President and
Chief Operating
Officer of BCBSMo
Richard S. Smith 55 President of Diversified Life
Insurance Agency of Missouri
John A. O'Rourke was named Chairman and Chief Executive Officer
of RightCHOICE in February 1997, and President in March 1997.
Mr. O'Rourke came to RightCHOICE from his position as President
and CEO of HealthLink, Inc. Mr. O'Rourke took the leadership
of HealthLink in 1985, when the company was first incorporated.
Earlier, Mr. O'Rourke was Deputy Director of the Office of
Health Maintenance Organizations in the U.S. Department of
Health and Human Services.
Sandra A. Van Trease was named Executive Vice President and
Chief Operating Officer in September 1997. Ms. Van Trease
joined BCBSMo in June 1994 as Vice President, Financial
Reporting and Analysis and was named Senior Vice President and
Chief Financial Officer of the company in November 1995. Prior
to joining BCBSMo, Ms. Van Trease was a Senior Manager with
Price Waterhouse LLP.
Stuart K. Campbell was named Senior Vice President, Client
Services in August 1997. Mr. Campbell joined RightCHOICE as
Chief Internal Auditor in September 1994 and was named Corporate
Compliance Officer in 1996. Prior to joining the company, Mr.
Campbell was a Senior Manager with Price Waterhouse LLP.
Michael Fulk joined RightCHOICE as Senior Vice President and
Chief Marketing Officer in January 1998. Mr. Fulk joined
RightCHOICE from United HealthCare, Birmingham, Alabama, where
he was Senior Vice President of Sales and Marketing. Earlier,
Mr. Fulk served as the top sales and marketing executive for
United HealthCare's HMO, POS, and PPO operations in Texas,
Alabama, Louisiana, Tennessee, Arkansas, Mississippi and the
Gulf Coast.
Herbert B. Schneiderman joined RightCHOICE as Senior Vice
President, Medical Delivery Systems, in June 1995. Mr.
Schneiderman came to RightCHOICE after 21 years at Saint Louis
University Hospital/Saint Louis University Health Sciences
Center, the last seven as Chief Executive Officer.
Connie L. Van Fleet was named Senior Vice President and Chief
Information Officer in November 1997. Ms. Van Fleet joined
BCBSMo in 1990 and most recently served as Vice President,
Business Analysis and Development. Prior to joining BCBSMo, Ms.
Van Fleet was with Metropolitan Life Insurance Co.
David T. Ott was named President and Chief Executive Officer of
HealthLink, Inc. in March 1997. Mr. Ott had been Executive Vice
President of HealthLink since July 1990. Mr. Ott joined
HealthLink in 1986 as Director of Marketing and later was
promoted to Vice President of Sales and Marketing.
Courtney B. Walter was named Executive Vice President and Chief
Financial Officer of HealthLink, Inc. in March 1997. Mr. Walter
has been with HealthLink since 1993. Prior to joining
HealthLink, Mr. Walter worked for Ernst & Young LLP, MetLife
Health Care Management Corporation and Spectrum Emergency Care.
Edward J. Tenholder was named Executive Vice President and Chief
Operating Officer of Blue Cross and Blue Shield of Missouri in
September 1997. Mr. Tenholder has been with the Blue Cross and
Blue Shield organization since 1979, most recently as Senior
Vice President of Client Services and Corporate Support of the
company.
Richard S. Smith was named President of Diversified Life
Insurance Agency of Missouri, Inc. (a wholly owned subsidiary of
the company) in 1995. Mr. Smith joined BCBSMo as Senior Vice
President of Marketing and Chief Marketing Officer in 1987.
Earlier, Mr. Smith spent 20 years at the Blue Cross and Blue
Shield Plan in Wisconsin.
ITEM 2. PROPERTIES
As of December 31, 1997, the company owned or leased the
following facilities which the company considers material to its
operations:
Square Owned or
Type of Facility Location Footage Leased
Corporate Headquarters St. Louis, MO 343,017 Leased
Document Storage Warehouse St. Louis, MO 69,152 Leased
HealthLink, Inc. Headquarters St. Louis, MO 20,550 Owned
HealthLink, Inc. Administrative Office St. Louis, MO 19,500 Leased
Southwest Regional Office Springfield, MO 30,000 Owned
Southwest Claims Office Expansion Springfield, MO 4,750 Leased
Southeast Claims Office Cape Giardeau, MO 42,000 Leased
Central Marketing Office Columbia, MO 5,000 Leased
ITEM 3. LEGAL PROCEEDINGS
The company is a party to various material legal proceedings
which are detailed in Note 13 entitled "Contingencies" of Part
II, Item 8, Financial Statements and Supplementary Data.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The company's Class A Common Stock has been traded on the New
York Stock Exchange under the symbol "RIT" since August 1, 1994.
There were 246 common shareholders of record on March 6, 1998.
As of March 6, 1998, the reported closing bid price per share
was $10.50.
Shareholders' Data
1997
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
Outstanding common shares 18,671,500 18,671,500 18,671,500 18,671,500
Market price:
Quarter ending $9 5/8 $10 1/4 $13 9/16 $13 1/8
Range $9 3/8 - $10 1/4 - $10 3/8 - $10 1/2 -
$11 1/8 $13 7/8 $13 9/16 $17
1996
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
Outstanding common shares 18,676,900 18,676,900 18,676,900 18,680,600
Market price:
Quarter ending $10 5/8 $12 1/4 $12 3/8 $16 1/4
Range $8 7/8 - $11 - $12 1/4 - $12 7/8 -
$12 5/8 $13 3/8 $17 5/8 $17 1/8
Dividends
The company has not paid any dividends on either its Class A
Common Stock or its Class B Common Stock and the company
anticipates, for the foreseeable future, that no dividends will
be paid on either its Class A Common Stock or its Class B Common
Stock. Further, the company is currently restricted in its
ability to pay cash dividends as further explained in Note 10
entitled "Long-term debt and commitments" in Part II, Item 8.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year ended December 31,
Consolidated Statements of
Income data 1997 1996 1995 1994 1993
(in thousands, except per share data)
Revenues $719,411 $653,375 $591,880 $583,580 $575,615
Operating expenses 780,411 666,954 572,847 556,943 550,501
Operating (loss) income (61,000) (13,579) 19,033 26,637 25,114
Investment income, net 33,184 17,532 18,344 15,764 23,288
Other, net (5,739) (5,320) (3,327) (640) (859)
Net (loss) income (24,034) (2,027) 23,570 26,584 19,998(c)
Basic and diluted (loss)
earnings per share $(1.29) $(0.11) $1.26
Pro forma data: (a)
Pro forma operating income $23,712 $20,747
Pro forma net income 24,683 17,159(c)
Pro forma earnings per
share (b) $1.49 $.94(c)
Consolidated Balance
Sheet data December 31,
1997 1996 1995 1994 1993
(in thousands, except per share data)
Total assets $506,363 $532,144 $516,388 $433,605 $354,491
Long-term obligations 88,845 86,776 89,060 31,013 25,136
Shareholders' equity 140,865 172,954 173,221 135,425 82,247
Available cash
and investments (d) 8,279 48,472 56,753 72,854
Book value per share $7.54 $9.26 $9.27 $7.25
Tangible book value
per share 3.36 4.76 4.93 7.10
(a) Prior to its initial public offering in August 1994, the
company was not subject to premium taxes levied by the State
of Missouri. Pro forma data reflect the premium taxes that
would have been recorded, net of income tax, had the company
been subject to such premium taxes.
(b) Pro forma earnings per share (unaudited) for the years
ended December 31, 1994 and 1993, are computed based on the
following: (i) for 1993, 3,250,000 shares of Class A Common
Stock and 14,962,500 shares of Class B Common Stock assumed
outstanding at the beginning of the year consistent with the
company's registration statement, as amended on July 28,
1994, on Form S-1, filed with the SEC under the Securities
Act of 1933, and (ii) for 1994, the weighted average number
of Class A and Class B Common Stock assumed outstanding, with
14,962,500 shares of Class B Common Stock assumed outstanding
at the beginning of the year and giving effect to the
issuance of 3,250,000 shares of Class A Common Stock on
August 1, 1994, the issuance of 487,500 shares of Class A
Common Stock on August 4, 1994, and the repurchase of 10,000
shares of Class A Common Stock in November 1994.
(c) Reflects impact of cumulative effect of accounting
changes for postretirement benefits other than pensions and
postemployment benefits aggregating $10,437, net of income
tax, or $.57 per share.
(d) Amounts represent cash and investments available for
general corporate use without regulatory approval.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto
and the information set forth under the captions "Safe Harbor"
statement and "Factors that May Affect Future Results of
Operations, Financial Condition or Business" of Part I, Item I
hereof.
Results of operations
Premium revenue
The following table sets forth premium revenue (in thousands) by
product group for the years ended December 31, 1997, 1996, and
1995:
For the year ended
December 31,
Product Group 1997 1996 1995
PPO:
Alliance PPO $197,329 $234,720 $272,769
AllianceChoice POS 124,890 75,700 22,560
HMO (includes other POS) 183,485 139,457 95,927
Medicare supplement 97,157 98,038 104,396
Managed indemnity 12,531 16,425 23,045
Other specialty services 38,875 30,709 19,725
Total premium revenue 654,267 595,049 538,422
ASO/Self-funded and other income 65,144 58,326 53,458
Total revenues $719,411 $653,375 $591,880
Operating ratios
The following table sets forth selected operating ratios. The
medical loss ratio reflects health care services expense as a
percentage of premium revenue. All other ratios are shown as a
percentage of premium revenue and fees and other income combined:
For the year ended December 31,
1997 1996 1995
Operating revenues:
Premium revenue 90.9% 91.1% 91.0%
Fees and other income 9.1% 8.9% 9.0%
100.0% 100.0% 100.0%
Operating ratios:
Medical loss ratio 84.8% 82.6% 76.1%
Commission expense ratio 4.1% 4.1% 3.3%
General and administrative expense ratio
(includes depreciation and amortization) 22.7% 22.0% 23.7%
Membership
The following table sets forth the number of members by product
category:
December 31,
% Increase/
Product Group 1997 1996 (Decrease)
Underwritten:
PPO:
Alliance PPO 149,339 193,349 (22.8)
AllianceChoice POS 131,924 102,707 28.4
HMO:
Commercial (includes other POS) 134,743 103,786 29.8
BlueCHOICE Senior 5,682 5,452 4.2
BlueCHOICE Medicaid (MC+) 5,146 5,063 1.6
Medicare supplement 62,311 68,528 (9.1)
Managed indemnity 7,022 10,979 (36.0)
496,167 489,864 1.3
Self-funded:
PPO 89,300 110,001 (18.8)
HMO 13,825 16,551 (16.5)
ASO (includes HealthLink):
Workers' Compensation 344,712 310,891 10.9
Other ASO* 1,013,303 925,941 9.4
Total membership 1,957,307 1,853,248 5.6
* does not include 497,538 and 643,311 additional third-
party administrator members as of December 31, 1997 and 1996,
respectively, that are part of The EPOCH Group, L.C., a joint
venture with Blue Cross and Blue Shield of
Kansas City formed in December 1995.
Comparison of results for 1997 to the results for 1996
Revenues
Underwritten
Premium revenue increased $59.3 million to $654.3 million in
1997 from $595.0 million in 1996. As described below,
components of premium revenue were affected by shifts in product
mix, rate increases, and other factors; and as a result, such
changes may not be indicative of future periods. The company
will continue to strive to establish its premium rates based on
anticipated health care costs. Depending on the level of future
competition, customer acceptance of the company's premium
increases, future health care cost trends or other factors,
there can be no assurance that the company will be able to price
its products consistent with health care cost trends.
PPO premium revenue increased $11.8 million in 1997 -- $17.2
million due to a 3.6 percent increase in net premium rates.
This increase was partially offset by a $5.4 million decrease
resulting primarily from product mix shifts within the PPO
product family, such as the continued shift in membership to
AllianceChoice, a lower cost, non-gatekeeper point-of-service
(POS) product. Alliance PPO member months decreased by 539,300
in 1997 compared to 1996 while AllianceChoice POS member months
increased by 544,800 in 1997 as compared to 1996. Net rates
increased due in part to the company's targeted general rate
increases averaging 7 percent to 18 percent during enrollment
periods during 1997. Net rate increases are lower than the
targeted range due in part to changes in deductibles, the timing
of group renewals throughout the year, and product mix changes.
The company also began offering its PPO product in Illinois at
the end of the first quarter of 1997. Included in the Alliance
PPO member count in the company's membership table are 2,200 PPO
Illinois members at December 31, 1997. The company anticipates
future enrollment gains in the central and southern regions of
Illinois as the company plans to intensify marketing efforts
during 1998.
HMO premium revenue increased $44.0 million, or 31.6 percent --
$40.7 million due to a 31.4 percent increase in member months
and a $3.3 million increase resulting from a marginal increase
in premium rates. Net premium rates have increased only
slightly, despite the company's targeted renewal rate increases
of 7 percent to 18 percent during enrollment periods during
1997, due to HMO competition in the company's HMO service areas,
the status of a large group (Missouri Consolidated Health Care
Plan) with which the company is currently involved in litigation
(see Note 13 entitled "Contingencies - Litigation with MCHCP" of
Part II, Item 8), shifts in chosen benefit levels, changes in
the geographic mix of the HMO business, and product mix shifts
due to various new products. Membership increases were driven
primarily by the company's HealthNet Blue POS products as well
as the company's efforts to expand geographically within the
State of Missouri. HealthNet Blue POS gained 7,300 members, or
49.9 percent, in southeast Missouri from December 31, 1996 to
December 31, 1997. As of December 31, 1997, there were
approximately 14,900 members enrolled in BlueCHOICE HMO and POS
products in the six-county area surrounding Joplin, Missouri,
representing an increase of 7,200 members over December 31,
1996. In addition, as of December 31, 1997, there were 11,000
members enrolled in BlueCHOICE HMO and POS products in the
southwest Missouri area surrounding Springfield, an increase of
9,300 over December 31, 1996. Partially included in the
aforementioned HMO membership increases is an increase in the
company's MCHCP membership of 15,500 between December 31, 1996
and December 31, 1997. The company's future enrollment growth
or decline in these products and geographic regions is dependent
on network attractiveness, continued cooperation with physician
hospital organizations, market acceptance of rate increases, and
other factors. There can be no assurance that these objectives
will be realized. Future enrollment growth in the company's
products offered to MCHCP and revenues generated therefrom are
also dependent on the litigation with MCHCP and other factors
(see Note 13 entitled "Contingencies - Litigation with MCHCP" of
Part II, Item 8). In addition, the company has made a decision
to discontinue its Medicaid product in the 18-county central
Missouri region as of March 31, 1998. This determination was
made due to what the company believes were unacceptable terms
proposed by the State of Missouri. As of December 31, 1997, the
company had approximately 5,100 members enrolled in its Medicaid
product.
Premium revenue from Medicare supplement decreased by $0.9
million in 1997. Member months decreased by 8.6 percent
partially offset by an 8.4 percent increase in net premium
rates. Membership declines are partially attributable to
members shifting to BlueCHOICE Senior, a Medicare-risk program,
which provides medical benefits at least as comprehensive as
Medicare benefits for persons eligible to receive Medicare
(parts A and B) at no additional cost to the member.
Managed indemnity premium revenue decreased by $3.9 million due
to a 27.8 percent decline in member months in keeping with the
company's strategy to move toward more highly managed products.
Revenue from other specialty services, which include certain of
the company's drug and dental health care benefit plans,
increased $8.2 million due to a 12.6 percent increase in member
months and a 12.4 percent increase in net premium rates. The
company's drug product, AllianceRx, continued to gain momentum
with revenues increasing $7.4 million due primarily to a 13.7
percent increase in member months in 1997 as compared to 1996.
Self-funded
Fees and other income from administrative services only/self-
funded and network services increased in 1997 by $6.8 million.
ASO revenues from HealthLink increased by $10.1 million in 1997
as compared to 1996. HealthLink's 1997 and 1996 revenues
include $7.5 million and $2.7 million of revenues, respectively
from HealthLink HMO, Inc. (HealthLink HMO), which was only 50
percent owned by HealthLink (and not consolidated with the
company's operations) prior to its May 31, 1996, acquisition
from a subsidiary of Blue Cross and Blue Shield of Kansas City.
HealthLink's revenues also increased due to membership gains in
its PPO products of approximately 10.7 percent or 71,900 members
from December 31, 1996, to December 31, 1997. HealthLink's
increases to fees and other income were partially offset by two
main factors - decreases to revenue caused by a decline in the
HMO self-funded membership of 2,700 members from December 31,
1996, to December 31, 1997, and a decline in the overall PPO
self-funded membership of 20,700 members over the same time
period.
The company expects further declines in its self-funded
membership as three large self-funded group cancellations are
effective as of January 1, 1998. As of December 31, 1997, these
three groups encompassed approximately 72,000 members,
approximately 30,000 of which have enrolled in HealthLink's self-
funded ASO plans in 1998.
Operating expenses
The overall medical loss ratio increased by 2.2 percent to 84.8
percent in 1997 from 82.6 percent in 1996 primarily as a result
of (1) competitive pricing of managed care products, especially
in the St. Louis metropolitan market area, (2) higher medical
expenses, especially as driven by increased cost and utilization
of both outpatient services and drug therapies, (3) growth in
regions outside of the metropolitan St. Louis area that have
less cost efficient networks, (4) an increase to claims reserves
of $3.0 million in 1997 for the estimate of claims that had been
incurred but not reported in 1996, and (5) the poor performance
of MCHCP that has resulted in large underwriting losses (see
Note 13 entitled "Contingencies - Litigation with MCHCP" in Part
II, Item 8).
The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and ancillary
service providers have not yielded targeted savings in the
anticipated time frame. The drug cost trend (as a percentage)
has remained in the low teens, driven by a combination of
factors, including introduction of new drug therapies;
physicians' use of newer, more expensive drugs; and physicians'
decreased use of generic drugs in favor of specific drugs
promoted by pharmaceutical companies. Among the medical cost
control strategies targeted for 1998 are a combination of
changes in the pharmacy program to save costs and increase
member satisfaction through: allowing members to make choices,
albeit with a higher member copayment; introducing a new three-
tiered benefit design; and making other adjustments to
copayments, quantity limits and exclusions. Physician
education, utilization and prescribing pattern analysis will be
increased. The company will also continue its hospital,
physician and service recontracting strategy, using the more
detailed data and analysis available through the company's
information and operations strategy (IOS), which is comprised of
projects being implemented to improve business processes and
systems. The company also intends to further expand its PGPP
program. This program provides incentives to physicians to
improve quality, patient satisfaction, and cost savings while
providing physician participants with an appealing incentive
package. Currently, approximately 36 percent of the BlueCHOICE
Commercial panel of 647 primary care physicians in metropolitan
St. Louis are enrolled in the program. There can be no
assurance that the company's initiatives to control future
increases in medical cost trends will be effective.
Commission expense increased by $2.5 million, or 9.3 percent in
1997. The commission expense ratio of 4.1 percent for 1997
remained unchanged from 1996.
General and administrative expenses (excluding depreciation and
amortization) increased $11.1 million, or 8.6 percent in 1997
compared to 1996. This increase is primarily due to a $6.7
million increase in HealthLink general and administrative
expenses (excluding depreciation and amortization) in 1997,
inclusive of a $3.9 million increase in HealthLink HMO expenses.
HealthLink's expenses have increased in order to appropriately
manage its membership growth as described elsewhere herein. The
company's general and administrative expense ratio (excluding
depreciation and amortization) improved to 19.5 percent for 1997
compared to 19.7 percent for 1996. Prior to December 31, 1997,
the company offered its HealthNet Blue products pursuant to a
joint venture agreement with MedAmerica HealthNet, Inc. (MHI), a
physician hospital organization. MHI filed for bankruptcy and
voted to dissolve the physician hospital organization.
Consequently, the pertinent provisions of the provider contracts
between MHI and the southeast Missouri doctors, hospitals, and
ancillary service providers were selectively assigned to the
company in early 1998. The company recorded a $1.7 million
charge related to a receivable from MHI that was written off in
the fourth quarter of 1997 after MHI declared bankruptcy.
Excluding this $1.7 million charge, the company's general and
administrative expense ratio for 1997 (excluding depreciation
and amortization) was 19.2 percent.
Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment priorities,
and reducing legal, consulting, and non-essential vendor
expenses. The company's achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as the company's claims processing functions relocated
to the new customer service centers during the first half of
1997. The staffing resources required to resolve the claims
backlog delayed the realization of $1.3 million of anticipated
overhead savings during 1997.
Depreciation and amortization expenses increased to $23.1
million in 1997 from $15.0 million in 1996. The primary cause
for this $8.1 million increase is an additional $4.9 million of
IOS amortization expense incurred in 1997 as compared to 1996.
See "Outlook - Information Strategies" for more information
related to the IOS project. In addition, the company amortized
an additional $2.6 million in 1997 compared to 1996 for prepaid
reinsurance payments associated with the company's reinsurance
agreements with Blue Cross and Blue Shield of Kansas City.
Non-recurring relocation charges in 1997 and 1996 include $3.3
million and $4.5 million, respectively, related to costs
associated with the relocation of the company's St. Louis-based
claims, customer service, billing, and provider services
functions to its Springfield, Missouri, facility and a new
facility in Cape Girardeau, Missouri.
On August 29, 1997, the company announced that it would create a
loss reserve for its contract with the Missouri Consolidated
Health Care Plan (MCHCP) in the range of $30 million to $40
million as discussed elsewhere herein. The company reported in
the third quarter of 1997 a $29.5 million loss reserve provision
relating to the MCHCP contract. See Note 13 entitled
"Contingencies - Litigation with MCHCP" of Part II, Item 8.
Operating income (loss)
The company's operating loss increased from $13.6 million in
1996 to $61.0 million in 1997. Excluding the non-recurring
relocation charges and the charge for the MCHCP loss reserve,
the operating loss increased from $9.0 million in 1996 to $28.2
million in 1997.
The operating loss, excluding non-recurring relocation charges
and the charge for the MCHCP loss reserve, for the company's
underwritten segment was $37.7 million in 1997 compared to a
loss of $11.0 million in 1996. The increase in losses in 1997
is primarily attributable to a combination of pricing and
medical cost trends, including higher outpatient utilization and
drug cost trends.
Excluding non-recurring relocation charges, the company's self-
funded segment experienced an operating gain of $9.5 million in
1997 as compared to operating income of $1.9 million for 1996.
The improvement in 1997 operating income is partially the result
of the continued positive performance of HealthLink, which added
an additional $3.5 million to this segment's operating income in
1997 as compared to 1996. HealthLink's operating income is
inclusive of $3.1 million and $3.3 million in 1997 and 1996,
respectively, for amortization expenses related to goodwill and
other intangible assets that were acquired through the
HealthLink acquisition.
Net investment income
Net investment income includes investment income in the form of
interest and dividend income and net realized gains from the
sale of portfolio securities. Net investment income of $33.2
million in 1997 represents an increase of $15.7 million from
1996, inclusive of a $14.0 million increase in realized gains,
net. Realized gains in 1997 include a $5.7 million gain on the
sale of company-owned life insurance policies as well as
additional 1997 net realized gains from the liquidation of
equity securities due to the company's intent to increase its
holdings of fixed income securities and the company's decision
to repay $15.0 million of its debt.
Provision (benefit) for income taxes
The company's effective income tax rate was 28.4 percent and
(48.2) percent for 1997 and 1996, respectively. The company's
effective income tax rate for 1997 was affected by gains from
the liquidation of company-owned life insurance policies as well
as non-deductible goodwill amortization. The 1996 effective
rate was also affected by non-deductible goodwill amortization.
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," requires a valuation allowance against
deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The company believes
that uncertainty exists with respect to the future realization
of the undistributed losses of minority-owned subsidiary
companies. Therefore, the company maintained a valuation
allowance relating to such items of $0.1 million as of December
31, 1997 and 1996. Based upon all the available evidence,
management believes it is more likely than not that the company
will realize its remaining deferred tax assets and, accordingly,
no valuation allowance has been provided against such remaining
assets as of December 31, 1997 and 1996.
Net income (loss)
The company's net loss for 1997 was $24.0 million, or $1.29 per
share, compared to a net loss of $2.0 million, or $0.11 per
share for 1996. Excluding the non-recurring relocation charges
and the charge for loss reserves, the company had a net loss of
$2.7 million, or $0.14 per share, for 1997, compared to net
income of $0.9 million, or $0.05 per share, for 1996.
Comparison of results for 1996 to the results for 1995
Revenues
Underwritten
Premium revenue increased $56.6 million to $595.0 million in
1996 from $538.4 million in 1995. As described below,
components of premium revenue were affected by product mix
shifts, new product introductions, and other factors as the
company continued the positioning of its managed care product
portfolio; and, as a result, such changes may not be indicative
of future periods.
PPO premium revenue increased $15.1 million -- $21.8 million due
to a 9.8 percent increase in member months and a $6.7 million
decrease in revenue resulting from a 4.2 percent net decrease in
premium rates. Rates decreased slightly due to two main
factors. First, in November 1994, the company introduced a new
managed care drug product, AllianceRx, which is sold to members
on a separate product basis; prior to this, the drug benefit was
typically included as part of the basic PPO medical program.
The resulting shift in revenue from the PPO products to other
specialty services is more pronounced in 1996 than in the prior
year due to the gradual penetration of AllianceRx throughout
1995 and 1996. Second, the company experienced a shift in
membership to AllianceChoice, a lower cost, non-gatekeeper point-
of-service (POS) product. As evidence of this shift, Alliance
PPO membership decreased by 32,700 members in 1996 while
AllianceChoice POS membership increased by 54,000 over the same
time period.
HMO premium revenue increased $43.5 million, or 45.4 percent --
$50.5 million due to a 50.3 percent increase in member months
partially offset by a $7.0 million decrease due to a 3.3 percent
net reduction in premium rates. Net premium rates declined due
to HMO competition in the company's HMO service areas.
Membership increases are due to the introduction and positive
momentum of new products - BlueCHOICE Individual (introduced in
November 1994), BlueCHOICE Senior (introduced in April 1995),
HealthNet Blue POS (introduced in March 1995), and BlueCHOICE
Medicaid (introduced in March 1996). These four products
collectively account for approximately 34,900 underwritten
members at December 31, 1996, which is an increase of 19,900
over December 31, 1995. In addition, the company's arrangement
with Freeman Hospitals and Health System, beginning in July
1995, has enabled the BlueCHOICE HMO and POS products to be
offered in the six-county area surrounding Joplin, Missouri. As
of December 31, 1996, there were approximately 7,700 members
enrolled in products sold through this arrangement with Freeman,
representing an increase of 5,200 members over December 31,
1995.
Premium revenue from Medicare supplement decreased by $6.4
million in 1996, due to a 10.3 percent decrease in member
months, partially offset by a 4.7 percent increase in premium
rates.
Managed indemnity premium revenue decreased by $6.6 million due
primarily to a 33.3 percent decline in member months, consistent
with the company's strategy to focus membership growth in more
intensely managed products.
Revenue from other specialty services, which include certain of
the company's drug and dental health care benefit plans,
increased $11.0 million due primarily to a 52.1 percent increase
in member months. These increases are primarily attributable to
the aforementioned selling of the company's drug product
separate from PPO major medical products. Member months in the
company's drug product increased by 73.6 percent in 1996 as
compared to 1995.
Self-funded
Fees and other income from administrative services only/self-
funded and network services increased by $4.9 million in 1996 as
compared to 1995. This increase is due to three main factors:
(1) a net 1996 increase in HealthLink revenues of $20.3 million,
offset by (2) a decrease of $6.7 million in net self-funded PPO
revenues, due in part to an 8.4 percent decrease in member
months in 1996, and (3) the loss of revenues from the company's
third-party administrator (TPA) subsidiaries, which were $9.4
million in 1995. These TPA subsidiaries were combined with
another TPA company to form The EPOCH Group, L.C. (Epoch) in
December 1995. The company owns 50 percent of Epoch and
utilizes the equity method of accounting for this entity.
Operating expenses
The overall medical loss ratio increased by 6.5 percent to 82.6
percent in 1996 from 76.1 percent in 1995 primarily as a result
of (1) the company's lower margin BlueCHOICE Senior, Medicaid
and AllianceChoice products, (2) competitive pricing to enhance
selected enrollment growth, (3) higher drug and outpatient
utilization, and (4) growth in regions outside of the
metropolitan St. Louis area that have less cost efficient
networks.
Commission expense increased by $7.4 million, or 38.1 percent in
1996, which represents an overall increase in the commission
ratio to 4.1 percent of total revenue as compared to 3.3 percent
of total revenue for 1995. These increases are due to increased
membership growth and more aggressive commission schedules to
enhance member growth and persistency.
General and administrative expenses increased $3.5 million, or
2.5 percent in 1996. Excluding the effects of HealthLink,
Epoch, and a third-party accrual, discussed below, comparable
1996 general and administrative expenses decreased by $1.1
million. HealthLink accounted for $20.9 million of general and
administrative expenses in 1996. HealthLink expenses incurred
in 1995 subsequent to its August acquisition were $6.6 million.
Thus, HealthLink accounts for a net 1996 increase of $14.3
million to general and administrative expenses. Offsetting this
net increase to expense is the reduction of expenses related to
the company's aforementioned TPA subsidiaries that were combined
to form Epoch in December 1995. The results of operations of
Epoch (50 percent owned by the company) are not consolidated
with the company's operations. General and administrative
expenses in 1995 include $11.1 million of TPA subsidiary general
and administrative expenses. General and administrative
expenses in 1996 also increased due to an accrual of $1.4
million related to a third-party contract.
Non-recurring charges in 1996 include $4.5 million related to
costs associated with the relocation of the company's St. Louis-
based claims, customer service, billing, and provider services
functions to its Springfield, Missouri, facility and a new
facility in Cape Girardeau, Missouri. Non-recurring charges in
1995 include $2.0 million of one-time integration charges
related to the company's acquisition of HealthLink in August
1995 and $1.5 million relating to the settlement of a class
action lawsuit. The lawsuit stemmed from the company's claims
paying practices and negotiated discounts with providers; the
company agreed to settle the lawsuit by establishing a rebate
program for all affected subscribers. See Note 13 entitled
"Contingencies - Litigation with DOI and Attorney General,
Litigation relating to the Market Conduct Study and Copayment
Calculations" of Part II, Item 8 for recent information relating
to this issue.
Operating income (loss)
Operating income decreased from $19.0 million in 1995 to a loss
of $13.6 million in 1996. Excluding non-recurring charges,
operating income was $22.5 million in 1995 compared to a loss of
$9.0 million in 1996.
Operating income, excluding non-recurring operating charges, for
the company's underwritten segment was $25.0 million in 1995
compared to a loss of $11.0 million in 1996. The losses in 1996
are primarily attributable to softer pricing in a competitive
environment and higher outpatient utilization trends and drug
costs.
Excluding non-recurring operating charges, the company's self-
funded segment experienced an operating loss of $2.5 million in
1995 as compared to operating income of $1.9 million for 1996.
The improvement in 1996 operating income is a direct result of
the positive impact of HealthLink, which added $9.1 million to
this segment's operating income in 1996 as compared to $3.2
million in 1995 subsequent to HealthLink's acquisition in August
1995. In addition, these HealthLink operating figures are
inclusive of $3.3 million and $1.4 million in 1996 and 1995,
respectively, for amortization expenses related to goodwill and
other intangible assets that were acquired through the
HealthLink acquisition.
Net investment income
Net investment income includes investment income in the form of
interest and dividend income and net realized gains from the
sale of portfolio securities. Net investment income of $17.5
million in 1996 represents a 4.4 percent decrease from $18.3
million in 1995 inclusive of a $0.2 million decrease in realized
gains, net.
Provision for income taxes
The company's effective income tax rate was (48.2) percent and
30.8 percent for 1996 and 1995, respectively. The 1996 rate was
negatively affected primarily by the impact of non-deductible
goodwill amortization. The 1995 rate was positively affected by
a $2.1 million final tax audit settlement with the Internal
Revenue Service relating to pension, software amortization
expenses, and other items. Excluding such settlement, the
company's 1995 effective income tax rate was 37.1 percent.
Net income (loss)
The company's net income for 1995 was $23.6 million as compared
to a net loss of $2.0 million for 1996. Excluding non-recurring
charges on an after-tax basis, net income for 1995 was $25.8
million as compared to net income of $0.9 million for 1996.
Liquidity and capital resources
The company's working capital as of December 31, 1997, was $69.7
million, a decrease of $39.1 million from December 31, 1996.
The decrease is partially attributable to a $15.0 million
repayment of a portion of the $62.0 million of funds that were
borrowed in August 1995 from the company's reducing revolving
credit facility in conjunction with the company's acquisition of
HealthLink. Also, the company's charge to accrue a loss reserve
related to MCHCP resulted in a current liability as of December
31, 1997 of $9.1 million. In addition, the company capitalized
$18.5 million of property and equipment purchases, $17.2 million
of which related to capitalized IOS development costs (see
"Outlook - Information and operations strategy" section below).
The company's unrealized net appreciation of investments
available for sale decreased by $8.0 million in 1997 as most of
the unrealized gains existing at December 31, 1996, were
realized in 1997 as the company liquidated equity securities and
company-owned life insurance policies.
Net cash used in operations totaled $10.9 million for the year
ended December 31, 1997. The company's net loss was $24.0
million which included (on a before tax basis) $17.3 million of
realized gains from the sale of investments, $25.4 million for
the MCHCP loss reserve charge (net of associated amortization),
and $23.1 million of depreciation and amortization expenses. In
addition, accounts payable and accrued expenses were reduced by
$13.1 million which, along with other assets, medical claims
payable, receivables from members, and net intercompany
receivables were affected by the timing of operating cash
payments and receipts, as well as changes in membership and
utilization and claims payment trends.
In the fourth quarter of 1997, the company amended its revolving
credit facility (the Credit Facility), the material terms of
which are as follows: (1) the borrowings under the Credit
Facility will bear interest at 2.75 percent above the one month
floating London Interbank Offered Rate (LIBOR), (2) certain
financial covenant calculations were modified and the financial
covenant requirements were adjusted, (3) the maximum commitment
of the Credit Facility was reduced to $50 million as of October
1, 1997 with $1.25 million quarterly reductions through 1998 and
subsequent $2.5 million quarterly reductions through June 30,
2000, with the remaining $30 million commitment under the Credit
Facility terminating on August 10, 2000, (4) mandatory
reductions to the commitment, together with prepayments, are
required upon the happening of certain extraordinary events, (5)
stricter limits were placed on the company's ability to incur
additional debt, and (6) stricter limits were placed on capital
expenditures as well as the company's ability to make
investments and acquisitions.
The company primarily invests positive cash flow in fixed income
securities. The company's investment policies are designed to
preserve principal, maximize yield, and provide liquidity to
meet anticipated obligations. The company's investment
portfolio consists primarily of U.S. government and agency
securities, corporate bonds, and notes.
On August 29, 1997, the company reported the commencement of the
litigation with MCHCP and estimated losses (giving effect to all
possible renewal terms of the MCHCP contract without requested
rate increases) in the range of $30 million to $40 million. As
discussed under Note 13 entitled "Contingencies -- Litigation
with MCHCP" of Part II, Item 8, Financial Statements and
Supplementary Data, the trial court made certain rulings adverse
to the company on summary judgment. In the third quarter of
1997, the company took a pre-tax charge of $29.5 million, which
was based on actuarial estimates, including projected limited
rate increases, and projected enrollment and medical cost trends
accounted for through the year 2000 in accordance with generally
accepted accounting principles. The company was advised by the
Missouri Department of Insurance (DOI) in March, 1998, that the
entire amount of the reserve for the MCHCP contract recorded by
the company for projected losses under the contract through the
year 2000, must, for statutory accounting purposes, be recorded
by the company's subsidiary, HMO Missouri, Inc. (BlueCHOICE),
on its statutory filings with the DOI. With the prior
regulatory approval of the DOI, BlueCHOICE issued surplus notes
to the company in the amount of $29 million to ensure the
statutory solvency of BlueCHOICE. While management of the
company believes the current provision for losses is adequate,
if the actual public entity membership in MCHCP grows at a rate
in excess of the rate used in the actuarial estimates, or if the
projected limited rate increases and medical cost trends should
differ materially from those assumed in the actuarial estimates,
then the amount of the reserve recorded to date could be
insufficient to cover all future losses which may be associated
with the MCHCP contract, and such losses could have a material
adverse effect on the company and the market for the company's
stock. In addition, the company's Credit Agreement described
elsewhere herein provides that the company's subsidiaries,
including BlueCHOICE, may not issue surplus notes to the company
in an aggregate principal amount in excess of $40 million. As
the aggregate principal amount of surplus notes issued by such
subsidiaries to the company currently approximates $40 million,
any additional funding required by any subsidiaries of the
company, including BlueCHOICE, as a result of additional losses
or reserves associated with the MCHCP contract, or otherwise,
must, absent approval of the lenders under the Credit Agreement,
be funded from sources other than surplus notes.
Under applicable state regulations, certain of the company's
subsidiaries are required to retain cash generated from their
operations. After giving effect to such restrictions and the
surplus notes issued to the company by BlueCHOICE as described
in the preceding paragraph, the company had approximately $8.3
million in cash and investments available for general corporate
purposes without regulatory approval. The decline in this
figure from $48.5 million as of December 31, 1996 is primarily
due to the funding requirements of the company's HMO subsidiary
related to the MCHCP loss reserve as more fully explained in
Note 13 entitled "Contingencies - Litigation with MCHCP" of Part
II, Item 8.
Other than continued investment in information technology and
debt repayment, the company currently has no definitive material
commitments for future use of its current or expected levels of
available cash resources; however, management continually
evaluates opportunities to expand the company's specialty
managed care services and health plan operations. The company's
expansion options may include additional acquisitions and
internal development of new products and programs. The
company's available cash resources will remain in interest-
bearing investments until they are utilized for such purposes.
Outlook
Except for the historical information contained herein, this
Annual Report contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
These statements typically, but not exclusively, are identified
by the inclusion of phrases such as "the company anticipates,"
"the company believes," "the company expects," "the company
plans," "the company intends," and other phrases of similar
meaning. Such forward-looking statements involve known and
unknown risks, uncertainties, contingencies and other factors
that may cause the company's actual results of operations,
financial condition or business performance to be materially
different from the results of operation, financial condition or
business performance expressed or implied by such forward-
looking statements. Factors that could cause or contribute to
such differences include, but are not limited to: the Office of
Personnel Management audit of BlueCHOICE, pending litigation
including the subscriber class action litigation, litigation
with Missouri Department of Insurance and Missouri Attorney
General, administrative action initiated by the Department of
Insurance, the outcome of litigation with Missouri Consolidated
Health Care Plan, other litigation, potential loss of "Blue
Cross" and "Blue Shield" licenses by BCBSMo, the company and its
controlled affiliates, government regulation and health care
reform, market competition and consolidation, escalating health
care costs, dependence on sales to individuals, recontracting
efforts and potential nonrenewal of subscriber and provider
agreements, voting control by BCBSMo, changes in key management,
variability of operating results and stock price, Credit
Facility restrictions, the year 2000 issue, and other factors
discussed in the section entitled "Factors that May Affect
Future Results of Operations, Financial Condition or Business"
included in Part I, Item 1 of this Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, as well as those
discussed elsewhere in the company's SEC reports.
Information and operations strategy
In 1995, the company implemented a comprehensive information and
operations strategy (IOS) to assist the company in implementing
its managed care strategy of delivering the lowest cost medical
care consistent with quality outcomes. The company believes
that controlling medical costs in the future will be highly
dependent on readily accessing both member and provider medical
information at a detail level that provides real-time analytical
support. The company receives capital expenditure
authorizations from the Board of Directors to expend funds for
the project subject to periodic review by an ad hoc committee of
the board. In 1997, the company incurred capitalized
expenditures of $17.2 million on this project. Cumulatively,
since 1995, the company has incurred capitalized expenditures of
$39.0 million. The company anticipates that it will expend
approximately $10 million for capitalized costs associated with
the IOS project in 1998 and $9 million for capitalized costs in
subsequent years to complete the project. While management
believes that the IOS project will initially be dilutive to
earnings per share, it is believed that opportunities exist for
significant medical and administrative savings, which will
provide a payback and contribute to earnings per share over the
long term. The company anticipates funding these expenditures
through positive future operating cash flows.
Year 2000 issue
In January 1996, the company began converting its computer
systems to be year 2000 compliant (e.g. to recognize the
difference between 1999 and 2000 as one year instead of negative
99 years). The company's operations would be significantly
impacted by incomplete or untimely resolution of the problem as
the company utilizes automated systems to process claims,
prepare invoices, retain membership data, perform utilization
management, and many other processes. The company believes that
at December 31, 1997, approximately 25 percent of the company's
systems are compliant, with all systems expected to be compliant
by March 31, 1999. The total cost of the project is estimated
to be between $8 million and $10 million. The company is
expensing all costs associated with these system changes. The
company expensed $2.1 million and $0.6 million in 1997 and 1996,
respectively, for costs associated with this project. The
company anticipates expensing approximately $4 million in 1998
and approximately $3 million in 1999 for the remaining testing
and implementation costs. The company anticipates funding these
expenses through positive future operating cash flows.
Recent legislation
The Health Insurance Portability and Accountability Act of 1996
requires private health insurance coverage to be "portable" by
employees from job to job and eliminates coverage limitations
for pre-existing health conditions. Additionally, the State of
Missouri has recently passed legislation that mandates various
lengths of stay for maternity patients and imposes a number of
new restrictions on managed care organizations, which include,
among others, health maintenance organizations, health insurers,
and utilization review organizations. Although the impact of
the provisions of this recent legislation and any future
legislation cannot be fully predicted at this time, management
of the company believes that the ultimate outcome will not have
a material adverse effect on the company. However, there can be
no assurance that the company will be able to obtain or maintain
required governmental approvals or licenses or that any current
or proposed federal and state legislation or other regulatory
reform imposed on the company and its subsidiaries, will not
have a material adverse effect on the company's business or
results of operations in the future.
Inflation
Health care costs in the United States have increased more
rapidly than the national consumer price index in recent years,
and that trend is expected to continue. The company believes
that it has reduced the impact of such increases by expanding
its provider networks, establishing risk-sharing agreements and
enhancing its underwriting standards. However, there can be no
assurance that the company's efforts to reduce the impact of
inflation will be effective or that premium increases will equal
or exceed increasing health care costs.
Operating outlook
The following statements are based on short-term expectations.
The statements are forward-looking and actual results may differ
materially. Reference is made to the information set forth
under the captions "Safe Harbor" Statement and "Factors that May
Affect Future Results of Operations, Financial Condition or
Business" of Part I, Item 1 hereof. The company expects that
1998 will be a transitional year with targeted improvements and
the expectation of entering 1999 with a strong operating base.
The company's performance targets for 1998 include: overall
premium revenue growth per member per month in the 9 percent to
10 percent range, reflecting price increases in the high teens
to low twenties (in percentages) for some categories of members,
consistent with market trends; maintaining the medical loss
ratio in the low eighties (in percentages), with an anticipated
net medical cost increase per member per month of approximately
5 percent to 7 percent, inclusive of pharmacy benefits, medical
services, and the cost of government-mandated benefits;
continued reduction in core overhead expenses, with amortization
expense for IOS, investments in programming to accommodate the
year 2000, and other initiatives contributing to a general and
administrative expense ratio in the low twenties (in
percentages).
The company's ability to deliver these performance targets is
dependent on, among other things, achieving targeted sales to
new members and retention rates at higher prices, and realizing
projected medical and overhead cost savings.
Recently issued accounting standards
The Financial Accounting Standards Board (FASB) recently
released Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose
financial statements. The standard will require all companies
to present all non-owner changes in equity, e.g. market value
adjustments to investments and adjustments to the minimum
pension liability, in a full set of financial statements. The
new rules will be effective beginning first quarter of 1998 and
companies will only be required to report total comprehensive
income for interim periods. SFAS No. 131 establishes standards
for the way that public business enterprises report information
about operating segments in annual financial statements and
requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. The new rules will be effective for the 1998
fiscal year. Abbreviated quarterly disclosure will be required
beginning first quarter of 1999, with both 1999 and 1998
information. SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer
considered useful. The new rules will be effective for the 1998
fiscal year.
Contingencies
See description under the same caption in Note 13 of the Notes
to Consolidated Financial Statements of Part II, Item 8, of
which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable as of December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Page
Consolidated Balance Sheets, December 31, 1997 and 1996 48
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 49
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 50
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 51
Notes to Consolidated Financial Statements 52
Reports of Independent Accountants 73
Financial Statement Schedule- Condensed
Financial Information of Registrant 76
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On June 23, 1997, the company dismissed Price Waterhouse LLP
(PW) as its independent accountants. The reports of PW on the
financial statements for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting
principle. The company's Audit Committee participated in and
approved the decision to change independent accountants. In
connection with its audits for the two most recent fiscal years
and through June 23, 1997, there have been no disagreements with
PW on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of PW
would have caused them to make reference thereto in their report
on the financial statements for such years. During the two most
recent fiscal years and through June 23, 1997, there have been
no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)). The company requested that PW furnish it with a
letter addressed to the SEC stating whether or not it agrees
with the above statements. A copy of such letter, dated June
27, 1997, was filed as Exhibit 16 to the company's current
report on Form 8-K filed with the Securities and Exchange
Commission on June 30, 1997.
The company engaged Coopers & Lybrand LLP (C&L) as its new
independent accountants as of June 23, 1997. During the two
most recent fiscal years and through June 23, 1997, the company
has not consulted with C&L regarding either (i) the application
of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might
be rendered on the company's financial statements, and either a
written report was provided to the company or oral advice was
provided that C&L concluded was an important factor considered
by the company in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matter that
was either the subject of a disagreement, as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the heading "Election of
Directors" (except the information set forth under the
subcaptions thereunder, "Compensation of Directors" and
"Meetings of the Board and Committees") and the information
included under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance" in the company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held May
12, 1998, is incorporated herein by reference.
Pursuant to General Instruction G(3) to Form 10-K, information
as to executive officers of the company is set forth in Part I
of this Form 10-K under separate caption.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the headings "Executive
Compensation and Other Information" (except the information set
forth under the subcaptions thereunder, "Report of the
Compensation Committee of the Board of Directors" and "Company
Performance") and "Election of Directors - Compensation of
Directors" in the company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 12, 1998, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information included under the heading "Ownership of
RightCHOICE Capital Stock" in the company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on
May 12, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note 15, entitled "Transactions with Blue Cross and Blue Shield
of Missouri" of Part II, Item 8, Financial Statements and
Supplementary Data contains financial information relating to
the company's transactions with BCBSMo.
The information included under the heading "Certain
Transactions" in the company's definitive Proxy Statement for
the Annual Meeting of the Shareholders to be held on May 12,
1998, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
a) The following documents are filed as part of this report:
1) Financial Statements:
The financial statements required to be filed as part of this
Form 10-K Annual Report are set forth in the index in Part
II, Item 8 of this report.
2) Financial Statement Schedules:
Page
The schedule required to be filed as part of this report are
as follows:
I. Condensed Financial Information of Registrant 76
Schedules not included herein have been omitted because of the
absence of conditions under which they are required or because
the required information, where material, is shown in the
consolidated financial statements or related notes thereto.
3) Exhibits
2.1 Reorganization Agreement between the Registrant, Healthy
Alliance Life Insurance Company (HALIC) and Blue Cross and
Blue Shield of Missouri (BCBSMo) - Incorporated by
reference - previously filed as Exhibit 2.1 to the
company's Form 10-K for the period ending December 31,
1994.*
2.1.1 Supplement to the Reorganization Agreement between the
Registrant, Healthy Alliance Life Insurance Company (HALIC)
and Blue Cross and Blue Shield of Missouri (BCBSMo) -
Incorporated by reference - previously filed as Exhibit
2.1.1 to the company's Form 10-K for the period ending
December 31, 1995.*
3.1 Articles of Incorporation of the Registrant - Incorporated
by reference - previously filed as Exhibit 3.1 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
3.1.1 Amendment to Articles of Incorporation of the
Registrant - Incorporated by reference - previously filed
as Exhibit 3.1.1 to Registration Statement on Form S-1
under the Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
3.2.1 Amended and Restated Bylaws of the Registrant dated
October 27, 1997 - Incorporated by reference - previously
filed as Exhibit 3.2 to the company's Form 10-Q for the
period ending September 30, 1997.*
4.1 Specimen of Class A Common Stock Certificate of the
Registrant - Incorporated by reference - previously filed
as Exhibit 4.1 to Registration Statement on Form S-1 under
the Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
4.2 Specimen of Class B Common Stock Certificate of Registrant
- Incorporated by reference - previously filed as Exhibit
4.2 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.1 Registration Rights Agreement - Incorporated by reference -
previously filed as Exhibit 10.1 to the company's Form 10-K
for the period ending December 31, 1994.*
10.2 Reinsurance Agreement between the Registrant and BCBSMo -
Incorporated by reference - previously filed as Exhibit
10.2 to the company's Form 10-K for the period ending
December 31, 1994.*
10.3 Network Rental Agreement between the Registrant and BCBSMo
- Incorporated by reference - previously filed as Exhibit
10.3 to the company's Form 10-K for the period ending
December 31, 1994.*
10.4 Administrative Services Agreement between the Registrant
and BCBSMo - Incorporated by reference - previously filed
as Exhibit 10.4 to the company's Form 10-K for the period
ending December 31, 1994.*
10.4.1 Amended and Restated Administrative Services Agreement
between the Registrant and BCBSMo.
10.5 Tax Allocation Agreement between the Registrant and BCBSMo
- Incorporated by reference - previously filed as Exhibit
10.5 to the company's Form 10-K for the period ending
December 31, 1994.*
10.5.1 Amended and Restated Tax Allocation Agreement.
10.6 Blue Cross License Agreement between Blue Cross and Blue
Shield Association (BCBSA) and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.6 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.6.1 Temporary Blue Cross License Agreement between BCBSA
and BCBSMo - previously filed as Exhibit 10.6.1 to the
company's Form 10-K for the period ending December 31,
1996.*
10.6.2 Amendment to Temporary Blue Cross License Agreement
between BCBSA and BCBSMo dated February 7, 1997 -
Incorporated by reference - previously filed as Exhibit
10.6.2 to the company's Form 10-Q for the period ending
September 30, 1997.*
10.6.3 Letter Agreement with BCBSA regarding the issuance of
Blue Cross and Blue Shield licenses.
10.6.4 Blue Cross License Agreement between Blue Cross and
Blue Shield Association (BCBSA) and BCBSMo.
10.7 Blue Shield License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit
10.7 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.7.1 Temporary Blue Shield License Agreement between BCBSA
and BCBSMo - previously filed as Exhibit 10.7.1 to the
company's Form 10-K for the period ending December 31,
1996.*
10.7.2 Amendment to Temporary Blue Shield License Agreement
between BCBSA and BCBSMo dated February 7, 1997 -
Incorporated by reference - previously filed as Exhibit
10.7.2 to the company's Form 10-Q for the period ending
September 30, 1997.*
10.7.3 Blue Shield License Agreement between BCBSA and
BCBSMo.
10.8 Blue Cross Controlled Affiliate License Agreement among
BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.8 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.8.1 Temporary Blue Cross License Agreement among BCBSA,
HMO Missouri, Inc., and BCBSMo - previously filed as
Exhibit 10.8.1 to the company's Form 10-K for the period
ending December 31, 1996.*
10.8.2 Blue Cross Controlled Affiliate License Agreement
among BCBSA, HMO Missouri, Inc., and BCBSMo.
10.9 Blue Shield Controlled Affiliate License Agreement among
BCBSA, HMO Missouri, Inc., and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.9 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.9.1 Temporary Blue Shield License Agreement among BCBSA,
HMO Missouri, Inc., and BCBSMo - previously filed as
Exhibit 10.9.1 to the company's Form 10-K for the period
ending December 31, 1996.*
10.9.2 Blue Shield Controlled Affiliate License Agreement
among BCBSA, HMO Missouri, Inc., and BCBSMo.
10.10 Blue Cross Controlled Affiliate License Agreement
among BCBSA, BCBSMo and the Registrant - Incorporated by
reference - previously filed as Exhibit 10.10 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.10.1 Temporary Blue Cross License Agreement among BCBSA,
the registrant, and BCBSMo - previously filed as Exhibit
10.10.1 to the company's Form 10-K for the period ending
December 31, 1996.*
10.10.2 Blue Cross Controlled Affiliate License Agreement
among BCBSA, BCBSMo and the Registrant.
10.11 Blue Shield Controlled Affiliate License Agreement
among BCBSA, BCBSMo and the Registrant - Incorporated by
reference - previously filed as Exhibit 10.11 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.11.1 Temporary Blue Shield License Agreement among BCBSA,
the registrant, and BCBSMo - previously filed as Exhibit
10.11.1 to the company's Form 10-K for the period ending
December 31, 1996.*
10.11.2 Blue Shield Controlled Affiliate License Agreement
among BCBSA, BCBSMo and the Registrant.
10.12 Blue Cross Controlled Affiliate License Agreement
among BCBSA, BCBSMo and HALIC - Incorporated by reference -
previously filed as Exhibit 10.12 to Registration Statement
on Form S-1 under the Securities Act of 1933 filed by the
Registrant. Registration Statement No. 33-77798.*
10.12.1 Temporary Blue Cross License Agreement among BCBSA,
HALIC, and BCBSMo - previously filed as Exhibit 10.12.1 to
the company's Form 10-K for the period ending December 31,
1996.*
10.12.2 Blue Cross Controlled Affiliate License Agreement
among BCBSA, BCBSMo and HALIC.
10.13 Blue Shield Controlled Affiliate License Agreement
among BCBSA, BCBSMo HALIC - Incorporated by reference -
previously filed as Exhibit 10.13 to Registration Statement
on Form S-1 under the Securities Act of 1933 filed by the
Registrant. Registration Statement No. 33-77798.*
10.13.1 Temporary Blue Shield License Agreement among BCBSA,
HALIC, and BCBSMo - previously filed as Exhibit 10.13.1 to
the company's Form 10-K for the period ending December 31,
1996.*
10.13.2 Blue Shield Controlled Affiliate License Agreement
among BCBSA, BCBSMo and HALIC.
10.14 Assignment of Lease from BCBSMo to the Registrant of
Lease for BlueCHOICE Processing, dated May 4, 1990, between
Heitman Properties of Missouri, Ltd. ("Heitman"), not
personally but solely as trustee of One City Center Trust,
a Missouri common law trust, as lessor, and BCBSMo, as
lessee, and attached form of Consent and Acknowledgment of
assignment by Heitman - Incorporated by reference -
previously filed as Exhibit 10.16 to the company's Form 10-
K for the period ending December 31, 1994.*
10.15 Deed to Springfield Regional Office Facility -
Incorporated by reference - previously filed as Exhibit
10.17 to the company's Form 10-K for the period ending
December 31, 1994.*
10.16 Directors' Stock Option Plan of the Registrant -
Incorporated by reference - previously filed as Exhibit
10.18 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.17 Equity Incentive Plan of the Registrant - Incorporated
by reference - previously filed as Exhibit 10.19 to
Registration Statement on Form S-1 under the Securities Act
of 1933 filed by the Registrant. Registration Statement
No. 33-77798.*
10.17.1 Amendment to Equity Incentive Plan of the Registrant -
Incorporated by reference - previously filed as Exhibit
10.19.1 to the company's Form 10-K for the period ending
December 31, 1994.*
10.18 Form of Executive Severance Agreement (and list of
parties who have executed officer severance agreements) -
Incorporated by reference - previously filed as Exhibit
10.20 to the company's Form 10-K for the period ending
December 31, 1994.*
10.19 Form of Officer Severance Agreement (and list of
parties who have executed officer severance agreements) -
Incorporated by reference - previously filed as Exhibit
10.21 to the company's Form 10-K for the period ending
December 31, 1994.*
10.20 Form of Indemnification Agreement between the
Registrant and its Directors and Officers (and list of
parties who have executed indemnification agreements) -
Incorporated by reference - previously filed as Exhibit
10.22 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.21 Agreement of Indemnification between BCBSMo and the
Registrant and its subsidiaries - Incorporated by reference
- previously filed as Exhibit 10.23 to the company's Form
10-K for the period ending December 31, 1994.*
10.22 Registrant Supplemental Executive Retirement Plan -
Incorporated by reference - previously filed as Exhibit
10.24 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.23 Registrant Executive Deferred Compensation Plan -
Incorporated by reference - previously filed as Exhibit
10.24 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*
10.24 Amended Nonemployee Director Deferred Compensation
Plan of the Registrant - Incorporated by reference -
previously filed as Exhibit 10.26 to the company's Form 10-
K for the period ending December 31, 1994.*
10.25 Indemnification Agreement between RightCHOICE Managed
Care, Inc. and The EPOCH Group, L.C. - Incorporated by
reference - previously filed as Exhibit 10.31 to the
company's Form 10-K for the period ending December 31,
1995.*
10.26 Indemnification Agreement among Blue Cross and Blue
Shield of Kansas City, TriLink Healthcare, Inc., and the
EPOCH Group, L.C. - Incorporated by reference - previously
filed as Exhibit 10.32 to the company's Form 10-K for the
period ending December 31, 1995.*
10.27 Noncompete Agreement among Blue Cross and Blue Shield
of Missouri, Blue Cross and Blue Shield of Kansas City,
TriLink Healthcare, Inc., RightCHOICE Managed Care, Inc.,
and The EPOCH Group, L.C. - Incorporated by reference -
previously filed as Exhibit 10.33 to the company's Form 10-
K for the period ending December 31, 1995.*
10.28 Network Access Agreement among Blue Cross and Blue
Shield of Kansas City, TriLink Healthcare, Inc., and The
EPOCH Group, L.C. - Incorporated by reference - previously
filed as Exhibit 10.34 to the company's Form 10-K for the
period ending December 31, 1995.*
10.29 Network Access Agreement among RightCHOICE Managed
Care, Inc., Blue Cross and Blue Shield of Missouri,
HealthLink, Inc., and The EPOCH Group, L.C. - Incorporated
by reference - previously filed as Exhibit 10.35 to the
company's Form 10-K for the period ending December 31,
1995.*
10.30 Credit Agreement dated as of August 10, 1995 among
RightCHOICE Managed Care, Inc., as the Borrower, Bank of
America National Trust and Savings Association, as
Administrative Agent. The Boatmen's National Bank of St.
Louis, as Co-Agent and the other Financial Institutions
Party Hereto arranged by BA Securities, Inc. - Incorporated
by reference - previously filed as Exhibit 10.1 to the
company's Form 10-Q for the period ending June 30, 1995.*
10.30.1 First Amendment to the Credit Agreement. -
Incorporated by reference - previously filed as Exhibit
10.36.1 to the company's Form 10-K for the period ending
December 31, 1995.*
10.30.2 Consent and Second Amendment to the Credit Agreement -
Incorporated by reference - previously filed as Exhibit
10.36.2 to the company's Form 10-K for the period ending
December 31, 1995.*
10.30.3 Third amendment to the Credit Agreement - Incorporated
by reference - previously filed as Exhibit 10.2 to the
company's Form 10-Q for the period ending June 30, 1996.*
10.30.4 Fourth amendment to the Credit Agreement -
Incorporated by reference - previously filed as Exhibit
10.36.4 to the company's Form 10-K for the period ending
December 31, 1996.*
10.30.5 Fifth amendment to the Credit Agreement - Incorporated
by reference - previously filed as Exhibit 10.36.5 to the
company's Form 10-K for the period ending December 31,
1996.*
10.30.6 Sixth amendment to the Credit Agreement - Incorporated
by reference - previously filed as Exhibit 10.36.6 to the
company's Form 10-Q for the period ending September 30,
1997.*
10.31 Lease between Forty-Four Forty-Four Forest Park
Redevelopment Corporation (Landlord) and RightCHOICE
Managed Care, Inc. (Tenant) dated January 1, 1995 -
Incorporated by reference - previously filed as Exhibit
10.2 to the company's Form 10-Q for the period ending June
30, 1995.*
10.32 Sublease between RightCHOICE Managed Care, Inc. and
Blue Cross and Blue Shield of Missouri dated January 1,
1995 - Incorporated by reference - previously filed as
Exhibit 10.3 to the company's Form 10-Q for the period
ending June 30, 1995.*
10.33 Building Services Agreement between Forty-Four Forty-
Four Forest Park Redevelopment Corporation and RightCHOICE
Managed Care, Inc. dated January 1, 1995 - Incorporated by
reference - previously filed as Exhibit 10.4 to the
company's Form 10-Q for the period ending June 30, 1995.*
10.34 Master Reinsurance Agreement among RightCHOICE Managed
Care, Inc., Healthy Alliance Life Insurance Company (HALIC
Insurance Company), Blue Cross and Blue Shield of Kansas
City, and Missouri Valley Life and Health Insurance Company
- Incorporated by reference - previously filed as Exhibit
10.40 to the company's Form 10-K for the period ending
December 31, 1995.*
10.35 BCBSKC Reinsurance Agreement by and between Healthy
Alliance Life Insurance Company (HALIC Insurance Company)
and Blue Cross and Blue Shield of Kansas City -
Incorporated by reference - previously filed as Exhibit
10.41 to the company's Form 10-K for the period ending
December 31, 1995.*
10.36 BCBSKC Small Group Reinsurance Agreement by and
between Healthy Alliance Life Insurance Company (HALIC
Insurance Company) and Blue Cross and Blue Shield of Kansas
City - Incorporated by reference - previously filed as
Exhibit 10.42 to the company's Form 10-K for the period
ending December 31, 1995.*
10.37 HALIC Reinsurance Agreement by and between Missouri
Valley Life and Health Insurance Company and Healthy
Alliance Life Insurance Company (HALIC Insurance Company) -
Incorporated by reference - previously filed as Exhibit
10.43 to the company's Form 10-K for the period ending
December 31, 1995.*
10.38 HALIC Small Group Reinsurance Agreement by and between
Missouri Valley Life and Health Insurance Company and
Healthy Alliance Life Insurance Company (HALIC Insurance
Company) - Incorporated by reference - previously filed as
Exhibit 10.44 to the company's Form 10-K for the period
ending December 31, 1995.*
10.39 HALIC Farm Bureau Reinsurance Agreement by and between
Missouri Valley Life and Health Insurance Company and
Healthy Alliance Life Insurance Company (HALIC Insurance
Company) - Incorporated by reference - previously filed as
Exhibit 10.45 to the company's Form 10-K for the period
ending December 31, 1995.*
10.40 Stock Purchase Agreement By and Between HealthLink,
Inc. and TriLink Healthcare, Inc. dated as of March 27,
1996 - Incorporated by reference - previously filed as
Exhibit 10.1 to the company's Form 10-Q for the period
ending March 31, 1996.*
10.41 Stock Purchase Agreement By and Between Blue Cross and
Blue Shield of Missouri and RightCHOICE Managed Care, Inc.
dated as of February 8, 1996 - Incorporated by reference -
previously filed as Exhibit 10.2 to the company's Form 10-Q
for the period ending March 31, 1996.*
10.42 Stock Purchase Agreement By and Between RightCHOICE
Managed Care, Inc. and LaSalle Bank, F.S.B. dated as of
June 7, 1996 - Incorporated by reference - previously filed
as Exhibit 10.1 to the company's Form 10-Q for the period
ending June 30, 1996.*
10.43 Stock Purchase Agreement By and Between Blue Cross and
Blue Shield of Missouri and RightCHOICE Managed Care, Inc.
dated as of July 19, 1996 - Incorporated by reference -
previously filed as Exhibit 10.3 to the company's Form 10-Q
for the period ending June 30, 1996.*
10.44 Amended Intercompany Services Agreement By and Between
RightCHOICE Managed Care, Inc. and the following
subsidiaries: Healthy Alliance Life Insurance Company,
Diversified Life Insurance Agency of Missouri, Inc.,
Pension Associates, Incorporated, and HMO Missouri, Inc. -
Incorporated by reference - previously filed as Exhibit
10.1 to the company's Form 10-Q for the period ending
September 30, 1996.*
10.45 Executive Employment Agreement of John A. O'Rourke
dated February 27, 1997 - Incorporated by reference -
previously filed as Exhibit 10.51 to the company's Form 10-
Q for the period ending September 30, 1997.*,**
10.46 Executive Severance Agreement between the Registrant
and Edward J. Tenholder.**
10.47 Executive Severance Agreement between the Registrant
and Sandra Van Trease.**
10.48 Executive Severance Agreement between the Registrant
and Herbert B. Schneiderman.**
10.49 Officer Severance Agreement between the Registrant and
Edward J. Tenholder.**
10.50 Officer Severance Agreement between the Registrant and
Sandra Van Trease.**
10.51 Officer Severance Agreement between the Registrant and
Herbert B. Schneiderman.**
10.52 Form of Executive Severance Agreement between the
Registrant and certain senior vice presidents of the
company (and list of parties who have executed executive
severance agreements).**
10.53 Form of Officer Severance Agreement between the
Registrant and certain senior vice presidents of the
company (and list of parties who have executed officer
severance agreements).**
10.54 Form of Officer Severance Agreement between the
Registrant and certain vice presidents of the company (and
list of parties who have executed officer severance
agreements).**
10.55 Employment Agreement between the Registrant and
Richard Smith.**
10.56 1997 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and certain senior vice
presidents.**
10.57 1997 Alliance Blue Cross Blue Shield / Blue Cross Blue
Shield of Missouri Incentive Plan between the Registrant
and its President/CEO.**
10.58 1997 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and its Chief Internal Auditor.**
10.59 1998 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and certain senior vice
presidents.**
10.60 1998 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and a senior vice president.**
10.61 1998 Alliance Blue Cross Blue Shield / Blue Cross Blue
Shield of Missouri Incentive Plan between the Registrant
and its President/CEO.**
10.62 1998 Alliance Blue Cross Blue Shield Incentive Plan
between the Registrant and certain executive vice
presidents.**
10.63 1998 Blue Cross Blue Shield of Missouri Management
Incentive Plan between BCBSMo and an executive vice
president of BCBSMo.**
10.64 Guarantor Agreement between HMO Missouri, Inc. and
Blue Cross and Blue Shield of Missouri.
10.65 Line of Credit Agreement between HMO Missouri, Inc.
and Blue Cross and Blue Shield of Missouri.
10.66 Subordination Agreement between HMO Missouri, Inc. and
Blue Cross and Blue Shield of Missouri.
10.67 Agreement of Indemnification between Registrant and
Blue Cross and Blue Shield of Missouri.
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP with regard to the
Registrant's Registration Statements on Form S-8 -
Registration Statement No. 33-90608, Registration Statement
No. 333-33293, and Registration Statement No. 333-33317.
23.2 Consent of Coopers and Lybrand LLP with regard to the
Registrant's Registration Statements on Form S-8 -
Registration Statement No. 33-90608, Registration Statement
No. 333-33293, and Registration Statement No. 333-33317.
27 Financial Data Schedule (Electronic Filing Only).
*Document has previously been filed with the Securities and
Exchange Commission and is incorporated by reference and made a
part hereof.
**Documents identified herein constitute all management
contracts and compensatory plans and arrangements required to be
filed as an exhibit pursuant to Item 14(c) of this Form.
b) Reports on Form 8-K:
None filed during the three months ended December 31, 1997.
c) See Exhibits listed in Item 14 hereof and the Exhibits
attached as a separate section of this Form 10-K Annual
Report.
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.
Dated March 20, 1998 RightCHOICE Managed Care, Inc.
By: /s/ John A. O'Rourke
John A. O'Rourke
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange 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/ John A. O'Rourke Chairman of the Board, March 20, 1998
John A. O'Rourke President and Chief Executive
Officer
/s/ Sandra A. Van Trease Executive Vice President,
Sandra A. Van Trease Chief Operating Officer, March 20, 1998
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/s/ William H. T. Bush Director March 20, 1998
William H. T. Bush
/s/ Ronald G. Evens, M.D. Director March 20, 1998
Ronald G. Evens, M.D.
/s/ Edward C. Gomes, Jr. Director March 20, 1998
Edward C. Gomes, Jr.
Director March 20, 1998
Earle H. Harbison, Jr.
Director March 20, 1998
Roger B. Porter, Ph.D.
/s/ Norman J. Tice Director March 20, 1998
Norman J. Tice
/s/ Gloria W. White Director March 20, 1998
Gloria W. White
RightCHOICE Managed Care, Inc.
Consolidated Balance Sheets
(in thousands, except shares and per share data)
December 31,
ASSETS 1997 1996
Current assets:
Cash and cash equivalents $ 29,872 $ 33,418
Investments available for sale, at market value 220,972 262,216
Receivables from members 60,019 54,767
Receivables from related parties 16,130 17,073
Deferred income taxes 4,994 591
Other assets 14,410 13,193
Total current assets 346,397 381,258
Property and equipment, net 60,602 51,248
Deferred income taxes 12,737 6,247
Investments in affiliates 8,427 9,370
Goodwill and intangible assets, net 78,200 84,021
Total assets $506,363 $532,144
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical claims payable $112,339 $111,833
Unearned premiums 57,656 52,699
Accounts payable and accrued expenses 55,892 68,844
Current portion of long-term debt 2,000
Payables to related parties 20,213 17,149
Reserve for loss contract 9,052
Obligations for employee benefits 2,935 3,864
Income taxes payable 12,051 12,801
Obligations under capital leases 4,515 5,224
Total current liabilities 276,653 272,414
Reserve for loss contract 16,311
Long-term debt 45,000 62,000
Obligations for employee benefits 22,140 21,244
Obligations under capital leases 5,394 3,532
Total liabilities
365,498 359,190
Shareholders' equity:
Preferred Stock, $.01 par, 25,000,000 shares authorized,
no shares issued and outstanding
Common Stock:
Class A, $.01 par, 125,000,000 shares authorized,
3,737,500 shares issued, 3,709,000 and 3,714,400
shares outstanding, respectively 37 37
Class B, convertible, $.01 par, 100,000,000 shares
authorized, 14,962,500 shares issued and outstanding 150 150
Additional paid-in capital 132,640 132,640
Retained earnings 6,653 30,687
Treasury stock, 28,500 and 23,100 Class A shares,
respectively, at cost (404) (326)
Unrealized net appreciation of investments
available for sale 1,789 9,766
Total shareholders' equity 140,865 172,954
Total liabilities and shareholders' equity $506,363 $532,144
See accompanying Notes to Consolidated Financial Statements.
RightCHOICE Managed Care, Inc.
Consolidated Statements of Income
(in thousands, except shares and per share data)
For the year ended December 31,
1997 1996 1995
Revenues:
Premium $654,267 $595,049 $538,422
Fees and other income 65,144 58,326 53,458
Total revenues 719,411 653,375 591,880
Operating expenses:
Health care services 555,126 491,662 409,495
Commissions 29,302 26,808 19,405
General and administrative (excludes depreciation
and amortization and excludes net intercompany
charges of $8,356, $11,731 and $15,230
respectively, allocated to
Blue Cross and Blue Shield of Missouri) 140,064 128,990 129,189
Depreciation and amortization 23,108 14,960 11,284
Charge for loss reserves 29,510
Other non-recurring charges 3,301 4,534 3,474
Total operating expenses 780,411 666,954 572,847
Operating (loss) income (61,000) (13,579) 19,033
Investment income:
Interest and dividends 15,916 14,241 14,832
Realized gains, net 17,268 3,291 3,512
Total investment income, net 33,184 17,532 18,344
Other:
Interest expense (4,681) (5,434) (2,930)
Other (expense) income, net (1,058) 114 (397)
Total other, net (5,739) (5,320) (3,327)
(Loss) income before (benefit) provision
for income taxes (33,555) (1,367) 34,050
(Benefit) provision for income taxes (9,521) 660 10,480
Net (loss) income $(24,034) $(2,027) $23,570
Weighted average common shares outstanding 18,672,600 18,678,700 18,687,800
Basic and diluted (loss) earnings per share $(1.29) $(0.11) $1.26
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
RightCHOICE Managed Care, Inc.
Consolidated Statements of
Changes in Shareholders' Equity
(in thousands, except shares)
<CAPTION>
Unrealized
Net
Additional Appreciation
Common Stock Paid In Retained Treasury (Depreciation)
Class Class Capital Earnings Stock In Investments Total
A B
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $37 $150 $132,757 $9,144 $(138) $(6,525) $135,425
Net income for the year
ended December 31, 1995 23,570 23,570
Additional expenses related to
initial public stock offering (117) (117)
Purchase of 8,800 shares of
Class A Common Stock, at cost (128) (128)
Unrealized net appreciation
of investments available
for sale 14,471 14,471
Balance at
December 31, 1995 37 150 132,640 32,714 (266) 7,946 173,221
Net loss for the year
ended December 31, 1996 (2,027) (2,027)
Purchase of 4,300 shares of
Class A Common Stock, at cost (60) (60)
Unrealized net
appreciation of investments
available for sale 1,820 1,820
Balance at
December 31, 1996 37 150 132,640 30,687 (326) 9,766 172,954
Net loss for the year
ended December 31, 1997 (24,034) (24,034)
Purchase of 5,400 shares of
Class A Common Stock
at cost (78) (78)
Unrealized net depreciation
of investments
available for sale (7,977) (7,977)
Balance at
December 31, 1997 $37 $150 $132,640 $6,653 $(404) $1,789 $140,865
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
RightCHOICE Managed Care, Inc.
Consolidated Statements of Cash Flows
(in thousands)
For the year ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net (loss) income $(24,034) $(2,027) $23,570
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating
activities:
(Credit) provision for deferred income
tax benefits (6,507) 4,218 (1,355)
Depreciation and amortization 23,108 14,960 11,284
(Gain) loss on sale of property and
equipment (44) 51 (66)
Undistributed losses (earnings) of
affiliates 916 (42) 317
Gain on sale of investments (17,268) (3,291) (3,512)
Accretion of discounts and amortization
of premiums, net 6 426 (32)
(Increase) decrease in certain assets, net of
effects from investment in affiliates:
Receivables from members (5,182) 2,722 (4,500)
Receivables from related parties 943 7,007 26,763
Other assets (2,859) (9,148) (1,770)
Increase (decrease) in certain liabilities,
net of effects from investment in affiliates:
Medical claims payable 506 25,986 (6,427)
Unearned premiums 4,957 1,267 1,956
Accounts payable and accrued expenses (13,065) 2,547 24,098
Payables to related parties 3,064 (5,025) (28,987)
Reserve for loss contract 25,363
Obligations for employee benefits (33) (229) (2,560)
Income taxes payable (755) (10,301) (5,251)
Net cash (used in) provided by operating
activities (10,884) 29,121 33,528
Cash flows from investing activities:
Proceeds from matured investments:
Fixed maturities 3,975 9,187 8,900
Proceeds from investments sold:
Fixed maturities 311,599 246,728 303,412
Equity securities 40,734 20,535 33,415
Other 32,469
Investments purchased:
Fixed maturities (340,366) (240,648) (318,755)
Equity securities (230) (22,542) (20,454)
Other (2,039) (2,275) (3,635)
Payment for purchase of HealthLink, net of
cash acquired (88,918)
Investment in other affiliates, net of cash
acquired 24 (5,312) (3,294)
Sale and redemption of affiliates 500 3,427
Proceeds from property and equipment sold 561 31 470
Property and equipment purchased (18,544) (18,113) (10,208)
Net cash provided by (used in) investing
activities 28,183 (11,909) (95,640)
Cash flows from financing activities:
Additional expenses related to public
stock offering (117)
Purchase of Class A Treasury stock (78) (60) (128)
Borrowings under revolving credit facility 62,000
Decrease in borrowings under reverse
repurchase agreements (4,302)
Payments of long-term debt (15,000) (1,111)
Payments of capital lease obligations (5,767) (4,866) (4,183)
Net cash (used in) provided by financing
activities (20,845) (4,926) 52,159
Net (decrease) increase in cash and
cash equivalents (3,546) 12,286 (9,953)
Cash and cash equivalents at beginning
of year 33,418 21,132 31,085
Cash and cash equivalents at end of year $29,872 $33,418 $21,132
Supplemental disclosure of cash information:
Interest paid $5,036 $5,420 $2,439
Income taxes paid (refund received), net (2,262) 6,742 17,043
Supplemental schedule of noncash investing
and financing activities:
Equipment acquired through capital leases $9,730 $2,738 $3,579
Disposal of equipment under capital leases 2,810 1,789
Details of business acquired in purchase
transactions:
Fair value of assets acquired,
including goodwill $98,462
Less liabilities assumed or created 8,911
Cash paid for acquisition (including
transaction costs) 89,551
Cash acquired in acquisition 633
Net cash paid for acquisition $88,918
See accompanying Notes to Consolidated Financial Statements.
RightCHOICE Managed Care, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
1. Organization
RightCHOICE Managed Care, Inc. (RightCHOICE) is a
majority owned subsidiary of Blue Cross and Blue Shield
of Missouri (BCBSMo) incorporated in the State of
Missouri. In connection with the RightCHOICE August 1,
1994, initial public offering of Class A Common Stock,
BCBSMo transferred its managed health care business to
RightCHOICE (the company). The holders of Class A
Common Stock have one vote per share and the holders of
Class B Common Stock have 10 votes per share. BCBSMo is
the sole holder of Class B Common Stock. Each share of
Class B Common Stock is convertible into one share of
Class A Common Stock at the option of the holder at any
time. At December 31, 1997, BCBSMo and all holders of
Class A Common Stock have control over approximately
97.6 percent and 2.4 percent, respectively, of the
combined voting power of both classes of common stock.
There are no liquidation preferences between the two
classes of common stock. The company has not issued
shares of its authorized Preferred Stock. In addition,
the company provides certain guarantees relating to the
financial stability of certain affiliates.
The company offers a comprehensive array of managed
health care products and services, including preferred
provider organizations (PPO), point-of-service networks
(POS), health maintenance organizations (HMO), Medicare
supplement, specialty managed care networks, selected
comprehensive indemnity health coverage, third-party
administrator (TPA) services, and administrative
services only (ASO) for self-funded organizations.
2. Summary of significant accounting policies
The following is a summary of significant accounting
policies used in the preparation of the accompanying
Consolidated Financial Statements. Such policies are in
accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from
those estimates.
Principles of consolidation
The Consolidated Financial Statements include the
accounts of the company and its subsidiaries including
Healthy Alliance Life Insurance Company (HALIC),
HealthLink, Inc. (HealthLink), giving effect to its
acquisition by the company on August 10, 1995, HMO
Missouri, Inc. (BlueCHOICE), and RightCHOICE Insurance
Company (RIC), after elimination of all significant
intercompany transactions. Investments in other
companies in which less than a majority interest is held
are accounted for under the equity or cost method.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments
with an original maturity of three months or less when
purchased.
Investments available for sale
Unaffiliated investments with readily determinable fair
values have been classified as available for sale.
Unrealized gains and losses are computed on the basis of
specific identification and are included in the
shareholders' equity section of the balance sheet, net
of applicable deferred income taxes. Realized gains and
losses on the disposition of investments are included in
investment income. The specific identification method
is used in computing the cost of debt and equity
securities sold.
Property and equipment
Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation
and amortization are provided on the straight-line basis
over the estimated useful life of the respective assets,
ranging from 30 years for buildings, 3 to 10 years for
furniture and equipment, 3 to 5 years for capitalized
software development costs, and 5 to 10 years for
leasehold improvements.
Improvements are capitalized while expenditures for
maintenance and repairs are charged to expense as
incurred. Realized gains and losses are recognized upon
disposal or retirement of the related assets and are
reflected in earnings. The company also capitalizes
purchased and internally developed software costs to the
extent they are expected to benefit future operations.
Software amortization of such costs commences when
specific components are operational. Unamortized
software development cost as of December 31, 1997 and
1996 was $33,029 and $21,149, respectively. Software
amortization expense for the years ended December 31,
1997, 1996, and 1995, was $5,521, $671, and $495,
respectively.
Goodwill and intangible assets
Goodwill and intangible assets represent the excess of
cost over the fair market value of net assets acquired
in purchase transactions. Gross goodwill and intangible
assets (excluding related accumulated amortization) was
$86,744 and $91,022 as of December 31, 1997 and 1996,
respectively, and is amortized on a straight-line basis
over periods not exceeding 40 years. Accumulated
amortization on goodwill and intangible assets as of
December 31, 1997 and 1996 was $8,544 and $7,001,
respectively. Amortization expense of the goodwill and
other intangibles aggregated $7,487, $5,045, and $2,508
in 1997, 1996, and 1995, respectively.
The company reviews the carrying value of goodwill,
intangibles and other long-lived assets for impairment
when events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable.
This review is performed by comparing estimated
undiscounted future cash flows from use of the asset to
the recorded value of the asset.
Medical claims payable
In addition to the liability for processed but unpaid
claims at period-end, the company provides for the
estimated amount of liability arising from medical care
provided to members, net of coordination of benefit
refunds, for claims still in process, as well as
undischarged and unreported claims. This estimate is
based on current membership statistics, claim run-off
patterns and certain actuarial formulas. The liability
includes estimated processing expenses relating to such
claims. Such estimates are subject to revision;
however, management believes these estimates reasonably
approximate actual costs.
Reinsurance
In the normal course of business, the company cedes
insurance to other unrelated insurance carriers on an
excess loss or quota share basis. The company engages
in such reinsurance activity to limit losses from large
exposures and to permit recovery of a portion of direct
losses. The company also reached a network access and
financial reinsurance agreement with Blue Cross and Blue
Shield of Kansas City (BCBSKC) designed to make the two
companies more competitive in the Missouri market. As a
result of the agreements, members of either plan who are
enrolled through statewide employers or associations are
able to use the provider network of the Blue Cross and
Blue Shield company where they live. The impact of
these reinsurance activities is not significant to the
Consolidated Financial Statements.
Income taxes
The company utilizes the asset and liability method of
accounting for income taxes. The asset and liability
approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
The company, along with its subsidiaries, files a
consolidated federal income tax return with BCBSMo. The
company's provision for income taxes has been calculated
on a separate return basis assuming regular statutory
tax rates. In accordance with the tax-sharing agreement
of the consolidated group, income tax expense is
allocated to the company and its subsidiaries based upon
the consolidated income generated by the company and its
subsidiaries.
Dividend restrictions
Missouri and Illinois insurance laws and regulations
provide certain restrictions on the payment of dividends
by insurance companies in a holding company structure.
The Missouri and Illinois Directors of Insurance may
bring an action to enjoin or rescind the payment of any
dividend or distribution that would cause the insurance
company's statutory surplus to be unreasonable or
inadequate. At December 31, 1997, the company's
insurance subsidiaries (excludes HealthLink) did not
have a significant amount of dividends available for
payment without the prior approval of the Missouri or
Illinois Directors of Insurance.
Earnings per share
During March 1997, the Financial Accounting Standards
Board (FASB) released Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128),
which changed the computation and disclosure of earnings
per share. SFAS No. 128 is effective for both interim
and annual periods ending after December 15, 1997 and
earlier application is not permitted.
Basic earnings per share are computed by dividing net
income by the weighted average number of common and
common equivalent shares outstanding during the year.
Diluted earnings per share are calculated by dividing
net income by the number of weighted average shares
outstanding plus additional shares representing stock
distributable under stock-based compensation plans using
the treasury stock method. Because 1997 and 1996
results reflect a net loss, basic and diluted earnings
per share are calculated based on the same weighted
average number of shares outstanding. For 1995, 38,471
dilutive potential common shares were added to the
weighted average number of shares outstanding in order
to compute diluted earnings per share. The antidilutive
potential common shares that could dilute earnings per
share in the future were 469,766, 573,428, and 56,932 as
of December 31, 1997, 1996, and 1995, respectively.
Concentration of credit risk
The company primarily conducts business in the State of
Missouri, and a significant portion of its customer base
is concentrated with companies that are located in the
metropolitan St. Louis area. No single customer
generates in excess of 10 percent of the company's total
revenue.
The company invests its excess cash in interest-bearing
deposits with major banks, commercial paper and money
market funds. Although a majority of the cash accounts
exceed the federally insured deposit amount, management
does not anticipate non-performance by the other
parties. Management reviews the stability of these
institutions on a periodic basis.
Investments principally include U.S. Treasury and agency
bonds and fixed maturity bonds in a variety of companies
A rated or better by nationally recognized rating
services. Investments in life insurance contracts
consist primarily of flexible premium variable life
products, invested in managed bond and equity funds,
purchased from an insurance company which has an A.M.
Best rating of A+. Such credit ratings are routinely
reviewed by management.
Fair value of financial instruments
The carrying amount for cash and cash equivalents,
receivables, and accounts payable approximates fair
value because of the short maturity of those
instruments. The fair value of investments available
for sale at December 31, 1997 and 1996, determined based
upon quoted market prices, is disclosed in Note 4.
Revenue recognition and unearned premiums
For most members, premiums are billed in advance of
coverage periods and are recorded as revenue over the
period to which health care coverage relates. Amounts
billed but unearned are recorded as unearned premiums.
The company's TPA and ASO self-funded programs do not
involve the assumption of insurance or significant
credit risks; therefore, revenue from these programs is
reflected in fees and other income. During the years
ended December 31, 1997, 1996, and 1995, the company
received reimbursements for claims paid of $106,227,
$132,449, and $157,597, respectively, from TPA and ASO
self-funded groups.
Non-recurring charges
The company incurred charges to earnings of $3.3 million
and $4.5 million in 1997 and 1996 for costs associated
with moving the company's claims, customer service,
billing, and provider services functions from St. Louis
to Springfield, Missouri, and Cape Girardeau, Missouri.
Non-recurring charges in 1995 include $2.0 million of
one-time integration charges related to the company's
acquisition of HealthLink in August 1995 and $1.5
million relating to the settlement of a class action
lawsuit. The lawsuit stemmed from the company's claims
paying practices and negotiated discounts with
providers; the company agreed to settle the lawsuit by
establishing a rebate program for all affected
subscribers. See Note 13 entitled "Contingencies -
Litigation with DOI and Attorney General, Litigation
relating to the Market Conduct Study and Copayment
Calculations" for recent information relating to this
issue.
Reclassifications
Certain reclassifications have been made to the
Consolidated Financial Statements for 1995 and 1996 to
conform with the 1997 presentation.
Recently issued accounting standards
The Financial Accounting Standards Board (FASB) recently
released Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," SFAS
No. 131, "Disclosures about Segments of an Enterprise
and Related Information," and SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its
components in a full set of general-purpose financial
statements. The standard will require all companies to
present all non-owner changes in equity, e.g. market
value adjustments to investments and adjustments to the
minimum pension liability, in a full set of financial
statements. The new rules will be effective beginning
first quarter of 1998 and companies will only be
required to report total comprehensive income for
interim periods. SFAS No. 131 establishes standards for
the way public business enterprises report information
about operating segments in annual financial statements
and requires that those enterprises report selected
information about operating segments in interim
financial reports issued to shareholders. It also
establishes standards for related disclosures about
products and services, geographic areas, and major
customers. The new rules will be effective for the 1998
fiscal year. Abbreviated quarterly disclosure will be
required beginning first quarter of 1999, with both 1999
and 1998 information. SFAS No. 132 revises employers'
disclosures about pension and other postretirement
benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the
disclosure requirements for pensions and other
postretirement benefits to the extent practicable,
requires additional information on changes in the
benefit obligations and fair values of plan assets that
will facilitate financial analysis, and eliminates
certain disclosures that are no longer considered
useful. The new rules will be effective for the 1998
fiscal year.
3. HealthLink acquisition
The company completed its acquisition of HealthLink, a
privately held regional managed health care
organization, on August 10, 1995. The acquisition
included cash payments of approximately $92 million and
was financed, in part, by the $62.0 million of funds
from RightCHOICE's five-year reducing revolving credit
facility. Transaction costs related to the transaction
were $2.5 million. The acquisition was accounted for
under the purchase method of accounting, and,
accordingly, the net assets and results of operations of
HealthLink have been included in the Consolidated
Financial Statements as of the date of acquisition. An
excess purchase price of approximately $74 million has
been determined based on the fair values of assets and
liabilities assumed. In addition, the company recorded
intangible assets of $5.9 million relating to post-
acquisition agreements with the former HealthLink
shareholders. These agreements are being amortized over
periods of between two and six years. Amortization
expense of the goodwill and other intangible assets
related to HealthLink aggregated $3.1 million, $3.3
million, and $1.4 million in 1997, 1996, and 1995,
respectively.
4. Investments available for sale
Investments available for sale are summarized below:
Gross Gross Estimated
Amortized unrealized unrealized market
Cost gains losses value
December 31, 1997
Fixed maturities:
U.S. government and agency
securities $89,582 $1,227 $(29) $90,780
Corporate bonds and notes 105,128 1,724 (155) 106,697
Short-term investments 12,856 12,856
207,566 2,951 (184) 210,333
Other invested assets 10,639 10,639
$218,205 $2,951 $(184) $220,972
December 31, 1996
Fixed maturities:
U.S. government and agency
securities $118,960 $1,145 $(1,156) $118,949
Corporate bonds and notes 59,515 323 (337) 59,501
Short-term investments 2,944 2,944
Investment in variable life
insurance contracts 26,650 5,998 32,648
208,069 7,466 (1,493) 214,042
Equity securities:
Common stocks 30,282 9,901 (744) 39,439
Other invested assets 8,735 8,735
$247,086 $17,367 $(2,237) $262,216
Interest and dividend income comprises the following:
Year ended December 31,
1997 1996 1995
Interest on bonds $12,822 $11,847 $11,540
Dividends on stocks 102 1,295 785
Accretion of discounts and
amortization of premiums, net (6) (426) 32
Interest on cash equivalents and other
investment income 3,697 2,353 3,389
Gross investment income 16,615 15,069 15,746
Investment expenses (699) (828) (914)
$15,916 $14,241 $14,832
Realized gains on investments are as follows:
Year ended December 31,
1997 1996 1995
Net realized gains:
Fixed maturities $ 6,930 $ 516 $ 786
Equity securities 10,338 2,380 2,726
$17,268 $2,896 $ 3,512
Proceeds from sales of available for sale securities were
$384,802, $267,263, and $336,827 during 1997, 1996, and 1995,
respectively. Gross realized gains were $19,203, $3,819, and
$6,776 during 1997, 1996, and 1995, respectively. Gross realized
losses were $1,935, $923, and $3,264 during 1997, 1996, and 1995,
respectively. Contractual maturities of fixed maturity
investments, excluding variable life insurance contracts, held on
December 31, 1997, are as presented below. Actual maturities may
differ from contractual maturities because borrowers may have the
right to call or prepay obligations.
Estimated
Amortized market
cost value
Due in one year or less $41,936 $ 41,952
Due after one year through five years 72,908 73,469
Due after five years through 10 years 45,592 46,362
Due after 10 years 47,130 48,550
$207,566 $210,333
5. Receivables from members
Receivables from members consist of the following:
December 31,
1997 1996
Individual subscribers $9,394 $11,335
Underwritten groups 35,369 33,720
Self-funded/ASO groups 15,256 9,712
$60,019 $54,767
Based on historical collection experience, the company considers
its receivables from members to be fully collectible; accordingly,
no allowance for doubtful accounts is recorded. If receivables
become uncollectible, they are charged against income using the
direct write-off method when that determination is made.
6. Property and equipment, net
Property and equipment consist of the following:
December 31,
1997 1996
Land and building $5,595 $5,575
Furniture and equipment, including
capitalized leases 58,186 50,652
Capitalized software development costs 38,995 21,817
Leasehold improvements 3,607 3,628
106,383 81,672
Less accumulated depreciation
and amortization (45,781) (30,424)
$60,602 $51,248
Depreciation and amortization expense was $15,621, $9,915, and
$9,482, for the years ended December 31, 1997, 1996, and 1995,
respectively.
7. Investments in affiliates
The company has non-controlling investments in certain companies
that are not consolidated with the company's operations and are
carried at cost or accounted for using the equity method. The
largest of such investments is the company's 50 percent ownership
interest in The EPOCH Group, L.C. (Epoch). Epoch, a limited
liability company, was formed in December 1995 by the company and
BCBSKC to combine their third-party administrator (TPA)
businesses. The company invested cash and other net assets of
$5.3 million in this joint venture. The combined annual revenues
of Epoch were $21.1 million in 1997 and $23.9 million in 1996.
Operating (loss) income was $(1.3) million and $1.2 million in
1997 and 1996, respectively. Epoch is accounted for using the
equity method and resulted in undistributed (losses) earnings to
the company of $(664) in 1997 and $563 in 1996. Epoch serves
approximately 260 businesses in the midwest, representing 628,200
members as of December 1997.
8. Medical claims payable
Medical claims payable represents the amounts needed to provide
for the estimated ultimate cost of settling claims related to
insured events that have occurred on or before December 31. The
payable is estimated to include the amounts required for future
payment of a) medical claims that have been reported to the
company, b) claims related to insured events that have occurred
but that have not been reported to the company as of December 31,
and c) claims adjustment expenses. Claims adjustment expenses
include costs incurred in the claim settlement process such as
costs to record, process and adjust claims.
Activity in medical claims payable is summarized as follows:
1997 1996
Balance at January 1 $111,833 $ 83,793
Incurred related to:
Current year 558,208 493,438
Prior year 1,065 (1,776)
Total incurred 559,273 491,662
Paid related to:
Current year 473,515 394,217
Prior year 85,252 69,405
Total paid 558,767 463,622
Net balance at December 31 $112,339 $111,833
The incurred amounts related to prior years represent the
variations between the company's estimated claims payable for
prior years' claims and the actual amounts required to satisfy
such claims.
9. Accounts payable and accrued expenses
Accounts payable and accrued expenses consist of the following:
December 31,
1997 1996
Accounts payable $16,987 $29,893
Accrued salaries and other expenses 10,355 8,975
Other accrued expenses 28,550 29,976
$55,892 $68,844
10. Long-term debt and commitments
In August 1995, the company established a $125.0 million, five-
year, reducing revolving credit facility (the Credit Facility)
with Bank of America National Trust and Savings Association (B of
A) and a syndicate of banks. At December 31, 1997, the company
had $47.0 million outstanding under the Credit Facility. The
maximum commitment of the Credit Facility was reduced to $50.0
million as of October 1, 1997, with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining $30.0 million
commitment under the Credit Facility terminating on August 10,
2000. In addition, mandatory reductions to the commitment,
together with prepayments, are required upon the happening of
certain extraordinary events such as the issuance of debt
securities or sale of a subsidiary.
Borrowings under the Credit Facility may be denominated, at the
option of the company, as base rate loans or offshore rate loans.
Base rate loans bear interest at B of A's base rate, which is the
higher of the latest federal funds rate plus 1.75 percent or B of
A's reference rate, which approximates the prime rate. Offshore
rate loans bear interest at 2.75 percent above the adjusted London
Interbank Offered Rate (LIBOR). At December 31, 1997, all of the
company's outstanding borrowings were in offshore rate loans. The
weighted average interest rate incurred by the company was 7.32
percent, 6.69 percent, and 7.39 percent in 1997, 1996, and 1995,
respectively. In addition, the company pays a quarterly fee on
the unused portion of the Credit Facility at a current rate of
0.50 percent per annum. The unused portion of the Credit Facility
at December 31, 1997, was $3.0 million.
As a condition to providing the Credit Facility, the company
pledged the stock of its direct subsidiaries and a guaranty of
repayment was provided by HealthLink. In addition, the Credit
Facility establishes certain covenants that restrict the company's
ability to incur additional indebtedness or pay cash dividends;
limit future capital contributions, investments, acquisitions, and
capital expenditures, and limitations on indebtedness of the
company's subsidiaries; and require the maintenance of certain
financial ratios as well as a minimum consolidated tangible net
worth. As of the date of this report, the company was in
compliance with these covenants, as amended by the company and the
banking syndicate.
The company has an agreement with BCBSMo to lease certain office
space, including an operating lease for its headquarters facility
(see Note 15, Transactions with Blue Cross and Blue Shield of
Missouri). The company also leases certain electronic data
processing equipment under noncancellable lease agreements, and
these leases are reflected in the Consolidated Financial
Statements as capital and operating leases.
The following is a schedule of future minimum rental payments
required under capital leases and under non-cancellable operating
leases that have initial or remaining terms in excess of one year
together with the present value of net minimum lease payments
under capital leases at December 31, 1997:
Capital Operating
Year ending December 31,
1998 $ 4,897 $ 7,917
1999 4,308 7,003
2000 1,351 6,518
2001 6,180
2002 6,172
Thereafter 16,216
Total minimum lease payments $10,556 $50,006
Less amount representing interest (647)
Present value of net minimum lease payments,
including current portion of $4,515 $ 9,909
Total rental expense for all operating leases, except those with
terms of one month or less that were not renewed, was $9,900,
$8,999, and $9,365, for the years ended December 31, 1997, 1996,
and 1995, respectively.
11. Income taxes
The components of the provision for income taxes are as follows:
Year ended December 31,
1997 1996 1995
Current
Federal $(3,771) $(3,965) $11,664
State 757 407 171
(3,014) (3,558) 11,835
Deferred:
Federal (6,507) 4,218 (1,355)
$(9,521) $660 $10,480
The effective tax rate, expressed as a percentage of pre-tax
(loss) income, differs from the federal statutory rate as follows:
Year ended December 31,
1997 1996 1995
Tax provision based on
federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal (benefit) expense (2.3) (29.7) 0.5
Goodwill amortization (2.2) (51.0) 0.9
Tax audit settlement (6.3)
Other (2.1) (2.5) 0.7
28.4% (48.2)% 30.8%
The effective rate for 1995 was positively affected by a $2.1
million final tax audit settlement with the Internal Revenue
Service relating to pension, software amortization expenses and
other items.
The primary temporary differences that gave rise to deferred income taxes
were as follows:
December 31,
1997 1996
Deferred tax assets:
Capitalized software $ 3,936 $ 4,555
Medical claims payable discounting 1,527 1,425
Employee benefits 8,633 7,830
Unearned premiums 3,980 3,601
Other capitalized expenses 2,534 2,989
Loss reserve accrual 8,877
Other 8,972 5,800
Total deferred tax assets 38,459 26,200
Deferred tax liabilities:
Depreciation 5,703 3,197
Pension 1,126 1,258
IOS expense 8,755 6,568
Unrealized appreciation of securities 979 5,365
Other tax-deductible expenses 4,053 2,862
Total deferred tax liabilities 20,616 19,250
Valuation allowance (112) (112)
Net deferred tax asset $17,731 $ 6,838
SFAS No. 109, "Accounting for Income Taxes," requires a valuation
allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. The company
believes that uncertainty exists with respect to the future
realization of the undistributed losses of minority-owned
subsidiary companies. Therefore, the company maintained a
valuation allowance relating to such items of $112 as of December
31, 1997 and 1996. Based upon all the available evidence,
management believes it is more likely than not that the company
will realize its remaining deferred tax assets and, accordingly,
no valuation allowance has been provided against such remaining
assets as of December 31, 1997 and 1996.
12. Employee benefit programs
Pension plan
The company and its subsidiaries participate in a defined benefit
pension plan covering substantially all company employees
(excluding HealthLink employees) who meet the plan eligibility
requirements as to age and length of service. The national Blue
Cross and Blue Shield Association (BCBSA) is responsible for
administration of this defined benefit pension plan. The benefits
are based on years of service and average annual compensation for
the employee's highest consecutive five of the last 10 years. Plan
assets are invested primarily in publicly traded equity securities
and bonds. The company's funding policy is to contribute amounts
needed to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974 (ERISA).
Net periodic pension cost for the company includes the following
components:
Year ended December 31,
1997 1996 1995
Service cost $1,802 $1,812 $1,597
Interest cost 2,814 2,472 2,282
Actual return on plan assets (6,840) (4,746) (5,321)
Net amortization and deferral 3,536 1,694 2,582
Net periodic pension cost $1,312 $1,232 $1,140
Assumptions used in the development of pension data follow:
1997 1996 1995
Discount rate 7.25% 7.75% 7.50%
Expected long-term rate of
return on assets 9.0 9.0 9.0
Rates of increase in
compensation levels 3.5-7.0 3.5-7.0 3.5-7.0
The funded status of the company's pension plan and the amount
recorded as accrued pension cost consist of the following:
December 31,
1997 1996
Accumulated benefit obligation:
Vested benefits $29,047 $25,347
Non-vested benefits 2,352 5,719
31,399 31,066
Effect of projected compensation increases 11,723 6,681
Actuarial present value of projected
benefit obligation 43,122 37,747
Fair value of plan assets (40,264) (34,175)
Unfunded status 2,858 3,572
Unrecognized transition asset 4,177 1,874
Unrecognized net gain 892 1,196
Unrecognized prior service cost 446 1,756
Accrued pension cost $ 8,373 $ 8,398
HealthLink provides a defined contribution pension plan covering
substantially all HealthLink employees who meet the plan
eligibility requirements as to age and length of service.
HealthLink contributes an amount equal to 4 percent of
participating employees' annual base compensation levels.
Additional amounts can be contributed at the company's discretion.
Pension expense during 1997, 1996, and 1995, subsequent to the
company's purchase of HealthLink on August 10, 1995, was $368,
$245, and $94, respectively.
Postretirement benefits other than pensions
The company provides certain health care and life insurance
benefits for retired and terminated employees (excluding
HealthLink employees). Substantially all of the company's
employees may become eligible for those benefits if they reach
normal retirement age while working for the company. The health
care and life insurance benefits for retired employees are
provided through insurance companies whose premiums are based on
the benefits paid during the year. The estimated cost of retiree
benefit payments other than pensions is accrued over the period
such benefits are earned.
The net periodic cost for postretirement benefits includes the
following components:
Year ended December 31,
1997 1996 1995
Service cost $522 $457 $363
Interest cost 1,171 1,088 1,015
Amortization of:
Prior service cost (6) (6) (28)
Actuarial loss 82 85 20
Net periodic postretirement cost $1,769 $1,624 $1,370
The company's postretirement benefit plan is currently not funded.
The following table presents the status of the company's
postretirement benefits:
December 31,
1997 1996
Accumulated benefit obligation:
Retirees $10,366 $ 8,939
Fully eligible plan participants 1,618 1,628
Other active plan participants 4,876 4,502
16,860 15,069
Unrecognized prior service cost (23) (19)
Unrecognized experience loss (4,081) (2,772)
Accrued postretirement benefit cost $12,756 $12,278
The assumed discount rate is 7.25 percent for 1997 and 7.75
percent for 1996. The increase in the per capita costs of covered
health care benefits is assumed to be 7 percent as of December 31,
1997 and 6.5 percent in 1998 and thereafter. Increasing the
assumed health cost trend rate by one percentage point would
increase the accumulated benefit obligation as of December 31,
1997, by approximately $1,230 and increase net periodic
postretirement cost by $176.
Postemployment benefits
The company also provides certain severance benefits for employees
who involuntarily terminate their employment and long-term
disability benefits for employees who are disabled. Severance
benefits include salary continuation, medical benefits and career
transition benefits. Disability benefits include life insurance,
medical coverage and salary continuation. Disability coverage for
salary continuation is provided under the National Trust of Blue
Cross and Blue Shield, which is administered by the BCBSA.
Postemployment benefits are accrued if attributable to service
already rendered, if the benefits accumulate or vest, if payment
is probable and if the amounts can be reasonably estimated.
Postemployment benefit expense was $688, $940, and $938 for 1997,
1996, and 1995, respectively.
Stock-based compensation plans
The company provides an Equity Incentive Plan and a Directors'
Stock Option Plan (the plans), which allow for the annual grant of
stock options in the form of incentive stock options, non-
qualified stock options and restricted stock grants, and are
further described below. The company applies APB Opinion 25 and
related interpretations in accounting for these plans.
Accordingly, no compensation cost has been recognized for these
plans. Had compensation cost for the company's plans been
determined consistent with FASB Statement No. 123, the company's
net (loss) income and (loss) earnings per share would have been
reduced to the pro forma amounts indicated below:
Year 1997 1996 1995
Net (loss) income As reported $(24,034) $(2,027) $23,570
Pro forma $(24,677) $(2,346) $23,504
Basic and diluted (loss)
earnings per share As reported $(1.29) $(0.11) $1.26
Pro forma $(1.32) $(0.13) $1.26
The maximum number of shares subject to options and grants under
the Equity Incentive Plan and Directors' Stock Option Plan is 1
million and 60,000, respectively. The exercise price of each
option equals the market price of the company's stock on the date
of grant and an option's maximum term is 10 years. Options vest
by the end of the third year.
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for option grants in
1997, 1996, and 1995, respectively: expected volatility of 34, 34,
and 29 percent; risk-free interest rates of 6, 6, and 7 percent;
and expected lives of 6.5 years. In addition, for all three
years, no dividend yield was assumed.
A summary of the status of the plans as of December 31, 1997,
1996, and 1995 and changes during the years ended on those dates
is presented below:
Number of Weighted-average Weighted-average
shares exercise price fair value
Outstanding at
December 31, 1994 214,225 $11.00
Granted 77,316 $17.57 $8.07
Forfeited (61,702) $12.52
Outstanding at
December 31, 1995 229,839 $12.80
Granted 408,708 $12.37 $5.70
Forfeited (65,119) $13.20
Outstanding at
December 31, 1996 573,428 $12.45
Granted 310,787 $10.91 $5.18
Forfeited (414,449) $11.77
Outstanding at
December 31, 1997 469,766 $12.03
There were 105,413 options exercisable at December 31, 1997 and no
options exercisable at December 31, 1996, and 1995. There were no
options exercised during 1997, 1996, and 1995. The pro forma
disclosures included above may not be representative of the
effects on reported net income or loss for future years.
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Range of Number Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
<S> <C> <C> <C> <C> <C>
$10 to $12 292,268 8.4 years $10.85 91,413 $11.02
$13 to $18 177,498 8.0 years $13.97 14,000 $14.81
$10 to $18 469,766 8.3 years $12.03 105,413 $11.53
</TABLE>
Other benefit plans
The company provides a pretax 401(k) plan covering substantially
all company employees, an incentive program to key management
personnel for the achievement of corporate and individual goals,
and a sales incentive program to encourage exceptional performance
in marketing to and servicing of clients. The cost of providing
these programs is not significant to the company's overall results
of operations.
13. Contingencies
OPM audit
The company, through its subsidiary, HMO Missouri, Inc.
(BlueCHOICE), contracts with the Office of Personnel Management
(OPM) to provide or arrange health services to federal employees
under the Federal Employees Health Benefits Program (FEHBP).
FEHBP is the second largest customer group (after MCHCP, discussed
further herein) of BlueCHOICE. OPM conducts periodic audits to,
among other things, verify that the premiums established under the
OPM contract were established in compliance with the community
rating and other requirements under the FEHBP.
On August 8, 1995, the company received a draft audit report from
the OPM regarding the audit, conducted in 1994, of the FEHBP
operations of BlueCHOICE for the years 1989 through 1994. The
audit dealt primarily with a comparison of premium rates charged
to the FEHBP to rates charged by BlueCHOICE to other similarly
sized groups. The OPM draft audit report indicates that
BlueCHOICE has a potential liability of $7.5 million to the FEHBP.
The company responded to the draft report in November of 1995
following an in-depth analysis of the issues. In 1998,
BlueCHOICE received correspondence from the U.S. Department of Justice
requesting a meeting with BlueCHOICE regarding in excess of $6.5
million in payments (alleged overcharges) received during the
reconciliation process for the years 1990 through 1994, plus interest
thereon. If it is found that BlueCHOICE knowingly received overpayments,
it could be subject to civil penalties of up to ten thousand dollars
per certified reconciliation statement, treble damages for the amount of such
overcharges and interest. At this time, management is unable to determine the
final dollar amount which may be required to resolve the audit
findings. There can be no assurance that the resolution of these
findings will not have a material adverse effect on the company
and the market for the company's stock.
Subscriber class action litigation
On March 15, 1996, a suit was filed in the Circuit Court of the
City of St. Louis, Missouri, by Anthony J. Sarkis, Sr. and James
Hacking individually and on behalf of a purported class of (i)
subscribers in individual or group health plans insured or
administered by Blue Cross and Blue Shield of Missouri (BCBSMo,
the class B shareholder of the company) or the company, and (ii)
all persons and/or entities who benefited from BCBSMo's tax-exempt
status. The complaint names the company, BCBSMo, HealthLink, Inc.
(HealthLink, a subsidiary of the company), and certain officers of
the company as defendants.
The plaintiffs' claims relate to an alleged conversion of BCBSMo
from a not-for-profit entity to a for-profit entity and payment of
excessive compensation to management. The complaint further
alleges that certain amendments to BCBSMo's Articles of
Incorporation were improper. The complaint also alleges the
purchase of HealthLink was at an excessive price and that
HealthLink operates under contracts providing for illegal
discounts by health care providers. The plaintiffs seek
restitution, compensatory damages and punitive damages in
unspecified amounts, as well as injunctive and other equitable
relief.
The company and the other defendants removed the case to the
United States District Court for the Eastern District of Missouri
on May 26, 1996, and filed an answer on May 31, 1996. On August
8, 1996, the district court granted plaintiff's motion to remand.
In May 1997, plaintiffs filed an amended petition alleging breach
of contract by the company. The company again removed the case to
United States District Court for the Eastern District of Missouri.
Plaintiffs have again moved to remand the case to state court.
Preliminary discovery has been conducted. BCBSMo and the company
believe the claims are without merit and intend to vigorously
defend the action.
Litigation with DOI and Attorney General
Litigation relating to the Reorganization and Public Offering
In August 1994, BCBSMo transferred certain assets to the company
in connection with an offering to the public of 20 percent of the
common stock of the company (such events are referred to
collectively as the Reorganization and Public Offering). Although
the Director of the Missouri Department of Insurance (DOI)
formally approved the Reorganization and Public Offering on April
14, 1994, the Director and DOI subsequently claimed that the
Reorganization and Public Offering violated state laws and that
BCBSMo was obligated to transfer all of its assets, including all
of its RightCHOICE stock, to the State of Missouri or a charity
designated by the State of Missouri. The Director and DOI
threatened to bring legal action, seek a receivership or terminate
BCBSMo's insurance license unless BCBSMo gave up its assets.
BCBSMo's extensive efforts to settle this dispute were
unsuccessful. On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court of Cole County, Missouri (the
Court) against the Director, DOI and the Missouri Attorney General
(the Attorney General was a necessary party due to his sole
authority to enforce nonprofit corporation laws).
The Director and DOI filed an answer and counterclaims on June 13,
1996. The answer sets forth several affirmative defenses,
including alleged fraud and negligent misrepresentation with
respect to the application filed by BCBSMo seeking approval of the
Reorganization and Public Offering. The counterclaims allege
violations of certain health service corporation and nonprofit
corporation statutes. The Director and DOI's counterclaims sought
among other things: (i) permanent injunctions against BCBSMo; (ii)
imposition of a trust on BCBSMo's assets for public benefit
purposes; (iii) return of profits from Medigap policies reinsured
with a subsidiary; and (iv) an accounting of all assets
transferred by BCBSMo.
The Attorney General filed an answer and counterclaim on June 20,
1996, alleging that the Reorganization and Public Offering, and
the continued operations through the company and its subsidiaries,
exceed BCBSMo's statutory purposes. The Attorney General
requested a declaration that BCBSMo has exceeded its lawful
authority and seeks such relief as the Court determines to be
appropriate under the circumstances based on a statute which
authorizes judicial dissolution or less drastic alternative relief
in the Court's discretion.
On September 9, 1996 (the September 9 Order), the Court granted
BCBSMo's motion for summary judgment against the Director and DOI,
rejected all of the Director and DOI's affirmative defenses
(including allegations of fraud), issued a permanent injunction
against the Director and DOI and declared that: (i) under Missouri
law the Director and DOI have no authority to demand that BCBSMo
make a payment as a result of the Reorganization and Public
Offering; (ii) under Missouri law the Director and DOI have no
jurisdiction to take any action, the practical effect of which is
to amend, modify or reverse the Director's April 14, 1994 final
administrative approval of the Reorganization and Public Offering;
(iii) under Missouri law the Director and DOI have no jurisdiction
to take any administrative action, including but not limited to,
revoking, suspending or refusing to renew BCBSMo's Certificate of
Authority based in any way on the Reorganization and Public
Offering and the consequences thereof or BCBSMo's refusal to make
a payment as the Director and DOI have demanded; and (iv) (A)
BCBSMo is a mutual benefit type of nonprofit corporation rather
than a public benefit type of nonprofit corporation; (B) the
Reorganization and Public Offering were authorized under all laws
applicable to nonprofit health services corporations; and (C)
BCBSMo does not owe the State or any person or entity a "toll
charge," "charitable asset settlement" or any other payment as a
result of the August 1994 Reorganization and Public Offering. On
December 30, 1996, the Court issued orders modifying the findings
and declarations set forth in (iv) above, on the grounds that it
was legally unnecessary to resolve such issues since the Court had
already ruled against the Director and DOI for other reasons.
The September 9 Order permanently enjoined the Director and DOI
from, among other things, (i) revoking, suspending or refusing to
renew BCBSMo's insurance license based in any part upon the
Reorganization and Public Offering; (ii) commencing a valuation of
BCBSMo's assets and demanding a payment as a result of the
Reorganization and Public Offering; (iii) commencing any
administrative hearing or making any administrative determination
based in any part upon the Reorganization and Public Offering;
(iv) instituting any seizure, receivership, conservatorship or
similar action or proceeding against BCBSMo based in any part upon
the Reorganization and Public Offering; and (v) taking any other
action, however denominated, against BCBSMo based in any part upon
the Reorganization and Public Offering. This injunctive relief
remains in place, but the Court's December 30 Orders (described
below) clarify that the injunction does not prohibit the Director
and DOI from asserting that the post-Reorganization and Public
Offering operations of BCBSMo may violate the health services
corporation laws (even though such operations may have been
affected by the Reorganization and Public Offering).
On August 28, 1996, the Director and DOI filed an amended answer
asserting a new counterclaim that the Reorganization and Public
Offering were not reasonably designed to serve any of BCBSMo's
purposes as a health services corporation and seeking a
declaration that BCBSMo has exceeded or abused its authority
conferred upon it by law. Under this counterclaim, the Director
and DOI seek an order to rehabilitate BCBSMo or, in the
alternative, injunctive relief.
On October 18, 1996, the Attorney General filed a motion for leave
to file an amended counterclaim against BCBSMo seeking a
declaration that BCBSMo is a public benefit corporation, not a
mutual benefit corporation, and requesting an order that BCBSMo
amend its Articles of Incorporation accordingly. The Court
granted the Attorney General's motion for leave to file the
amended counterclaim, which remains pending.
On December 30, 1996, the court issued five orders (the December
30 Orders): (i) denying BCBSMo's motion for summary judgment
against the Attorney General; (ii) granting the Attorney General's
motion for partial summary judgment against BCBSMo; (iii) denying
BCBSMo's supplemental motion for summary judgment against the
Director and DOI on their amended counterclaim; (iv) granting the
Director and DOI's motion for summary judgment against BCBSMo on
their amended counterclaim; and (v) modifying, in part, the
Court's previous September 9 Order as described above. The
December 30 Orders declared that (i) BCBSMo has continued to
exceed or abuse its statutorily permissible purposes and the
authority conferred on it by law; and (ii) BCBSMo is subject to
judicial dissolution proceedings, but that prior to ordering
dissolution, the Court is required to consider whether there are
alternatives to dissolution and whether dissolution is in the
public interest or is the best way of protecting the interests of
its members.
The Court also (i) certified the December 30 Orders and the
September 9 Order, as modified, for immediate appeal; (ii) held in
abeyance further proceedings on the Attorney General's
counterclaim pending appeal; and (iii) stayed the legal effect of
the order granting the Director and DOI summary judgment pending
the filing of an appeal bond (which BCBSMo promptly filed). On
January 9, 1997, BCBSMo filed a notice of appeal of the December
30 Orders. On January 21, 1997, the Director and DOI filed a
notice of appeal of the September 9 Order, as modified. Oral
arguments were heard on February 24, 1998.
Notwithstanding the December 30 Orders, the company still believes
that the counterclaims of the Director, DOI and the Attorney
General are without merit and that BCBSMo's legal position is
strong. If, however, BCBSMo does not prevail on appeal in
overturning the summary judgment in favor of the Attorney General,
it may be subject to dissolution proceedings if the Court
determines that no reasonable alternatives to dissolution exist.
Likewise, BCBSMo could be unsuccessful on the appeal of the relief
already granted against the Director and DOI or in its defense of
the Attorney General's amended counterclaim. Any of the foregoing
could have a material adverse effect on the company and the market
for the company's stock. See also "Contingencies - Status of Blue
Cross and Blue Shield trademark licenses."
On November 3, 1997, BCBSMo filed an action in the Cole County
Circuit Court against the Missouri Attorney General seeking
declarations that (1) BCBSMo is a mutual benefit type of nonprofit
corporation under Chapter 355 of the Missouri Revised Statutes and
(2) BCBSMo does not hold its assets in constructive, charitable,
or other trust for the benefit of the public generally, but rather
holds its assets for the benefit of its subscribers. The action
was filed in response to continued public and private statements
by the Attorney General, the DOI and others that BCBSMo is a
public benefit type of nonprofit corporation which holds its
assets for the benefit of the public generally. See above in this
section, "Litigation with DOI and Attorney General." The Attorney
General has filed an answer and counterclaim seeking a
declaration that BCBSMo is a public benefit type of nonprofit
corporation.
BCBSMo believes its legal position is strong, that it ultimately
will be declared to be a mutual benefit type of nonprofit
corporation, and that it holds no assets for the benefit of the
public generally. If BCBSMo is declared to be a mutual benefit
type of nonprofit corporation that does not hold its assets for
the benefit of the public generally, BCBSMo will be free to
continue to exercise its ownership interest in the company
consistent with the best interests of BCBSMo's subscribers,
subject to any rulings made in the litigation described above in
this section, "Litigation with the DOI and Attorney General."
If BCBSMo is declared to be a public benefit type of nonprofit
corporation or if it is declared that BCBSMo holds assets for the
benefit of the public generally, however, BCBSMo might be required
to exercise its ownership interest in the company consistent with
the best interests of the public at large, which could result in a
determination to dispose of some or all of the company's shares at
times and in quantities that could be detrimental to the market
for the company's stock. Also, if this were to occur, either the
DOI or the Attorney General could take actions against BCBSMo
based upon such declarations (such as seeking the appointment of a
receiver to safeguard assets deemed dedicated to the public which
could result in the termination of the company's licenses to use
the "Blue Cross" and "Blue Shield" tradenames and service marks
and trigger a termination fee and a notice to members thereunder)
which, if successful, could have a material adverse effect upon
the company and the market for the company's stock. See
"Contingencies - Status of Blue Cross and Blue Shield Trademark
Licenses."
Litigation relating to the Market Conduct Study and Copayment
Calculations
The Missouri Department of Insurance (DOI) issued a market conduct
report to the company and BCBSMo in April 1996. The report
findings cited the company and BCBSMo for not complying with
certain insurance statutes and regulations including those that
relate to the Small Employer Health Insurance Availability Act,
coordination of benefits and copayment calculations. The company
responded to the report in May 1996. The company and the DOI have
had discussions relating to the issues contained in the report
from May 1996 to February 1998. On February 11, 1998, the DOI
filed a Notice of Institution of Case requesting the Director of
the Department of Insurance to issue a cease and desist order, an
order requiring the payment of monetary penalty, an order to cease
marketing and/or an order suspending or revoking the certificate
of authority of the company and BCBSMo. The company has alleged
in the action described above under "Litigation with DOI and
Attorney General - Litigation relating to the Reorganization and
Public Offering," that the market conduct study was not conducted
for legitimate purposes of regulatory oversight but rather as a
pretext to either revoke or refuse to renew BCBSMo's license to
operate as a health services corporation and thus to improperly
pressure and coerce BCBSMo into making the payment in the nature
and amount described above. The DOI believes the company should
refund excess premium payments to the small groups, pay additional
refunds to members for copayment calculations made prior to
January 1996, and take certain actions relating to coordination of
benefits. The issue relating to the manner in which the company
calculated copayment amounts prior to January 1996 was the subject
of a class action suit, titled Kelly v. Blue Cross and Blue Shield
of Missouri, and subsequent settlement. BCBSMo settled the case
in 1995 and paid the majority of the total settlement amount of
five million dollars. The company believes it has resolved this
issue through the court-approved class action settlement and
intends to vigorously defend this new action.
On February 9, 1998, the Attorney General filed suit against the
company, BCBSMo, BlueCHOICE, HALIC, and Preferred Health Plans of
Missouri, Inc. (a subsidiary of the company) in the Circuit Court
of Cole County, Missouri seeking injunctive relief, compensatory
damages and civil penalties under Missouri's Merchandising
Practices Act for the way in which the company disclosed and
marketed copayment amounts prior to January 1996. The factual
allegations in the Attorney General's suit are the same as the
copayment issues in the DOI Market Conduct Study Action and the
same issue which was the subject of a class action suit settlement
in the Kelly v. Blue Cross and Blue Shield of Missouri case. The
company discontinued the copayment practices in January 1996. The
company believes it has already paid the restitution damages
requested in the settlement of the class action suit. BCBSMo and
the company believe the claims are without merit and intend to
vigorously defend the action.
Status of Blue Cross and Blue Shield trademark licenses
In March 1998, the Blue Cross and Blue Shield Association agreed
to reinstate BCBSMo's exclusive trademark licenses (the Primary
Licenses) and the exclusive controlled licenses (the Affiliate
Licenses) of the company, Healthy Alliance Life Insurance Company
(HALIC) and BlueCHOICE (collectively, the Reinstated Licenses).
These licenses give the companies the right to use the "Blue
Cross" and "Blue Shield" names, trademarks and service marks in
connection with health insurance products marketed and sold in
BCBSMo's licensed operating area (consisting of 85 counties in
eastern and central Missouri). The Reinstated Licenses replaced
the Interim and Temporary Licenses granted in January 1997 as
described below. The trademark licenses require BCBSMo, the
company and its controlled affiliates to pay license fees to BCBSA
for the use of the trademarks. The company believes that the
exclusive right to use the "Blue Cross" and "Blue Shield"
trademarks provides it and its controlled affiliates with a
significant marketing advantage in BCBSMo's licensed operating
area, the loss of which would have a material adverse effect on
the company and the market for the company's stock.
In connection with the litigation relating to the Reorganization
and Public Offering described above (Litigation), on or about
January 9, 1997, BCBSA notified BCBSMo that the Primary Licenses
and the Affiliate Licenses (then held by them) had automatically
terminated because a counterclaim in the Litigation seeking
dissolution of BCBSMo had been pending for 60 days (the period of
the automatic termination provision in those licenses). BCBSMo
believes that the Litigation did not trigger the automatic
termination provisions of the licenses and that such licenses
remained in full force and effect, and strongly stated this
position to BCBSA. BCBSMo based its legal position upon, among
other things: (i) the fact that the Attorney General's claim
against BCBSMo seeks alternatives to dissolution, not the
dissolution of BCBSMo; (ii) the fact that the trial court stayed
the legal effect of the rulings adverse to BCBSMo in the
Litigation pending their appeal and that there is no threat of the
type contemplated in the license agreements until the appeal is
decided; (iii) Missouri franchise laws that mandate 90 days prior
written notice of termination of the trademark licenses; and (iv)
based upon the prior statements, actions and inaction of BCBSA,
equitable principles of waiver, estoppel and laches prevent
termination of the licenses. BCBSA decided to resolve the issue
without litigation and to give BCBSMo, the company and its
controlled affiliates the uninterrupted right to use the "Blue
Cross" and "Blue Shield" names, trademarks and service marks by
granting them new interim and temporary licenses (thereby placing
them in substantially the same position as if no termination had
taken place). BCBSMo, the company and its controlled affiliates
agreed to accept the benefits and rights under the interim
licenses, while reserving and in no manner waiving their rights
under the prior Primary Licenses and the Affiliate Licenses.
In March 1998, the interim and temporary licenses were replaced by
the Reinstated Primary and Affiliate Licenses. Each of the
reinstated trademark licenses provide that it automatically
terminates if, among other things: (i) DOI or another regulatory
agency assumes control of the licensee or delinquency proceedings
are instituted; or (ii) an action is instituted by any
governmental entity or officer against the licensee seeking
dissolution or liquidation of its assets or seeking the
appointment of a trustee, interim trustee, receiver or custodian
for any of its property or business, which is consented to or
acquiesced in by the licensee or is not dismissed within 130 days
of the licensee being served with the pleading or document
commencing the action, provided that if the action is stayed or
its prosecution enjoined, the 130-day period is tolled for the
duration of the stay or injunction, and provided further that the
BCBSA's Board of Directors may toll or extend the 130-day period
at any time prior to its expiration. Each trademark license also
provides that it may be terminated by BCBSA if, among other
things, the licensee fails to meet certain quality control
standards or minimum capital or liquidity requirements.
The Affiliate Licenses are derivative of the Primary Licenses and
automatically terminate if the Primary Licenses terminate.
According to their terms, if a trademark license is terminated,
BCBSMo, the company and its controlled affiliates are jointly
liable to BCBSA for payment of a termination fee in an amount equal
to $25 times the number of licensed enrollees of the terminated
entity and its licensed controlled affiliates, and must give
written notice of such termination to their enrollees. The
termination fee is reduced in accordance with a formula set forth
in the Primary Licenses if another plan is licensed by BCBSA in
BCBSMo's exclusive service area. BCBSMo and BCBSA have agreed that
the Primary Licenses are reinstated as if a suit seeking
dissolution had been served on BCBSMo but the 130-day period for
automatic termination described above was tolled. The tolling will
continue for as long as the stay entered in the Litigation remains
in full force and effect. In the event that the stay is modified
or lifted, the 130-day period will begin to run on such date and no
longer be tolled. If the 130-day period elapses without BCBSA
having taken affirmative action to extend the 130-day tolling
period, the Reinstated Primary Licenses will automatically and
immediately terminate.
In addition, in connection with the reinstatement of the licenses,
BCBSMo and BCBSA agreed that (i) BCBSMo would release all claims
relating to termination of the Primary Licenses and Affiliate
Licenses; (ii) BCBSMo would continue to provide BCBSA with updates
on the Litigation; (iii) BCBSA would waive any claim that BCBSMo
and its controlled affiliates must provide notice to customers of
termination fees as set forth in their licenses; and (iv) BCBSMo
would represent in writing that it is in compliance with all BCBSA
requirements and that there is no imminent risk of dissolution.
Litigation with MCHCP
On August 28, 1997, the company brought suit against the Missouri
Consolidated Health Care Plan (MCHCP) and its trustees in the
Circuit Court of Cole County, Missouri. MCHCP is a Missouri
public agency which purchases health care coverage for employees
of the State and of selected public entities which have been
admitted into the MCHCP. In 1995, the company, after bidding on
certain Requests for Proposal from MCHCP, was awarded a contract
to furnish various managed care products to employees of the State
and to public entities. The contract was for an initial one-year
term with four one-year renewal terms. The respective rights of
the parties to renew the contract and the applicable rates for any
such renewal term are presently in dispute. MCHCP has purported
to renew the contract for the years 1997 and 1998.
In its lawsuit, the company contends that under the language of
the applicable contract, MCHCP has express and implied duties to
negotiate the amount of any rate increase that might become
effective for each succeeding one-year renewal term. It is the
company's position that if no agreements to the negotiated rates
can be reached, MCHCP's sole remedy is to request bids from other
insurers. It further contends that MCHCP has breached that duty
by renewing the contract from year to year while allowing only
limited rate increases, without negotiation. The company further
contends that MCHCP has violated Missouri law by admitting
numerous public entities into the MCHCP without conducting any
actuarial or other appropriate analysis, thus compelling the
company to provide managed care services to public entities
without regard to the actuarial risk that they pose. The company
also contends that MCHCP violated the Missouri Administrative
Procedure Act in the manner in which it adopted the regulations by
which it administers its managed care program, and that MCHCP has
violated the Missouri Open Meetings and Open Records Law in the
manner in which it has conducted its business.
The company contends in its lawsuit that it has been damaged in
the 1997 plan year in an amount in excess of $5 million, and that
it will have estimated losses during the 1998 plan year under its
contract with MCHCP in an amount in excess of $10 million. The
company further contends that if the contract is renewed for the
1999 and 2000 plan years without requested rate increases, it will
have further losses. On August 29, 1997, the company reported the
commencement of the litigation and estimated losses (giving effect
to all possible renewal terms of the MCHCP contract without
requested rate increases) in the range of $30 million to $40
million. In the third quarter of 1997, the company took a pre-tax
charge of $29.5 million, which was based on actuarial estimates,
including projected limited rate increases, and projected
enrollment and medical cost trends accounted for through the year
2000 in accordance with generally accepted accounting principles.
There can be no assurance that the amount of the reserve taken in
the third quarter would be sufficient to cover all losses which
may be associated with the MCHCP contract, which losses could have
a material adverse effect on the company and the market for the
company's stock.
For its relief, the company seeks a permanent injunction against
the promulgation and implementation by MCHCP of any rates for the
1998 plan year other than rates which are the product of the
negotiation process called for by the parties' contract, and for a
decree of specific performance requiring MCHCP to negotiate rates
in good faith for the 1998 plan year and later plan years. Absent
such relief, the company prays for a declaration that the contract
is void and is of no effect. The company also prays for damages
in the amount of its losses incurred, for its attorney fees, for
relief for violation of the Open Meetings Law, and for such other
relief as is appropriate.
Also on August 28, 1997, and in anticipation of the company's
suit, MCHCP filed suit against BCBSMo, the company and HealthLink
HMO, Inc., a wholly owned subsidiary of the company (HealthLink
HMO). MCHCP in its lawsuit contended that the company and
HealthLink HMO had committed anticipatory breaches of their
contracts with MCHCP, and had tortiously interfered with MCHCP's
contractual relations with its members. It prayed only for
equitable relief, in the form of a decree compelling the company
and HealthLink HMO to perform in accordance with MCHCP's
interpretation of the contracts' terms.
Subsequently, HealthLink HMO and Continental Assurance Co. (CNA)
filed suit in the Circuit Court of Cole County, Missouri against
MCHCP. HealthLink HMO is a party to an HMO contract with MCHCP
similar to the contract of the company; substantially all the
underwriting risk under that contract is borne by CNA under an
agreement between HealthLink HMO and CNA. HealthLink HMO and CNA
seek relief similar to that sought on behalf of the company,
including a declaration that their contract with MCHCP is void and
of no effect. On March 18, 1998, MCHCP dismissed its claims
against HealthLink HMO and CNA without prejudice and HealthLink
HMO and CNA similarly dismissed their claims against MCHCP without
prejudice.
On March 16, 1998, MCHCP voluntarily dismissed its suit against
the company which had accused the company of anticipatory breach
of contract and tortious interference with MCHCP's members. On
March 19, 1998, the trial court entered rulings on various motions
and cross-motions for summary judgment of the parties. On a
motion for summary judgment filed by another contractor, the Court
ruled that under the uniform contract between MCHCP and its
contractors, rate increases from year to year are limited to the
medical cost component of the Consumer Price Index. On motions
for summary judgment filed by RightCHOICE, the Court held that
MCHCP's rules relating to the admission of public entities and its
adoption of a community rating policy were lawful under the
Missouri Administrative Procedure Act, and that RightCHOICE is
estopped from questioning the validity of those rules and
policies. The Court also held that MCHCP did not violate the
Missouri Open Meetings and Open Records Act in the manner in which
it responded to a request for access to public records made by
RightCHOICE, and that RightCHOICE's claims for breach of the Act
in the conduct of closed meetings are time barred as to all
meetings conducted on or before February 27, 1997. RightCHOICE's
claims based on alleged violation by MCHCP of the covenant of good
faith and fair dealing remain pending in the trial court.
The company continues to consider its options. The ultimate
outcome of the litigation cannot be predicted with certainty, but
it is likely that no more favorable result will be achieved unless
a decision is made to appeal the decisions of March 19, and the
appellate court takes a different view of the legal issues than
did the trial court. Should MCHCP prevail, the company would be
held contractually bound to serve the MCHCP members through the
year 2000 at the rates contracted for in 1995, with annual rate
increases, if any, which are far less than necessary to permit the
company to recover its costs in serving those members. While
management of the company believes the current provision for
losses is adequate, if the actual public entity membership in
MCHCP grows at a rate in excess of the rate used in the actuarial
estimates, or if the projected limited rate increases and medical
cost trends should differ materially from those assumed in the
actuarial estimates, then the amount of the reserve recorded to
date could be insufficient to cover all future losses which may be
associated with the MCHCP contract, and such losses could have a
material adverse effect on the company and the market for the
company's stock.
Other contingencies
In addition to the matters described above, the company is a party
to litigation in the normal course of business, including
professional liability and litigation with former executives of
the company.
14. Segment information
The company offers a comprehensive array of underwritten products
including PPO, POS, HMO, Medicare supplement and managed indemnity
coverages. The company also provides TPA and ASO services for
self-insured organizations. All of the company's revenues, both
underwritten premiums and self-funded fees and other income, are
derived from domestic (United States) sources and no single
customer accounts for more than 10 percent of total revenues.
Operating income for the company's underwritten segment is
determined by deducting from premium revenue the health care
service costs, commissions, and general and administrative
expenses, as well as any non-recurring charges, that are
attributable to that segment's operations. Operating income for
the self-funded segment is determined by deducting from fees and
other income the commissions, general and administrative expenses
and non-recurring charges attributable to the segment. Expenses
not directly traceable to an industry segment are allocated on a
consistent and reasonable basis utilizing membership, groups,
claims, and other key drivers. Likewise, identifiable assets
include assets used jointly by the two segments and are allocated
among the segments based on a consistent and reasonable basis.
Corporate identifiable assets include cash and investments that
are maintained for general corporate purposes. Capital
expenditures and equipment acquired through capital leases include
additions to property, plant and equipment. Financial information
by segment is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 Underwritten Self-funded Corporate Consolidated
<S> <C> <C> <C> <C>
Revenues $654,315 $65,096 $719,411
Operating (loss) income (69,437) 8,437 (61,000)
Capital expenditures and
equipment acquired through
capital leases 22,270 6,004 28,274
Depreciation and
amortization expense 16,821 6,287 23,108
General and administrative expenses 108,254 54,918 163,172
Charge for loss reserves 29,510 29,510
Other non-recurring
operating charges 2,190 1,111 3,301
Identifiable assets 346,824 125,078 $34,461 506,363
Year ended December 31, 1996 Underwritten Self-funded Corporate Consolidated
Revenues $595,661 $57,714 $653,375
Operating (loss) income (13,741) 162 (13,579)
Capital expenditures and
equipment acquired through
capital leases 12,610 8,241 20,851
Depreciation and
amortization expense 8,099 6,861 14,960
General and administrative expenses 88,687 55,263 143,950
Non-recurring operating charges 2,791 1,743 4,534
Identifiable assets 358,081 130,660 $43,403 532,144
Year ended December 31, 1995 Underwritten Self-funded Corporate Consolidated
Revenues $538,422 $53,458 $591,880
Operating income (loss) 23,461 (4,428) 19,033
Capital expenditures and
equipment acquired through
capital leases 8,126 5,661 13,787
Depreciation and
amortization expense 5,473 5,811 11,284
General and administrative expenses 85,026 55,447 140,473
Non-recurring operating charges 1,500 1,974 3,474
Identifiable assets 349,156 137,207 $30,025 516,388
</TABLE>
15. Transactions with Blue Cross and Blue Shield of Missouri
Pursuant to an administrative services agreement, the company
provides certain administrative and support services, including
computerized data processing and management information systems,
telecommunication systems and accounting, finance, legal,
actuarial and other management services to BCBSMo. These expenses
are allocated to and paid by BCBSMo in an amount equal to the
direct and indirect costs and expenses incurred in furnishing
these services. In addition, the company provides services to
BCBSMo, which include health plan services, processing of claims
related to such plans, provider contracting, market research and
advertising, to be reimbursed on a basis that approximates cost.
Management of the company and of BCBSMo consider such allocation
methodologies and cost approximations reasonable and appropriate.
The agreement had an initial three-year term which has been
extended. The company and BCBSMo have had negotiations to enter
into a new administrative services agreement which is subject to
regulatory approval.
General and administrative expense excludes net intercompany
charges allocated to BCBSMo by the company for the respective
periods, as follows:
Year ended December 31,
1997 1996 1995
Services provided to BCBSMo $12,792 $15,968 $18,204
Services provided by BCBSMo (4,436) (4,237) (2,974)
Net expense allocated
to BCBSMo $8,356 $11,731 $15,230
The company has intercompany receivables and payables between the
company and BCBSMo, which include $15.5 million of receivables and
$19.2 million of payables related to the BCBSMo transfer of all
economic risks and rewards on certain insurance policies
originally issued by BCBSMo, pursuant to a reinsurance agreement.
In addition, the intercompany receivables and payables include net
intercompany transactions for general and administrative expenses.
16. Statutory information
The operations of the company's subsidiaries, HALIC, BlueCHOICE,
HealthLink HMO, and RightCHOICE Insurance Company (RIC) are
subject to regulation and supervision by regulatory authorities of
the various jurisdictions in which they are licensed to conduct
business. Regulatory authorities exercise extensive supervisory
power over the licensing of insurance companies; the amount of
reserves that 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. HALIC, BlueCHOICE,
HealthLink HMO, and RIC are required to file periodic statutory
financial statements in each jurisdiction in which they are
licensed. Additionally, these companies are also periodically
examined by the insurance departments of the jurisdictions in
which they are licensed to do business.
The company's subsidiaries prepare their statutory financial
statements in accordance with accounting practices prescribed or
permitted by the Missouri and Illinois Departments of Insurance.
Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance
Commissioners, as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed.
17. Quarterly financial information (unaudited)
(In thousands, except per share data)
Three months ended
1997 31-Mar 30-Jun 30-Sep 31-Dec
Total revenues $176,314 $176,149 $180,492 $186,456
Operating expenses 178,468 187,195 218,559 196,189
Operating loss (2,154) (11,046) (38,067) (9,733)
Investment income, net 13,510 10,296 4,786 4,592
Other, net (1,253) (1,372) (1,241) (1,873)
Income (loss) before taxes 10,103 (2,122) (34,522) (7,014)
Provision (benefit) for
income taxes 3,909 189 (11,766) (1,853)
Net income (loss) 6,194 (2,311) (22,756) (5,161)
Basic and diluted earnings
(loss) per share $0.33 $(0.12) $(1.22) $(0.28)
Weighted average shares
outstanding 18,676 18,672 18,672 18,672
Membership (in thousands) 1,864 1,898 1,923 1,957
Three months ended
1996 31-Mar 30-Jun 30-Sep 31-Dec
Total revenues $157,968 $161,380 $163,788 $170,239
Operating expenses 147,593 163,655 177,565 178,141
Operating income (loss) 10,375 (2,275) (13,777) (7,902)
Investment income, net 4,519 5,567 3,551 3,895
Other, net (1,393) (1,123) (1,544) (1,260)
Income (loss) before taxes 13,501 2,169 (11,770) (5,267)
Provision (benefit) for
income taxes 5,276 885 (3,914) (1,587)
Net income (loss) 8,225 1,284 (7,856) (3,680)
Basic and diluted earnings
(loss) per share $0.44 $0.07 $(0.42) $(0.20)
Weighted average shares
outstanding 18,681 18,680 18,677 18,677
Membership (in thousands) 1,669 1,732 1,774 1,853
Report of Independent Accountants
To the Shareholders and Board of Directors
of RightCHOICE Managed Care, Inc.
We have audited the accompanying consolidated balance sheet
of RightCHOICE Managed Care, Inc. as of December 31, 1997,
and the related consolidated statement of income and changes
in shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of
RightCHOICE Managed Care, Inc.'s management. Our
responsibility is to express an opinion on these financial
statements based on our audit. The consolidated financial
statements of RightCHOICE Managed Care, Inc. for each of the
two years in the period ended December 31, 1996 were audited
by other auditors whose report, dated February 14, 1997,
expressed an unqualified opinion as to generally accepted
accounting principles on those financial statements.
We conducted our audit 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 audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of RightCHOICE Managed Care, Inc. as
of December 31, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 19, 1998, except for Note 13
for which the date is March 19, 1998
Report of Independent Accountants
To the Board of Directors of
RightCHOICE Managed Care, Inc.
In our opinion, the consolidated financial statements listed
in the index, appearing under Item 8 on page 37, present
fairly, in all material respects, the financial position of
RightCHOICE Managed Care, Inc. and its subsidiaries at
December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 14, 1997
Report of Independent Accountants
To the Shareholders and Board of Directors of
RightCHOICE Managed Care, Inc.
Our report on the consolidated financial statements of
RightCHOICE Managed Care, Inc. is included on page 73 of
this Form 10-K. In connection with our audit of such
financial statements, we have also audited the 1997 data on
the related financial statement schedule listed in Item 8 on
page 37 of this Form 10-K. The 1996 data on the financial
statement schedule noted above was audited by other auditors
whose report dated February 14, 1997 expressed an
unqualified opinion on such data.
In our opinion, the 1997 data on the financial statement
schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents
fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
St. Louis, Missouri
February 19, 1998, except for Note 13
for which the date is March 19, 1998
Schedule I
(Page 1 of 3)
RIGHTCHOICE MANAGED CARE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed balance sheets of RightCHOICE Managed Care, Inc.
(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
(in thousands, except shares and per share data)
December 31,
1997 1996
ASSETS
Cash $11,148 $199
Investments available for sale, at market value 23,273 43,707
Investments in affiliates (2) 130,282 175,515
Property and equipment, net 8,062 11,320
Receivables from affiliates (1) 67,368 19,548
Other assets 2,011 1,870
Total assets $242,144 $252,159
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $19,481 $21,236
Payables to affiliates (1) 37,088 14,782
Income taxes payable, net 14,425 13,956
Obligations for employee benefits 25,074 24,512
Obligations under capital leases 5,211 4,719
Total liabilities 101,279 79,205
Shareholders' equity:
Preferred stock, $.01 par, 25,000,000
shares authorized, no shares issued and
outstanding
Common stock:
Class A, $.01 par, 125,000,000
shares authorized,
3,737,500 shares issued,
3,709,000 and 3,714,400
shares outstanding, respectively 37 37
Class B, convertible, $.01 par,
100,000,000 shares authorized,
14,962,500 shares issued and
outstanding 150 150
Additional paid in capital 132,640 132,640
Retained earnings 6,653 30,687
Treasury stock, 28,500 and 23,100
Class A shares, respectively, at cost (404) (326)
Unrealized net appreciation of
investments available for sale 1,789 9,766
Total shareholders' equity 140,865 172,954
Total liabilities and
shareholders' equity $242,144 $252,159
The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.
(1) The majority of these intercompany amounts are eliminated
in the Consolidated Financial Statements with the remaining
amounts explained in Note 15 of the Notes to Consolidated
Financial Statements.
(2) As of December 31, 1997 and 1996, $121,855 and $166,145,
respectively, is eliminated in the Consolidated Financial
Statements.
Schedule I
(Page 2 of 3)
RIGHTCHOICE MANAGED CARE INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Income
(in thousands)
Year ended December 31,
1997 1996 1995
Revenue
Reimbursement from affiliates (1) $116,380 $114,233 $120,809
Dividends from affiliates (1) 13,813 26,631 5,352
Total revenue 130,193 140,864 126,161
Expense
General and administrative 118,920 119,292 125,448
Operating income 11,273 21,572 713
Investment income and other 4,040 1,022 2,059
Income before equity in
undistributed (loss)
income of subsidiaries and
income tax benefit 15,313 22,594 2,772
Equity in undistributed (loss)
income of subsidiaries (1) (38,853) (25,618) 19,979
(Loss) income before taxes (23,540) (3,024) 22,751
Income tax provision (benefit) 494 (997) (819)
Net (loss) income ($24,034) ($2,027) $23,570
The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.
(1) Substantially all of the balances related to these
intercompany items are eliminated in the Consolidated Financial
Statements.
Schedule I
(Page 3 of 3)
RIGHTCHOICE MANAGED CARE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Cash Flows
(in thousands)
Year ended December 31,
1997 1996 1995
Cash flows from operating
activities:
Net (loss) income ($24,034) ($2,027) $23,570
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Equity in undistributed loss
(income) of subsidiaries 38,853 25,618 (19,979)
Depreciation 4,264 4,631 5,174
Loss on sale of property and
and equipment - 36 -
(Gain) loss on sale of
investments (1,671) (6) 123
Accretion of discounts and
amortization of premiums (170) (41) (65)
(Increase) decrease in:
Receivables from affiliates (47,820) (6,469) 4,367
Other assets (141) 421 1,918
(Decrease) increase in:
Accounts payable and accrued
expenses (1,755) (1,300) 7,841
Payables to affiliates 22,306 1,520 (4,296)
Obligations for employee benefits 562 (229) (2,560)
Income taxes payable 991 (482) (3,577)
Net cash (used in) provided by
operating activities (8,615) 21,672 12,516
Cash flows from investing activities:
Investments purchased (14,970) (42,297) (86,615)
Investments sold or matured 35,940 29,846 111,134
Decrease (increase) in
investment in affiliates (814) (6,813) (32,854)
Property and equipment purchased,
transferred to affiliates, net 2,995 1,716 (3,129)
Net cash provided by (used in)
investing activities 23,151 (17,548) (11,464)
Cash flows from financing activities:
Additional expenses related to
public stock offering - - (117)
Payments on capital lease obligations (3,509) (3,931) (4,074)
Purchase of Class A treasury stock (78) (60) (128)
Net cash used in financing activities (3,587) (3,991) (4,319)
Net increase (decrease) in cash
and cash equivalents 10,949 133 (3,267)
Cash and cash equivalents,
beginning of year 199 66 3,333
Cash and cash equivalents, end of year $11,148 $199 $66
Supplemental Schedule of Noncash
Investing and Financing Activities:
Equipment acquired through
capital leases $4,001 $1,236
Disposal of equipment under
capital leases 1,789
The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.
Exhibit 10.4.1
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of August 8, 1994,
is entered into by and between BLUE CROSS AND BLUE SHIELD OF
MISSOURI, a Missouri not-for-profit corporation ("BCBSMO"), and
RIGHTCHOICE MANAGED CARE, INC., a Missouri corporation
("RightCHOICE").
WITNESSETH
WHEREAS, BCBSMo, RightCHOICE and Healthy Alliance Life
Insurance Company, a Missouri corporation ("HALIC"), are parties
to that certain Reorganization Agreement, dated as of August 8,
1994 (the "Reorganization Agreement");
WHEREAS, the Reorganization Agreement provides for the
transfer of certain assets and business from BCBSMo to HALIC and
from BCBSMO to RightCHOICE upon the effective date of that
Agreement (the "Reorganization");
WHEREAS, the Reorganization will result in BCBSMo needing
certain services so as to allow it to continue to offer the
Retained Products; and the Reorganization will result in
RightCHOICE needing certain services from BCBSMo.
WHEREAS, RightCHOICE wishes to make available those
services which BCBSMo will require; and BCBSMo wishes to make
available those services which RightCHOICE will require;
WHEREAS, it is a condition precedent to the terms of the
Reorganization Agreement that the parties hereto enter into this
Agreement;
WHEREAS, the parties hereto desire to satisfy such condition
by entering into this Agreement pursuant to which the parties
will provide certain services to each other.
NOW, THEREFORE, in consideration of the foregoing premises
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
SECTION 1.01. Definitions. Capitalized words and terms
used herein and not otherwise defined shall have the meanings
assigned to such words in the Reorganization Agreement. In
addition, the following words and terms shall have the following
meanings:
"Agreement" means this Amended and Restated Administrative
Services Agreement, dated as of August 8, 1994, by and between
BCBSMO and RightCHOICE, together with all duly authorized
amendments hereto.
"Confidential Information" means any information, whether or
not reduced to writing, used by or belonging or relating to
BCBSMo, including, without limitation, any and all business or
trade secrets, information relating to BCBSMo's employees,
arrangements with any person, firm or company, information as to
expenses, sales, revenues and other financial information
concerning BCBSMo, and information concerning methods,
techniques, procedures and facilities employed by BCBSMO in the
development, production, distribution, marketing and sales of
BCBCMo's business, products and services, except information
which is or becomes generally available to the public other than
as a result of communication or disclosure by RightCHOICE or
RightCHOICE's Representatives.
"Person" means a partnership, a joint venture, a
corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or
agency thereof.
"Reorganization Agreement" means that certain Reorganization
Agreement, dated as of August 8, 1994, by and among BCBSMo,
RightCHOICE and HALIC, together with all duly authorized
amendments thereto.
"Representatives" means all agents, employees,
representatives, directors, officers, affiliates and financial,
Legal and other advisors of a Person, all entities affiliated
with such Person, and the agents, employees, representatives,
directors, officers, affiliates and financial, legal and other
advisors of such affiliated entities.
"Retained Products" means those services and products for
which the right to offer to individuals or groups of individuals
was not transferred from BCBSMo to RightCHOICE or HALIC pursuant
to the terms of the Reorganization Agreement.
"Subsequent Software Enhancements" means at any moment in
time during the term of this Agreement, all of the computer
software programs and procedures, and all related documentation,
in any and every form, then owned by or licensed to RightCHOICE;
provided, however, that the Subsequent Software Enhancements
shall not include either (i) the Core Software or (ii) the
Software Enhancements.
"Subsidiary" means any Person at least fifty percent of the
capital stock of any class of which shall, at the time as of
which any determination is being made, be owned by RightCHOICE
either directly or through Subsidiaries.
SECTION 1.02. Construction. In this Agreement, unless the
context otherwise requires:
(a) Articles and Sections referred to by number shall
mean the corresponding Articles and Sections of this
Agreement.
(b) The terms "hereby," "hereof," "hereto," "herein,"
"hereunder," and any similar terms, as used in this
Agreement
refer to this Agreement, and the term "hereafter" shall
mean after, and the term "heretofore' shall mean before the
date of execution of this Agreement.
(c) Words of the masculine gender shall be deemed and
construed to include correlative words of the feminine and
neuter genders. Words importing the singular singular
shall include the plural number and vice versa, and words
importing persons shall include corporations and
associations, including public bodies, as well as natural
persons.
ARTICLE II
PROVISION OF SERVICES AND SOFTWARE
SECTION 2.01. Services Provided by RightCHOICE. For the
term of this agreement, BCBSMo will engage the services of
RightCHOICE with respect to, and upon the request of BCBSMO,
RightCHOICE will or will cause its Subsidiaries to perform, the
following functions, as well as others which may be mutually
agreed upon from time to time, as necessary or appropriate to
enable BCBSMo to continue to offer the Retained Products and
conduct its other businesses, unless otherwise mutually agreed to
by the parties:
(a) Medical claims benefits administration,
(b) Utilization management services,
(c) Medical claims review,
(d) Payroll services,
(e) Electronic data processing services,
(f) Community affairs and public relations services,
(g) Financial reporting and accounting services,
(h) Cash management and investment administration,
(i) Advertising, sales promotion and publication of
reports,
(j) Employee benefits administration,
(k) Services related to employment and discharge of
personnel,
(l) Preparation of tax returns,
(m) Regulatory agency services,
(n) Purchase and delivery of supplies,
(o) Mail service,
(p) Telecommunications services,
(q) Billing and collection of premiums,
(r) Computer support and central data base
maintenance,
(s) Actuarial services,
(t) Marketing services for the various products
offered by BCBSMO,
(u) Plan performance reporting,
(v) BCBSA license services,
(w) Office and building services, and
(x) Sublease of office space, as provided for in the
Sublease attached as Exhibit 1.
SECTION 2.02. Services Provided by BCBSMo. For the term
of this Agreement, RightCHOICE will engage the services of BCBSMo
with respect to, and upon the request of RightCHOICE, BCBSMo will
perform the following functions, as well as others, as necessary
or appropriate to enable RightCHOICE to offer its products and
conduct its other businesses unless otherwise mutually agreed to
by the parties:
(a) Community Relations Program,
(b) Municipal Relations Program,
(c) Plan Reporting to BCBSA,
(d) Such additional services as nay be agreed to from
time to time.
SECTION 2 03. Software Licenses and Fees.
(a) RightCHOICE hereby grants to BCBSMo for the term
of this Agreement a nonexclusive license to use all of the
Software Enhancements and all of the Subsequent Software
Enhancements. During the term of this Agreement, BCBSMO shall pay
a software license fee to RightCHOICE in the amount of $10,000
per month for use of the Software Enhancements and the Subsequent
Software Enhancements.
(b) BCBSMo hereby grants to RightCHOICE and its
Subsidiaries for the term of this Agreement a nonexclusive
license to use all of the Core Software. During the term of this
Agreement, RightCHOICE shall pay a software license fee to BCBSMo
for the use of the Core Software in the amount of $10,000 per
month.
(c) Any amounts due under Section 2.02(a) or (b) shall
be paid. or shall be satisfied by way of offset against any
obligation of the parties to each other.
Section 2.04. No Limitations. There are no contractual
limitations on the parties' ability to perform any of the
activities set forth in sections 2.01 and 2.02 on their own
behalf, nor on each parties' ability to utilize the staff and
resources of the other or any subsidiary provided that each
party pays the other for services as provided herein. Each
party shall be responsible for determining those services it
requires the other or any Subsidiary to perform and for notifying
the other of any special requirements with regard to such
services.
SECTION 2.05. Payment For Services. BCBSMo will pay
RightCHOICE for the cost of any services rendered to BCSSMo by
employees of RightCHOICE or the Subsidiary all as discussed more
fully in Article III below. RightCHOICE shall credit from such
amount the cost of any services rendered by BCBSMo to
RightCHOICE.
SECTION 2.06. No Conflicts. Every effort will be made to ensure
that no employee of RiqhtCHOICE, any Subsidiary or BCBSMo will be
placed in the position of having conflicting interest with regard
to RightCHOICE any subsidiary and BCSSMo; provided, however, that
the Chief Executive Officer of BCBSMo (the "CEO") shall also be
permitted to serve RightCHOICE in that capacity. Subject to the
immediately succeeding sentence, RightCHOICE will pay to the
Chief Executive Officer his total compensation and BCBSMo shall
reimburse RightCHOICE for the percentage of the CEO's total time
which is spent on BCBSMo's affairs, which is initially
established at 25%, and shall be subject to revision from time to
time by mutual agreement. The Compensation Committee of
RightCHOICE and the Compensation Committee of BCBSMo shall review
and determine the compensation of the CEO at least annually. The
Benefits Plans in which RightCHOICE is designated as a
participating company do not include any bonus plans of BCBSMo,
and RightCHOICE will develop its own bonus plans in which the CEO
will be a participant. The Compensation Committee of BCBSMo and
the Compensation Committee of RightCHOICE, in applying their
respective bonus plans to the CEO, shall adjust amounts payable
to him thereunder to reflect an amount equal to an estimate of
the percentage of his total time that is dedicated to their
respective affairs.
SECTION 2.07. Right to Hire and Terminate Employees and
Consultants. BCBSMo shall have the right to hire and terminate
the employment or engagement of its own employees, professional
advisors and management consultants.
SECTION 2.08. Confidentiality. All Confidential Information
concerning BCBSMo obtained by RightCHOICE or any of its
Representatives, or concerning RightCHOICE or any Subsidiary
obtained by BCBSMo or any of its Representatives, in the course
of providing services under this Agreement shall be kept in
confidence by RightCHOICE, its Subsidiaries and Representatives,
on one hand, and by BCBSMo and its Representatives, on the other
hand, as provided in this Section 2.07. In the event that any
party (a "compelled party") to this Agreement becomes legally
compelled to communicate or disclose confidential Information,
such compelled party shall provide prompt notice of such
communication or disclosure to the other party to this Agreement.
The compelled party shall furnish only that portion of the
confidential information that is legally required and shall, in
the event that the other party is not a party to the action
pursuant to which the compelled party is required to make such
communication or disclosure, interpose a confidentiality defense
based upon this Agreement in an effort to ensure that
confidential treatment will be accorded said confidential
Information. Each party to this Agreement shall be deemed to-
have satisfied its obligation of confidentiality if it exercises
the same care with respect to information concerning the other
party that it takes with its own information of a similar nature,
provided that such care is reasonable under the circumstances.
SECTION 2.09. Books and Records. RightCHOICE shall make
available to BCBSMo upon request its books and records for the
purpose of verifying reimbursement as described in Section 3.01
and any other business information necessary for its operations.
SECTION 2.10. Standard of Service. Services provided by
RightCHOICE to BCBSMO pursuant to section 2.01 and services
provided by BCBSMo to RightCHOICE pursuant to Section 2.02 shall
be consistent with standards prevailing in the industry and shall
be of the same quality provided to its own organization.
ARTICLE III
COMPENSATION FOR SERVICES
SECTION 3.01. Amount.
(a) BCBSMo shall reimburse RightCHOICE for the direct
and indirect costs and expenses (including overhead expenses)
incurred by RightCHOICE and any Subsidiary in furnishing or
obtaining any of the services provided for under Section 2.01
hereof. Costs and expenses directly traceable shall be passed
through at cost. For the purpose of the allocation of indirect
costs and overhead expenses (collectively called "overhead"),
BCBSMo shall be treated as a cost center of RightCHOICE. Such
overhead shall be allocated at cost based upon internal cost
accounting procedures and methodologies of RightCHOICE as
consistently applied to other RightCHOICE cost centers.
RightCHOICE shall disclose to BCBSMO the details of the internal
cost accounting procedures and methodologies utilized in such
overhead allocation and shall disclose to BCBSMo supporting
documentation showing flow such overhead allocation is
consistently applied to RightCHOICE cost centers. No profit
shall be included in overhead allocation. Any disputes concerning
the consistency of allocation of overhead to cost centers shall
be resolved in accordance with Article VI of this Agreement.
(b) RightCHOICE shall reimburse BCBSMo for the direct
and indirect costs and expenses (including overhead expenses)
incurred by BCBSMo and any Subsidiary in furnishing or obtaining
any of the services provided for under section 2.02 hereof. Costs
and expenses directly traceable shall be passed through at cast.
For the purpose of the allocation of indirect costs and overhead
expenses (collectively called "overhead"), RightCHOICE shall be
treated as a cost center of BCSSMo. Such overhead shall be
allocated at cost based upon internal cost accounting procedures
and methodologies of BCBSMo as consistently applied to other
BCBSMo cost centers. BCBSMo shall disclose to RightCHOICE the
details of the internal cost accounting procedures and
methodologies utilized in such overhead allocation and shall
disclose to RightCHOICE supporting documentation shoving how such
overhead allocation is consistently applied to BCBSMO cost
centers. No profit shall be included in overhead allocation.
Any disputes concerning the consistency of allocation of overhead
to cost centers shall be resolved in accordance with Article VI
of this Agreement.
(c) Each of BCBSMo and RightCHOICE shall pay to the
other the software license fees as provided in section 2.02
hereof.
SECTION 3.02. Payment Dates. Invoices for amounts due
pursuant to Section 3.01 shall be rendered monthly. Any amounts
due shall be paid, or shall be satisfied by way of offset against
any obligation of the parties to each other, within thirty (30)
days after receipt of the applicable invoices.
ARTICLE IV
TERM AND TERMINATION
SECTION 4.01. Term. This Agreement shall have an initial
term of three (3) years and shall automatically be extended on a
year-to-year basis thereafter unless terminated as provided in
Section 4.02.
SECTION 4.02. Termination. Either party may terminate
this Agreement as of the end of the initial term or any yearly
extension thereof by giving the other party three (3) months
prior written notice of termination.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Relationship Between Parties. (a) The
parties hereto are independent contractors and are not and shall
not be deemed for any purpose to be. joint venturers. Neither
party shall hold itself out as the partner or agent of the other
party or make representations or warranties on behalf of the
other party, except as otherwise expressly agreed to.
(b) Neither party shall be obligated to make, and shall not
make, any payments to employees of the other party for services
rendered by them as employees of the other party. Employees of
one party shall not be considered as having employee status with
the other party or as being entitled to the benefits of any
employee of the other party, except that employees of one party
may be entitled to participate in one or more employee benefit
plans of the other party as agreed to between the parties.
SECTION 5.02. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be
deemed to have been duly given or delivered it delivered
personally or mailed by registered or certified mail return
receipt requested with first class postage prepaid as follows:
If to BCBSMo:
Blue Cross and Blue Shield of Missouri
1831 Chestnut Street
St. Louis, Missouri 63103
Attn: Executive Vice President and Chief
Operating Officer
If to RightCHOICE:
RightCHOICE Managed Care, Inc.
1831 Chestnut Street
St. Louis, Missouri 63103
Attn: Executive Vice President and Chief
Operating Officer
or such other address as any person may request by notice given
as aforesaid. Notices sent as provided herein shall be deemed to
have been delivered on the fifth business day following the date
on which it is so mailed.
Section 5.03. Governing Law. This Agreement shall be
governed by and construed under the laws or the State of
Missouri.
SECTION 5.04. Amendment. This Agreement, including the
Exhibits hereto and all other agreements and documents executed
in connection herewith, constitutes the entire agreement among
the parties hereto with respect to the subject hereof and no
amendment, alteration or modification of this Agreement shall be
valid unless in each instance such amendment, alteration or
modification is expressed in a written instrument duly executed
by each party hereto.
SECTION 5.05. Headings. The headings contained in this
Agreement have been inserted for the convenience of reference
only and shall in no way restrict or modify any of the terms or
provision hereof.
SECTION 5.06. No Third Party Beneficiaries. Each of the
provisions of this Agreement is for the sole and exclusive
benefit of the parties hereto, respectively, as their interests
shall appear, and shall not be deemed to be for the benefit of
any other person or entity or group of persons or entities.
SECTION 5.07. Successors and Assigns. This Agreement
shall bind and insure to the benefit of each party hereto, and to
each party's successors, assigns, agents and representatives.
SECTION 5.08. Partial Invalidity. In the event that any
term or provision of this Agreement shall to any extent be held
by a court of proper jurisdiction to be invalid or unenforceable
for any reason, the remainder of this Agreement shall not be
affected thereby and the remaining terms and provisions hereof
shall remain in full force and effect. The invalid or
unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as will achieve
the intent of this Agreement.
Section 5.09. Counterparts. The Agreement may be executed
in two or more counterparts, each or which shall be deemed to be
an original, but all of which together shall constitute one and
the same instrument.
ARTICLE VI
RESOLUTION OF DISPUTES
Section 6.01. General. This Article VI shall govern the
resolution of any disputes arising under the provision of
services Pursuant to Article II and compensation for such
services pursuant to Article III.
Section 6.02. Procedure for Resolution of Disputes.
(a) The representatives of the parties having first hand
knowledge of the dispute shall endeavor to resolve the dispute
through good faith discussions in an effort to reach an agreement
which is fair to both parties and is consistent with the spirit
of cooperation between the parties.
(b) If the dispute is not resolved pursuant to
Subsection (a) of this Section 6.03 within 30 days, the dispute
shall be submitted to the respective Chief Operating Officers of
the parties who shall meet and engage in good faith discussions
to reach an agreement which is fair to bath parties and is
consistent with the spirit of cooperation between the parties.
(c) If the dispute is not resolved pursuant to
subsection (a) and (b) of this Section 6.02 within 60 days, the
dispute shall be submitted to the respective chief legal counsel
for the parties who shall agree upon an alternate dispute
resolution mechanism to resolve the dispute.
(d) If the respective chief legal counsel cannot, within 30
days after the dispute is referred to them, agree upon an
alternate dispute resolution mechanism to resolve the dispute,
the dispute shall be referred to the St. Louis Office of the
American Arbitration Association for binding arbitration
under the Commercial Arbitration Rules of that Association.
IN WITNESS WHEREOF, the parties have entered into this Agreement
as of the date hereinabove written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ Robert E. Shupe
Name: Robert E. Shupe
Title: Executive Vice President
and Chief Operating Officer
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Roy R. Heimburger
Name: Roy R. Heimburger
Title: President and Chief
Executive Officer
Exhibit 10.5.1
AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
THIS AGREEMENT, is made and entered into as of the 8th
day of January, 1998, by and between BLUE CROSS AND
BLUE SHIELD OF MISSOURI, (hereinafter referred to as
"Parent") and RIGHTCHOICE MANAGED CARE, INC. ("Subsidiary"),
WITNESSETH:
WHEREAS, Parent and Subsidiary are members of an
affiliated group of corporations
within the meaning of section 1504(a)(1) of the Internal
Revenue Code of 1986 (the "Code") for
which Parent is the parent corporation;
WHEREAS, Parent and its eligible subsidiaries (the
"Consolidated Group") have elected
and consented to file and do file consolidated Federal
income tax returns; and
WHEREAS, the parties wish to agree on the payment of
tax liabilities between Parent
and Subsidiary in a manner pursuant to which the Subsidiary
pays Parent an amount of Federal
income tax based upon the amount of Federal income taxes
which would be payable by the
Subsidiary if it filed a separate Federal income tax return,
which includes that income, gain, loss
and deductions of Subsidiary and its includible subsidiaries
(Subsidiary and such includible
subsidiaries, including companies that become subsidiaries
after the date of this agreement, are
hereinafter collectively referred to as the "Subsidiary
Group"), which are includible in the
Consolidated Group;
WHEREFORE, pursuant to the reorganization of Parent
(the "Reorganization") which
occurred in August, 1994, Parent transferred a significant
portion of its business to Subsidiary
which had been established for such purpose; and
WHEREFORE, as a part of the Reorganization, Parent
transferred to Subsidiary a
reserve in the amount of $16 million for possible federal
income tax payment deficiencies. Such
reserve had been accumulated by Parent during the years
preceding 1994 and is hereinafter
referred to as "Federal Tax Reserve."
NOW, THEREFORE, Parent and Subsidiary hereby agree as
follows:
I. Consolidated Return
Parent and the Consolidated Group have elected to file
consolidated Federal income tax
returns for the taxable period ending December 31,
1994, and for any subsequent taxable
period for which the Consolidated Group is permitted to
file a consolidated Federal
income tax return. Parent and Subsidiary agree to file
such consents and other
documents and to take such action as may be necessary
to carry out the purposes and
provisions of this paragraph.
II. Calculation of Separate Company Federal Income Tax Liability
A. Beginning with the period ended December 31, 1994,
and for each tax year
thereafter, Subsidiary will calculate the Federal
income tax liability for the
Subsidiary Group, without considering the Federal
alterative minimum tax
("AMT"), as if the Subsidiary Group were treated
as a single taxpayer for
Federal income tax purposes and were to file a
separate Federal income tax return
for the Subsidiary Group for such period, as
modified by the provisions of
paragraph B below.
B. In so computing the Federal income tax liability
of the Subsidiary Group:
1. Except as otherwise provided herein,
"separate company taxable income
(loss)" shall be determined as if the
Subsidiary Group was a single
corporation and was filing a separate tax
return, and the term will not
have the same meaning as described in
Regulation 1.1502-12.
2. Any dividends received by one corporation in
the Consolidated Group
from another corporation in the Consolidated
Group will be assumed to
qualify for the 100% dividend received
deduction of Section 243 and shall
be eliminated from such computation in
accordance with Regulation
1.1502-14(a)(1).
3. Gain or loss on intercompany transactions,
whether deferred or not shall
be treated by the Subsidiary Group in the
manner required by Regulation
1.1502-13 (so that the Subsidiary Group
reports the gain or loss on
intercompany transactions consistent with the
treatment accorded such
transactions on the Consolidated Group's
consolidated Federal income tax
return).
4. Certain limitations, as provided in the Code,
regarding the calculation or
utilization of a deduction, the utilization
of credits and the computation of
separate company tax liability of the
Subsidiary Group shall be made on
a consolidated basis.
a. The limitation on charitable
contribution deductions, as provided
in Code Section 170(b)(2), shall be
computed in accordance with
Regulation 1.1502-24.
b. The limitation on the utilization of
foreign tax credits, as provided
in Code Section 904(a), shall be
computed in accordance with
Regulation 1.1502-4.
c. The limitation on the utilization of
jobs tax credits and other
general business credits, as provided in
Section 38(c)(1), shall be
computed on a consolidated basis.
d. The computation of the limitation on
capital losses, as provided in
Code Section 1211(a), shall be computed
in accordance with
Regulation 1.1502-22.
e. The computation of Section 1231 gain or
loss shall be made in
accordance with Regulation 1.1502-23.
f. The computation and utilization of any
net operating loss
deduction, as provided in Section
172(b)(2) shall be computed in
accordance with Regulation 1.1502-21.
g. The utilization and limitation of
certain built-in deductions, as
provided in Regulation 1.1502-15, shall
be computed in
accordance with such section.
h. The computation of the dividend received
deduction with respect
to dividends received from outside the
Group, as provided in
Sections 243 through 247 shall be
computed in accordance with
Regulation 1.1502-26.
i. With respect to similar limitations not
specifically mentioned
herein, they shall be applied on a
consolidated basis.
5. Deductions and credits which can be partially
utilized as a result of
applying such consolidated limitations shall
be allocated and apportioned
among the Subsidiary Group and the Parent and
the other members of the
Consolidated Group based upon the proportion
of each such deductions
and credits of such group or corporation, as
appropriate, to the aggregate
amount of each such deductions and credits.
6. Notwithstanding Regulation 1.1502-17, Parent
may direct Subsidiary or
any other member of the Subsidiary Group to
apply, with the
Commissioner of the Internal Revenue Service,
under Code Section
446(e), for a change in the method of
accounting for such corporation on
an overall basis or for any material item.
7. Notwithstanding Regulation 1.1502-17, Parent
must consent to any
change in method of accounting by Subsidiary
or any member of the
Subsidiary Group on an overall basis or for
any material item. If a
method of accounting has not been established
by Subsidiary or other
member of the Subsidiary Group, Parent must
consent to the selection of
an accounting method by such corporation.
8. Notwithstanding Regulation 1.1502-17, Parent
may direct and must
authorize any election which Subsidiary or
other member of the Subsidiary
Group may make under the Code or Treasury
Regulations which may
affect the Consolidated Group's taxable
position. This authorization
includes, but is not limited to, Section 453
(installment obligations),
Section 248 (organizational expenditures) and
Section 1033 (involuntary
conversions).
9. The amounts in each taxable income bracket in
the tax table in Section
11(b) shall be allocated in any given year to
the members of the
Consolidated Group as Parent shall elect.
Such election shall be made on
an annual basis and shall be binding upon all
parties to this agreement.
10. The $25,000 direct offset to tax liability
provided for in Code Section
38(c)(1)(B) shall be allocated in any given
year to those members of the
Consolidated Group as Parent shall elect.
11. In calculating any carryback or carryover of
net operating losses,
adjustments shall be made to such prior or
subsequent years, separate
company taxable income and tax as determined
under Code Section
172(b)(1). For purposes of such adjustments,
any election under Code
Section 172(b)(3) to forego a loss carryback
shall be made by the Parent.
C. The AMT will be determined on a consolidated basis
by the Parent. If the AMT
computed on a consolidated basis exceeds the
regular tax as computed on a
consolidated basis, the excess will be allocated
to Subsidiary based upon the
Subsidiary Group's portion of tax preferences,
adjustments, and other items
causing the AMT to be applicable at the
consolidated level, as follows:
Excess of AMT
Over Regular
Tax
Times
(Portion of Tax Preferences and
Adjustment Attributable to Subsidiary Group
Divided by
Total of Tax Preferences and
Adjustments for Group)
Equals
Excess AMT
Over Regular
Tax Allocation
to Subsidiary
The Excess of AMT Over Regular Tax Allocated to
Subsidiary shall be added to
Subsidiary's separate return tax liability determined
in paragraphs A and B above. The
AMT allocated to Subsidiary for any tax year shall not
exceed the excess of Federal
AMT over regular tax, nor shall such allocation be less
than zero.
In determining the portion of tax preferences
attributable to the Subsidiary Group, the
portion of the consolidated adjustment for adjusted
current earnings of Code Section
56(c)(1), if any, allocable to the Subsidiary shall be
an amount equal to the lesser of (1)
the adjustment for adjusted current earnings computed
for the Subsidiary Group, or (2)
the consolidated adjustment for adjusted current
earnings.
If a consolidated AMT credit carryforward is generated
and utilized for any year, the
credit shall be allocated to Subsidiary based upon the
proportion of excess AMT over
regular tax allocated to Subsidiary (taking into
account the Subsidiary Group) in the
year(s) in which the credit arose. The amount of
Federal alternative minimum tax credit
allocated to Subsidiary shall not exceed the
consolidated AMT credit.
III. Liability for Tax Payments - Federal
A. If Subsidiary would be subject to Federal income
tax liability resulting from the
calculation required by Paragraph II, above,
Subsidiary shall pay such liability to
Parent as provided in Paragraph IV hereof.
B. If Subsidiary would be entitled to a refund of
Federal income tax resulting from
the calculation required by Paragraph II, above,
Subsidiary shall receive such
refund from Parent as provided in Paragraph IV
hereof. However, any such
refund is subject to the limitations included in
Subparagraph B of Paragraph II.
C. Even if the Federal income tax liability of the
Consolidated Group is increased
or decreased by reason of the inclusion of the
Subsidiary Group in a consolidated
income tax return filed by Parent, no payment or
credit attributable thereto shall
be made to either Parent or Subsidiary, it being
agreed that Subsidiary's liability
to Parent for Federal income tax shall be
determined solely as if the Subsidiary
Group calculated its Federal income tax liability
as a single taxpayer.
D. Parent agrees to be the sole agent for Subsidiary
and the Subsidiary Group and
to act in its own name in all matters relating to
the corporation Federal income
tax liability, including payment of such
liability, for any year in which it elects
or is required to file a consolidated Federal
income tax return.
IV. Method and Time of Payment
Any amount to be paid by Subsidiary to Parent or by
Parent to Subsidiary by reason of
paragraph III shall be paid quarterly based on
Subsidiary's estimated tax liability and a
final payment or credit at the time the tax return is
filed. Quarterly payments and any
final payment due with the filing of the tax return
shall be made in time to reasonably
permit Parent to make required estimated payments or
final settlements with the Internal
Revenue Service as provided in Regulation 1.1502-5
with respect to Federal income
taxes. Any portion of a refund received from the IRS
which is payable to Subsidiary
shall be paid by Parent to Subsidiary within 30 days
after receipt by Parent.
V. Adjustment of Liability for Federal Income Taxes
A. This Paragraph V shall govern any adjustment of
Federal income tax liability due
under any consolidated Federal income tax return
of the Consolidated Group or
of Parent for any period for which a consolidated
Federal income tax return was
filed as a result of any of the following: the
filing of an amended return, a
tentative loss carryback refund application, a
claim for refund, or an audit by the
IRS. In such event, the liability of the Parent
and Subsidiary hereunder shall be
redetermined after fully giving effect to any such
adjustment as if such adjustment
had been a part of the original computation.
B. Subject to Paragraph VI below, any such
adjustments made for periods ending
prior to August 2, 1994 shall be attributed to
Parent and Subsidiary on the basis
of premium revenues of trades or businesses
transferred by Parent to the
Subsidiary or other members of the Subsidiary
Group pursuant to the
Reorganization for the year 1994 on a pro forma
basis as compared to premium
revenues of the trades or businesses retained by
Parent. The provisions of this
Tax Allocation Agreement shall apply to such
periods and any tax liability,
penalties and interest related thereto shall be
computed as if (i) the Subsidiary and
the Subsidiary Group had been in existence during
such prior periods, and (ii) the
trades or businesses referred to above had been
transferred to the Subsidiary or
other members of the Subsidiary Group as of the
first day of any such period to
which an adjustment relates. It is hereby agreed
that the percentage of premium
revenues for the year 1994 on a pro forma basis
attributable to trades or business
transferred by Parent to the Subsidiary or other
members of the Subsidiary Group
was 87.2 percent and that the percentage of
premium revenues for trades or
businesses retained by Parent for such year was
12.8 percent.
C. Any such adjustments made for periods beginning on
or after August 2, 1994
attributable to the trades or businesses operated
by Subsidiary or other members
of the Subsidiary Group shall be charged to
Subsidiary or other members of the
Subsidiary Group and any tax liability, penalties
and interest related thereto shall
be paid by Subsidiary to Parent as provided in
this Agreement.
VI. Utilization of Federal Tax Reserve
This Paragraph VI shall govern the utilization of the
Federal Tax Reserve for Federal
income tax liabilities described in the Fifth Recital
(which for the purpose of this
Agreement includes any interest or penalties payable
thereon) arising from adjustments
described in Paragraph V of this Agreement.
Notwithstanding anything to the contrary
in Paragraph V, it is agreed that such Federal Tax
Reserve shall be utilized to satisfy all
Federal income tax liabilities arising from adjustments
under such Paragraph V until it
is exhausted, i.e., Subsidiary shall pay Parent an
amount equal to the first $16 million
in Federal income tax liabilities arising from such
adjustments to the Federal income tax
liabilities of Parent or any member of the Subsidiary
Group and without regard to the
trades or lines of business giving rise to such
adjustments. Any such federal income tax
liabilities arising under Paragraph V hereof in excess
of such Federal Tax Reserve shall
be paid by Subsidiary or other members of the
Subsidiary Group to Parent in accordance
with such Paragraph V.
VII. Duration
Notwithstanding the loss of eligibility of Parent and
Subsidiary to file consolidated
Federal income tax returns, this Agreement shall remain
in effect with respect to all
taxable years covered by the provisions of Paragraph V
hereof, and shall govern the
allocation of Federal income tax liabilities between
Parent and Subsidiary for all such
taxable years.
VIII.Earnings and Profits Adjustments
This Agreement is not intended to establish the method
by which the earnings and profits
of each member of the Group will be determined. Parent
reserves the right to elect the
method for allocating tax liability for the purposes of
determining earnings and profits
as set forth in Regulation 1.1552-1 (a) and 1.1502-
33(d).
IX. Miscellaneous
This agreement contains the entire Agreement among the
parties hereto, and supersedes
any prior written or oral understanding or agreement
among the parties with respect to
the subject matter hereof. No modification, extension,
renewal, recession, termination
or waiver of any of the provisions contained herein
shall be binding upon any party
unless made in writing and signed on its behalf by one
of its officers.
X. GOVERNING LAW
THE PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF MISSOURI.
XI. Successors, Assigns
The provisions and terms of this Agreement shall be
binding on and inure to the benefit
of any successor, by merger, acquisition of assets or
otherwise, to any of the parties
hereto.
XII. Consultation and Cooperation
Parent and Subsidiary shall consult with and shall
furnish each other on a timely basis
such information required to prepare: (i) the
consolidated federal income tax return of
the Affiliated Group for the taxable years in which
Subsidiary is included therein, and
(ii) after Parent and Subsidiary are no longer eligible
to file a consolidated Federal
income tax return, the tax return for all taxable years
of the Parent and Subsidiary,
respectively, in which the tax liability of either may
be affected by their former
affiliation. Parent and Subsidiary also shall consult
and furnish each other promptly with
information either Parent or Subsidiary may request in
connection with any tax audit or
tax refund claim relating to a taxable year in which a
payment to or by Subsidiary to
Parent hereunder may result or otherwise be affected or
may otherwise affect a tax return
of either Parent or Subsidiary.
XIII.Notices
All notices and other communications shall be in
writing and shall be given in person or
by means of telex, telecopy or other wire transmission
(with request for assurance of
receipt in manner typical with respect to
communications of that type) or by mail, and
shall become effective (a) on delivery if given in
person, (b) on the date of transmission
if sent by telex, telecopy or other wire transmission,
or (c) four business days after being
deposited in the mail, with proper postage for first
class, registered or certified mail,
prepaid.
Notices shall be addressed as follows:
If to Parent to:
Blue Cross and Blue Shield of Missouri
1831 Chestnut Street
St. Louis, MO 63101-2275
Attn: Executive Vice President
Telecopy No.: (314) 923-6245
If to Subsidiary to:
RightCHOICE Managed Care, Inc.
1831 Chestnut Street
St. Louis, MO 63101-2275
Attn: Executive Vice President
Telecopy No.: (314) 923-8958
provided, however, that if either party shall have
designated a different address by notice to the
other, then the last address so designated.
XIV. Resolution of Disputes
A. This Paragraph XIV shall govern the resolution of
any disputes arising under this
Agreement, and the procedures set forth
hereinbelow shall be applicable:
B. The representatives of the parties having first-
hand knowledge of the dispute shall
endeavor to resolve the dispute through good faith
discussions in an effort to
reach an agreement which is fair to both parties
and is consistent with the spirit
of cooperation between the parties.
C. If the dispute is not resolved pursuant to
subsection (b) above within 30 days, the
dispute shall be submitted to senior executives of
each of the parties, designated
by each party's Chief Executive Officer. Such
senior executives shall meet and
engage in good faith discussions and shall
endeavor to resolve the dispute with
an agreement which is fair to both parties and is
consistent with the spirit of
cooperation between the parties.
D. If the dispute is not resolved pursuant to
subsection (b) and (c) above within 60
days, the dispute shall be submitted to the
respective chief legal counsel for the
parties who shall endeavor to agree upon an
alternate dispute resolution
mechanism to resolve the dispute.
E. If the respective chief legal counsel cannot,
within 30 days after the dispute is
referred to them, agree upon an alternate dispute
resolution mechanism to resolve
the dispute, the dispute shall be referred to the
St. Louis Office of the American
Arbitration Association for binding arbitration
under the Commercial Arbitration
Rules of that Association.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARIES,
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by a duly authorized officer as of
the date first above written.
Blue Cross and Blue Shield of Missouri
By: /s/ Edward J. Tenholder
Edward Tenholder
Title:Executive Vice President and Chief
Operating Officer
RightCHOICE Managed Care, Inc.
By: /s/ Sandra Van Trease
Sandra Van Trease
Title:Executive Vice President and Chief
Operating Officer
Exhibit 10.6.3
March 18, 1998
Angela Braly, Esq.
Interim General Counsel
Blue Cross and Blue Shield of Missouri
1831 Chestnut Street
St. Louis, Missouri 63103
RE: BLUE CROSS AND BLUE SHIELD LICENSE AGREEMENTS
Dear Angela:
Enclosed please find copies of the current Primary and
Controlled Affiliate License Agreements for the Blue Cross
and the Blue Shield names and service marks (the "Marks").
Please have the appropriate people execute these documents
and send two original signed versions of each of them back
to me.
Also, please have the appropriate person at the Plan sign
where indicated at the end of this letter to acknowledge
that BCBSA's Board of Directors conditioned the grant of
these licenses upon the following terms and that the Plan
agrees to these terms:
1. The Plan on its own behalf and on behalf
of its Controlled Affiliates releases
and forever discharges BCBSA, the Member
Plans, their predecessors, successors,
parents, subsidiaries, affiliates,
assigns, agents, directors, officers,
attorneys, or employees, from and
against all actions, causes of action,
claims, suits, debts, damages,
liabilities, judgments, and demands
whatsoever, whether matured or
unmatured, whether at law or in equity,
whether known or unknown, whether fixed
or contingent, whether liquidated or
unliquidated, and whether choate or
inchoate that the Plan or any of its
Controlled Affiliates has or may have
had at any time prior to and including
the date of this agreement relating to
the termination of their prior licenses
to use the Marks.
2. The Plan and its Controlled Affiliates
are not required to provide notice to
any of their customers or to pay any
termination fee as a result of the
termination of their prior licenses to
use the Marks, as might otherwise be
required under those licenses.
3. The Plan shall continue to provide
BCBSA's General Counsel with updates on
litigation relating to the
reorganization of the Plan and its
Controlled Affiliates and the Plan's
status as a mutual benefit corporation
and with copies of all related
pleadings.
4. The Plan on its own behalf and on behalf
of its licensed Controlled Affiliates
warrants and represents that they are in
compliance with all of BCBSA's
requirements and that there is no
imminent risk of dissolution of the Plan
or any of its licensed Controlled
Affiliates. If at any time after the
effective date of this Agreement the
Plan becomes aware of any event that
indicates the Plan or any of its
licensed Controlled Affiliates is in
imminent danger of dissolution, the Plan
shall immediately notify BCBSA's General
Counsel in writing.
5. Effective upon execution of this
agreement and the attached Primary and
Controlled Affiliate License Agreements,
(i) all existing temporary licenses of
the Plan and its Controlled Affiliates
to use the Marks are terminated, and
(ii) the attached Primary and Controlled
Affiliate License Agreements are
reinstated as if a suit seeking
dissolution of the Plan had been served
but the 130 day period for automatic
termination contained in paragraph
15(a)(vii) of the licenses tolled. This
tolling shall continue as long as the
current stay of proceeding entered on
December 30, 1996 by the Circuit Court
of Cole County Missouri in the
litigation involving the Plan, the
Missouri Attorney General, and the
Missouri Insurance Commissioner remains
in full force in effect. In the event
that this stay of proceeding is no
longer in effect or is modified in any
way, then the 130 day period for
automatic termination shall commence to
run, and no longer be tolled, starting
on the date of such change to, or
elimination of, the stay. If the 130 day
period elapses without the Association's
Board of Directors having taken
affirmative action to extend the tolling
period, the Licenses from BCBSA to the
Plan and all its Controlled Affiliates
shall automatically and immediately
terminate.
-2-
6. The above terms are in addition to and
supersede any contrary terms in the
attached Primary and Controlled
Affiliate License Agreements.
Please return a signed copy of this letter to me along with
the signed copies of the licenses.
Very truly yours,
/s/ Mark A. Orloff
Mark A. Orloff
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: _________
Title: _________
Date: ________
Exhibit 10.6.4
BLUE CROSS LICENSE AGREEMENT
This agreement by and between Blue Cross and Blue Shield
Association ("BCBSA") and The Blue Cross Plan, known as Blue
Cross and Blue Shield of Missouri (the "Plan").
Preamble
WHEREAS, the Plan and/or its predecessor(s) in interest
(collectively the "Plan") had the right to use the BLUE CROSS
and BLUE CROSS Design service marks (collectively the "Licensed
Marks") for health care plans in its service area, which was
essentially local in nature;
WHEREAS, the Plan was desirous of assuring nationwide
protection of the Licensed Marks, maintaining uniform quality
controls among Plans, facilitating the provision of cost
effective health care services to the public and otherwise
benefiting the public;
WHEREAS, to better attain such ends, the Plan and the
predecessor of BCBSA in 1972 simultaneously executed the BCA
License Agreement (s) and the Ownership Agreement; and
WHEREAS, BCBSA and the Plan desire to supercede said
Agreement(s) to reflect their current practices and to assure
the continued integrity of the Licensed Marks and of the BLUE
CROSS system;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
Agreement
1. BCBSA hereby grants to the Plan, upon the terms and
conditions of this License Agreement, the right to use BLUE
CROSS in its trade and/or corporate name (the "Licensed Name"),
and the right to use the Licensed Marks, in the sale, marketing
and administration of health care plans and related services in
the Service Area set forth and defined in paragraph 5 below. As
used herein, health care plans and related services shall
include acting as a nonprofit health care plan, a for-profit
health care plan, or mutual health insurer operating on a
not-for-profit or for-profit basis, under state law; financing
access to health care services; providing health care management
and administration; administering, but not underwriting, non-
health portions of Worker's Compensation insurance; and
delivering health care services.
2. The Plan may use the Licensed Marks and Name in
connection with the offering of: a) health care plans and
related services in the Service Area through Controlled
Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the
terms and conditions contained in the Agreement attached as
Exhibit 1 hereto (the "Controlled Affiliate License Agreement");
and: b) insurance coverages offered by life insurers under the
applicable law in the Service Area, other than those which the
Plan may offer in its own name, provided through Controlled
Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the
terms and conditions contained in the Agreement attached as
Exhibit 1A hereto (the "Controlled Affiliate License Agreement
Applicable to Life Insurance Companies") and further provided
that the offering of such services does not and will not dilute
or tarnish the unique value of the Licensed Marks and Name; and
c) administration and underwriting of Workers' Compensation
Insurance Controlled Affiliates, provided that each such
Controlled Affiliate is separately licensed to use the Licensed
Marks and Name under the terms and conditions contained in the
Agreement attached as Exhibit 1 hereto (the "Controlled
Affiliate License.") With respect to any HMO previously
sublicensed as provided in a License Addendum between BCBSA and
the Plan, the Plan shall have one (1) year from the date hereof
to obtain execution of the direct license required herein. As
used herein, a Controlled Affiliate is defined as an entity
organized and operated in such a manner that it is subject to
the bona fide control of a Plan or Plans and, if the entity
meets the standards of subparagraph B but not subparagraph A of
this paragraph, the entity, its owners, and persons with
authority to select or appoint members or board members, other
than a Plan or Plans, have received written approval of BCBSA.
Absent written approval by BCBSA of an alternative method of
control, bona fide control shall mean:
A. The legal authority, directly or
indirectly through wholly-owned subsidiaries: (a) to
select members of the Controlled Affiliate's
governing body having not less than 51% voting
control thereof; (b) to exercise operational control
with respect to the governance thereof; and (c) to
prevent any change in its articles of incorporation,
bylaws or other governing documents deemed
inappropriate. In addition, a Plan or Plans shall
own at least 51% of any for-profit Controlled
Affiliate; or
B. The legal authority directly or
indirectly through wholly-owned subsidiaries (a) to
select members of the Controlled Affiliate's
governing body having not less than 50% voting
control; (b) the legal ability to prevent any change
in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled
Affiliate with which it does not concur; (c) at least
equal control over the operations of the Controlled
Affiliate; and (d) to concur before the Controlled
Affiliate can:
Amended as of November 20, 1997
-2-
1. Change its legal and/or trade name;
2. Change the geographic area in which it
operates;
3. Change the types of businesses in which it
engages;
4. Create, or become liable for by way of
guarantee, any indebtedness, other than
indebtedness arising in the ordinary course of
business;
5. Sell any assets, except for sales in the
ordinary course of business or sales of
equipment no longer useful or being replaced;
6. Make any loans or advances except in the
ordinary course of business;
7. Enter into any arrangement or agreement
with any party directly or indirectly affiliated
with any of the owners of the Controlled
Affiliate or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than
the Plan or Plans (excluding owners of stock
holdings of under 5% in a publicly traded
Controlled Affiliate);
8. Conduct any business other than under the
Licensed Marks and Name;
9. Take any action that Plan or BCBSA reasonably
believes will adversely affect the Licensed
Marks or Names.
Amended as of November 20,
1997
-2a-
(The next page is page 3)
3. The Plan may engage in activities not required by
BCBSA to be directly licensed through Controlled Affiliates and
may indicate its relationship thereto by use of the Licensed
Name as a tag line, provided that the engaging in such
activities does not and will not dilute or tarnish the unique
value of the Licensed Marks and Name and further provided that
such tag line use is not in a manner likely to cause confusion
or mistake. Consistent with the avoidance of confusion or
mistake, each tag line use of the Plan's Licensed Name: (a)
shall be in the style and manner specified by BCBSA from
time-to-time; (b) shall not include the design service marks;
(c) shall not be in a manner to import more than the Plan's mere
ownership of the Controlled Affiliate; and (d) shall be
restricted to the Service Area. No rights are hereby created in
any Controlled Affiliate to use the Licensed Name in its own
name or otherwise. At least annually, the Plan shall provide
BCBSA with representative samples of each such use of its
Licensed Name pursuant to the foregoing conditions.
4. The Plan recognizes the importance of a comprehensive
national network of independent BCBSA licensees which are
committed to strengthening the Licensed Marks and Name. The
Plan further recognizes that its actions within its Service Area
may affect the value of the Licensed Marks and Name nationwide.
The Plan agrees (a) to maintain in good standing its membership
in BCBSA; (b) promptly to pay its dues to BCBSA, said dues to
represent the royalties for this License Agreement; (c)
materially to comply with all applicable laws; (d) to comply
with the Membership Standards Applicable to Regular Members of
BCBSA, a current copy of which is attached as Exhibit 2 hereto;
and (e) reasonably to permit BCBSA, upon a written, good faith
request and during reasonable business hours, to inspect the
Plan's books and records necessary to ascertain compliance
herewith. As to other Plans and third parties, BCBSA shall
maintain the confidentiality of all documents and information
furnished by the Plan pursuant hereto, or pursuant to the
Membership Standards, and clearly designated by the Plan as
containing proprietary information of the Plan.
5. The rights hereby granted are exclusive to the Plan
within the geographical area(s) served by the Plan on June 30,
1972, and/or as to which the Plan has been granted a subsequent
license, which is hereby defined as the "Service Area," except
that BCBSA reserves the right to use the Licensed Marks in said
Service Area, and except to the extent that said Service Area
may overlap areas served by one or more other licensed Blue
Shield Plans as of said date or subsequent license, as to which
overlapping areas the rights hereby granted are nonexclusive as
to such other Plan or Plans only.
Amended as
of November 20, 1997
-3-
6. Except as expressly provided by BCBSA with respect to
National Accounts, Government Programs and certain other
necessary and collateral uses, the current rules and regulations
governing which are attached as Exhibit 3 and Exhibit 4 hereto,
or as expressly provided herein, the Plan may not use the
Licensed Marks and Name outside the Service Area or in
connection with other goods and services, nor may the Plan use
the Licensed Marks or Name in a manner which is intended to
transfer in the Service Area the goodwill associated therewith
to another mark or name. Nothing herein shall be construed to
prevent the Plan from engaging in lawful activity anywhere under
other marks and names not confusingly similar to the Licensed
Marks and Name, provided that engaging in such activity does and
will not dilute or tarnish the unique value of the Licensed
Marks and Name.
7. The Plan agrees that it will display the Licensed
Marks and Name only in such form, style and manner as shall be
specifically prescribed by BCBSA from time-to-time in
regulations of general application in order to prevent
impairment of the distinctiveness of the Licensed Marks and Name
and the goodwill pertaining thereto. The Plan shall cause to
appear on all materials on or in connection with which the
Licensed Marks or Name are used such legends, markings and
notices as BCBSA may reasonably request in order to give
appropriate notice of service mark or other proprietary rights
therein or pertaining thereto.
8. BCBSA agrees that: (a) it will not grant any other
license effective during the term of this License Agreement for
the use of the Licensed Marks or Name which is inconsistent with
the rights granted to the Plan hereunder; and (b) it will not
itself use the Licensed Marks in derogation of the rights of the
Plan or in a manner to deprive the Plan of the full benefits of
this License Agreement. The Plan agrees that it will not attack
the title of BCBSA in and to the Licensed Marks or Name or
attack the validity of the Licensed Marks or of this License
Agreement. The Plan further agrees that all use by it of the
Licensed Marks and Name or any similar mark or name shall inure
to the benefit of BCBSA, and the Plan shall cooperate with BCBSA
in effectuating the assignment to BCBSA of any service mark or
trademark registrations of the Licensed Marks or any similar
mark or name held by the Plan or a Controlled Affiliate of the
Plan, all or any portion of which registration consists of the
Licensed Marks.
-4-
9. (a). Should the Plan fail to comply with the
provisions of paragraphs 2-4, 6, 7 and/or 12, and not cure such
failure within thirty (30) days of receiving written notice
thereof (or commence curing such failure within such thirty day
period and continue diligent efforts to complete the curing of
such failure if such curing cannot reasonably be completed
within such thirty day period), BCBSA shall have the right to
issue a notice that the Plan is in a state of noncompliance.
Except as to the termination of a Plan's License Agreement or
the merger of two or more Plans, disputes as to noncompliance,
and all other disputes between or among BCBSA, the Plan, other
Plans and/or Controlled Affiliates, shall be submitted promptly
to mediation and mandatory dispute resolution pursuant to the
rules and regulations of BCBSA, a current copy of which is
attached as Exhibit 5 hereto, and shall be timely presented and
resolved. The mandatory dispute resolution panel shall have
authority to issue orders for specific performance and assess
monetary penalties. If a state of noncompliance as aforesaid is
undisputed by the Plan or is found to exist by a mandatory
dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the License
Agreement. Except, however, as provided in paragraphs 9(d)(iii)
and 15(a)(i)-(viii) below, no Plan's license to use the Licensed
Marks and Name may be finally terminated for any reason without
the affirmative vote of three-fourths of the Plans and
three-fourths of the total then current weighted vote of all the
Plans.
(b). Notwithstanding any other provision of this
License Agreement, a Plan's license to use the Licensed Marks
and Name may be forthwith terminated by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then
current weighted vote of all the Plans at a special meeting
expressly called by BCBSA for the purpose on ten (10) days
written notice for: (i) failure to comply with any minimum
capital or liquidity requirement under the Membership Standard
on Financial Responsibility; or (ii) impending financial
insolvency; or (iii) the pendency of any action instituted
against the Plan seeking its dissolution or liquidation or its
assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any
of its property of business, unless this License Agreement has
been earlier terminated under paragraph 15(a); or (iv) such
other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans and/or the Licensed Marks.
(c). To the extent not otherwise provided therein,
neither: (i) the Membership Standards Applicable to Regular
Members of BCBSA; nor (ii) the rules and regulations governing
National Accounts, Government Programs and certain other uses;
nor (iii) the rules and regulations governing mediation and
mandatory dispute resolution, may be amended unless and until
each such amendment is first adopted by the affirmative vote of
three-fourths of the Plans and of three-fourths of the total
then current weighted vote of all the Plans.
Amended as of November 20, 1997
-5-
9. (d). The Plan may operate as a for-profit company
on the following conditions:
(i) The Plan shall discharge all
responsibilities which it has to the Association and to other
Plans by virtue of this Agreement and the Plan's membership in
BCBSA.
(ii) The Plan shall not use the licensed Marks and
Name, or any derivative thereof, as part of its legal name or
any symbol used to identify the Plan in any securities market.
The Plan shall use the licensed Marks and Name as part of its
trade name within its service area for the sale, marketing and
administration of health care and related services in the
service area.
(iii) The Plan's license to use the Licensed Marks and
Name shall automatically terminate effective: (a) thirty days
after the Plan knows, or there is an SEC filing indicating that,
any Institutional Investor, has become the Beneficial Owner of
securities representing 10% or more of the voting power of the
Plan ("Excess Institutional Voter"), unless such Excess
Institutional Voter shall cease to be an Excess Institutional
Voter prior to such automatic termination becoming effective;
(b) thirty days after the Plan knows, or there is an SEC filing
indicating that, any Noninstitutional Investor has become the
Beneficial Owner of securities representing 5% or more of the
voting power of the Plan ("Excess Noninstitutional Voter")
unless such Excess Noninstitutional Voter shall cease to be an
Excess Noninstitutional Voter prior to such automatic
termination becoming effective; (c) thirty days after the Plan
knows, or there is an SEC filing indicating that, any Person has
become the Beneficial Owner of 20% or more of the Plan's then
outstanding common stock or other equity securities which
(either by themselves or in combination) represent an ownership
interest of 20% or more pursuant to determinations made under
paragraph 9(d)(iv) below ("Excess Owner"), unless such Excess
Owner shall cease to be an Excess Owner prior to such automatic
termination becoming effective; (d) ten business days after
individuals who at the time the Plan went public constituted the
Board of Directors of the Plan (together with any new directors
whose election to the Board was approved by a vote of 2/3 of the
directors then still in office who were directors at the time
the Plan went public or whose election or nomination was
previously so approved) (the "Continuing Directors") cease for
any reason to constitute a majority of the Board of Directors;
or (e) ten business days after the Plan consolidates with or
merges with or into any person or conveys, assigns, transfers or
sells all or substantially all of its assets to any person other
than a merger in which the Plan is the surviving entity and
immediately after which merger, no person is an Excess
Institutional Voter, an Excess Noninstitutional Voter or an
Excess Owner: provided that, if requested by the affected Plan
in a writing received by BCBSA prior to such automatic
termination becoming effective, the provisions of this paragraph
9(d)(iii) may be waived, in whole or in part,
Amended as of September 17, 1997
-5a-
upon the affirmative vote of a majority of the disinterested
Plans and a majority of the total then current weighted vote of
the disinterested Plans. Any waiver so granted may be
conditioned upon such additional requirements (including but not
limited to imposing new and independent grounds for termination
of this License) as shall be approved by the affirmative vote of
a majority of the disinterested Plans and a majority of the
total then current weighted vote of the disinterested Plans. If
a timely waiver request is received, no automatic termination
shall become effective until the later of: (1) the conclusion of
the applicable time period specified in paragraphs 9(d)(iii)(a)-
(d) above, or (2) the conclusion of the first Member Plan
meeting after receipt of such a waiver request.
In the event that the Plan's license to use the Licensed Marks
and Name is terminated pursuant to this Paragraph 9(d)(iii), the
license may be reinstated in BCBSA's sole discretion if, within
30 days of the date of such termination, the Plan demonstrates
that the Person referred to in clause (a), (b) or (c) of the
preceding paragraph is no longer an Excess Institutional Voter,
an Excess Noninstitutional Voter or an Excess Owner.
(iv) The Plan shall not issue any class or series of
security other than (i) shares of common stock having identical
terms or options or derivatives of such common stock, (ii) non-
voting, non-convertible debt securities or (iii) such other
securities as the Plan may approve, provided that BCBSA receives
notice at least thirty days prior to the issuance of such
securities, including a description of the terms for such
securities, and BCBSA shall have the authority to determine how
such other securities will be counted in determining whether any
Person is an Excess Institutional Voter, Excess Noninstitutional
Voter or an Excess Owner.
(v) For purposes of paragraph 9(d)(iii), the following
definitions shall apply:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, as amended and in effect on November 17, 1993
(the "Exchange Act").
(b) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
Amended as of September 17, 1997
-5b-
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such
Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary
agreements with and between underwriters and selling group
members with respect to a bona fide public offering of
securities) relating to the acquisition, holding, voting
(except to the extent contemplated by the proviso to
(b)(ii)(B) above) or disposing of any securities of the
Plan.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding,"
when used with reference to a Person's Beneficial Ownership
of securities of the Plan, shall mean the number of such
securities then issued and outstanding together with the
number of such securities not then actually issued and
outstanding which such Person would be deemed to own
beneficially hereunder.
(c) A Person shall be deemed an "Institutional Investor"
if (but only if) such Person (i) is an entity or group
identified in the SEC's Rule 13d-1(b)(1)(ii) as constituted
on June 1, 1997, and (ii) every filing made by such Person
with the SEC under Regulation 13D-G (or any successor
Regulation) with respect to such Person's Beneficial
Ownership of Plan securities shall have contained a
certification identical to the one required by item 10 of
SEC Schedule 13G as constituted on June 1, 1997.
Amended as of September 17, 1997
-5c-
(d) "Noninstitutional Investor" means any Person who is
not an Institutional Investor.
(e)"Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other
entity, and shall include any successor (by merger or
otherwise) of such entity.
Amended as of September 17, 1997
-5d-
(The next page is page 6)
10. This License Agreement shall remain in effect: (a)
until terminated as provided herein; or (b) until this and all
such other License Agreements are terminated by the affirmative
vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans; or (c) until
termination of the aforesaid Ownership Agreement; or (d) until
terminated by the Plan upon six (6) months written notice to
BCBSA.
11. Except as otherwise provided in paragraph 15 below or
by the affirmative vote of three-fourths of the Plans and
three-fourths of the total then current weighted vote of all the
Plans, or unless this and all such other License Agreements are
simultaneously terminated by force of law, the termination of
this License Agreement for any reason whatsoever shall cause the
reversion to BCBSA of all rights in and to the Licensed Marks
and Name, and the Plan agrees that it will promptly discontinue
all use of the Licensed Marks and Name, will not use them
thereafter, and will promptly, upon written notice from BCBSA,
change its corporate name so as to eliminate the Licensed Name
therefrom.
12. The license hereby granted to Plan to use the Licensed
Marks and Name is and shall be personal to the Plan so licensed
and shall not be assignable by any act of the Plan, directly or
indirectly, without the written consent of BCBSA. Said license
shall not be assignable by operation of law, nor shall Plan
mortgage or part with possession or control of this license or
any right hereunder, and the Plan shall have no right to grant
any sublicense to use the Licensed Marks and Name.
13. BCBSA shall maintain appropriate service mark
registrations of the Licensed Marks and BCBSA shall take such
lawful steps and proceedings as may be necessary or proper to
prevent use of the Licensed Marks by any person who is not
authorized to use the same. Any actions or proceedings
undertaken by BCBSA under the provisions of this paragraph shall
be at BCBSA's sole cost and expense. BCBSA shall have the sole
right to determine whether or not any legal action shall be
taken on account of unauthorized use of the Licensed Marks, such
right not to be unreasonably exercised. The Plan shall report
any unlawful usage of the Licensed Marks to BCBSA in writing and
agrees, free of charge, to cooperate fully with BCBSA's program
of enforcing and protecting the service mark rights, trade name
rights and other rights in the Licensed Marks.
-6-
14. The Plan hereby agrees to save, defend, indemnify
and hold BCBSA and any other Plan(s) harmless from and against
all claims, damages, liabilities and costs of every kind, nature
and description which may arise exclusively and directly as a
result of the activities of the Plan. BCBSA hereby agrees to
save, defend, indemnify and hold the Plan and any other Plan(s)
harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description which may arise
exclusively and directly as a result of the activities of BCBSA.
15. (a). This Agreement shall automatically
terminate upon the occurrence of any of the following events:
(i) a voluntary petition shall be filed by the Plan or by BCBSA
seeking bankruptcy, reorganization, arrangement with creditors
or other relief under the bankruptcy laws of the United States
or any other law governing insolvency or debtor relief, or (ii)
an involuntary petition or proceeding shall be filed against the
Plan or BCBSA seeking bankruptcy, reorganization, arrangement
with creditors or other relief under the bankruptcy laws of the
United States or any other law governing insolvency or debtor
relief and such petition or proceeding is consented to or
acquiesced in by the Plan or BCBSA or is not dismissed within
sixty (60) days of the date upon which the petition or other
document commencing the proceeding is served upon the Plan or
BCBSA respectively, or (iii) an order for relief is entered
against the Plan or BCBSA in any case under the bankruptcy laws
of the United States, or the Plan or BCBSA is adjudged bankrupt
or insolvent (as that term is defined in the Uniform Commercial
Code as enacted in the state of Illinois) by any court of
competent jurisdiction, or (iv) the Plan or BCBSA makes a
general assignment of its assets for the benefit of creditors,
or (v) the Department of Insurance or other regulatory agency
assumes control of the Plan or delinquency proceedings
(voluntary or involuntary) are instituted, or (vi) an action is
brought by the Plan or BCBSA seeking its dissolution or
liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by
any governmental entity or officer against the Plan or BCBSA
seeking its dissolution or liquidation of its assets or seeking
appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by the Plan or BCBSA or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Plan or BCBSA respectively, provided that if the
action is stayed or its prosecution is enjoined, the one hundred
thirty (130) day period is tolled for the duration of the stay
or injunction, and provided further, that the Association's
Board of Directors may toll or extend the 130 day period at any
time prior to its expiration, or (viii) a trustee, interim
trustee, receiver or other custodian for any of the Plan's or
BCBSA's property or business is appointed, or (ix) the Plan
shall fail to pay its dues and shall not cure such failure
within thirty (30) days of receiving written notice thereof.
Notwithstanding any other provision of this Agreement, a
declaration or a request for declaration of the existence of a
trust over any of the Plan's or BCBSA's property or business
shall not in itself be deemed to constitute or seek appointment
of a trustee, interim trustee, receiver or other custodian for
purposes of subparagraphs 15(a)(vii) and (viii) of this
Agreement.
Amended November 20, 1997
-7-
(b). BCBSA, or the Plans (as provided and in addition to
the rights conferred in Paragraph 10(b) above), may terminate
this Agreement immediately upon written notice upon the
occurrence of either of the following events: (a) the Plan or
BCBSA becomes insolvent (as that term is defined in the Uniform
Commercial Code enacted in the state of Illinois), or (b) any
final judgment against the Plan or BCBSA remains unsatisfied or
unbonded of record for a period of sixty (60) days or longer.
(c). If this License Agreement is terminated as to
BCBSA for any reason stated in subparagraphs 15(a) and (b)
above, the ownership of the Licensed Marks shall revert to each
of the Plans as provided in the Ownership Agreement.
(d). Upon termination of this License Agreement or any
Controlled Affiliate License Agreement of a Larger Controlled
Affiliate, as defined in Exhibit 1 to this License Agreement:
(i) The terminated entity
shall send a notice through the U.S.
mails, with first class postage affixed,
to all individual and group customers,
providers, brokers and agents of products
or services sold, marketed, underwritten
or administered by the terminated entity
or its Controlled Affiliates under the
Licensed Marks and Name. The form and
content of the notice shall be specified
by BCBSA and shall, at a minimum, notify
the recipient of the termination of the
license, the consequences thereof, and
instructions for obtaining alternate
products or services licensed by BCBSA.
This notice shall be mailed within 15
days after termination or, if termination
is pursuant to paragraph 10(d) of this
Agreement, within 15 days after the
written notice to BCBSA described in
paragraph 10(d).
(ii) The terminated entity
shall deliver to BCBSA within five days
of a request by BCBSA a listing of
national accounts in which the terminated
entity is involved (in a Control,
Participating or Servicing capacity),
identifying the national account and the
terminated entity's role therein. For
those accounts where the terminated
entity is the Control Plan, the Plan must
also indicate the Participating and
Servicing Plans in the national account
syndicate.
Amended as of September 19, 1996
-8-
(iii) Unless the cause of
termination is an event stated in
paragraph 15(a) or (b) above respecting
BCBSA, the Plan and its Licensed
Controlled Affiliates shall be jointly
liable for payment to BCBSA of an amount
equal to $25 multiplied by the number of
Licensed Enrollees of the terminated
entity and its Licensed Controlled
Affiliates; provided that if any other
Plan is permitted by BCBSA to use marks
or names licensed by BCBSA in the Service
Area established by this Agreement, the
payment shall be multiplied by a
fraction, the numerator of which is the
number of Licensed Enrollees of the
terminated entity and its Licensed
Controlled Affiliates and the denominator
of which is the total number of Licensed
Enrollees in the Service Area. Licensed
Enrollee means each and every person and
covered dependent who is enrolled as an
individual or member of a group receiving
products or services sold, marketed or
administered under marks or names
licensed by BCBSA as determined at the
earlier of (a) the end of the last fiscal
year of the terminated entity which ended
prior to termination or (b) the fiscal
year which ended before any transactions
causing the termination began.
Notwithstanding the foregoing, the amount
payable pursuant to this subparagraph
(d)(iii) shall be due only to the extent
that, in BCBSA's opinion, it does not
cause the net worth of the Plan to fall
below 100% of the capital benchmark
formula or its equivalent under any
successor formula, as set forth in the
applicable financial responsibility
standards established by BCBSA, measured
as of the date of termination and
adjusted for the value of any
transactions not made in the ordinary
course of business.
(iv) BCBSA shall have the right
to audit the books and records of the
terminated entity and its Licensed
Controlled Affiliates to verify
compliance with this paragraph 15(d).
Amended as of September 19, 1996
-8a-
(v) As to a breach of 15 (d)
(i), (ii), (iii) or (iv), the parties
agree that the obligations are
immediately enforceable in a court of
competent jurisdiction. As to a breach
of 15 (d) (i), (ii) or (iv) by the Plan,
the parties agree there is no adequate
remedy at law and BCBSA is entitled to
obtain specific performance.
(e). BCBSA shall be entitled to enjoin the Plan
or any related party in a court of competent jurisdiction from
entry into any transaction which would result in a termination
of this License Agreement unless the License Agreement has been
terminated pursuant to paragraph 10 (d) of this Agreement upon
the required six (6) month written notice.
(f). BCBSA acknowledges that it is not the owner
of assets of the Plan.
16. This Agreement supersedes any and all other
agreements between the parties with respect to the subject
matter herein, and contains all of the covenants and agreements
of the parties as to the licensing of the Licensed Marks and
Name. This Agreement may be amended only by the affirmative
vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans as officially
recorded by the BCBSA Corporate Secretary.
17. If any provision or any part of any provision of this
Agreement is judicially declared unlawful, each and every other
provision, or any part of any provision, shall continue in full
force and effect notwithstanding such judicial declaration.
18. No waiver by BCBSA or the Plan of any breach or
default in performance on the part of BCBSA or the Plan or any
other licensee of any of the terms, covenants or conditions of
this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or
conditions.
19a. All notices provided for hereunder shall be in
writing and shall be sent in duplicate by regular mail to BCBSA
or the Plan at the address currently published for each by BCBSA
and shall be marked respectively to the attention of the
President and, if any, the General Counsel, of BCBSA or the
Plan.
19b. Except as provided in paragraphs 9(b), 9(d)(iii),
15(a), and 15(b) above, this Agreement may be terminated for a
breach only upon at least 30 days' written notice to the Plan
advising of the specific matters at issue and granting the Plan
an opportunity to be heard and to present its response to the
Member Plans.
Amended as of November 20, 1997
-8b-
(The next page is page 9)
20. Nothing herein contained shall be construed to
constitute the parties hereto as partners or joint venturers, or
either as the agent of the other, and Plan shall have no right
to bind or obligate BCBSA in any way, nor shall it represent
that it has any right to do so. BCBSA shall have no liability
to third parties with respect to any aspect of the business,
activities, operations, products, or services of the Plan.
21. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed, effective as of the date of last
signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By /s/ Mark A. Orloff
Title Vice President
Date 3/23/98
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By /s/ John A. O'Rourke
Title President
Date March 20, 1998
-9-
EXHIBIT 1
BLUE CROSS
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and _______ ("Controlled Affiliate"), a
Controlled Affiliate of the Blue Cross Plan(s), known as
_________ ("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE CROSS and BLUE CROSS Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Notwithstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Cross Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Cross Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
Controlled Affiliate:
By:
Date:
Plan:
By:
Date:____________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:______________________________________
Date:____________________________________
j:\brand\plans\project\delivery\affillic\agree\afflbc.doc
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
EXHIBIT A (continued)
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this license in
accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition of
the Controlled Affiliate's subscription revenue and contracts
arising from products using the marks. The payment by each
sponsoring Plan of its dues to BCBSA, including that portion
described in this paragraph, will satisfy the requirement of
this paragraph, and no separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity portion
of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products using the
marks; plus, an annual fee of $5,000 per license for a
Controlled Affiliate subject to Standard 7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products using the
marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same Controlled
Affiliate. In the event that any license period is greater or
less than one (1) year, any amounts due shall be prorated.
Royalties under this formula will be calculated, billed and paid
in arrears.
EXHIBIT 1A
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
This agreement by and among Blue Cross and Blue Shield
Association ("BCBSA")
_______________________________("Controlled Affiliate"), a
Controlled Affiliate of the Blue Cross Plan(s), known as
_______________________________________("Plan").
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the
latter be entitled to use the BLUE CROSS and BLUE CROSS Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name
("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement,
BCBSA hereby grants to the Controlled Affiliate the exclusive
right to use the licensed Marks and Names in connection with and
only in connection with those life insurance and related
services authorized by applicable state law, other than health
care plans and related services (as defined in the Plan's
License Agreements with BCBSA) which services are not separately
licensed to Controlled Affiliate by BCBSA, in the Service Area
served by the Plan, except that BCBSA reserves the right to use
the Licensed Marks and Name in said Service Area, and except to
the extent that said Service Area may overlap the area or areas
served by one or more other licensed Blue Shield Plans as of the
date of this License as to which overlapping areas the rights
hereby granted are non-exclusive as to such other Plan or Plans
and their respective Licensed Controlled Affiliates only.
Controlled Affiliate cannot use the Licensed Marks or Name
outside the Service Area or, anything in any other license to
Controlled Affiliate notwithstanding, in its legal or trade
name.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed
Marks and Name only in relation to the sale, marketing and
rendering of authorized products and further agrees to be bound
by the conditions regarding quality control shown in Exhibit A
as it may be amended by BCBSA from time-to-time.
Amended as of November 17, 1994
-1-
B. Controlled Affiliate agrees that Plan and/or
BCBSA may, from time-to-time, upon reasonable notice, review and
inspect the manner and method of Controlled Affiliate's
rendering of service and use of the Licensed Marks and Name.
C. Controlled Affiliate agrees that it will
provide on an annual basis (or more often if reasonably required
by Plan or by BCBSA) a report to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of Exhibit A.
D. As used herein, a Controlled Affiliate is
defined as an entity organized and operated in such a manner
that it is subject to the bona fide control of a Plan or Plans.
Absent written approval by BCBSA of an alternative method of
control, bona fide control shall mean the legal authority,
directly or indirectly through wholly-owned subsidiaries: (a) to
select members of the Controlled Affiliate's governing body
having not less than 51% voting control thereof; (b) to exercise
operational control with respect to the governance thereof; and
(c) to prevent any change in its articles of incorporation,
bylaws or other governing documents deemed inappropriate. In
addition, a Plan or Plans shall own at least 51% of any
for-profit Controlled Affiliate. If the Controlled Affiliate is
a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items (a) and (c)
above, proxies representing 51% of the votes at any meeting of
the policyholders and shall demonstrate that there is no reason
to believe this such proxies shall be revoked by sufficient
policyholders to reduce such percentage below 51%.
3. SERVICE MARK USE
Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks, including but not
limited to use of such symbols or words as BCBSA shall specify
to protect the Licensed Marks, and shall comply with such rules
(applicable to all Controlled Affiliates licensed to use the
Marks) relative to service mark use, as are issued from
time-to-time by BCBSA. If there is any public reference to the
affiliation between the Plan and the Controlled Affiliate, all
of the Controlled Affiliate's licensed services in the Service
Area of the Plan shall be rendered under the Licensed Marks.
Controlled Affiliate recognizes and agrees that all use of the
Licensed Marks by Controlled Affiliate shall inure to the
benefit of BCBSA.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer,
hypothecate, sell, encumber or mortgage, by operation of law or
otherwise, the rights granted hereunder and any such act shall
be
-2-
voidable at the option of Plan or BCBSA. This Agreement and all
rights and duties hereunder are personal to Controlled
Affiliate.
5. INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and
BCBSA of any suspected acts of infringement, unfair competition
or passing off which may occur in relation to the Licensed
Marks. Controlled Affiliate shall not be entitled to require
Plan or BCBSA to take any actions or institute any proceedings
to prevent infringement, unfair competition or passing off by
third parties. Controlled Affiliate agrees to render to Plan
and BCBSA, free of charge, all reasonable assistance in
connection with any matter pertaining to the protection of the
Licensed Marks by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend,
indemnify and hold Plan and BCBSA harmless from and against all
claims, damages, liabilities and costs of every kind, nature and
description which may arise as a result of Controlled
Affiliate's rendering of health care services under the Licensed
Marks.
7. LICENSE TERM
The license granted by this Agreement shall remain in
effect for a period of one (1) year and shall be automatically
extended for additional one (1) year periods upon evidence
satisfactory to the Plan and BCBSA that Controlled Affiliate
meets the then applicable quality control standards, unless one
of the parties hereto notifies the other party of the
termination hereof at least sixty (60) days prior to expiration
of any license period.
This Agreement may be terminated by the Plan or by
BCBSA for cause at any time provided that Controlled Affiliate
has been given a reasonable opportunity to cure and shall not
effect such a cure within thirty (30) days of receiving written
notice of the intent to terminate (or commence a cure within
such thirty day period and continue diligent efforts to complete
the cure if such curing cannot reasonably be completed within
such thirty day period). By way of example and not for purposes
of limitation, Controlled Affiliate's failure to abide by the
quality control provisions of Paragraph 2, above, shall be
considered a proper ground for cancellation of this Agreement.
This Agreement and all of Controlled Affiliate's
rights hereunder shall immediately terminate without any further
action by any party or entity in the event that:
-3-
A. Controlled Affiliate shall no longer comply with
Standard No. 1 (Organization and Governance) of Exhibit A or,
following an opportunity to cure, with the remaining quality
control provisions of Exhibit A, as it may be amended from
time-to-time; or
B. Plan ceases to be authorized to use the Licensed
Marks; or
C. Appropriate dues for Controlled Affiliate
pursuant to item 8 hereof, which are the royalties for this
License Agreement are more than sixty (60) days in arrears to
BCBSA.
Upon termination of this Agreement for cause or otherwise,
Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks including any use in
its trade name.
In the event of any disagreement between Plan and BCBSA as
to whether grounds exist for termination or as to any other term
or condition hereof, the decision of BCBSA shall control,
subject to provisions for mediation or mandatory dispute
resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of the Blue Cross and Blue Shield
Association and provide instruction on how the customer can
contact the Blue Cross and Blue Shield Association or a
designated licensee to obtain further information on securing
coverage. The written notification required by this paragraph
shall be in writing and in a form approved by the Association.
The Association shall have the right to audit the terminated
entity's books and records to verify compliance with this
paragraph.
8. DUES
Controlled Affiliate will pay to BCBSA a fee for this
license in accordance with the following formula:
An annual fee of five thousand dollars ($5,000) per
license, plus
.05% of gross revenue per year from branded group products,
plus
.5% of gross revenue per year from branded individual
products plus
.14% of gross revenue per year from branded individual
annuity products.
The foregoing percentages shall be reduced by one-half
where both a BLUE CROSSr and BLUE SHIELDr license are
issued to the same entity. In the event that any License
period is greater or less than one (1) year, any amounts
due shall be prorated. Royalties under this formula will
be calculated, billed and paid in arrears.
Amended as of November 20, 1997
-4-
Plan will promptly and timely transmit to BCBSA all dues
owed by Controlled Affiliate as determined by the above formula
and if Plan shall fail to do so, Controlled Affiliate shall pay
such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
-4a-
(The next page is page 5)
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President
and, if any, its General Counsel.
11. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This
Agreement may only be amended by a writing executed by all
parties.
12. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such finding shall in no way
effect the remaining obligations of the parties hereunder and
the court may substitute a lawful term or condition for any
unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this
Agreement.
13. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of the Controlled Affiliate or any other licensee of
any of the terms, covenants or conditions of this Agreement
shall constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed, effective as of the date of last
signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:
_
Date:
_
_
Controlled Affiliate
By:
Date:
Plan:
-5-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 1 of 2
PREAMBLE
The standards for licensing Life Insurance Companies (Life and
Health Insurance companies, as defined by state statute) are
established by BCBSA and are subject to change from time-to-time
upon the affirmative vote of three-fourths (3/4) of the Plans
and three-fourths (3/4) of the total weighted vote of all Plans.
Each Licensed Plan is required to use a standard controlled
affiliate license form provided by BCBSA and to cooperate fully
in assuring that the licensed Life Insurance Company maintains
compliance with the license standards.
An organization meeting the following standards shall be
eligible for a license to use the Licensed Marks within the
service area of its sponsoring Licensed Plan to the extent and
the manner authorized under the Controlled Affiliate License
applicable to Life Insurance Companies and the principal license
to the Plan.
Standard 1 - Organization and Governance
The LIC shall be organized and operated in such a manner that it
is controlled by a licensed Plan or Plans which have, directly
or indirectly: 1) not less than 51% of the voting control of the
LIC; and 2) the legal ability to prevent any change in the
articles of incorporation, bylaws or other establishing or
governing documents of the LIC with which it does not concur;
and 3) operational control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s)
shall have and maintain, in lieu of the requirements of items 1
and 2 above, proxies representing at least 51% of the votes at
any policyholder meeting and shall demonstrate that there is no
reason to believe such proxies shall be revoked by sufficient
policyholders to reduce such percentage below 51%.
Standard 2 - State Licensure
The LIC must maintain unimpaired licensure or certificate of
authority to operate under applicable state laws as a life and
health insurance company in each state in which the LIC does
business.
Standard 3 - Records and Examination
The LIC and its sponsoring licensed Plan(s) shall maintain and
furnish, on a timely and accurate basis, such records and
reports regarding the LIC as may be required in order to
establish compliance with the license agreement. The LIC and
its sponsoring licensed Plan(s) shall permit BCBSA to examine
the affairs of the LIC and shall agree that BCBSA's board may
submit a written report to the chief executive officer(s) and
the board(s) of directors of the sponsoring Plan(s).
-1-
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 2 of 2
Standard 4 - Mediation
The LIC and its sponsoring Plan(s) shall agree to use the then-
current BCBSA mediation and mandatory dispute resolution
processes, in lieu of a legal action between or among another
licensed controlled affiliate, a licensed Plan or BCBSA.
Standard 5 - Financial Responsibility
The LIC shall maintain adequate financial resources to protect
its customers and meet its business obligations.
-2-
EXHIBIT 2
Membership Standards
Page 1 of 3
Preamble
The Membership Standards apply to all organizations seeking to
become or to continue as Regular Members of the Blue Cross and
Blue Shield Association. Any organization seeking to become a
Regular Member must be found to be in substantial compliance
with all Membership Standards at the time membership is granted
and the organization must be found to be in substantial
compliance with all Membership Standards for a period of two (2)
years preceding the date of its application. If Membership is
sought by an entity which controls or is controlled by one or
more Plans, such compliance shall be determined on the basis of
compliance by such Plan or Plans.
The Regular Member Plans shall have authority to interpret these
Standards. Compliance with any Membership Standard may be
excused, at the Plans' discretion, if the Plans agree that
compliance with such Standard would require the Plan to violate
a law or governmental regulation governing its operation or
activities.
Standard 1: A Plan's Board shall not be controlled by any
special interest group, and shall act in the
interest of its Corporation in providing cost-
effective health care services to its customers.
A Plan shall maintain a governing Board, which
shall control the Plan, composed of a majority of
persons other than providers of health care
services, who shall be known as public members. A
public member shall not be an employee of or have
a financial interest in a health care provider,
nor be a member of a profession which provides
health care services.
Standard 2: A Plan shall furnish to the Association on a
timely and accurate basis reports and records
relating to compliance with these Standards and
the License Agreements between the Association and
the Plans. Such reports and records are the
following:
A. BCBSA Membership Information Request;
B. Biennial trade name and service mark usage
material, including disclosure material under
Standard 7;
C. Changes in the governance
of the Plan, including changes in a Plan's
Charter, Articles of Incorporation, or Bylaws,
changes in a Plan's Board composition, or
changes in the identity of the Plan's
Principal Officers;
Amended as of November 21, 1996
EXHIBIT 2
Membership Standards
Page 2 of 3
D. Quarterly Financial
Report including the Plan Capital
Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report,
Insurance Department Examination Report,
Annual Statement filed with State
Insurance Department (with all
attachments), and Consolidating
Financial Statement;
E. Quarterly Utilization
Report, Quarterly Enrollment Report,
Cost Containment Report, and NMIS
Quarterly Report.
Standard 3: A Plan shall be operated in a manner that
provides reasonable financial assurance that it
can fulfill its contractual obligations to its
customers.
Standard 4: A Plan shall be operated in a manner responsive
to customer needs and requirements.
Standard 5: A Plan shall effectively and efficiently
participate in each national program as from
time to time may be adopted by the Member Plans
for the purposes of providing portability of
membership between the Plans and ease of claims
processing for customers receiving benefits
outside of the Plan's Service Area.
Such programs are applicable to Blue
Cross and Blue Shield Plans, and include:
A. Transfer Program;
B. Inter-Plan Data Reporting (IPDR) Program;
C. Inter-Plan Teleprocessing System (ITS); and
D. BlueCard Program.
Amended as of June 12, 1997
EXHIBIT 2
Membership Standards
Page 3 of 3
Standard 6: In addition to requirements under the national
programs listed in Standard 5: Participation in
National Programs, a Plan shall take such action
as required to ensure its financial performance
in programs and contracts of an inter-Plan
nature or where the Association is a party.
Standard 7: A Plan shall make adequate disclosure in
contracting with third parties and in
disseminating public statements of (i) the
structure of the Blue Cross and Blue Shield
System, (ii) the independent nature of every
Plan, and (iii) the Plan's financial condition.
Standard 8: A Plan shall cooperate with the Association's
Board of Directors and its Plan Performance and
Financial Standards Committee in the
administration of the Plan Performance Response
Process and in addressing Plan performance
problems identified thereunder.
Standard 9: A Plan shall obtain a rating of its financial
strength from an independent rating agency
approved by the Association's Board of Directors
for such purpose.
Standard 10: During each year, a Plan and its Controlled
Affiliate(s) engaged in providing licensable
services (excluding Life Insurance and
Charitable Foundation Services) shall use their
best efforts in the designated Service Area to
promote and build the value of the Blue Cross
and Blue Shield Marks.
Standard 11 Neither a Plan nor any Larger Controlled
Affiliate shall cause or permit an unlicensed
entity to obtain control of the Plan or Larger
Controlled Affiliate or to acquire a substantial
portion of its assets related to licensable
services.
Amended as of November 20, 1997
EXHIBIT 3
GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL ACCOUNTS
Page 1 of 3
1. The strength of the Blue Cross/Blue Shield National Accounts
mechanism, and the continued provision of cost effective,
quality health care benefits to National Accounts, are
predicated on locally managed provider networks coordinated on a
national scale in a manner consistent with effective service to
National Account customers and consistent with the preservation
of the integrity of the Blue Cross/Blue Shield system and the
Licensed Marks. These guidelines shall be interpreted in keeping
with such ends.
2. A National Account is an entity with employee and/or retiree
locations in more than one Plan's Service Area. Unless otherwise
agreed, a National Account is deemed located in the Service Area
in which the corporate headquarters of the National Account is
located. The Control Plan of a National Account is the Plan in
whose Service Area the National Account is located. A
participating ("Par") Plan is a Plan in whose Service Area the
National Account has employee and/or retiree locations, but in
which the National Account is not located.
3. The National Account Guidelines enunciated herein below shall
be applicable only with respect to the business of new National
Accounts acquired after January 1, 1991.
4. Control Plans shall utilize National Account identification
cards complying with then currently effective BCBSA graphic
standards in connection with all National Accounts business to
facilitate administration thereof, to minimize subscriber and
provider confusion, and to reflect a commitment to cooperation
among Plans.
5. Disputes among Plans and/or BCBSA as to the interpretation or
implementation of these Guidelines or as to other National
Accounts issues shall be submitted to mediation and mandatory
dispute resolution as provided in the License Agreement. For two
years from the effective date of the License Agreement, however,
such disputes shall be subject to mediation only, with the
results of such mediation to be collected and reported in order
to establish more definitive operating parameters for National
Accounts business and to serve as ground rules for future
binding dispute resolution.
EXHIBIT 3
Page 2 of 3
6. The Control Plan may use the BlueCard Program (as defined by
IPOC) to deliver benefits to employees and non-Medicare eligible
retirees in a Participating Plan's service area if an
alternative arrangement with the Participating Plan cannot be
negotiated. The Participating Plan's minimum servicing
requirement for those employees and non-Medicare retirees in its
service area is to deliver benefits using the BlueCard Program.
Account delivery is subject to the policies, provisions and
procedures of the BlueCard Program.
7. For provider payments in a Participating Plan's area (on non-
BlueCard claims), payment to the provider may be made by the
Participating Plan or the Control Plan at the Participating
Plan's option. If the Participating Plan elects to pay the
provider, it may not withhold payment of a claim verified by the
Control Plan or its designated processor, and payment must be in
conformity with service criteria established by the Board of
Directors of BCBSA (or an authorized committee thereof) to
assure prompt payment, good service and minimum confusion with
providers and subscribers. The Control Plan, at the
Participating Plan's request, will also assure that measures are
taken to protect the confidentiality of the data pertaining to
provider reimbursement levels and profiles.
8. For claim payments in a Participating Plan's area (on non-
BlueCard claims), Participating Plans are strongly encouraged,
but not required, to pass along to the Control Plan part or all
of local provider discounts and differentials for use by the
Control Plan in negotiating financial arrangements with National
Accounts. However, since the size, basis, form and use of local
differentials can vary substantially among Plans and also by
individual National Account characteristics, the degree and form
of any discount or differential passed along to the Control Plan
shall be strictly a matter of negotiated contractual agreement
between a Participating Plan and the Control Plan and may also
vary from one National Account to another. In order to
facilitate the quotation of national account pricing and the
offering of a variety of National Account delivery systems, all
Plans are strongly encouraged to periodically publish to other
Plans and the BCBSA their National Account contracting policies
with respect to the handling of differentials.
The Control Plan, in its financial agreements with a National
Account, is expected to reasonably reflect the aggregate amount
of differentials passed along to the Control Plan by all
Participating Plans in a National Account. The exact form and
substance of this may vary from one National Account to another
and shall be a matter of
Amended as of June 14,
1996
EXHIBIT 3
Page 3 of 3
explicit negotiation and contractual relationship between the
National Account and the Control Plan. The specifics in an
agreement between the Control Plan and the National Account may
vary in form (e.g., a guaranteed offset against retentions, or a
direct pass through, or a guaranteed aggregate percentage
discount, or no pass back at all, etc.), and the Control Plan
has the responsibility and the Authority to negotiate precise
arrangements. However, irrespective of the final arrangements
between the Control Plan and the National Account, a
Participating Plan's liability for passing along differentials
shall be limited to the contractual agreement the Participating
Plan has with the Control Plan on a specific National Account.
9. Other than in contracting with health care providers or
soliciting such contracts in areas contiguous to a Plan's
Service Area in order to serve its subscribers or those of its
licensed Controlled Affiliate residing or working in its Service
Area, a Control Plan may not use the Licensed Marks and/or Name,
as a tag line or otherwise, to negotiate directly with providers
outside its Service Area.
EXHIBIT 4
GOVERNMENT PROGRAMS AND CERTAIN OTHER USES
Page 1 of 2
1. A Plan and its licensed Controlled Affiliate may use the
Licensed Marks and Name in bidding on and executing a contract
to serve a Government Program, and in thereafter communicating
with the Government concerning the Program. With respect,
however, to such contracts entered into after the 1st day of
January, 1991, the Licensed Marks and Name will not be used in
communications or transactions with beneficiaries or providers
in the Government Program located outside a Plan's Service Area,
unless the Plan can demonstrate to the satisfaction of BCBSA's
governing body that such a restriction on use of the Licensed
Marks and Name will jeopardize its ability to procure the
contract for the Government Program. As to both existing and
future contracts for Government Programs, Plans will discontinue
use of the Licensed Marks and Name as to beneficiaries and
Providers outside their Service Area as expenditiously as
circumstances reasonably permit. Effective January 1, 1995,
except as provided in the first sentence above, all use by a
Plan of the Licensed Marks and Name in Government Programs
outside of the Plan's Service Area shall be discontinued.
Incidental communications outside a Plan's Service Area with
resident or former resident beneficiaries of the Plan, and other
categories of necessary incidental communications approved by
BCBSA, are not prohibited.
2. In connection with activity otherwise in furtherance of the
License Agreement, a Plan may use the Licensed Marks and Name
outside its Service Area in the following circumstances which
are deemed legitimate and necessary and not likely to cause
consumer confusion:
a. sending letterhead, envelopes, and similar
items for administrative purposes which do not solicit
the sale of health care plans and related services;
b. distributing business cards other than in
marketing and selling;
c. contracting with health care providers or
soliciting such contracts in areas contiguous to a
Plan's Service Area in order to serve its subscribers
or those of its licensed Controlled Affiliate residing
or working in its service area;
d. issuing a small sign containing the legal
name or trade name of the Plan or its licensed
Controlled Affiliate for display by a provider to
identify the latter as a participating provider of the
Plan or Controlled Affiliate;
EXHIBIT 4
Page 2 of 2
e. advertising in publications or electronic
media solely to persons for employment;
f. advertising in print, electronic or other
media which serve, as a substantial market, the
Service Area of the Plan or licensed Controlled
Affiliate, provided that no Plan may advertise outside
its Service Area on the national broadcast and cable
networks and that advertisements in national print
media are limited to the smallest regional edition
encompassing the Service Area;
g. advertising by direct mail where the
addressee's zip code plus 4 includes, at least in
part, the Plan's Service Area or that of a licensed
Controlled Affiliate.
EXHIBIT 5
MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES
The Blue Cross and Blue Shield Plans ("Plans") and the Blue
Cross Blue Shield Association ("BCBSA") recognize and acknowledge
that the Blue Cross and Blue Shield system is a unique nonprofit
and for-profit system offering cost effective health care
financing and services. The Plans and BCBSA desire to utilize
Mediation and Mandatory Dispute Resolution ("MMDR") to avoid
expensive and time-consuming litigation that may otherwise occur
in the federal and state judicial systems. Even MMDR should be
viewed, however, as methods of last resort, all other procedures
for dispute resolution having failed. Except as otherwise
provided in the License Agreements, the Plans, their Controlled
Affiliates and BCBSA agree to submit all disputes to MMDR
pursuant to these Rules and in lieu of litigation.
1. Initiation of Proceedings
A. Pre-MMDR Efforts
Before filing a Complaint to invoke the MMDR process, the
CEO of a complaining party, or his/her designated representative,
shall undertake good faith efforts with the other side(s) to try
to resolve any dispute.
B. Complaint
To commence a proceeding, the complaining party (or parties)
shall provide by certified mail, return receipt requested, a
written Complaint to the BCBSA Corporate Secretary (which shall
also constitute service on BCBSA if it is a respondent) and to
any Plan(s) and/or Controlled Affiliate(s) named therein. The
Complaint shall contain:
i. identification of the complaining party (or parties)
requesting the proceeding;
ii. identification of the respondent(s);
iii. identification of any other persons or entities who are
interested in a resolution of the dispute;
iv. a full statement describing the nature of the dispute;
v. identification of all of the issues that are being submitted
for resolution;
Amended as of November 21, 1996
vi. the remedy sought;
vii. a statement as to whether the complaining party (or parties)
elect(s) first to pursue Mediation;
viii. any request, if applicable, that one or more members of
the Mediation Committee be disqualified from the proceeding and
the grounds for such request;
ix. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor; and
x. a statement signed by the CEO of the complaining party
affirming that the CEO has undertaken efforts, or has directed
efforts to be undertaken, to resolve the dispute before resorting
to the MMDR process.
The complaining party (or parties) shall file and serve with the
Complaint copies of all documents which the party (or parties)
intend(s) to offer at the Arbitration Hearing and a statement
identifying the witnesses the party (or parties) intend(s) to
present at the Hearing, along with a summary of each witness'
expected testimony.
C. Answer
Within twenty (20) days after receipt of the Complaint, each
respondent shall serve on the BCBSA and on the complaining party
(or parties) and on the Chairman of the Mediation Committee;
i. a full Answer to the aforesaid Complaint;
ii. a statement of any Counterclaims against the complaining
party (or parties), providing with respect thereto the
information specified in Paragraph 1.B., above;
iii. a statement as to whether the respondent elects to first
pursue Mediation;
iv. any request, if applicable, that one or more members of the
Mediation Committee be disqualified from the proceeding and the
grounds for such request; and
v. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor.
The respondent(s) shall file and serve with the Answer or by the
date of the Initial Conference set forth in Paragraph 3.B.,
below, copies of all documents which the respondent(s) intend(s)
to offer at the Arbitration Hearing and a statement identifying
the witnesses the party (or parties) intend(s) to present at the
Hearing, along with a summary of each witness' expected
testimony.
D. Reply To Counterclaim
Within ten (10) days after receipt of any Counterclaim, the
complaining party (or parties) shall serve on BCBSA and on the
responding party (or parties) and on the Chairman of the
Mediation Committee, a Reply to the Counterclaim. Such Reply
must provide the same information required by Paragraph 1.C.
2. Mediation
A. Mediation Committee
To facilitate the mediation of disputes between or among
BCBSA, the Plans and/or their Controlled Affiliates, the BCBSA
Board has established a Mediation Committee. Mediation may be
pursued in lieu of or in an effort to obviate the Mandatory
Dispute Resolution process, and all parties are strongly urged to
exhaust the mediation procedure.
B. Election To Mediate
If any party elects first to pursue Mediation, and if it
appears to the Corporate Secretary that the dispute falls within
the jurisdiction of the Mediation Committee, as set forth in
Exhibit 5-A hereto, then the Corporate Secretary will promptly
furnish the Mediation Committee with copies of the Complaint,
Answer, Counterclaim and Reply to Counterclaim, and other
documents referenced in Paragraph 1, above.
C. Selection of Mediators
The parties shall promptly attempt to agree upon: (i) the
number of mediators desired, not to exceed three mediators; and
(ii) the selection of the mediator(s) who may include members of
the Mediation Committee and/or experienced mediators from an
independent entity to mediate all disputes set forth in the
Complaint and Answer (and Counterclaim and Reply, if any). In
the event the parties cannot agree upon the number of mediators
desired, that number shall default to three. In the event the
parties cannot agree upon the selection of mediator(s), the
Chairman will select the mediator(s), at least one of which shall
be an experienced mediator from an independent entity, consistent
with the provisions set forth in this Paragraph. No member of
the Mediation Committee who is a representative of any party to
the Mediation may be selected to mediate the dispute. The
Chairman shall also endeavor not to select as a mediator any
member of the Mediation Committee whom a party has requested to
be disqualified. If, after due regard for availability,
expertise, and such other considerations as may best promote an
expeditious Mediation, the Chairman
believes that he or she must consider for selection a member of
the Mediation Committee whom a party has requested to be
disqualified, the other members of the Committee eligible to be
selected to mediate the dispute shall decide the request for
disqualification. By agreeing to participate in the Mediation of
a dispute, a member of the Mediation Committee represents to the
party (or parties) thereto that he or she knows of no grounds
which would require his or her disqualification.
D. Binding Decision
Before the date of the Mediation Hearing described below,
the Corporate Secretary will contact the party (or parties) to
determine whether they wish to be bound by any recommendation of
the selected mediators for resolution of the disputes. If all
wish to be bound, the Corporate Secretary will send appropriate
documentation to them for their signatures before the Mediation
Hearing begins.
E. Mediation Procedure
The Chairman shall promptly advise the parties of a
scheduled Mediation Hearing date. Unless a party requests an
expedited procedure, or unless all parties to the proceeding
agree to one or more extensions of time, the Mediation Hearing
set forth below shall be completed within forty (40) days of
BCBSA's receipt of the Complaint. The selected mediators, unless
the parties otherwise agree, shall adhere to the following
procedure:
i. Each party must be represented by its CEO or other
representative who has been delegated full authority to resolve
the dispute. However, parties may send additional
representatives as they see fit.
ii. By no later than five (5) days prior to the date designated
for the Mediation Hearing, each party shall supply and serve a
list of all persons who will be attending the Mediation Hearing,
and indicate who will have the authority to resolve the dispute.
iii. Each party will be given one-half hour to present its case,
beginning with the complaining party (or parties), followed by
the other party or parties. The parties are free to structure
their presentations as they see fit, using oral statements or
direct examination of witnesses. However, neither cross-
examination nor questioning of opposing representatives will be
permitted. At the close of each presentation, the selected
mediators will be given an opportunity to ask questions of the
presenters and witnesses. All parties must be present throughout
the Mediation Hearing. The selected mediators may extend the
time allowed for each party's presentation at the Mediation
Hearing. The selected mediators may meet in executive session,
outside the presence of the parties, or may meet with the parties
separately, to discuss the controversy.
iv.
After the close of the presentations, the parties will
attempt to negotiate a settlement of the dispute.
If the parties desire, the selected mediators, or
any one or more of the selected mediators, will sit
in on the negotiations.
v. After the close of the presentations, the selected mediators
may meet privately to agree upon a recommendation for resolution
of the dispute which would be submitted to the parties for their
consideration and approval. If the parties have previously
agreed to be bound by the results of this procedure, this
recommendation shall be binding upon the parties.
vi. The purpose of the Mediation Hearing is to assist the
parties to settle their grievances short of mandatory dispute
resolution. As a result, the Mediation Hearing has been designed
to be as informal as possible. Rules of evidence shall not
apply. There will be no transcript of the proceedings, and no
party may make a tape recording of the Mediation Hearing.
vii. In order to facilitate a free and open discussion, the
Mediation proceeding shall remain confidential. A "Stipulation
to Confidentiality" which prohibits future use of settlement
offers, all position papers or other statements furnished to the
selected mediators, and decisions or recommendations in any
Mediation proceeding shall be executed by each party.
viii. Upon request of the selected mediators, or one of the
parties, BCBSA staff may also submit documentation at any time
during the proceedings.
F. Notice Of Termination Of Mediation
If the Mediation cannot be completed within the prescribed
or agreed time period due to the lack of cooperation of any
party, as determined by the selected mediators, or if the
Mediation does not result in a final resolution of all disputes
at the Mediation Hearing or within forty (40) days after the
Complaint was served, whichever comes first, any party or any one
of the selected mediators may so notify the Corporate Secretary,
who shall promptly issue a Notice of termination of mediation to
all parties, to the selected mediators, and to the MDR
Administrator, defined below. Such notice shall serve to bring
the Mediation to an end and to initiate Mandatory Dispute
Resolution. Upon agreement of all parties and the selected
mediators, the Mediation process may continue at the same time
the MDR process is invoked. The Notice described above would
serve to initiate the MDR proceeding and would not terminate the
proceedings.
3. Mandatory Dispute Resolution (MDR)
If all parties elect not to first pursue Mediation, or if a
notice of termination of Mediation is issued as set forth in
Paragraph 2.F., above, then the unresolved disputes set forth in
any Complaint and Answer (and Counterclaim and Reply, if any)
shall be subject to MDR.
A. MDR Administrator
The Administrator shall be an independent entity such as the
Center for Public Resources, Inc. or Endispute, Inc.,
specializing in alternative dispute resolution. The
Administrator shall be designated initially, and may be changed
from time to time, by the affirmative vote of fifty-one (51)
percent of the Plans and fifty-one (51) percent of the total then
current weighted vote of all the Plans.
B. Initial Conference
Within five (5) days after a Notice of Termination has
issued, or within five (5) days after the time for filing and
serving the Reply to any Counterclaim if the parties elect first
not to mediate, the parties shall confer with the Administrator
to discuss selecting a dispute resolution panel ("the Panel").
This Initial Conference may be by telephone. The parties are
encouraged to agree to the composition of the Panel and to
present that agreement to the Administrator at the Initial
Conference. If the parties do not agree on the composition of
the Panel by the time of the Initial Conference, or by any
extension thereof agreed to by all parties and the Administrator,
then the Panel Selection Process set forth in subparagraph C
shall be followed.
C. Panel Selection Process
The Administrator shall designate at least seven potential
arbitrators. The exact number designated shall be sufficient to
give each party at least two peremptory strikes. Each party
shall be permitted to strike any designee for cause and the
Administrator shall determine the sufficiency thereof in its sole
discretion. The Administrator will designate a replacement for
any designee so stricken. Each party shall then be permitted two
peremptory strikes. From the remaining designees, the
Administrator shall select a three member Panel. The
Administrator shall set the dates for exercising all strikes and
shall complete the Panel Selection Process within fifteen (15)
days of the Initial Conference. Each Arbitrator shall be
compensated at his or her normal hourly rate or, in the absence
of an established rate, at a reasonable hourly rate to be
promptly fixed by the Administrator for all time spent in
connection with the proceedings and shall be reimbursed for any
travel and other reasonable expenses.
D. Duties Of The Arbitrators
The Panel shall promptly designate a Presiding Arbitrator
for the purposes reflected below, but shall retain the power to
review and modify any ruling or other action of said Presiding
Arbitrator. Each Arbitrator shall be an independent Arbitrator,
shall be governed by the Code of Ethics for Arbitrators in
Commercial Disputes, appended as Exhibit "5-B" hereto, and shall
at or prior to the commencement of any Arbitration Hearing take
an oath to that effect. Each Arbitrator shall promptly disclose
in writing to the Panel and to the parties any circumstances,
whenever arising, that might cause doubt as to such Arbitrator's
compliance, or ability to comply, with said Code of Ethics, and,
absent resignation by such Arbitrator, the remaining Arbitrators
shall determine in their sole discretion whether the
circumstances so disclosed constitute grounds for
disqualification and for replacement. With respect to such
circumstances arising or coming to the attention of a party after
an Arbitrator's selection, a party may likewise request the
Arbitrator's resignation or a determination as to
disqualification by the remaining Arbitrators. With respect to a
sole Arbitrator, the determination as to disqualification shall
be made by the Administrator.
There shall be no ex parte communication between the parties
or their counsel and any member of the Panel.
E. Panel's Jurisdiction And Authority
The Panel's jurisdiction and authority shall extend to all
disputes between or among the Plans, their Controlled Affiliates,
and/or BCBSA, except for those disputes excepted from these MMDR
procedures as set forth in the License Agreements.
With the exception of punitive or treble damages, the Panel
shall have full authority to award the relief it deems
appropriate to resolve the parties' disputes, including monetary
awards and injunctions, mandatory or prohibitory. The Panel has
no authority to award punitive or treble damages except that the
Panel may allocate or assess responsibility for punitive or
treble damages assessed by another tribunal. Subject to the
above limitations, the Panel may, by way of example, but not of
limitation:
i. interpret or construe the meaning of any terms, phrase or
provision in any license between BCBSA and a Plan or a
Controlled Affiliate relating to the use of the BLUE CROSSr or
BLUE SHIELDr service marks.
ii. determine whether BCBSA, a Plan or a Controlled Affiliate
has violated the terms or conditions of any license between the
BCBSA and a Plan or a Controlled Affiliate relating to the use of
the BLUE CROSSr or BLUE SHIELDr service marks.
iii. decide challenges as to its own jurisdiction.
iv. issue such orders for interim relief as it deems appropriate
pending Hearing and Award in any Arbitration.
It is understood that the Panel is expected to resolve
issues based on governing principles of law, preserving to the
maximum extent legally possible the continued integrity of the
Licensed Marks and the BLUE CROSS/BLUE SHIELD system. The Panel
shall apply federal law to all issues which, if asserted in the
United States District Court, would give rise to federal question
jurisdiction, 28 U.S.C. 1331. The Panel shall apply Illinois
law to all issues involving interpretation, performance or
construction of any License Agreement or Controlled Affiliate
License Agreement unless the agreement otherwise provides. As to
other issues, the Panel shall choose the applicable law based on
conflicts of law principles of the State of Illinois.
F. Administrative Conference And Preliminary Arbitration
Hearing
Within ten (10) days of the Panel being selected, the
Presiding Arbitrator will schedule an Administrative Conference
to discuss scheduling of the Arbitration Hearing and any other
matter appropriate to be considered including: any written
discovery in the form of requests for production of documents or
requests to admit facts; the identity of any witness whose
deposition a party may desire and a showing of exceptional good
cause for the taking of any such deposition; the desirability of
bifurcation or other separation of the issues; the need for and
the type of record of conferences and hearings, including the
need for transcripts; the need for expert witnesses and how
expert testimony should be presented; the appropriateness of
motions to dismiss and/or for full or partial summary judgment;
consideration of stipulations; the desirability of presenting any
direct testimony in writing; and the necessity for any on-site
inspection by the Panel.
G. Discovery
i. Requests for Production of Documents: All requests for the
production of documents must be served as of the date of the
Administrative Conference as set forth in Paragraph 3.F., above.
Within twenty (20) days after receipt of a request for documents,
a party shall produce all relevant and non-privileged documents
to the requesting party. In his or her discretion, the Presiding
Arbitrator may require the parties to provide lists in such
detail as is deemed appropriate of all documents as to which
privilege is claimed and may further require in-camera inspection
of the same.
ii. Requests for Admissions: Requests for Admissions
may be served up to 21 days prior to the Arbitration
Hearing. A party served with Requests For
Admissions must respond within twenty (20) days of
receipt of said request. The good faith use of and
response to Requests for Admissions is encouraged,
and the Panel shall have full discretion, with
reference to the Federal Rules of Civil Procedure,
in awarding appropriate sanctions with respect to
abuse of the procedure.
iii. Depositions As a general rule, the parties
will not be permitted to take deposition testimony
for discovery purposes. The Presiding Arbitrator,
in his or her sole discretion, shall have the
authority to permit a party to take such deposition
testimony upon a showing of exceptional good cause,
provided that no deposition, for discovery purposes
or otherwise, shall exceed three (3) hours,
excluding objections and colloquy of counsel.
iv. Expert witness(es): If a party intends to
present the testimony of an expert witness during
the oral hearing, it shall provide all other parties
with a written statement setting forth the
information required to be provided by Fed. R. Civ.
P. 26(b)(4)(A)(i) prior to the expiration of the
discovery period.
v.Discovery cut-off: The Presiding Arbitrator shall
determine the date on which the discovery period
will end, but the discovery period shall not exceed
forty-five (45) days from its commencement, without
the agreement of all parties.
vi. Additional discovery: Any additional discovery will be at
the discretion of the Presiding Arbitrator. The Presiding
Arbitrator is authorized to resolve all discovery disputes, which
resolution will be binding on the parties unless modified by the
Arbitration Panel. If a party refuses to comply with a decision
resolving a discovery dispute, the Panel, in keeping with Fed. R.
Civ. P. 37, may refuse to allow that party to support or oppose
designated claims or defenses, prohibit that party from
introducing designated matters into evidence or, in extreme
cases, decide an issue submitted for resolution adversely to that
party.
H. Panel Suggested Settlement/Mediation
At any point during the proceedings, the Panel at the
request of any party or on its own initiative, may suggest that
the parties explore settlement and that they do so at or before
the conclusion of the Arbitration Hearing, and the Panel shall
give such assistance in settlement negotiations as the parties
may request and the Panel may deem appropriate. Alternatively,
the Panel may direct the parties to endeavor to mediate their
disputes as provided above, or to explore a mini-trial
proceeding, or to have an independent party render a neutral
evaluation of the parties' respective positions. The Panel shall
enter such sanctions as it deems appropriate with respect to any
party failing to pursue in good faith such Mediation or other
alternate dispute resolution methods.
I. Subpoenas On Third Parties
Pursuant to, and consistent with, the Federal Arbitration
Act, 9 U.S.C. 9 et seq., a party may request the issuance of a
subpoena on a third party, to compel testimony or documents, and,
if good and sufficient cause is shown, the Panel shall issue such
a subpoena.
J. Arbitration Hearing
An Arbitration Hearing will be held within thirty (30) days
after the Administrative Conference if no discovery is taken, or
within thirty (30) days after the close of discovery, unless all
parties and the Panel agree to extend the Arbitration Hearing
date, or unless the parties agree in writing to waive the
Arbitration Hearing. The parties may mutually agree on the
location of the Arbitration Hearing. If the parties fail to
agree, the Arbitration Hearing shall be held in Chicago,
Illinois, or at such other location determined by the Presiding
Arbitrator to be most convenient to the participants. The Panel
will determine the date(s) and time(s) of the Arbitration
Hearing(s) after consultation with all parties and shall provide
reasonable notice thereof to all parties or their
representatives.
K. Arbitration Hearing Memoranda
Twenty (20) days prior to the Arbitration Hearing, each
party shall submit to the other party (or parties) and to the
Panel an Arbitration Hearing Memorandum which sets forth the
applicable law and any argument as to any relevant issue. The
Arbitration Hearing Memorandum will supplement, and not repeat,
the allegations, information and documents contained in or with
the Complaint, Answer, Counterclaim and Reply, if any. Ten (10)
days prior to the Arbitration Hearing, each party may submit to
the other party (or parties) and to the Panel a Response
Arbitration Hearing Memorandum which sets forth any response to
another party's Arbitration Hearing Memorandum.
L. Notice For Testimony
Ten (10) days prior to the Arbitration Hearing, any party
may serve a Notice on any other party (or parties) requesting the
attendance at the Arbitration Hearing of any officer, employee or
director of the other party (or parties) for the purpose of
providing noncumulative testimony. If a party fails to produce
one of its officers, employees or directors whose noncumulative
testimony during the Arbitration Hearing is reasonably requested
by an adverse party, the Panel may refuse to allow that party to
support or oppose designated claims or defenses, prohibit that
party from introducing designated matters into evidence or, in
extreme cases, decide an issue submitted for mandatory dispute
resolution adversely to that party. This Rule may not be used
for the purpose of burdening or harassing any party, and the
Presiding Arbitrator may impose such orders as are appropriate so
as to prevent or remedy any such burden or harassment.
M. Arbitration Hearing Procedures
i. Attendance at Arbitration Hearing: Any person having a
direct interest in the proceeding is entitled to attend the
Arbitration Hearing. The Presiding Arbitrator shall otherwise
have the power to require the exclusion of any witness, other
than a party or other essential person, during the testimony of
any other witness. It shall be discretionary with the Presiding
Arbitrator to determine the propriety of the attendance of any
other person.
ii. Confidentiality: The Panel and all parties shall maintain
the privacy of the Arbitration Proceeding. The parties and the
Panel shall treat the Arbitration Hearing and any discovery or
other proceedings or events related thereto, including any award
resulting therefrom, as confidential except as otherwise
necessary in connection with a judicial challenge to or
enforcement of an award or unless otherwise required by law.
iii. Stenographic Record: Any party, or if the parties do not
object, the Panel, may request that a stenographic or other
record be made of any Arbitration Hearing or portion thereof.
The costs of the recording and/or of preparing the transcript
shall be borne by the requesting party and by any party who
receives a copy thereof. If the Panel requests a recording
and/or a transcript, the costs thereof shall be borne equally by
the parties.
iv. Oaths: The Panel may require witnesses to
testify under oath or affirmation administered by
any duly qualified person and, if requested by any
party, shall do so.
v.Order of Arbitration Hearing: An Arbitration
Hearing shall be opened by the recording of the
date, time, and place of the Arbitration Hearing,
and the presence of the Panel, the parties, and
their representatives, if any. The Panel may, at
the beginning of the Arbitration Hearing, ask for
statements clarifying the issues involved.
Unless otherwise agreed, the complaining party (or
parties) shall then present evidence to support
their claim(s). The respondent(s) shall then
present evidence supporting their defenses and
Counterclaims, if any. The complaining party (or
parties) shall then present evidence supporting
defenses to the Counterclaims, if any, and rebuttal.
Witnesses for each party shall submit to questions
by adverse parties and/or the Panel.
The Panel has the discretion to vary these
procedures, but shall afford a full and equal
opportunity to all parties for the presentation of
any material and relevant evidence
.
vi. Evidence: The parties may offer such evidence as
is relevant and material to the dispute and shall
produce such evidence as the Panel may deem
necessary to an understanding and resolution of the
dispute. Unless good cause is shown, as determined
by the Panel or agreed to by all other parties, no
party shall be permitted to offer evidence at the
Arbitration Hearing which was not disclosed prior to
the Arbitration Hearing by that party. The Panel
may receive and consider the evidence of witnesses
by affidavit upon such terms as the Panel deems
appropriate.
The Panel shall be the judge of the relevance and
materiality of the evidence offered, and conformity
to legal rules of evidence, other than enforcement
of the attorney-client privilege and the work
product protection, shall not be necessary. The
Federal Rules of Evidence shall be considered by the
Panel in conducting the Arbitration Hearing but
those rules shall not be controlling. All evidence
shall be taken in the presence of the Panel and all
of the parties, except where any party is in default
or has waived the right to be present.
Settlement offers by any party in connection with
Mediation or MDR proceedings, decisions or
recommendations of the selected mediators, and a
party's position papers or statements furnished to
the selected mediators shall not be admissible
evidence or considered by the Panel without the
consent of all parties.
vii.
Closing of Arbitration Hearing: The Presiding
Arbitrator shall specifically inquire of all parties
whether they have any further proofs to offer or
witnesses to be heard. Upon receiving negative
replies or if he or she is satisfied that the record
is complete, the Presiding Arbitrator shall declare
the Arbitration Hearing closed with an appropriate
notation made on the record. Subject to being
reopened as provided below, the time within which
the Panel is required to make the award shall
commence to run, in the absence of contrary
agreement by the parties, upon the closing of the
Arbitration Hearing.
With respect to complex disputes, the Panel may, in
its sole discretion, defer the closing of the
Arbitration Hearing for a period of up to thirty
(30) days after the presentation of proofs in order
to permit the parties to submit post-hearing briefs
and argument, as the Panel deems appropriate, prior
to making an award.
For good cause, the Arbitration Hearing may be
reopened for up to thirty (30) days on the Panel's
initiative, or upon application of a party, at any
time before the award is made
N. Awards
An Award must be in writing and shall be made promptly by
the Panel and, unless otherwise agreed by the parties or
specified by law, no later than thirty (30) days from the date of
closing the Arbitration Hearing. If all parties so request, the
Award shall contain findings of fact and conclusions of law. The
Award, and all other rulings and determinations by the Panel, may
be by a majority vote.
Parties shall accept as legal delivery of the Award the
placing of the Award or a true copy thereof in the mail addressed
to a party or its representative at its last known address or
personal service of the Award on a party or its representative.
Awards are binding only on the parties to the Arbitration
and are not binding on any non-parties to the Arbitration and may
not be used or cited as precedent in any other proceeding.
After the expiration of twenty (20) days from initial
delivery, the Award (with corrections, if any) shall be final and
binding on the parties, and the parties shall undertake to carry
out the Award without delay.
Proceedings to confirm, modify or vacate an Award shall be
conducted in conformity with and controlled by the Federal
Arbitration Act. 9 U.S.C. 1, et seq.
O. Return Of Documents
Within sixty (60) days after the Award and the conclusion of
any judicial proceedings with respect thereto, each party and the
Panel shall return any documents produced by any other party,
including all copies thereof. If a party receives a discovery
request in any other proceeding which would require it to produce
any documents produced to it by any other party in a proceeding
hereunder, it shall not produce such documents without first
notifying the producing party and giving said party reasonable
time to respond, if appropriate, to the discovery request.
4. Miscellaneous
A. Expedited Procedures
Any party to a Mediation may direct a request for an
expedited Mediation Hearing to the Chairman of the Mediation
Committee, to the selected Mediators, and to all other parties at
any time. The Chairman of the Mediation Committee, or at his or
her direction, the then selected Mediators, shall grant any
request which is supported by good and sufficient reasons. If
such a request is granted, the Mediation shall be completed
within as short a period as practicable, as determined by the
Chairman of the Mediation Committee or, at his or her direction,
the then selected Mediators.
Any party to an Arbitration may direct a request for
expedited proceedings to the Administrator, to the Panel, and to
all other parties at any time. The Administrator, or the
Presiding Arbitrator if the Panel has been selected, shall grant
any such request which is supported by good and sufficient
reasons. If such a request is granted, the Arbitration shall be
completed within as short a time as practicable, as determined by
the Administrator and/or the Presiding Arbitrator.
B. Temporary Or Preliminary Injunctive Relief
Any party may seek temporary or preliminary injunctive
relief with the filing of a Complaint or at any time thereafter.
If such relief is sought prior to the time that an Arbitration
Panel has been selected, then the Administrator shall select a
single Arbitrator who is a lawyer who has no interest in the
subject matter of the dispute, and no connection to any of the
parties, to hear and determine the request for temporary or
preliminary injunction. If such relief is sought after the time
that an Arbitration Panel has been selected, then the Arbitration
Panel will hear and determine the request. The request for
temporary or preliminary injunctive relief will be determined
with reference to the temporary or preliminary injunction
standards set forth in Fed. R. Civ. P. 65.
C. Defaults And Proceedings In The Absence Of A Party
Whenever a party fails to comply with the MDR Rules in a
manner deemed material by the Panel, the Panel shall fix a
reasonable time for compliance and, if the party does not comply
within said period, the Panel may enter an Order of default or
afford such other relief as it deems appropriate. Arbitration
may proceed in the event of a default or in the absence of any
party who, after due notice, fails to be present or fails to
obtain an extension. An Award shall not be made solely on the
default or absence of a party, but the Panel shall require the
party who is present to submit such evidence as the Panel may
require for the making of findings, determinations, conclusions,
and Awards.
D. Notice
Each party shall be deemed to have consented that any
papers, notices, or process necessary or proper for the
initiation or continuation of a proceeding under these rules or
for any court action in connection therewith may be served on a
party by mail addressed to the party or its representative at its
last known address or by personal service, in or outside the
state where the MDR proceeding is to be held.
The Corporate Secretary and the parties may also use
facsimile transmission, telex, telegram, or other written forms
of electronic communication to give the notices required by these
rules.
E. Expenses
The expenses of witnesses shall be paid by the party causing
or requesting the appearance of such witnesses. All expenses of
the MDR proceeding, including compensation, required travel and
other reasonable expenses of the Panel, and the cost of any proof
produced at the direct request of the Panel, shall be borne
equally by the parties and shall be paid periodically on a timely
basis, unless they agree otherwise or unless the Panel in the
Award assesses such expenses, or any part thereof against any
party (or parties). In exceptional cases, the Panel may award
reasonable attorneys' fees as an item of expense, and the Panel
shall promptly determine the amount of such fees based on
affidavits or such other proofs as the Panel deems sufficient.
F. Disqualification Or Disability Of A Panel Member
In the event that any Arbitrator of a Panel with more than
one Arbitrator should become disqualified, resign, die, or refuse
or be unable to perform or discharge his or her duties after the
commencement of MDR but prior to the rendition of an Award, and
the parties are unable to agree upon a replacement, the remaining
Panel member(s):
i. shall designate a replacement, subject to the right of any
party to challenge such replacement for cause.
ii. shall decide the extent to which previously
held hearings shall be repeated.
If the remaining Panel members consider the proceedings to
have progressed to a stage as to make replacement impracticable,
the parties may agree, as an alternative to the recommencement of
the Mandatory Dispute Resolution process, to resolution of the
dispute by the remaining Panel members.
In the event that a single Arbitrator should become
disqualified, resign, die, or refuse or be unable to perform or
discharge his or her duties after the commencement of MDR but
prior to the rendition of an Award, and the parties are unable to
agree upon a replacement, the Administrator shall appoint a
successor, subject to the right of any party to challenge such
successor for cause, and the successor shall decide the extent to
which previously held proceedings shall be repeated.
G. Amendments
These MMDR Rules may be altered or amended from time to time
by the affirmative vote of fifty-one (51) percent of the Plans
and fifty-one (51) percent of the total then current weighted
vote of all the Plans.
H. Extensions of Time
Any time limit set forth in these Rules may be extended upon
agreement of the parties and approval of: (i) the Chairman of
the Mediation Committee if the proceeding is then in Mediation;
(ii) the Administrator if the proceeding is in Arbitration, but
no Arbitration Panel has been selected; or (iii) the Arbitration
Panel, if the proceeding is in Arbitration and the Arbitration
Panel has been selected.
I. Intervention
The Plans, their Controlled Affiliates, and BCBSA, to the
extent subject to MMDR pursuant to their License Agreements,
shall have the right to move to intervene in any pending
Arbitration. A written motion for intervention shall be made to:
(i) the Administrator, if the proceeding is in Arbitration, but
no Arbitration Panel has been selected; or (ii) the Arbitration
Panel, if the proceeding is in Arbitration and the Arbitration
Panel has been selected. The written motion for intervention
shall be delivered to the BCBSA Corporate Secretary (which shall
also constitute service on the BCBSA if it is a respondent) and
to any Plan(s) and/or Controlled Affiliate(s) which are parties
to the proceeding. Any party to the proceeding can submit
written objections to the motion to intervene. The motion for
intervention shall be granted upon good cause shown.
Intervention also may be allowed by stipulation of the parties to
the Arbitration proceeding. Intervention shall be allowed upon
such terms as the Arbitration Panel decides.
J. BCBSA Assistance In Resolution of Disputes
The resources and personnel of the BCBSA may be requested by
any member Plan at any time to try to resolve disputes with
another Plan.
K. Neutral Evaluation
The parties can voluntarily agree at any time to have an
independent party render a neutral evaluation of the parties'
respective positions.
EXHIBIT 5-A
MEDIATION COMMITTEE
REPORTS TO: Board of Directors
CHARGE: 1. Develop and implement processes for resolving
misunderstandings or disagreements between Plans or
between Plans and the Association under the following
circumstances:
a. Matters at
issue regarding relationships between Plans
or between Plans and the Association.
b. Matters at
issue regarding relationships between Plans
or between Plans and the Association.
c. Matters
at issue under the Inter-Plan Bank,
Reciprocity, and Transfer Programs.
d. Matters
at issue regarding contractor selection or
performance under the Medicare Part A
Program.
2. Determination of equalization allowances
and/or cost allowances under FEP shall not be
considered by this Committee.
MEMBERSHIP: Six to Eight
STAFF: Senior Vice President and General Counsel
Exhibit 10.7.3
BLUE SHIELD LICENSE AGREEMENT
This agreement by and between Blue Cross and Blue Shield
Association ("BCBSA") and The Blue Shield Plan, known as Blue
Cross and Blue Shield of Missouri (the "Plan").
Preamble
WHEREAS, the Plan and/or its predecessor(s) in interest
(collectively the "Plan") had the right to use the BLUE SHIELD
and BLUE SHIELD Design service marks (collectively the "Licensed
Marks") for health care plans in its service area, which was
essentially local in nature;
WHEREAS, the Plan was desirous of assuring nationwide
protection of the Licensed Marks, maintaining uniform quality
controls among Plans, facilitating the provision of cost
effective health care services to the public and otherwise
benefiting the public;
WHEREAS, to better attain such ends, the Plan and the
predecessor of BCBSA executed the Agreement(s) Relating to the
Collective Service Mark "Blue Shield"; and
WHEREAS, BCBSA and the Plan desire to supercede said
Agreement(s) to reflect their current practices and to assure
the continued integrity of the Licensed Marks and of the BLUE
SHIELD system;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
Agreement
1. BCBSA hereby grants to the Plan, upon the terms and
conditions of this License Agreement, the right to use BLUE
SHIELD in its trade and/or corporate name (the "Licensed Name"),
and the right to use the Licensed Marks, in the sale, marketing
and administration of health care plans and related services in
the Service Area set forth and defined in paragraph 5 below. As
used herein, health care plans and related services shall
include acting as a nonprofit health care plan, a for-profit
health care plan, or mutual health insurer operating on a
not-for-profit or for-profit basis, under state law; financing
access to health care services; providing health care management
and administration; administering, but not underwriting, non-
health portions of Worker's Compensation insurance; and
delivering health care services.
2. The Plan may use the Licensed Marks and Name in
connection with the offering of: a) health care plans and
related services in the Service Area through Controlled
Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the
terms and conditions contained in the Agreement attached as
Exhibit 1 hereto (the "Controlled Affiliate License Agreement");
and: b) insurance coverages offered by life insurers under the
applicable law in the Service Area, other than those which the
Plan may offer in its own name, provided through Controlled
Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the
terms and conditions contained in the Agreement attached as
Exhibit 1A hereto (the "Controlled Affiliate License Agreement
Applicable to Life Insurance Companies") and further provided
that the offering of such services does not and will not dilute
or tarnish the unique value of the Licensed Marks and Name; and
c) administration and underwriting of Workers' Compensation
Insurance Controlled Affiliates, provided that each such
Controlled Affiliate is separately licensed to use the Licensed
Marks and Name under the terms and conditions contained in the
Agreement attached as Exhibit 1 hereto (the "Controlled
Affiliate License.") With respect to any HMO previously
sublicensed as provided in a License Addendum between BCBSA and
the Plan, the Plan shall have one (1) year from the date hereof
to obtain execution of the direct license required herein. As
used herein, a Controlled Affiliate is defined as an entity
organized and operated in such a manner that it is subject to
the bona fide control of a Plan or Plans and, if the entity
meets the standards of subparagraph B but not subparagraph A of
this paragraph, the entity, its owners, and persons with
authority to select or appoint members or board members, other
than a Plan or Plans, have received written approval of BCBSA.
Absent written approval by BCBSA of an alternative method of
control, bona fide control shall mean:
A. The legal authority, directly or
indirectly through wholly-owned subsidiaries: (a) to
select members of the Controlled Affiliate's
governing body having not less than 51% voting
control thereof; (b) to exercise operational control
with respect to the governance thereof; and (c) to
prevent any change in its articles of incorporation,
bylaws or other governing documents deemed
inappropriate. In addition, a Plan or Plans shall
own at least 51% of any for-profit Controlled
Affiliate; or
B. The legal authority directly or
indirectly through wholly-owned subsidiaries (a) to
select members of the Controlled Affiliate's
governing body having not less than 50% voting
control; (b) the legal ability to prevent any change
in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled
Affiliate with which it does not concur; (c) at least
equal control over the operations of the Controlled
Affiliate; and (d) to concur before the Controlled
Affiliate can:
Amended as of November 20, 1997
-2-
1. Change its legal and/or trade name;
2. Change the geographic area in which it
operates;
3. Change the types of businesses in which it
engages;
4. Create, or become liable for by way of
guarantee, any indebtedness, other than
indebtedness arising in the ordinary course of
business;
5. Sell any assets, except for sales in the
ordinary course of business or sales of
equipment no longer useful or being replaced;
6. Make any loans or advances except in the
ordinary course of business;
7. Enter into any arrangement or agreement
with any party directly or indirectly affiliated
with any of the owners of the Controlled
Affiliate or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than
the Plan or Plans (excluding owners of stock
holdings of under 5% in a publicly traded
Controlled Affiliate);
8. Conduct any business other than under the
Licensed Marks and Name;
9. Take any action that Plan or BCBSA reasonably
believes will adversely affect the Licensed
Marks or Names.
Amended as of November 20, 1997
-2a-
(The next page is page 3)
3. The Plan may engage in activities not required by
BCBSA to be directly licensed through Controlled Affiliates and
may indicate its relationship thereto by use of the Licensed
Name as a tag line, provided that the engaging in such
activities does not and will not dilute or tarnish the unique
value of the Licensed Marks and Name and further provided that
such tag line use is not in a manner likely to cause confusion
or mistake. Consistent with the avoidance of confusion or
mistake, each tag line use of the Plan's Licensed Name: (a)
shall be in the style and manner specified by BCBSA from
time-to-time; (b) shall not include the design service marks;
(c) shall not be in a manner to import more than the Plan's mere
ownership of the Controlled Affiliate; and (d) shall be
restricted to the Service Area. No rights are hereby created in
any Controlled Affiliate to use the Licensed Name in its own
name or otherwise. At least annually, the Plan shall provide
BCBSA with representative samples of each such use of its
Licensed Name pursuant to the foregoing conditions.
4. The Plan recognizes the importance of a comprehensive
national network of independent BCBSA licensees which are
committed to strengthening the Licensed Marks and Name. The
Plan further recognizes that its actions within its Service Area
may affect the value of the Licensed Marks and Name nationwide.
The Plan agrees (a) to maintain in good standing its membership
in BCBSA; (b) promptly to pay its dues to BCBSA, said dues to
represent the royalties for this License Agreement; (c)
materially to comply with all applicable laws; (d) to comply
with the Membership Standards Applicable to Regular Members of
BCBSA, a current copy of which is attached as Exhibit 2 hereto;
and (e) reasonably to permit BCBSA, upon a written, good faith
request and during reasonable business hours, to inspect the
Plan's books and records necessary to ascertain compliance
herewith. As to other Plans and third parties, BCBSA shall
maintain the confidentiality of all documents and information
furnished by the Plan pursuant hereto, or pursuant to the
Membership Standards, and clearly designated by the Plan as
containing proprietary information of the Plan.
5. The rights hereby granted are exclusive to the Plan
within the geographical area(s) served by the Plan on June 30,
1972, and/or as to which the Plan has been granted a subsequent
license, which is hereby defined as the "Service Area," except
that BCBSA reserves the right to use the Licensed Marks in said
Service Area, and except to the extent that said Service Area
may overlap areas served by one or more other licensed Blue
Shield Plans as of said date or subsequent license, as to which
overlapping areas the rights hereby granted are nonexclusive as
to such other Plan or Plans only.
Amended as
of November 20, 1997
-3-
6. Except as expressly provided by BCBSA with respect to
National Accounts, Government Programs and certain other
necessary and collateral uses, the current rules and regulations
governing which are attached as Exhibit 3 and Exhibit 4 hereto,
or as expressly provided herein, the Plan may not use the
Licensed Marks and Name outside the Service Area or in
connection with other goods and services, nor may the Plan use
the Licensed Marks or Name in a manner which is intended to
transfer in the Service Area the goodwill associated therewith
to another mark or name. Nothing herein shall be construed to
prevent the Plan from engaging in lawful activity anywhere under
other marks and names not confusingly similar to the Licensed
Marks and Name, provided that engaging in such activity does and
will not dilute or tarnish the unique value of the Licensed
Marks and Name.
7. The Plan agrees that it will display the Licensed
Marks and Name only in such form, style and manner as shall be
specifically prescribed by BCBSA from time-to-time in
regulations of general application in order to prevent
impairment of the distinctiveness of the Licensed Marks and Name
and the goodwill pertaining thereto. The Plan shall cause to
appear on all materials on or in connection with which the
Licensed Marks or Name are used such legends, markings and
notices as BCBSA may reasonably request in order to give
appropriate notice of service mark or other proprietary rights
therein or pertaining thereto.
8. BCBSA agrees that: (a) it will not grant any other
license effective during the term of this License Agreement for
the use of the Licensed Marks or Name which is inconsistent with
the rights granted to the Plan hereunder; and (b) it will not
itself use the Licensed Marks in derogation of the rights of the
Plan or in a manner to deprive the Plan of the full benefits of
this License Agreement. The Plan agrees that it will not attack
the title of BCBSA in and to the Licensed Marks or Name or
attack the validity of the Licensed Marks or of this License
Agreement. The Plan further agrees that all use by it of the
Licensed Marks and Name or any similar mark or name shall inure
to the benefit of BCBSA, and the Plan shall cooperate with BCBSA
in effectuating the assignment to BCBSA of any service mark or
trademark registrations of the Licensed Marks or any similar
mark or name held by the Plan or a Controlled Affiliate of the
Plan, all or any portion of which registration consists of the
Licensed Marks.
-4-
9. (a). Should the Plan fail to comply with the
provisions of paragraphs 2-4, 6, 7 and/or 12, and not cure such
failure within thirty (30) days of receiving written notice
thereof (or commence curing such failure within such thirty day
period and continue diligent efforts to complete the curing of
such failure if such curing cannot reasonably be completed
within such thirty day period), BCBSA shall have the right to
issue a notice that the Plan is in a state of noncompliance.
Except as to the termination of a Plan's License Agreement or
the merger of two or more Plans, disputes as to noncompliance,
and all other disputes between or among BCBSA, the Plan, other
Plans and/or Controlled Affiliates, shall be submitted promptly
to mediation and mandatory dispute resolution pursuant to the
rules and regulations of BCBSA, a current copy of which is
attached as Exhibit 5 hereto, and shall be timely presented and
resolved. The mandatory dispute resolution panel shall have
authority to issue orders for specific performance and assess
monetary penalties. If a state of noncompliance as aforesaid is
undisputed by the Plan or is found to exist by a mandatory
dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the License
Agreement. Except, however, as provided in paragraphs 9(d)(iii)
and 15(a)(i)-(viii) below, no Plan's license to use the Licensed
Marks and Name may be finally terminated for any reason without
the affirmative vote of three-fourths of the Plans and
three-fourths of the total then current weighted vote of all the
Plans.
(b). Notwithstanding any other provision of this
License Agreement, a Plan's license to use the Licensed Marks
and Name may be forthwith terminated by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then
current weighted vote of all the Plans at a special meeting
expressly called by BCBSA for the purpose on ten (10) days
written notice for: (i) failure to comply with any minimum
capital or liquidity requirement under the Membership Standard
on Financial Responsibility; or (ii) impending financial
insolvency; or (iii) the pendency of any action instituted
against the Plan seeking its dissolution or liquidation or its
assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any
of its property of business, unless this License Agreement has
been earlier terminated under paragraph 15(a); or (iv) such
other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans and/or the Licensed Marks.
(c). To the extent not otherwise provided therein,
neither: (i) the Membership Standards Applicable to Regular
Members of BCBSA; nor (ii) the rules and regulations governing
National Accounts, Government Programs and certain other uses;
nor (iii) the rules and regulations governing mediation and
mandatory dispute resolution, may be amended unless and until
each such amendment is first adopted by the affirmative vote of
three-fourths of the Plans and of three-fourths of the total
then current weighted vote of all the Plans.
Amended as of November 20, 1997
-5-
9. (d). The Plan may operate as a for-profit company
on the following conditions:
(i) The Plan shall discharge all
responsibilities which it has to the Association and to other
Plans by virtue of this Agreement and the Plan's membership in
BCBSA.
(ii) The Plan shall not use the licensed Marks and
Name, or any derivative thereof, as part of its legal name or
any symbol used to identify the Plan in any securities market.
The Plan shall use the licensed Marks and Name as part of its
trade name within its service area for the sale, marketing and
administration of health care and related services in the
service area.
(iii) The Plan's license to use the Licensed Marks and
Name shall automatically terminate effective: (a) thirty days
after the Plan knows, or there is an SEC filing indicating that,
any Institutional Investor, has become the Beneficial Owner of
securities representing 10% or more of the voting power of the
Plan ("Excess Institutional Voter"), unless such Excess
Institutional Voter shall cease to be an Excess Institutional
Voter prior to such automatic termination becoming effective;
(b) thirty days after the Plan knows, or there is an SEC filing
indicating that, any Noninstitutional Investor has become the
Beneficial Owner of securities representing 5% or more of the
voting power of the Plan ("Excess Noninstitutional Voter")
unless such Excess Noninstitutional Voter shall cease to be an
Excess Noninstitutional Voter prior to such automatic
termination becoming effective; (c) thirty days after the Plan
knows, or there is an SEC filing indicating that, any Person has
become the Beneficial Owner of 20% or more of the Plan's then
outstanding common stock or other equity securities which
(either by themselves or in combination) represent an ownership
interest of 20% or more pursuant to determinations made under
paragraph 9(d)(iv) below ("Excess Owner"), unless such Excess
Owner shall cease to be an Excess Owner prior to such automatic
termination becoming effective; (d) ten business days after
individuals who at the time the Plan went public constituted the
Board of Directors of the Plan (together with any new directors
whose election to the Board was approved by a vote of 2/3 of the
directors then still in office who were directors at the time
the Plan went public or whose election or nomination was
previously so approved) (the "Continuing Directors") cease for
any reason to constitute a majority of the Board of Directors;
or (e) ten business days after the Plan consolidates with or
merges with or into any person or conveys, assigns, transfers or
sells all or substantially all of its assets to any person other
than a merger in which the Plan is the surviving entity and
immediately after which merger, no person is an Excess
Institutional Voter, an Excess Noninstitutional Voter or an
Excess Owner: provided that, if requested by the affected Plan
in a writing received by BCBSA prior to such automatic
termination becoming effective, the provisions of this paragraph
9(d)(iii) may be waived, in whole or in part,
Amended as of September 17, 1997
-5a-
upon the affirmative vote of a majority of the disinterested
Plans and a majority of the total then current weighted vote of
the disinterested Plans. Any waiver so granted may be
conditioned upon such additional requirements (including but not
limited to imposing new and independent grounds for termination
of this License) as shall be approved by the affirmative vote of
a majority of the disinterested Plans and a majority of the
total then current weighted vote of the disinterested Plans. If
a timely waiver request is received, no automatic termination
shall become effective until the later of: (1) the conclusion of
the applicable time period specified in paragraphs 9(d)(iii)(a)-
(d) above, or (2) the conclusion of the first Member Plan
meeting after receipt of such a waiver request.
In the event that the Plan's license to use the Licensed Marks
and Name is terminated pursuant to this Paragraph 9(d)(iii), the
license may be reinstated in BCBSA's sole discretion if, within
30 days of the date of such termination, the Plan demonstrates
that the Person referred to in clause (a), (b) or (c) of the
preceding paragraph is no longer an Excess Institutional Voter,
an Excess Noninstitutional Voter or an Excess Owner.
(iv) The Plan shall not issue any class or series of
security other than (i) shares of common stock having identical
terms or options or derivatives of such common stock, (ii) non-
voting, non-convertible debt securities or (iii) such other
securities as the Plan may approve, provided that BCBSA receives
notice at least thirty days prior to the issuance of such
securities, including a description of the terms for such
securities, and BCBSA shall have the authority to determine how
such other securities will be counted in determining whether any
Person is an Excess Institutional Voter, Excess Noninstitutional
Voter or an Excess Owner.
(v) For purposes of paragraph 9(d)(iii), the following
definitions shall apply:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, as amended and in effect on November 17, 1993
(the "Exchange Act").
(b) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
Amended as of September 17, 1997
-5b-
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such
Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary
agreements with and between underwriters and selling group
members with respect to a bona fide public offering of
securities) relating to the acquisition, holding, voting
(except to the extent contemplated by the proviso to
(b)(ii)(B) above) or disposing of any securities of the
Plan.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding,"
when used with reference to a Person's Beneficial Ownership
of securities of the Plan, shall mean the number of such
securities then issued and outstanding together with the
number of such securities not then actually issued and
outstanding which such Person would be deemed to own
beneficially hereunder.
(c) A Person shall be deemed an "Institutional Investor"
if (but only if) such Person (i) is an entity or group
identified in the SEC's Rule 13d-1(b)(1)(ii) as constituted
on June 1, 1997, and (ii) every filing made by such Person
with the SEC under Regulation 13D-G (or any successor
Regulation) with respect to such Person's Beneficial
Ownership of Plan securities shall have contained a
certification identical to the one required by item 10 of
SEC Schedule 13G as constituted on June 1, 1997.
Amended as of September 17, 1997
-5c-
(d) "Noninstitutional Investor" means any Person who is
not an Institutional Investor.
(e)"Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other
entity, and shall include any successor (by merger or
otherwise) of such entity.
Amended as of September 17, 1997
-5d-
(The next page is page 6)
10. This License Agreement shall remain in effect: (a)
until terminated as provided herein; or (b) until this and all
such other License Agreements are terminated by the affirmative
vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans; (c) until
terminated by the Plan upon six (6) months written notice to
BCBSA.
11. Except as otherwise provided in paragraph 15 below or
by the affirmative vote of three-fourths of the Plans and
three-fourths of the total then current weighted vote of all the
Plans, or unless this and all such other License Agreements are
simultaneously terminated by force of law, the termination of
this License Agreement for any reason whatsoever shall cause the
reversion to BCBSA of all rights in and to the Licensed Marks
and Name, and the Plan agrees that it will promptly discontinue
all use of the Licensed Marks and Name, will not use them
thereafter, and will promptly, upon written notice from BCBSA,
change its corporate name so as to eliminate the Licensed Name
therefrom.
12. The license hereby granted to Plan to use the Licensed
Marks and Name is and shall be personal to the Plan so licensed
and shall not be assignable by any act of the Plan, directly or
indirectly, without the written consent of BCBSA. Said license
shall not be assignable by operation of law, nor shall Plan
mortgage or part with possession or control of this license or
any right hereunder, and the Plan shall have no right to grant
any sublicense to use the Licensed Marks and Name.
13. BCBSA shall maintain appropriate service mark
registrations of the Licensed Marks and BCBSA shall take such
lawful steps and proceedings as may be necessary or proper to
prevent use of the Licensed Marks by any person who is not
authorized to use the same. Any actions or proceedings
undertaken by BCBSA under the provisions of this paragraph shall
be at BCBSA's sole cost and expense. BCBSA shall have the sole
right to determine whether or not any legal action shall be
taken on account of unauthorized use of the Licensed Marks, such
right not to be unreasonably exercised. The Plan shall report
any unlawful usage of the Licensed Marks to BCBSA in writing and
agrees, free of charge, to cooperate fully with BCBSA's program
of enforcing and protecting the service mark rights, trade name
rights and other rights in the Licensed Marks.
-6-
14. The Plan hereby agrees to save, defend, indemnify
and hold BCBSA and any other Plan(s) harmless from and against
all claims, damages, liabilities and costs of every kind, nature
and description which may arise exclusively and directly as a
result of the activities of the Plan. BCBSA hereby agrees to
save, defend, indemnify and hold the Plan and any other Plan(s)
harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description which may arise
exclusively and directly as a result of the activities of BCBSA.
15. (a). This Agreement shall automatically
terminate upon the occurrence of any of the following events:
(i) a voluntary petition shall be filed by the Plan or by BCBSA
seeking bankruptcy, reorganization, arrangement with creditors
or other relief under the bankruptcy laws of the United States
or any other law governing insolvency or debtor relief, or (ii)
an involuntary petition or proceeding shall be filed against the
Plan or BCBSA seeking bankruptcy, reorganization, arrangement
with creditors or other relief under the bankruptcy laws of the
United States or any other law governing insolvency or debtor
relief and such petition or proceeding is consented to or
acquiesced in by the Plan or BCBSA or is not dismissed within
sixty (60) days of the date upon which the petition or other
document commencing the proceeding is served upon the Plan or
BCBSA respectively, or (iii) an order for relief is entered
against the Plan or BCBSA in any case under the bankruptcy laws
of the United States, or the Plan or BCBSA is adjudged bankrupt
or insolvent (as that term is defined in the Uniform Commercial
Code as enacted in the state of Illinois) by any court of
competent jurisdiction, or (iv) the Plan or BCBSA makes a
general assignment of its assets for the benefit of creditors,
or (v) the Department of Insurance or other regulatory agency
assumes control of the Plan or delinquency proceedings
(voluntary or involuntary) are instituted, or (vi) an action is
brought by the Plan or BCBSA seeking its dissolution or
liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by
any governmental entity or officer against the Plan or BCBSA
seeking its dissolution or liquidation of its assets or seeking
appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by the Plan or BCBSA or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Plan or BCBSA respectively, provided that if the
action is stayed or its prosecution is enjoined, the one hundred
thirty (130) day period is tolled for the duration of the stay
or injunction, and provided further, that the Association's
Board of Directors may toll or extend the 130 day period at any
time prior to its expiration, or (viii) a trustee, interim
trustee, receiver or other custodian for any of the Plan's or
BCBSA's property or business is appointed, or (ix) the Plan
shall fail to pay its dues and shall not cure such failure
within thirty (30) days of receiving written notice thereof.
Notwithstanding any other provision of this Agreement, a
declaration or a request for declaration of the existence of a
trust over any of the Plan's or BCBSA's property or business
shall not in itself be deemed to constitute or seek appointment
of a trustee, interim trustee, receiver or other custodian for
purposes of subparagraphs 15(a)(vii) and (viii) of this
Agreement.
Amended November 20, 1997
-7-
(b). BCBSA, or the Plans (as provided and in addition to
the rights conferred in Paragraph 10(b) above), may terminate
this Agreement immediately upon written notice upon the
occurrence of either of the following events: (a) the Plan or
BCBSA becomes insolvent (as that term is defined in the Uniform
Commercial Code enacted in the state of Illinois), or (b) any
final judgment against the Plan or BCBSA remains unsatisfied or
unbonded of record for a period of sixty (60) days or longer.
(c). If this License Agreement is terminated as to
BCBSA for any reason stated in subparagraphs 15(a) and (b)
above, the ownership of the Licensed Marks shall revert to each
of the Plans.
(d). Upon termination of this License Agreement or any
Controlled Affiliate License Agreement of a Larger Controlled
Affiliate, as defined in Exhibit 1 to this License Agreement:
(i) The terminated entity
shall send a notice through the U.S.
mails, with first class postage affixed,
to all individual and group customers,
providers, brokers and agents of products
or services sold, marketed, underwritten
or administered by the terminated entity
or its Controlled Affiliates under the
Licensed Marks and Name. The form and
content of the notice shall be specified
by BCBSA and shall, at a minimum, notify
the recipient of the termination of the
license, the consequences thereof, and
instructions for obtaining alternate
products or services licensed by BCBSA.
This notice shall be mailed within 15
days after termination or, if termination
is pursuant to paragraph 10(d) of this
Agreement, within 15 days after the
written notice to BCBSA described in
paragraph 10(d).
(ii) The terminated entity
shall deliver to BCBSA within five days
of a request by BCBSA a listing of
national accounts in which the terminated
entity is involved (in a Control,
Participating or Servicing capacity),
identifying the national account and the
terminated entity's role therein. For
those accounts where the terminated
entity is the Control Plan, the Plan must
also indicate the Participating and
Servicing Plans in the national account
syndicate.
Amended as
of September 19, 1996
-8-
(iii) Unless the cause of
termination is an event stated in
paragraph 15(a) or (b) above respecting
BCBSA, the Plan and its Licensed
Controlled Affiliates shall be jointly
liable for payment to BCBSA of an amount
equal to $25 multiplied by the number of
Licensed Enrollees of the terminated
entity and its Licensed Controlled
Affiliates; provided that if any other
Plan is permitted by BCBSA to use marks
or names licensed by BCBSA in the Service
Area established by this Agreement, the
payment shall be multiplied by a
fraction, the numerator of which is the
number of Licensed Enrollees of the
terminated entity and its Licensed
Controlled Affiliates and the denominator
of which is the total number of Licensed
Enrollees in the Service Area. Licensed
Enrollee means each and every person and
covered dependent who is enrolled as an
individual or member of a group receiving
products or services sold, marketed or
administered under marks or names
licensed by BCBSA as determined at the
earlier of (a) the end of the last fiscal
year of the terminated entity which ended
prior to termination or (b) the fiscal
year which ended before any transactions
causing the termination began.
Notwithstanding the foregoing, the amount
payable pursuant to this subparagraph
(d)(iii) shall be due only to the extent
that, in BCBSA's opinion, it does not
cause the net worth of the Plan to fall
below 100% of the capital benchmark
formula or its equivalent under any
successor formula, as set forth in the
applicable financial responsibility
standards established by BCBSA, measured
as of the date of termination and
adjusted for the value of any
transactions not made in the ordinary
course of business.
(iv) BCBSA shall have the right
to audit the books and records of the
terminated entity and its Licensed
Controlled Affiliates to verify
compliance with this paragraph 15(d).
Amended as
of September 19, 1996
-8a-
(v) As to a breach of 15 (d)
(i), (ii), (iii) or (iv), the parties
agree that the obligations are
immediately enforceable in a court of
competent jurisdiction. As to a breach
of 15 (d) (i), (ii) or (iv) by the Plan,
the parties agree there is no adequate
remedy at law and BCBSA is entitled to
obtain specific performance.
(e). BCBSA shall be entitled to enjoin the Plan
or any related party in a court of competent jurisdiction from
entry into any transaction which would result in a termination
of this License Agreement unless the License Agreement has been
terminated pursuant to paragraph 10 (d) of this Agreement upon
the required six (6) month written notice.
(f). BCBSA acknowledges that it is not the owner
of assets of the Plan.
16. This Agreement supersedes any and all other
agreements between the parties with respect to the subject
matter herein, and contains all of the covenants and agreements
of the parties as to the licensing of the Licensed Marks and
Name. This Agreement may be amended only by the affirmative
vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans as officially
recorded by the BCBSA Corporate Secretary.
17. If any provision or any part of any provision of this
Agreement is judicially declared unlawful, each and every other
provision, or any part of any provision, shall continue in full
force and effect notwithstanding such judicial declaration.
18. No waiver by BCBSA or the Plan of any breach or
default in performance on the part of BCBSA or the Plan or any
other licensee of any of the terms, covenants or conditions of
this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or
conditions.
19a. All notices provided for hereunder shall be in
writing and shall be sent in duplicate by regular mail to BCBSA
or the Plan at the address currently published for each by BCBSA
and shall be marked respectively to the attention of the
President and, if any, the General Counsel, of BCBSA or the
Plan.
19b. Except as provided in paragraphs 9(b), 9(d)(iii),
15(a), and 15(b) above, this Agreement may be terminated for a
breach only upon at least 30 days' written notice to the Plan
advising of the specific matters at issue and granting the Plan
an opportunity to be heard and to present its response to the
Member Plans.
Amended as of November 20, 1997
-8b-
(The next page is page 9)
20. Nothing herein contained shall be construed to
constitute the parties hereto as partners or joint venturers, or
either as the agent of the other, and Plan shall have no right
to bind or obligate BCBSA in any way, nor shall it represent
that it has any right to do so. BCBSA shall have no liability
to third parties with respect to any aspect of the business,
activities, operations, products, or services of the Plan.
21. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed, effective as of the date of last
signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By /s/ Mark A. Orloff
Title Vice President
Date 3/23/98
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By /s/ John A. O'Rourke
Title President
Date March 20, 1998
-9-
EXHIBIT 1
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and _______ ("Controlled Affiliate"), a
Controlled Affiliate of the Blue Shield Plan(s), known as
_________ ("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE
SHIELD Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE SHIELD in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Notwithstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Shield Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Shield Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
Controlled Affiliate:
By:
Date:____________________________________
Plan:
By:
Date:____________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:______________________________________
Date:____________________________________
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
EXHIBIT A (continued)
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Shield Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this license in
accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition of
the Controlled Affiliate's subscription revenue and contracts
arising from products using the marks. The payment by each
sponsoring Plan of its dues to BCBSA, including that portion
described in this paragraph, will satisfy the requirement of
this paragraph, and no separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity portion
of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products using the
marks; plus, an annual fee of $5,000 per license for a
Controlled Affiliate subject to Standard 7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products using the
marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same Controlled
Affiliate. In the event that any license period is greater or
less than one (1) year, any amounts due shall be prorated.
Royalties under this formula will be calculated, billed and paid
in arrears.
EXHIBIT 1A
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
This agreement by and among Blue Cross and Blue Shield
Association ("BCBSA")
_______________________________("Controlled Affiliate"), a
Controlled Affiliate of the Blue Shield Plan(s), known as
_______________________________________("Plan").
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD
Design service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the
latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE SHIELD in a trade
name ("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement,
BCBSA hereby grants to the Controlled Affiliate the exclusive
right to use the licensed Marks and Names in connection with and
only in connection with those life insurance and related
services authorized by applicable state law, other than health
care plans and related services (as defined in the Plan's
License Agreements with BCBSA) which services are not separately
licensed to Controlled Affiliate by BCBSA, in the Service Area
served by the Plan, except that BCBSA reserves the right to use
the Licensed Marks and Name in said Service Area, and except to
the extent that said Service Area may overlap the area or areas
served by one or more other licensed Blue Shield Plans as of the
date of this License as to which overlapping areas the rights
hereby granted are non-exclusive as to such other Plan or Plans
and their respective Licensed Controlled Affiliates only.
Controlled Affiliate cannot use the Licensed Marks or Name
outside the Service Area or, anything in any other license to
Controlled Affiliate notwithstanding, in its legal or trade
name.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed
Marks and Name only in relation to the sale, marketing and
rendering of authorized products and further agrees to be bound
by the conditions regarding quality control shown in Exhibit A
as it may be amended by BCBSA from time-to-time.
Amended as of November 17, 1994
-1-
B. Controlled Affiliate agrees that Plan and/or
BCBSA may, from time-to-time, upon reasonable notice, review and
inspect the manner and method of Controlled Affiliate's
rendering of service and use of the Licensed Marks and Name.
C. Controlled Affiliate agrees that it will
provide on an annual basis (or more often if reasonably required
by Plan or by BCBSA) a report to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of Exhibit A.
D. As used herein, a Controlled Affiliate is
defined as an entity organized and operated in such a manner
that it is subject to the bona fide control of a Plan or Plans.
Absent written approval by BCBSA of an alternative method of
control, bona fide control shall mean the legal authority,
directly or indirectly through wholly-owned subsidiaries: (a) to
select members of the Controlled Affiliate's governing body
having not less than 51% voting control thereof; (b) to exercise
operational control with respect to the governance thereof; and
(c) to prevent any change in its articles of incorporation,
bylaws or other governing documents deemed inappropriate. In
addition, a Plan or Plans shall own at least 51% of any
for-profit Controlled Affiliate. If the Controlled Affiliate is
a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items (a) and (c)
above, proxies representing 51% of the votes at any meeting of
the policyholders and shall demonstrate that there is no reason
to believe this such proxies shall be revoked by sufficient
policyholders to reduce such percentage below 51%.
3. SERVICE MARK USE
Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks, including but not
limited to use of such symbols or words as BCBSA shall specify
to protect the Licensed Marks, and shall comply with such rules
(applicable to all Controlled Affiliates licensed to use the
Marks) relative to service mark use, as are issued from
time-to-time by BCBSA. If there is any public reference to the
affiliation between the Plan and the Controlled Affiliate, all
of the Controlled Affiliate's licensed services in the Service
Area of the Plan shall be rendered under the Licensed Marks.
Controlled Affiliate recognizes and agrees that all use of the
Licensed Marks by Controlled Affiliate shall inure to the
benefit of BCBSA.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer,
hypothecate, sell, encumber or mortgage, by operation of law or
otherwise, the rights granted hereunder and any such act shall
be
-2-
voidable at the option of Plan or BCBSA. This Agreement and all
rights and duties hereunder are personal to Controlled
Affiliate.
5. INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and
BCBSA of any suspected acts of infringement, unfair competition
or passing off which may occur in relation to the Licensed
Marks. Controlled Affiliate shall not be entitled to require
Plan or BCBSA to take any actions or institute any proceedings
to prevent infringement, unfair competition or passing off by
third parties. Controlled Affiliate agrees to render to Plan
and BCBSA, free of charge, all reasonable assistance in
connection with any matter pertaining to the protection of the
Licensed Marks by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend,
indemnify and hold Plan and BCBSA harmless from and against all
claims, damages, liabilities and costs of every kind, nature and
description which may arise as a result of Controlled
Affiliate's rendering of health care services under the Licensed
Marks.
7. LICENSE TERM
The license granted by this Agreement shall remain in
effect for a period of one (1) year and shall be automatically
extended for additional one (1) year periods upon evidence
satisfactory to the Plan and BCBSA that Controlled Affiliate
meets the then applicable quality control standards, unless one
of the parties hereto notifies the other party of the
termination hereof at least sixty (60) days prior to expiration
of any license period.
This Agreement may be terminated by the Plan or by
BCBSA for cause at any time provided that Controlled Affiliate
has been given a reasonable opportunity to cure and shall not
effect such a cure within thirty (30) days of receiving written
notice of the intent to terminate (or commence a cure within
such thirty day period and continue diligent efforts to complete
the cure if such curing cannot reasonably be completed within
such thirty day period). By way of example and not for purposes
of limitation, Controlled Affiliate's failure to abide by the
quality control provisions of Paragraph 2, above, shall be
considered a proper ground for cancellation of this Agreement.
This Agreement and all of Controlled Affiliate's
rights hereunder shall immediately terminate without any further
action by any party or entity in the event that:
-3-
A. Controlled Affiliate shall no longer comply with
Standard No. 1 (Organization and Governance) of Exhibit A or,
following an opportunity to cure, with the remaining quality
control provisions of Exhibit A, as it may be amended from
time-to-time; or
B. Plan ceases to be authorized to use the Licensed
Marks; or
C. Appropriate dues for Controlled Affiliate
pursuant to item 8 hereof, which are the royalties for this
License Agreement are more than sixty (60) days in arrears to
BCBSA.
Upon termination of this Agreement for cause or otherwise,
Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks including any use in
its trade name.
In the event of any disagreement between Plan and BCBSA as
to whether grounds exist for termination or as to any other term
or condition hereof, the decision of BCBSA shall control,
subject to provisions for mediation or mandatory dispute
resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of the Blue Cross and Blue Shield
Association and provide instruction on how the customer can
contact the Blue Cross and Blue Shield Association or a
designated licensee to obtain further information on securing
coverage. The written notification required by this paragraph
shall be in writing and in a form approved by the Association.
The Association shall have the right to audit the terminated
entity's books and records to verify compliance with this
paragraph.
8. DUES
Controlled Affiliate will pay to BCBSA a fee for this
license in accordance with the following formula:
An annual fee of five thousand dollars ($5,000) per
license, plus
.05% of gross revenue per year from branded group products,
plus
.5% of gross revenue per year from branded individual
products plus
.14% of gross revenue per year from branded individual
annuity products.
The foregoing percentages shall be reduced by one-half
where both a BLUE CROSSr and BLUE SHIELDr license are
issued to the same entity. In the event that any License
period is greater or less than one (1) year, any amounts
due shall be prorated. Royalties under this formula will
be calculated, billed and paid in arrears.
Amended as of November 20, 1997
-4-
Plan will promptly and timely transmit to BCBSA all dues
owed by Controlled Affiliate as determined by the above formula
and if Plan shall fail to do so, Controlled Affiliate shall pay
such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
-4a-
(The next page is page 5)
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President
and, if any, its General Counsel.
11. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This
Agreement may only be amended by a writing executed by all
parties.
12. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such finding shall in no way
effect the remaining obligations of the parties hereunder and
the court may substitute a lawful term or condition for any
unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this
Agreement.
13. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of the Controlled Affiliate or any other licensee of
any of the terms, covenants or conditions of this Agreement
shall constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed, effective as of the date of last
signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:
Date:
Controlled Affiliate
By:
Date:
Plan:
-5-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 1 of 2
PREAMBLE
The standards for licensing Life Insurance Companies (Life and
Health Insurance companies, as defined by state statute) are
established by BCBSA and are subject to change from time-to-time
upon the affirmative vote of three-fourths (3/4) of the Plans
and three-fourths (3/4) of the total weighted vote of all Plans.
Each Licensed Plan is required to use a standard controlled
affiliate license form provided by BCBSA and to cooperate fully
in assuring that the licensed Life Insurance Company maintains
compliance with the license standards.
An organization meeting the following standards shall be
eligible for a license to use the Licensed Marks within the
service area of its sponsoring Licensed Plan to the extent and
the manner authorized under the Controlled Affiliate License
applicable to Life Insurance Companies and the principal license
to the Plan.
Standard 1 - Organization and Governance
The LIC shall be organized and operated in such a manner that it
is controlled by a licensed Plan or Plans which have, directly
or indirectly: 1) not less than 51% of the voting control of the
LIC; and 2) the legal ability to prevent any change in the
articles of incorporation, bylaws or other establishing or
governing documents of the LIC with which it does not concur;
and 3) operational control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s)
shall have and maintain, in lieu of the requirements of items 1
and 2 above, proxies representing at least 51% of the votes at
any policyholder meeting and shall demonstrate that there is no
reason to believe such proxies shall be revoked by sufficient
policyholders to reduce such percentage below 51%.
Standard 2 - State Licensure
The LIC must maintain unimpaired licensure or certificate of
authority to operate under applicable state laws as a life and
health insurance company in each state in which the LIC does
business.
Standard 3 - Records and Examination
The LIC and its sponsoring licensed Plan(s) shall maintain and
furnish, on a timely and accurate basis, such records and
reports regarding the LIC as may be required in order to
establish compliance with the license agreement. The LIC and
its sponsoring licensed Plan(s) shall permit BCBSA to examine
the affairs of the LIC and shall agree that BCBSA's board may
submit a written report to the chief executive officer(s) and
the board(s) of directors of the sponsoring Plan(s).
-1-
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 2 of 2
Standard 4 - Mediation
The LIC and its sponsoring Plan(s) shall agree to use the then-
current BCBSA mediation and mandatory dispute resolution
processes, in lieu of a legal action between or among another
licensed controlled affiliate, a licensed Plan or BCBSA.
Standard 5 - Financial Responsibility
The LIC shall maintain adequate financial resources to protect
its customers and meet its business obligations.
-2-
EXHIBIT 2
Membership Standards
Page 1 of 3
Preamble
The Membership Standards apply to all organizations seeking to
become or to continue as Regular Members of the Blue Cross and
Blue Shield Association. Any organization seeking to become a
Regular Member must be found to be in substantial compliance
with all Membership Standards at the time membership is granted
and the organization must be found to be in substantial
compliance with all Membership Standards for a period of two (2)
years preceding the date of its application. If Membership is
sought by an entity which controls or is controlled by one or
more Plans, such compliance shall be determined on the basis of
compliance by such Plan or Plans.
The Regular Member Plans shall have authority to interpret these
Standards. Compliance with any Membership Standard may be
excused, at the Plans' discretion, if the Plans agree that
compliance with such Standard would require the Plan to violate
a law or governmental regulation governing its operation or
activities.
Standard 1: A Plan's Board shall not be controlled by any
special interest group, and shall act in the
interest of its Corporation in providing cost-
effective health care services to its customers.
A Plan shall maintain a governing Board, which
shall control the Plan, composed of a majority of
persons other than providers of health care
services, who shall be known as public members. A
public member shall not be an employee of or have
a financial interest in a health care provider,
nor be a member of a profession which provides
health care services.
Standard 2: A Plan shall furnish to the Association on a
timely and accurate basis reports and records
relating to compliance with these Standards and
the License Agreements between the Association and
the Plans. Such reports and records are the
following:
A. BCBSA Membership Information Request;
B. Biennial trade name and service mark usage
material, including disclosure material under
Standard 7;
C. Changes in the governance
of the Plan, including changes in a Plan's
Charter, Articles of Incorporation, or Bylaws,
changes in a Plan's Board composition, or
changes in the identity of the Plan's
Principal Officers;
Amended as of November 21, 1996
EXHIBIT 2
Membership Standards
Page 2 of 3
D. Quarterly Financial
Report including the Plan Capital
Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report,
Insurance Department Examination Report,
Annual Statement filed with State
Insurance Department (with all
attachments), and Consolidating
Financial Statement;
E. Quarterly Utilization
Report, Quarterly Enrollment Report,
Cost Containment Report, and NMIS
Quarterly Report.
Standard 3: A Plan shall be operated in a manner that
provides reasonable financial assurance that it
can fulfill its contractual obligations to its
customers.
Standard 4: A Plan shall be operated in a manner responsive
to customer needs and requirements.
Standard 5: A Plan shall effectively and efficiently
participate in each national program as from
time to time may be adopted by the Member Plans
for the purposes of providing portability of
membership between the Plans and ease of claims
processing for customers receiving benefits
outside of the Plan's Service Area.
Such programs are applicable to Blue
Cross and Blue Shield Plans, and include:
A. Transfer Program;
B. Inter-Plan Data Reporting (IPDR) Program;
C. Inter-Plan Teleprocessing System (ITS); and
D. BlueCard Program.
Amended as of June 12, 1997
EXHIBIT 2
Membership Standards
Page 3 of 3
Standard 6: In addition to requirements under the national
programs listed in Standard 5: Participation in
National Programs, a Plan shall take such action
as required to ensure its financial performance
in programs and contracts of an inter-Plan
nature or where the Association is a party.
Standard 7: A Plan shall make adequate disclosure in
contracting with third parties and in
disseminating public statements of (i) the
structure of the Blue Cross and Blue Shield
System, (ii) the independent nature of every
Plan, and (iii) the Plan's financial condition.
Standard 8: A Plan shall cooperate with the Association's
Board of Directors and its Plan Performance and
Financial Standards Committee in the
administration of the Plan Performance Response
Process and in addressing Plan performance
problems identified thereunder.
Standard 9: A Plan shall obtain a rating of its financial
strength from an independent rating agency
approved by the Association's Board of Directors
for such purpose.
Standard 10: During each year, a Plan and its Controlled
Affiliate(s) engaged in providing licensable
services (excluding Life Insurance and
Charitable Foundation Services) shall use their
best efforts in the designated Service Area to
promote and build the value of the Blue Cross
and Blue Shield Marks.
Standard 11 Neither a Plan nor any Larger Controlled
Affiliate shall cause or permit an unlicensed
entity to obtain control of the Plan or Larger
Controlled Affiliate or to acquire a substantial
portion of its assets related to licensable
services.
Amended as of November 20, 1997
EXHIBIT 3
GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL ACCOUNTS
Page 1 of 3
1. The strength of the Blue Cross/Blue Shield National Accounts
mechanism, and the continued provision of cost effective,
quality health care benefits to National Accounts, are
predicated on locally managed provider networks coordinated on a
national scale in a manner consistent with effective service to
National Account customers and consistent with the preservation
of the integrity of the Blue Cross/Blue Shield system and the
Licensed Marks. These guidelines shall be interpreted in keeping
with such ends.
2. A National Account is an entity with employee and/or retiree
locations in more than one Plan's Service Area. Unless otherwise
agreed, a National Account is deemed located in the Service Area
in which the corporate headquarters of the National Account is
located. The Control Plan of a National Account is the Plan in
whose Service Area the National Account is located. A
participating ("Par") Plan is a Plan in whose Service Area the
National Account has employee and/or retiree locations, but in
which the National Account is not located.
3. The National Account Guidelines enunciated herein below shall
be applicable only with respect to the business of new National
Accounts acquired after January 1, 1991.
4. Control Plans shall utilize National Account identification
cards complying with then currently effective BCBSA graphic
standards in connection with all National Accounts business to
facilitate administration thereof, to minimize subscriber and
provider confusion, and to reflect a commitment to cooperation
among Plans.
5. Disputes among Plans and/or BCBSA as to the interpretation or
implementation of these Guidelines or as to other National
Accounts issues shall be submitted to mediation and mandatory
dispute resolution as provided in the License Agreement. For two
years from the effective date of the License Agreement, however,
such disputes shall be subject to mediation only, with the
results of such mediation to be collected and reported in order
to establish more definitive operating parameters for National
Accounts business and to serve as ground rules for future
binding dispute resolution.
EXHIBIT 3
Page 2 of 3
6. The Control Plan may use the BlueCard Program (as defined by
IPOC) to deliver benefits to employees and non-Medicare eligible
retirees in a Participating Plan's service area if an
alternative arrangement with the Participating Plan cannot be
negotiated. The Participating Plan's minimum servicing
requirement for those employees and non-Medicare retirees in its
service area is to deliver benefits using the BlueCard Program.
Account delivery is subject to the policies, provisions and
procedures of the BlueCard Program.
7. For provider payments in a Participating Plan's area (on non-
BlueCard claims), payment to the provider may be made by the
Participating Plan or the Control Plan at the Participating
Plan's option. If the Participating Plan elects to pay the
provider, it may not withhold payment of a claim verified by the
Control Plan or its designated processor, and payment must be in
conformity with service criteria established by the Board of
Directors of BCBSA (or an authorized committee thereof) to
assure prompt payment, good service and minimum confusion with
providers and subscribers. The Control Plan, at the
Participating Plan's request, will also assure that measures are
taken to protect the confidentiality of the data pertaining to
provider reimbursement levels and profiles.
8. For claim payments in a Participating Plan's area (on non-
BlueCard claims), Participating Plans are strongly encouraged,
but not required, to pass along to the Control Plan part or all
of local provider discounts and differentials for use by the
Control Plan in negotiating financial arrangements with National
Accounts. However, since the size, basis, form and use of local
differentials can vary substantially among Plans and also by
individual National Account characteristics, the degree and form
of any discount or differential passed along to the Control Plan
shall be strictly a matter of negotiated contractual agreement
between a Participating Plan and the Control Plan and may also
vary from one National Account to another. In order to
facilitate the quotation of national account pricing and the
offering of a variety of National Account delivery systems, all
Plans are strongly encouraged to periodically publish to other
Plans and the BCBSA their National Account contracting policies
with respect to the handling of differentials.
The Control Plan, in its financial agreements with a National
Account, is expected to reasonably reflect the aggregate amount
of differentials passed along to the Control Plan by all
Participating Plans in a National Account. The exact form and
substance of this may vary from one National Account to another
and shall be a matter of
Amended as of June 14,
1996
EXHIBIT 3
Page 3 of 3
explicit negotiation and contractual relationship between the
National Account and the Control Plan. The specifics in an
agreement between the Control Plan and the National Account may
vary in form (e.g., a guaranteed offset against retentions, or a
direct pass through, or a guaranteed aggregate percentage
discount, or no pass back at all, etc.), and the Control Plan
has the responsibility and the Authority to negotiate precise
arrangements. However, irrespective of the final arrangements
between the Control Plan and the National Account, a
Participating Plan's liability for passing along differentials
shall be limited to the contractual agreement the Participating
Plan has with the Control Plan on a specific National Account.
9. Other than in contracting with health care providers or
soliciting such contracts in areas contiguous to a Plan's
Service Area in order to serve its subscribers or those of its
licensed Controlled Affiliate residing or working in its Service
Area, a Control Plan may not use the Licensed Marks and/or Name,
as a tag line or otherwise, to negotiate directly with providers
outside its Service Area.
EXHIBIT 4
GOVERNMENT PROGRAMS AND CERTAIN OTHER USES
Page 1 of 2
1. A Plan and its licensed Controlled Affiliate may use the
Licensed Marks and Name in bidding on and executing a contract
to serve a Government Program, and in thereafter communicating
with the Government concerning the Program. With respect,
however, to such contracts entered into after the 1st day of
January, 1991, the Licensed Marks and Name will not be used in
communications or transactions with beneficiaries or providers
in the Government Program located outside a Plan's Service Area,
unless the Plan can demonstrate to the satisfaction of BCBSA's
governing body that such a restriction on use of the Licensed
Marks and Name will jeopardize its ability to procure the
contract for the Government Program. As to both existing and
future contracts for Government Programs, Plans will discontinue
use of the Licensed Marks and Name as to beneficiaries and
Providers outside their Service Area as expenditiously as
circumstances reasonably permit. Effective January 1, 1995,
except as provided in the first sentence above, all use by a
Plan of the Licensed Marks and Name in Government Programs
outside of the Plan's Service Area shall be discontinued.
Incidental communications outside a Plan's Service Area with
resident or former resident beneficiaries of the Plan, and other
categories of necessary incidental communications approved by
BCBSA, are not prohibited.
2. In connection with activity otherwise in furtherance of the
License Agreement, a Plan may use the Licensed Marks and Name
outside its Service Area in the following circumstances which
are deemed legitimate and necessary and not likely to cause
consumer confusion:
a. sending letterhead, envelopes, and similar
items for administrative purposes which do not solicit
the sale of health care plans and related services;
b. distributing business cards other than in
marketing and selling;
c. contracting with health care providers or
soliciting such contracts in areas contiguous to a
Plan's Service Area in order to serve its subscribers
or those of its licensed Controlled Affiliate residing
or working in its service area;
d. issuing a small sign containing the legal
name or trade name of the Plan or its licensed
Controlled Affiliate for display by a provider to
identify the latter as a participating provider of the
Plan or Controlled Affiliate;
EXHIBIT 4
Page 2 of 2
e. advertising in publications or electronic
media solely to persons for employment;
f. advertising in print, electronic or other
media which serve, as a substantial market, the
Service Area of the Plan or licensed Controlled
Affiliate, provided that no Plan may advertise outside
its Service Area on the national broadcast and cable
networks and that advertisements in national print
media are limited to the smallest regional edition
encompassing the Service Area;
g. advertising by direct mail where the
addressee's zip code plus 4 includes, at least in
part, the Plan's Service Area or that of a licensed
Controlled Affiliate.
EXHIBIT 5
MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES
The Blue Cross and Blue Shield Plans ("Plans") and the Blue
Cross Blue Shield Association ("BCBSA") recognize and acknowledge
that the Blue Cross and Blue Shield system is a unique nonprofit
and for-profit system offering cost effective health care
financing and services. The Plans and BCBSA desire to utilize
Mediation and Mandatory Dispute Resolution ("MMDR") to avoid
expensive and time-consuming litigation that may otherwise occur
in the federal and state judicial systems. Even MMDR should be
viewed, however, as methods of last resort, all other procedures
for dispute resolution having failed. Except as otherwise
provided in the License Agreements, the Plans, their Controlled
Affiliates and BCBSA agree to submit all disputes to MMDR
pursuant to these Rules and in lieu of litigation.
1. Initiation of Proceedings
A. Pre-MMDR Efforts
Before filing a Complaint to invoke the MMDR process, the
CEO of a complaining party, or his/her designated representative,
shall undertake good faith efforts with the other side(s) to try
to resolve any dispute.
B. Complaint
To commence a proceeding, the complaining party (or parties)
shall provide by certified mail, return receipt requested, a
written Complaint to the BCBSA Corporate Secretary (which shall
also constitute service on BCBSA if it is a respondent) and to
any Plan(s) and/or Controlled Affiliate(s) named therein. The
Complaint shall contain:
i. identification of the complaining party (or parties)
requesting the proceeding;
ii. identification of the respondent(s);
iii. identification of any other persons or entities who are
interested in a resolution of the dispute;
iv. a full statement describing the nature of the dispute;
v. identification of all of the issues that are being submitted
for resolution;
Amended as of November 21, 1996
vi. the remedy sought;
vii. a statement as to whether the complaining party (or parties)
elect(s) first to pursue Mediation;
viii. any request, if applicable, that one or more members of
the Mediation Committee be disqualified from the proceeding and
the grounds for such request;
ix. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor; and
x. a statement signed by the CEO of the complaining party
affirming that the CEO has undertaken efforts, or has directed
efforts to be undertaken, to resolve the dispute before resorting
to the MMDR process.
The complaining party (or parties) shall file and serve with the
Complaint copies of all documents which the party (or parties)
intend(s) to offer at the Arbitration Hearing and a statement
identifying the witnesses the party (or parties) intend(s) to
present at the Hearing, along with a summary of each witness'
expected testimony.
C. Answer
Within twenty (20) days after receipt of the Complaint, each
respondent shall serve on the BCBSA and on the complaining party
(or parties) and on the Chairman of the Mediation Committee;
i. a full Answer to the aforesaid Complaint;
ii. a statement of any Counterclaims against the complaining
party (or parties), providing with respect thereto the
information specified in Paragraph 1.B., above;
iii. a statement as to whether the respondent elects to first
pursue Mediation;
iv. any request, if applicable, that one or more members of the
Mediation Committee be disqualified from the proceeding and the
grounds for such request; and
v. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor.
The respondent(s) shall file and serve with the Answer or by the
date of the Initial Conference set forth in Paragraph 3.B.,
below, copies of all documents which the respondent(s) intend(s)
to offer at the Arbitration Hearing and a statement identifying
the witnesses the party (or parties) intend(s) to present at the
Hearing, along with a summary of each witness' expected
testimony.
D. Reply To Counterclaim
Within ten (10) days after receipt of any Counterclaim, the
complaining party (or parties) shall serve on BCBSA and on the
responding party (or parties) and on the Chairman of the
Mediation Committee, a Reply to the Counterclaim. Such Reply
must provide the same information required by Paragraph 1.C.
2. Mediation
A. Mediation Committee
To facilitate the mediation of disputes between or among
BCBSA, the Plans and/or their Controlled Affiliates, the BCBSA
Board has established a Mediation Committee. Mediation may be
pursued in lieu of or in an effort to obviate the Mandatory
Dispute Resolution process, and all parties are strongly urged to
exhaust the mediation procedure.
B. Election To Mediate
If any party elects first to pursue Mediation, and if it
appears to the Corporate Secretary that the dispute falls within
the jurisdiction of the Mediation Committee, as set forth in
Exhibit 5-A hereto, then the Corporate Secretary will promptly
furnish the Mediation Committee with copies of the Complaint,
Answer, Counterclaim and Reply to Counterclaim, and other
documents referenced in Paragraph 1, above.
C. Selection of Mediators
The parties shall promptly attempt to agree upon: (i) the
number of mediators desired, not to exceed three mediators; and
(ii) the selection of the mediator(s) who may include members of
the Mediation Committee and/or experienced mediators from an
independent entity to mediate all disputes set forth in the
Complaint and Answer (and Counterclaim and Reply, if any). In
the event the parties cannot agree upon the number of mediators
desired, that number shall default to three. In the event the
parties cannot agree upon the selection of mediator(s), the
Chairman will select the mediator(s), at least one of which shall
be an experienced mediator from an independent entity, consistent
with the provisions set forth in this Paragraph. No member of
the Mediation Committee who is a representative of any party to
the Mediation may be selected to mediate the dispute. The
Chairman shall also endeavor not to select as a mediator any
member of the Mediation Committee whom a party has requested to
be disqualified. If, after due regard for availability,
expertise, and such other considerations as may best promote an
expeditious Mediation, the Chairman
believes that he or she must consider for selection a member of
the Mediation Committee whom a party has requested to be
disqualified, the other members of the Committee eligible to be
selected to mediate the dispute shall decide the request for
disqualification. By agreeing to participate in the Mediation of
a dispute, a member of the Mediation Committee represents to the
party (or parties) thereto that he or she knows of no grounds
which would require his or her disqualification.
D. Binding Decision
Before the date of the Mediation Hearing described below,
the Corporate Secretary will contact the party (or parties) to
determine whether they wish to be bound by any recommendation of
the selected mediators for resolution of the disputes. If all
wish to be bound, the Corporate Secretary will send appropriate
documentation to them for their signatures before the Mediation
Hearing begins.
E. Mediation Procedure
The Chairman shall promptly advise the parties of a
scheduled Mediation Hearing date. Unless a party requests an
expedited procedure, or unless all parties to the proceeding
agree to one or more extensions of time, the Mediation Hearing
set forth below shall be completed within forty (40) days of
BCBSA's receipt of the Complaint. The selected mediators, unless
the parties otherwise agree, shall adhere to the following
procedure:
i. Each party must be represented by its CEO or other
representative who has been delegated full authority to resolve
the dispute. However, parties may send additional
representatives as they see fit.
ii. By no later than five (5) days prior to the date designated
for the Mediation Hearing, each party shall supply and serve a
list of all persons who will be attending the Mediation Hearing,
and indicate who will have the authority to resolve the dispute.
iii. Each party will be given one-half hour to present its case,
beginning with the complaining party (or parties), followed by
the other party or parties. The parties are free to structure
their presentations as they see fit, using oral statements or
direct examination of witnesses. However, neither cross-
examination nor questioning of opposing representatives will be
permitted. At the close of each presentation, the selected
mediators will be given an opportunity to ask questions of the
presenters and witnesses. All parties must be present throughout
the Mediation Hearing. The selected mediators may extend the
time allowed for each party's presentation at the Mediation
Hearing. The selected mediators may meet in executive session,
outside the presence of the parties, or may meet with the parties
separately, to discuss the controversy.
iv.
After the close of the presentations, the parties will
attempt to negotiate a settlement of the dispute.
If the parties desire, the selected mediators, or
any one or more of the selected mediators, will sit
in on the negotiations.
v. After the close of the presentations, the selected mediators
may meet privately to agree upon a recommendation for resolution
of the dispute which would be submitted to the parties for their
consideration and approval. If the parties have previously
agreed to be bound by the results of this procedure, this
recommendation shall be binding upon the parties.
vi. The purpose of the Mediation Hearing is to assist the
parties to settle their grievances short of mandatory dispute
resolution. As a result, the Mediation Hearing has been designed
to be as informal as possible. Rules of evidence shall not
apply. There will be no transcript of the proceedings, and no
party may make a tape recording of the Mediation Hearing.
vii. In order to facilitate a free and open discussion, the
Mediation proceeding shall remain confidential. A "Stipulation
to Confidentiality" which prohibits future use of settlement
offers, all position papers or other statements furnished to the
selected mediators, and decisions or recommendations in any
Mediation proceeding shall be executed by each party.
viii. Upon request of the selected mediators, or one of the
parties, BCBSA staff may also submit documentation at any time
during the proceedings.
F. Notice Of Termination Of Mediation
If the Mediation cannot be completed within the prescribed
or agreed time period due to the lack of cooperation of any
party, as determined by the selected mediators, or if the
Mediation does not result in a final resolution of all disputes
at the Mediation Hearing or within forty (40) days after the
Complaint was served, whichever comes first, any party or any one
of the selected mediators may so notify the Corporate Secretary,
who shall promptly issue a Notice of termination of mediation to
all parties, to the selected mediators, and to the MDR
Administrator, defined below. Such notice shall serve to bring
the Mediation to an end and to initiate Mandatory Dispute
Resolution. Upon agreement of all parties and the selected
mediators, the Mediation process may continue at the same time
the MDR process is invoked. The Notice described above would
serve to initiate the MDR proceeding and would not terminate the
proceedings.
3. Mandatory Dispute Resolution (MDR)
If all parties elect not to first pursue Mediation, or if a
notice of termination of Mediation is issued as set forth in
Paragraph 2.F., above, then the unresolved disputes set forth in
any Complaint and Answer (and Counterclaim and Reply, if any)
shall be subject to MDR.
A. MDR Administrator
The Administrator shall be an independent entity such as the
Center for Public Resources, Inc. or Endispute, Inc.,
specializing in alternative dispute resolution. The
Administrator shall be designated initially, and may be changed
from time to time, by the affirmative vote of fifty-one (51)
percent of the Plans and fifty-one (51) percent of the total then
current weighted vote of all the Plans.
B. Initial Conference
Within five (5) days after a Notice of Termination has
issued, or within five (5) days after the time for filing and
serving the Reply to any Counterclaim if the parties elect first
not to mediate, the parties shall confer with the Administrator
to discuss selecting a dispute resolution panel ("the Panel").
This Initial Conference may be by telephone. The parties are
encouraged to agree to the composition of the Panel and to
present that agreement to the Administrator at the Initial
Conference. If the parties do not agree on the composition of
the Panel by the time of the Initial Conference, or by any
extension thereof agreed to by all parties and the Administrator,
then the Panel Selection Process set forth in subparagraph C
shall be followed.
C. Panel Selection Process
The Administrator shall designate at least seven potential
arbitrators. The exact number designated shall be sufficient to
give each party at least two peremptory strikes. Each party
shall be permitted to strike any designee for cause and the
Administrator shall determine the sufficiency thereof in its sole
discretion. The Administrator will designate a replacement for
any designee so stricken. Each party shall then be permitted two
peremptory strikes. From the remaining designees, the
Administrator shall select a three member Panel. The
Administrator shall set the dates for exercising all strikes and
shall complete the Panel Selection Process within fifteen (15)
days of the Initial Conference. Each Arbitrator shall be
compensated at his or her normal hourly rate or, in the absence
of an established rate, at a reasonable hourly rate to be
promptly fixed by the Administrator for all time spent in
connection with the proceedings and shall be reimbursed for any
travel and other reasonable expenses.
D. Duties Of The Arbitrators
The Panel shall promptly designate a Presiding Arbitrator
for the purposes reflected below, but shall retain the power to
review and modify any ruling or other action of said Presiding
Arbitrator. Each Arbitrator shall be an independent Arbitrator,
shall be governed by the Code of Ethics for Arbitrators in
Commercial Disputes, appended as Exhibit "5-B" hereto, and shall
at or prior to the commencement of any Arbitration Hearing take
an oath to that effect. Each Arbitrator shall promptly disclose
in writing to the Panel and to the parties any circumstances,
whenever arising, that might cause doubt as to such Arbitrator's
compliance, or ability to comply, with said Code of Ethics, and,
absent resignation by such Arbitrator, the remaining Arbitrators
shall determine in their sole discretion whether the
circumstances so disclosed constitute grounds for
disqualification and for replacement. With respect to such
circumstances arising or coming to the attention of a party after
an Arbitrator's selection, a party may likewise request the
Arbitrator's resignation or a determination as to
disqualification by the remaining Arbitrators. With respect to a
sole Arbitrator, the determination as to disqualification shall
be made by the Administrator.
There shall be no ex parte communication between the parties
or their counsel and any member of the Panel.
E. Panel's Jurisdiction And Authority
The Panel's jurisdiction and authority shall extend to all
disputes between or among the Plans, their Controlled Affiliates,
and/or BCBSA, except for those disputes excepted from these MMDR
procedures as set forth in the License Agreements.
With the exception of punitive or treble damages, the Panel
shall have full authority to award the relief it deems
appropriate to resolve the parties' disputes, including monetary
awards and injunctions, mandatory or prohibitory. The Panel has
no authority to award punitive or treble damages except that the
Panel may allocate or assess responsibility for punitive or
treble damages assessed by another tribunal. Subject to the
above limitations, the Panel may, by way of example, but not of
limitation:
i. interpret or construe the meaning of any terms, phrase or
provision in any license between BCBSA and a Plan or a
Controlled Affiliate relating to the use of the BLUE CROSSr or
BLUE SHIELDr service marks.
ii. determine whether BCBSA, a Plan or a Controlled Affiliate
has violated the terms or conditions of any license between the
BCBSA and a Plan or a Controlled Affiliate relating to the use of
the BLUE CROSSr or BLUE SHIELDr service marks.
iii. decide challenges as to its own jurisdiction.
iv. issue such orders for interim relief as it deems appropriate
pending Hearing and Award in any Arbitration.
It is understood that the Panel is expected to resolve
issues based on governing principles of law, preserving to the
maximum extent legally possible the continued integrity of the
Licensed Marks and the BLUE CROSS/BLUE SHIELD system. The Panel
shall apply federal law to all issues which, if asserted in the
United States District Court, would give rise to federal question
jurisdiction, 28 U.S.C. 1331. The Panel shall apply Illinois
law to all issues involving interpretation, performance or
construction of any License Agreement or Controlled Affiliate
License Agreement unless the agreement otherwise provides. As to
other issues, the Panel shall choose the applicable law based on
conflicts of law principles of the State of Illinois.
F. Administrative Conference And Preliminary Arbitration
Hearing
Within ten (10) days of the Panel being selected, the
Presiding Arbitrator will schedule an Administrative Conference
to discuss scheduling of the Arbitration Hearing and any other
matter appropriate to be considered including: any written
discovery in the form of requests for production of documents or
requests to admit facts; the identity of any witness whose
deposition a party may desire and a showing of exceptional good
cause for the taking of any such deposition; the desirability of
bifurcation or other separation of the issues; the need for and
the type of record of conferences and hearings, including the
need for transcripts; the need for expert witnesses and how
expert testimony should be presented; the appropriateness of
motions to dismiss and/or for full or partial summary judgment;
consideration of stipulations; the desirability of presenting any
direct testimony in writing; and the necessity for any on-site
inspection by the Panel.
G. Discovery
i. Requests for Production of Documents: All requests for the
production of documents must be served as of the date of the
Administrative Conference as set forth in Paragraph 3.F., above.
Within twenty (20) days after receipt of a request for documents,
a party shall produce all relevant and non-privileged documents
to the requesting party. In his or her discretion, the Presiding
Arbitrator may require the parties to provide lists in such
detail as is deemed appropriate of all documents as to which
privilege is claimed and may further require in-camera inspection
of the same.
ii. Requests for Admissions: Requests for Admissions
may be served up to 21 days prior to the Arbitration
Hearing. A party served with Requests For
Admissions must respond within twenty (20) days of
receipt of said request. The good faith use of and
response to Requests for Admissions is encouraged,
and the Panel shall have full discretion, with
reference to the Federal Rules of Civil Procedure,
in awarding appropriate sanctions with respect to
abuse of the procedure.
iii. Depositions As a general rule, the parties
will not be permitted to take deposition testimony
for discovery purposes. The Presiding Arbitrator,
in his or her sole discretion, shall have the
authority to permit a party to take such deposition
testimony upon a showing of exceptional good cause,
provided that no deposition, for discovery purposes
or otherwise, shall exceed three (3) hours,
excluding objections and colloquy of counsel.
iv. Expert witness(es): If a party intends to
present the testimony of an expert witness during
the oral hearing, it shall provide all other parties
with a written statement setting forth the
information required to be provided by Fed. R. Civ.
P. 26(b)(4)(A)(i) prior to the expiration of the
discovery period.
v.Discovery cut-off: The Presiding Arbitrator shall
determine the date on which the discovery period
will end, but the discovery period shall not exceed
forty-five (45) days from its commencement, without
the agreement of all parties.
vi. Additional discovery: Any additional discovery will be at
the discretion of the Presiding Arbitrator. The Presiding
Arbitrator is authorized to resolve all discovery disputes, which
resolution will be binding on the parties unless modified by the
Arbitration Panel. If a party refuses to comply with a decision
resolving a discovery dispute, the Panel, in keeping with Fed. R.
Civ. P. 37, may refuse to allow that party to support or oppose
designated claims or defenses, prohibit that party from
introducing designated matters into evidence or, in extreme
cases, decide an issue submitted for resolution adversely to that
party.
H. Panel Suggested Settlement/Mediation
At any point during the proceedings, the Panel at the
request of any party or on its own initiative, may suggest that
the parties explore settlement and that they do so at or before
the conclusion of the Arbitration Hearing, and the Panel shall
give such assistance in settlement negotiations as the parties
may request and the Panel may deem appropriate. Alternatively,
the Panel may direct the parties to endeavor to mediate their
disputes as provided above, or to explore a mini-trial
proceeding, or to have an independent party render a neutral
evaluation of the parties' respective positions. The Panel shall
enter such sanctions as it deems appropriate with respect to any
party failing to pursue in good faith such Mediation or other
alternate dispute resolution methods.
I. Subpoenas On Third Parties
Pursuant to, and consistent with, the Federal Arbitration
Act, 9 U.S.C. 9 et seq., a party may request the issuance of a
subpoena on a third party, to compel testimony or documents, and,
if good and sufficient cause is shown, the Panel shall issue such
a subpoena.
J. Arbitration Hearing
An Arbitration Hearing will be held within thirty (30) days
after the Administrative Conference if no discovery is taken, or
within thirty (30) days after the close of discovery, unless all
parties and the Panel agree to extend the Arbitration Hearing
date, or unless the parties agree in writing to waive the
Arbitration Hearing. The parties may mutually agree on the
location of the Arbitration Hearing. If the parties fail to
agree, the Arbitration Hearing shall be held in Chicago,
Illinois, or at such other location determined by the Presiding
Arbitrator to be most convenient to the participants. The Panel
will determine the date(s) and time(s) of the Arbitration
Hearing(s) after consultation with all parties and shall provide
reasonable notice thereof to all parties or their
representatives.
K. Arbitration Hearing Memoranda
Twenty (20) days prior to the Arbitration Hearing, each
party shall submit to the other party (or parties) and to the
Panel an Arbitration Hearing Memorandum which sets forth the
applicable law and any argument as to any relevant issue. The
Arbitration Hearing Memorandum will supplement, and not repeat,
the allegations, information and documents contained in or with
the Complaint, Answer, Counterclaim and Reply, if any. Ten (10)
days prior to the Arbitration Hearing, each party may submit to
the other party (or parties) and to the Panel a Response
Arbitration Hearing Memorandum which sets forth any response to
another party's Arbitration Hearing Memorandum.
L. Notice For Testimony
Ten (10) days prior to the Arbitration Hearing, any party
may serve a Notice on any other party (or parties) requesting the
attendance at the Arbitration Hearing of any officer, employee or
director of the other party (or parties) for the purpose of
providing noncumulative testimony. If a party fails to produce
one of its officers, employees or directors whose noncumulative
testimony during the Arbitration Hearing is reasonably requested
by an adverse party, the Panel may refuse to allow that party to
support or oppose designated claims or defenses, prohibit that
party from introducing designated matters into evidence or, in
extreme cases, decide an issue submitted for mandatory dispute
resolution adversely to that party. This Rule may not be used
for the purpose of burdening or harassing any party, and the
Presiding Arbitrator may impose such orders as are appropriate so
as to prevent or remedy any such burden or harassment.
M. Arbitration Hearing Procedures
i. Attendance at Arbitration Hearing: Any person having a
direct interest in the proceeding is entitled to attend the
Arbitration Hearing. The Presiding Arbitrator shall otherwise
have the power to require the exclusion of any witness, other
than a party or other essential person, during the testimony of
any other witness. It shall be discretionary with the Presiding
Arbitrator to determine the propriety of the attendance of any
other person.
ii. Confidentiality: The Panel and all parties shall maintain
the privacy of the Arbitration Proceeding. The parties and the
Panel shall treat the Arbitration Hearing and any discovery or
other proceedings or events related thereto, including any award
resulting therefrom, as confidential except as otherwise
necessary in connection with a judicial challenge to or
enforcement of an award or unless otherwise required by law.
iii. Stenographic Record: Any party, or if the parties do not
object, the Panel, may request that a stenographic or other
record be made of any Arbitration Hearing or portion thereof.
The costs of the recording and/or of preparing the transcript
shall be borne by the requesting party and by any party who
receives a copy thereof. If the Panel requests a recording
and/or a transcript, the costs thereof shall be borne equally by
the parties.
iv. Oaths: The Panel may require witnesses to
testify under oath or affirmation administered by
any duly qualified person and, if requested by any
party, shall do so.
v.Order of Arbitration Hearing: An Arbitration
Hearing shall be opened by the recording of the
date, time, and place of the Arbitration Hearing,
and the presence of the Panel, the parties, and
their representatives, if any. The Panel may, at
the beginning of the Arbitration Hearing, ask for
statements clarifying the issues involved.
Unless otherwise agreed, the complaining party (or
parties) shall then present evidence to support
their claim(s). The respondent(s) shall then
present evidence supporting their defenses and
Counterclaims, if any. The complaining party (or
parties) shall then present evidence supporting
defenses to the Counterclaims, if any, and rebuttal.
Witnesses for each party shall submit to questions
by adverse parties and/or the Panel.
The Panel has the discretion to vary these
procedures, but shall afford a full and equal
opportunity to all parties for the presentation of
any material and relevant evidence
.
vi. Evidence: The parties may offer such evidence as
is relevant and material to the dispute and shall
produce such evidence as the Panel may deem
necessary to an understanding and resolution of the
dispute. Unless good cause is shown, as determined
by the Panel or agreed to by all other parties, no
party shall be permitted to offer evidence at the
Arbitration Hearing which was not disclosed prior to
the Arbitration Hearing by that party. The Panel
may receive and consider the evidence of witnesses
by affidavit upon such terms as the Panel deems
appropriate.
The Panel shall be the judge of the relevance and
materiality of the evidence offered, and conformity
to legal rules of evidence, other than enforcement
of the attorney-client privilege and the work
product protection, shall not be necessary. The
Federal Rules of Evidence shall be considered by the
Panel in conducting the Arbitration Hearing but
those rules shall not be controlling. All evidence
shall be taken in the presence of the Panel and all
of the parties, except where any party is in default
or has waived the right to be present.
Settlement offers by any party in connection with
Mediation or MDR proceedings, decisions or
recommendations of the selected mediators, and a
party's position papers or statements furnished to
the selected mediators shall not be admissible
evidence or considered by the Panel without the
consent of all parties.
vii.
Closing of Arbitration Hearing: The Presiding
Arbitrator shall specifically inquire of all parties
whether they have any further proofs to offer or
witnesses to be heard. Upon receiving negative
replies or if he or she is satisfied that the record
is complete, the Presiding Arbitrator shall declare
the Arbitration Hearing closed with an appropriate
notation made on the record. Subject to being
reopened as provided below, the time within which
the Panel is required to make the award shall
commence to run, in the absence of contrary
agreement by the parties, upon the closing of the
Arbitration Hearing.
With respect to complex disputes, the Panel may, in
its sole discretion, defer the closing of the
Arbitration Hearing for a period of up to thirty
(30) days after the presentation of proofs in order
to permit the parties to submit post-hearing briefs
and argument, as the Panel deems appropriate, prior
to making an award.
For good cause, the Arbitration Hearing may be
reopened for up to thirty (30) days on the Panel's
initiative, or upon application of a party, at any
time before the award is made
N. Awards
An Award must be in writing and shall be made promptly by
the Panel and, unless otherwise agreed by the parties or
specified by law, no later than thirty (30) days from the date of
closing the Arbitration Hearing. If all parties so request, the
Award shall contain findings of fact and conclusions of law. The
Award, and all other rulings and determinations by the Panel, may
be by a majority vote.
Parties shall accept as legal delivery of the Award the
placing of the Award or a true copy thereof in the mail addressed
to a party or its representative at its last known address or
personal service of the Award on a party or its representative.
Awards are binding only on the parties to the Arbitration
and are not binding on any non-parties to the Arbitration and may
not be used or cited as precedent in any other proceeding.
After the expiration of twenty (20) days from initial
delivery, the Award (with corrections, if any) shall be final and
binding on the parties, and the parties shall undertake to carry
out the Award without delay.
Proceedings to confirm, modify or vacate an Award shall be
conducted in conformity with and controlled by the Federal
Arbitration Act. 9 U.S.C. 1, et seq.
O. Return Of Documents
Within sixty (60) days after the Award and the conclusion of
any judicial proceedings with respect thereto, each party and the
Panel shall return any documents produced by any other party,
including all copies thereof. If a party receives a discovery
request in any other proceeding which would require it to produce
any documents produced to it by any other party in a proceeding
hereunder, it shall not produce such documents without first
notifying the producing party and giving said party reasonable
time to respond, if appropriate, to the discovery request.
4. Miscellaneous
A. Expedited Procedures
Any party to a Mediation may direct a request for an
expedited Mediation Hearing to the Chairman of the Mediation
Committee, to the selected Mediators, and to all other parties at
any time. The Chairman of the Mediation Committee, or at his or
her direction, the then selected Mediators, shall grant any
request which is supported by good and sufficient reasons. If
such a request is granted, the Mediation shall be completed
within as short a period as practicable, as determined by the
Chairman of the Mediation Committee or, at his or her direction,
the then selected Mediators.
Any party to an Arbitration may direct a request for
expedited proceedings to the Administrator, to the Panel, and to
all other parties at any time. The Administrator, or the
Presiding Arbitrator if the Panel has been selected, shall grant
any such request which is supported by good and sufficient
reasons. If such a request is granted, the Arbitration shall be
completed within as short a time as practicable, as determined by
the Administrator and/or the Presiding Arbitrator.
B. Temporary Or Preliminary Injunctive Relief
Any party may seek temporary or preliminary injunctive
relief with the filing of a Complaint or at any time thereafter.
If such relief is sought prior to the time that an Arbitration
Panel has been selected, then the Administrator shall select a
single Arbitrator who is a lawyer who has no interest in the
subject matter of the dispute, and no connection to any of the
parties, to hear and determine the request for temporary or
preliminary injunction. If such relief is sought after the time
that an Arbitration Panel has been selected, then the Arbitration
Panel will hear and determine the request. The request for
temporary or preliminary injunctive relief will be determined
with reference to the temporary or preliminary injunction
standards set forth in Fed. R. Civ. P. 65.
C. Defaults And Proceedings In The Absence Of A Party
Whenever a party fails to comply with the MDR Rules in a
manner deemed material by the Panel, the Panel shall fix a
reasonable time for compliance and, if the party does not comply
within said period, the Panel may enter an Order of default or
afford such other relief as it deems appropriate. Arbitration
may proceed in the event of a default or in the absence of any
party who, after due notice, fails to be present or fails to
obtain an extension. An Award shall not be made solely on the
default or absence of a party, but the Panel shall require the
party who is present to submit such evidence as the Panel may
require for the making of findings, determinations, conclusions,
and Awards.
D. Notice
Each party shall be deemed to have consented that any
papers, notices, or process necessary or proper for the
initiation or continuation of a proceeding under these rules or
for any court action in connection therewith may be served on a
party by mail addressed to the party or its representative at its
last known address or by personal service, in or outside the
state where the MDR proceeding is to be held.
The Corporate Secretary and the parties may also use
facsimile transmission, telex, telegram, or other written forms
of electronic communication to give the notices required by these
rules.
E. Expenses
The expenses of witnesses shall be paid by the party causing
or requesting the appearance of such witnesses. All expenses of
the MDR proceeding, including compensation, required travel and
other reasonable expenses of the Panel, and the cost of any proof
produced at the direct request of the Panel, shall be borne
equally by the parties and shall be paid periodically on a timely
basis, unless they agree otherwise or unless the Panel in the
Award assesses such expenses, or any part thereof against any
party (or parties). In exceptional cases, the Panel may award
reasonable attorneys' fees as an item of expense, and the Panel
shall promptly determine the amount of such fees based on
affidavits or such other proofs as the Panel deems sufficient.
F. Disqualification Or Disability Of A Panel Member
In the event that any Arbitrator of a Panel with more than
one Arbitrator should become disqualified, resign, die, or refuse
or be unable to perform or discharge his or her duties after the
commencement of MDR but prior to the rendition of an Award, and
the parties are unable to agree upon a replacement, the remaining
Panel member(s):
i. shall designate a replacement, subject to the right of any
party to challenge such replacement for cause.
ii. shall decide the extent to which previously
held hearings shall be repeated.
If the remaining Panel members consider the proceedings to
have progressed to a stage as to make replacement impracticable,
the parties may agree, as an alternative to the recommencement of
the Mandatory Dispute Resolution process, to resolution of the
dispute by the remaining Panel members.
In the event that a single Arbitrator should become
disqualified, resign, die, or refuse or be unable to perform or
discharge his or her duties after the commencement of MDR but
prior to the rendition of an Award, and the parties are unable to
agree upon a replacement, the Administrator shall appoint a
successor, subject to the right of any party to challenge such
successor for cause, and the successor shall decide the extent to
which previously held proceedings shall be repeated.
G. Amendments
These MMDR Rules may be altered or amended from time to time
by the affirmative vote of fifty-one (51) percent of the Plans
and fifty-one (51) percent of the total then current weighted
vote of all the Plans.
H. Extensions of Time
Any time limit set forth in these Rules may be extended upon
agreement of the parties and approval of: (i) the Chairman of
the Mediation Committee if the proceeding is then in Mediation;
(ii) the Administrator if the proceeding is in Arbitration, but
no Arbitration Panel has been selected; or (iii) the Arbitration
Panel, if the proceeding is in Arbitration and the Arbitration
Panel has been selected.
I. Intervention
The Plans, their Controlled Affiliates, and BCBSA, to the
extent subject to MMDR pursuant to their License Agreements,
shall have the right to move to intervene in any pending
Arbitration. A written motion for intervention shall be made to:
(i) the Administrator, if the proceeding is in Arbitration, but
no Arbitration Panel has been selected; or (ii) the Arbitration
Panel, if the proceeding is in Arbitration and the Arbitration
Panel has been selected. The written motion for intervention
shall be delivered to the BCBSA Corporate Secretary (which shall
also constitute service on the BCBSA if it is a respondent) and
to any Plan(s) and/or Controlled Affiliate(s) which are parties
to the proceeding. Any party to the proceeding can submit
written objections to the motion to intervene. The motion for
intervention shall be granted upon good cause shown.
Intervention also may be allowed by stipulation of the parties to
the Arbitration proceeding. Intervention shall be allowed upon
such terms as the Arbitration Panel decides.
J. BCBSA Assistance In Resolution of Disputes
The resources and personnel of the BCBSA may be requested by
any member Plan at any time to try to resolve disputes with
another Plan.
K. Neutral Evaluation
The parties can voluntarily agree at any time to have an
independent party render a neutral evaluation of the parties'
respective positions.
EXHIBIT 5-A
MEDIATION COMMITTEE
REPORTS TO: Board of Directors
CHARGE: 1. Develop and implement processes for resolving
misunderstandings or disagreements between Plans or
between Plans and the Association under the following
circumstances:
a. Matters at
issue regarding relationships between Plans
or between Plans and the Association.
b. Matters at
issue regarding relationships between Plans
or between Plans and the Association.
c. Matters
at issue under the Inter-Plan Bank,
Reciprocity, and Transfer Programs.
d. Matters
at issue regarding contractor selection or
performance under the Medicare Part A
Program.
2. Determination of equalization allowances
and/or cost allowances under FEP shall not be
considered by this Committee.
MEMBERSHIP: Six to Eight
STAFF: Senior Vice President and General Counsel
Exhibit 10.8.2
BLUE CROSS
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and HMO Missouri, Inc. ("Controlled
Affiliate"), a Controlled Affiliate of the Blue Cross Plan(s),
known as Blue Cross and Blue Shield of Missouri ("Plan"), which
is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE CROSS and BLUE CROSS Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Notwithstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Cross Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Cross Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
HMO Missouri, Inc.
By: /s/ John A. O'Rourke
Chairman
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.9.2
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and HMO Missouri, Inc. ("Controlled
Affiliate"), a Controlled Affiliate of the Blue Shield Plan(s),
known as Blue Cross and Blue Shield of Missouri ("Plan"), which
is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE
SHIELD Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE SHIELD in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Not withstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Shield Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Shield Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
HMO Missouri, Inc.
By: /s/ John A. O'Rourke
Chairman
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Shield Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.10.2
BLUE CROSS
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and RightCHOICE Managed Care, Inc.
("Controlled Affiliate"), a Controlled Affiliate of the Blue
Cross Plan(s), known as Blue Cross and Blue Shield of Missouri
("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE CROSS and BLUE CROSS Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Notwithstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Cross Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Cross Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
RightCHOICE Managed Care, Inc.
By: /s/ John A. O'Rourke
Chairman, President and CEO
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.11.2
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and RightCHOICE Managed Care, Inc.
("Controlled Affiliate"), a Controlled Affiliate of the Blue
Shield Plan(s), known as Blue Cross and Blue Shield of Missouri
("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE
SHIELD Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE SHIELD in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Not withstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Shield Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Shield Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
RightCHOICE Managed Care, Inc.
By: /s/ John A. O'Rourke
Chairman, President and CEO
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Shield Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.12.2
BLUE CROSS
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and Healthy Alliance Life Insurance Company
("Controlled Affiliate"), a Controlled Affiliate of the Blue
Cross Plan(s), known as Blue Cross and Blue Shield of Missouri
("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE CROSS and BLUE CROSS Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Notwithstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Cross Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Cross Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
Healthy Alliance Life Insurance Company
By: /s/ John A. O'Rourke
Chairman and President
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.13.2
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield
Association ("BCBSA") and Healthy Alliance Life Insurance Company
("Controlled Affiliate"), a Controlled Affiliate of the Blue
Shield Plan(s), known as Blue Cross and Blue Shield of Missouri
("Plan"), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE
SHIELD Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the
latter be entitled to use the BLUE SHIELD and BLUE SHIELD Design
service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE SHIELD in a trade name
("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA
hereby grants to Controlled Affiliate the right to use the
Licensed Marks and Name in connection with, and only in
connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation
insurance, and (ii) underwriting the indemnity portion of
workers' compensation insurance, provided that Controlled
Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the
Service Area served by the Plan. Controlled Affiliate may not
use the Licensed Marks and Name in its legal name and may use the
Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks
and Name only in connection with the licensed services and
further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by
BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all
applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by Plan or by
BCBSA) a report or reports to Plan and BCBSA demonstrating
Controlled Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control
provisions of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may,
from time-to-time, upon reasonable notice, review and inspect the
manner and method of Controlled Affiliate's rendering of service
and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an
entity organized and operated in such a manner, that it meets the
following requirements:
(1) If the Plan has 50 percent of the voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the
articles of incorporation, bylaws or other establishing or
governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have at least equal control over the
operations of the
Controlled Affiliate;
(c) the Plan must concur in writing before the Controlled
Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it
operates;
(iii) change the fundamental type(s) of business in
which it engages;
(iv) create, or become liable for by way of
guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the
ordinary course of business or sales of equipment no
longer useful or being replaced;
(vi) make any loans or advances except in the
ordinary course of business;
(vii) enter into any arrangement or agreement with
any party directly or indirectly affiliated with any
of the owners or persons or entities with the
authority to select or appoint members or board
members of the Controlled Affiliate, other than the
Plan or Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the
Licensed Marks and Name;
(ix) take any action that Plan or BCBSA
reasonably believes will adversely affect the
Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the
Controlled Affiliate:
(a) the Plan must have the legal ability to prevent any
change in the articles of incorporation,
bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur;
(b) the Plan must have control over the policy and
operations of the Controlled Affiliate.
3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a
comprehensive national network of independent BCBSA licensees
which are committed to strengthening the Licensed Marks and Name.
The Controlled Affiliate further recognizes that its actions
within its Service Area may affect the value of the Licensed
Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and Name, including but
not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply
with such rules (generally applicable to Controlled Affiliates
licensed to use the Licensed Marks and Name) relative to service
mark use, as are issued from time-to-time by BCBSA. Controlled
Affiliate recognizes and agrees that all use of the Licensed
Marks and Name by Controlled Affiliate shall inure to the benefit
of BCBSA.
C. Controlled Affiliate may not directly or indirectly use
the Licensed Marks and Name in a manner that transfers or is
intended to transfer in the Service Area the goodwill associated
therewith to another mark or name, nor may Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of
the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1)
but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by
BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name,
Controlled Affiliate shall for ninety (90) days thereafter obtain
prior approval from BCBSA of advertising and promotional efforts
using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of
receipt of same by BCBSA or its designee. In all advertising and
promotional efforts, Controlled Affiliate shall observe the
Service Area limitations applicable to Plan.
E. Controlled Affiliate shall use its best efforts in the
Service Area to promote and build the value of the Licensed Marks
and Name.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly,
sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or
BCBSA. This Agreement and all rights and duties hereunder are
personal to Controlled Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan
shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that may occur in
relation to the Licensed Marks and Name. Controlled Affiliate
shall not be entitled to require Plan or BCBSA to take any
actions or institute any proceedings to prevent infringement,
unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims,
damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to
Controlled Affiliate's rendering of services under the Licensed
Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license
granted by this Agreement shall remain in effect for a period of
one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions
herein.
B. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that Plan ceases to be
authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement,
this license to use the Licensed Marks and Name may be forthwith
terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special
meeting expressly called by BCBSA for the purpose on ten (10)
days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the
quality control standards of this Agreement; or (2) failure to
comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined
in Exhibit A), failure to comply with any of the applicable
requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A;
or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of
its assets or seeking appointment of a trustee, interim trustee,
receiver or other custodian for any of its property or business
or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate
License Agreement has been earlier terminated under paragraph
7(e); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written
consent to a change in the identity of any owner, in the extent
of ownership, or in the identity of any person or entity with the
authority to select or appoint members or board members, provided
that as to publicly traded Affiliates this provision shall apply
only if the change affects a person or entity that owns at least
5% of the Affiliate's stock before or after the change; or (7)
such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C)
or 7(E) herein, should Controlled Affiliate fail to comply with
the provisions of this Agreement and not cure such failure within
thirty (30) days of receiving written notice thereof (or commence
a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall
have the right to issue a notice that the Controlled Affiliate is
in a state of noncompliance. If a state of noncompliance as
aforesaid is undisputed by the Controlled Affiliate or is found
to exist by a mandatory dispute resolution panel and is uncured
as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination
thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution.
All other disputes between BCBSA, the Plan and/or Controlled
Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in
Paragraphs 7(B) and 7(E) of this Agreement, this license to use
the Licensed Marks and Name may not be finally terminated for any
reason without the affirmative vote of a majority of the present
and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights
hereunder shall immediately terminate without any further action
by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item
2(E) above;
(2) Appropriate dues, royalties and other payments for
Controlled Affiliate pursuant to paragraph 9 hereof, which are
the royalties for this License Agreement, are more than sixty
(60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary
petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against
Controlled Affiliate seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency
or debtor relief and such petition or proceeding is consented to
or acquiesced in by Controlled Affiliate or is not dismissed
within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered
against Controlled Affiliate in any case under the bankruptcy
laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or
(v) the Department of Insurance or other regulatory agency
assumes control of Controlled Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an
action is brought by Controlled Affiliate seeking its dissolution
or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of
its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not
dismissed within one hundred thirty (130) days of the date upon
which the pleading or other document commencing the action is
served upon the Controlled Affiliate, provided that if the action
is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or
injunction, an provided further, that the Association's Board of
Directors may toll or extend the 130 day period at any time prior
to its expiration,, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Controlled Affiliate's
property or business is appointed. Not withstanding any other
provision of this Agreement, a declaration or a request for
declaration of the existence of a trust over any of the Plan's or
BCBSA's property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee,
receiver or other custodian for purposes of subparagraphs
7(e)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or
otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any
use in its trade name.
G. Upon termination of this Agreement, Controlled
Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the
Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and
in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify
compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Controlled Affiliate is a Larger
Controlled Affiliate (as defined in Exhibit A), upon termination
of this Agreement, the provisions of Paragraph 7.G. shall not
apply and the following provisions shall apply:
(1) The Controlled Affiliate shall send a notice through
the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of
products or services sold, marketed, underwritten or administered
by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA
and shall, at a minimum, notify the recipient of the termination
of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within
five days of a request by BCBSA a listing of national accounts in
which the Controlled Affiliate is involved (in a control,
participating or servicing capacity), identifying the national
account and the Controlled Affiliate's role therein.
(3) Unless the cause of termination is an event respecting
BCBSA stated in paragraph 15(a) or (b) of the Plan's license
agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates of the Plan shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of
Licensed Enrollees of the Controlled Affiliate; provided that if
any other Plan is permitted by BCBSA to use marks or names
licensed by BCBSA in the Service Area established by this
Agreement, the payment shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
Controlled Affiliate, the Plan, and any other Licensed Controlled
Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means
each and every person and covered dependent who is enrolled as an
individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last
fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H.
(3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Controlled Affiliate, the
Plan or any other Licensed Controlled Affiliates of the Plan to
fall below 100% of the capital benchmark formula, or its
equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by
BCBSA measured as of the date of termination, and adjusted for
the value of any transactions not made in the ordinary course of
business.
(4) BCBSA shall have the right to audit the books and
records of the Controlled Affiliate, the Plan, and any other
Licensed Controlled Affiliates of the Plan to verify compliance
with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties
agree that the obligations are immediately enforceable in a court
of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4)
by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. In the event the Controlled Affiliate is a Smaller
Controlled Affiliate (as defined in Exhibit A), the Controlled
Affiliate agrees to be jointly liable for the amount described in
H.3. hereof upon termination of the BCBSA license agreement of
any Larger Controlled Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Controlled
Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result
in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated
pursuant to 10(d) of the Plan's license agreement upon the
required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets
of the Controlled Affiliate.
L. In the event that the Plan has more than 50 percent
voting control of the Controlled Affiliate under Paragraph
2(E)(2) above and is a Larger Controlled Affiliate (as defined in
Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the
Blue Shield Plans which are Regular Members of BCBSA and three-
fourths of the total then current weighted vote of all the Blue
Shield Plans which are Regular Member Plans of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between
or among either of them and one or more Plans or Controlled
Affiliates of Plans that use in any manner the Blue Cross and
Blue Shield Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name
as Exhibits 5, 5A and 5B as amended from time-to-time, which
documents are incorporated herein by reference as though fully
set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this
License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as
creating a joint venture, partnership, agency or employment
relationship between Plan and Controlled Affiliate or between
either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or
breach or termination thereof shall be in writing and shall be
addressed in duplicate to the last known address of each other
party, marked respectively to the attention of its President and,
if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the
parties in relation to the subject matter hereof. This Agreement
may only be amended by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted
vote of all the Plans as officially recorded by the BCBSA
Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a
court of competent jurisdiction, such findings shall in no way
affect the remaining obligations of the parties hereunder and the
court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is
to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance
on the part of Controlled Affiliate or any other licensee of any
of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
THIS PAGE IS INTENTIONALLY BLANK.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience
only and shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License
Agreement to be executed and effective as of the date of last
signature written below.
Healthy Alliance Life Insurance Company
By: /s/ John A. O'Rourke
Chairman and President
Date: March 20, 1998
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
President
Date: March 20, 1998
Blue Cross And Blue Shield Association
By: /s/ Mark A. Orloff
Date: 3/23/98
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
November 1997
PREAMBLE
The standards for licensing Controlled Affiliates are
established by BCBSA and are subject to change from time-to-
time upon the affirmative vote of three-fourths (3/4) of the
Plans and three-fourths (3/4) of the total weighted vote.
Each licensed Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate
fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
The Controlled Affiliate License provides a flexible vehicle
to accommodate the potential range of health and workers'
compensation related products and services Plan Controlled
Affiliates provide. The Controlled Affiliate License
collapses former health Controlled Affiliate licenses (HCC,
HMO, PPO, TPA, and IDS) into a single license using the
following business-based criteria to provide a framework for
license standards:
Percent of Controlled Affiliate controlled by parent:
Greater than 50 percent or 50 percent?
Risk assumption: yes or no?
Medical care delivery: yes or no?
Importance of the Controlled Affiliate to the parent: If
the Controlled Affiliate has health or workers'
compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger"
Controlled Affiliate) of the parent's and other licensed
health subsidiaries' contract enrollment?
EXHIBIT A (continued)
For purposes of definition:
A "smaller Controlled Affiliate:" (1) comprises less
than fifteen percent (15%) of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less
than 15 percent of the sponsoring Plan's net subscription
revenue.
A "larger Controlled Affiliate" comprises fifteen
percent (15%) or more of Plan's and its licensed
Controlled Affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report,
excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
For smaller Controlled Affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS
licensees under fifteen percent (15%).
For larger Controlled Affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier
licensees, and
- June 1996, for all other currently licensed
Controlled Affiliates presently at or over fifteen
percent(15%).
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its
Plan ownership level, its risk acceptance or direct delivery
of medical care, the Controlled Affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within
six (6) months.
If a smaller Controlled Affiliate's health and workers'
compensation administration business surpasses fifteen
percent (15%) of the total contract enrollment of the Plan
and licensed Controlled Affiliates, the Controlled Affiliate
shall:
EXHIBIT A (continued)
1.Within thirty (30) days, notify BCBSA of this fact in
writing, including evidence that the Controlled Affiliate
meets the minimum liquidity and capital (BCBSA Capital
Benchmark and state-established minimum reserve)
requirements of the larger Controlled Affiliate Financial
Responsibility standard; and
2.Within six (6) months after surpassing the fifteen
percent (15%) threshold, demonstrate compliance with all
license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity
portion of workers' compensation insurance receives a change
in rating or proposed change in rating, the Controlled
Affiliate shall notify BCBSA within 30 days of notification
by the external rating agency.
___________
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's contract enrollment, as
defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed Controlled
Affiliates' contract enrollment, as reported in BCBSA's
Quarterly Enrollment Report (excluding rider and
freestanding coverage).
EXHIBIT A (continued)
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
Each Controlled Affiliate seeking licensure must answer all four
questions. Depending on the Controlled Affiliate's answers, certain
standards apply:
1. What percent of the Controlled Affiliate is Controlled by the parent
Plan?
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
IN ADDITION,
2. Is risk being assumed?
Yes No
Controlled Controlled Controlled Controlled Controlled
Affiliate Affiliate Affiliate Affiliate Affiliate
underwrites comprises < comprises > comprises < comprises >
any indemnity 15% of total 15% of total 15% of total 15% of total
portion of contract contract contract contract
workers' enrollment of enrollment of enrollment of enrollment of
compensation Plan and its Plan and its Plan and its Plan and its
insurance licensed licensed licensed licensed
Controlled Controlled Controlled Controlled
Standards 7A- Affiliates, Affiliates, Affiliates Affiliates
7E and does not and does not
underwrite underwrite Standard 2 Standard 6H
the indemnity the indemnity (Guidelines
portion of portion of 2.1,2.3)
workers' workers'
compensation compensation
insurance insurance
Standard 2 Standard 6H
(Guidelines
2.1,2.2)
IN ADDITION,
3. Is medical care being directly provided?
Yes No
Standard 3A Standard 3B
IN ADDITION,
4. If the Controlled Affiliate has health or workers' compensation
administration business, does such business comprise 15% or more of the
total contract enrollment of Plan and its licensed Controlled Affiliates?
Yes No
Standards 6A-6I Controlled Controlled
Affiliate is a Affiliate is not
former primary a former primary
licensee licensee
Standards 5,8,9 Standards 5,8
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that it is Controlled by a licensed Plan or
Plans which have, directly or indirectly: 1) more than 50%
of the voting control of the Controlled Affiliate; and 2)
the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate with which it does not
concur; and 3) operational control of the Controlled
Affiliate.
1B.) The Standard for 50% Plan ownership is:
A Controlled Affiliate shall be organized and operated in
such a manner that a licensed Plan or Plans have directly or
indirectly:
1) not less than 50% of the voting control of the
Controlled Affiliate; and
2) the legal ability to prevent any change in the articles
of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the
operations of the Controlled Affiliate; and
4) sufficient authority so that changes in the following
require the approval of the Licensed Plan or Plans:
o geographic operating area of the Controlled
Affiliate
o the legal and trade names of the Controlled
Affiliate
o the types of activity in which the Controlled
Affiliate engages
o any action which would cause the Controlled
Affiliate to be in violation of the Standards
applicable to Licensure by BCBSA.
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers. If a
risk-assuming Controlled Affiliate ceases operations for any
reason, Blue Cross and/or Blue Shield Plan coverage will be
offered to all Controlled Affiliate subscribers without
exclusions, limitations or conditions based on health
status. If a nonrisk-assuming Controlled Affiliate ceases
operations for any reason, sponsoring Plan(s) will provide
for services to its (their) customers.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs,
owns or contracts on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not
employ, own or contract on a substantially exclusive
basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure
or certification to operate under applicable state laws.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in
contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue
Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial
condition.
Standard 5 - Reports and Records for Certain Smaller
Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite
the indemnity portion of workers' compensation insurance,
the Standard is:
A Controlled Affiliate and/or its licensed Plan(s) shall
furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
EXHIBIT A (continued)
Standard 6 - Other Standards for Larger Controlled
Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled
Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the
interest of its Corporation in providing cost-effective
health care services to its customers. A Controlled
Affiliate shall maintain a governing Board, which shall
control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who
shall be known as public members. A public member shall not
be an employee of or have a financial interest in a health
care provider, nor be a member of a profession which
provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner
responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently
participate in each national program as from time to time
may be adopted by the Member Plans for the purposes of
providing portability of membership between the licensees
and ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate's Service Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. BlueCard Program;
EXHIBIT A (continued)
C. Inter-Plan Teleprocessing System (ITS); and
D. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs
listed in
Standard 6C: Participation in National Programs, a
Controlled Affiliate shall take such action as required to
ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response
Process
A Controlled Affiliate shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its
financial strength from an independent rating agency
approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, a Controlled Affiliate shall use its best
efforts in the designated Service Area to promote and build
the value of the Blue Shield Mark.
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
EXHIBIT A (continued)
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely
and accurate basis reports and records relating to
compliance with these Standards and the License Agreements
between BCBSA and Controlled Affiliate. Such reports and
records are the following:
A) BCBSA Controlled Affiliate Licensure
Information Request; and
B) Biennial trade name and service mark usage
material, including disclosure material; and
C) Changes in the ownership and governance of
the Controlled Affiliate, including changes in its
charter, articles of incorporation, or bylaws,
changes in a Controlled Affiliate's Board
composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and
changes in risk acceptance, contract growth, or
direct delivery of medical care; and
D) Quarterly Financial Report including the
Capital Benchmark Worksheet, Annual Financial
Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement
filed with State Insurance Department (with all
attachments); and
E) Quarterly Utilization Report,
Quarterly Enrollment Report, Cost Containment
Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities
Prohibited
No Controlled Affiliate shall cause or permit an
unlicensed entity to obtain control of the Controlled
Affiliate or to acquire a substantial portion of its
assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers'
Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled
Affiliates that underwrite the indemnity portion of workers'
compensation insurance.
EXHIBIT A (continued)
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that
provides reasonable financial assurance that it can fulfill
all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and
accurate basis, reports and records relating to
compliance with these Standards and the License
Agreements between BCBSA and the Controlled Affiliate.
Such reports and records are the following:
A. BCBSA Controlled Affiliate Licensure Information
Request; and
B. Biennial trade name and service mark usage materials,
including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as
filed with the State Insurance Department (with all
attachments), Annual NAIC's Risk-Based Capital Worksheets
for Property and Casualty Insurers, and Annual Financial
Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-
Based Capital for Property and Casualty Insurers, Insurance
Department Examination Report, and Quarterly NMIS Report
(for licensed health business only); and
E. Notification of all changes and proposed changes to
independent ratings within 30 days of receipt and submission
of a copy of all rating reports; and
F. Changes in the ownership and governance of the
Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, Plan control,
state license status, operating area, the Controlled
Affiliate's Principal Officers or direct delivery of medical
care.
EXHIBIT A (continued)
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention
protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective
claims administration process that includes all the
necessary functions to assure prompt and proper
resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision
of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Standard 8 - Cooperation with Controlled Affiliate License
Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan(s) shall
cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the
administration of the Controlled Affiliate License
Performance Response Process Protocol (ALPRPP) and in
addressing Controlled Affiliate compliance problems
identified thereunder.
Standard 9 - Participation in National Programs by Smaller
Controlled Affiliates
A smaller Controlled Affiliate for which this standard
applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively
and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the
purposes of providing ease of claims processing for
customers receiving benefits outside of the Controlled
Affiliate's service area and be subject to certain relevant
financial and reporting requirements.
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this
license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to its pro rata share of each sponsoring
Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's subscription revenue and
contracts arising from products using the marks. The
payment by each sponsoring Plan of its dues to BCBSA,
including that portion described in this paragraph, will
satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity
portion of workers' compensation insurance:
An amount equal to 0.35 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per
license for a Controlled Affiliate subject to Standard
7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per
annum of Controlled Affiliate arising from products
using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled
Affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other
Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE
CROSSr and BLUE SHIELDr License are issued to the same
Controlled Affiliate. In the event that any license period
is greater or less than one (1) year, any amounts due shall
be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Exhibit 10.46
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 1st day of January, 1998, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Ed Tenholder (the
"Executive").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of
Executive as an "at-will" employee of RightCHOICE; and
WHEREAS, RightCHOICE and Executive have entered into an
Officer Severance Agreement dated January 1, 1998 (the
"Officer Agreement") under which, as a condition of
Executive's employment, Executive has agreed to be bound by
certain covenants set forth in the Officer Agreement and
RightCHOICE has agreed to provide Executive certain
severance benefits upon the terms and conditions set forth
in the Officer Agreement;
WHEREAS, the Compensation Committee of RightCHOICE's
Board of Directors believes that the concerns applicable to
senior executives when certain corporate events occur are
such that, in order to facilitate senior executives'
focusing on management issues in a manner that best serves
the interests of all stakeholders, such executives of
RightCHOICE should have the protections set forth herein in
the event that a Change in Control, as defined herein,
occurs;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, the
parties hereto do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the date first
written above and shall continue in effect until terminated
in accordance with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall have the same
meaning as it is given in the Officer Agreement.
B. Annual Compensation. "Annual Compensation" shall
mean the highest aggregate amount of the following items of
compensation paid in cash (or which would have been paid in
cash if they were not deferred pursuant to any qualified or
nonqualified deferred compensation arrangement or
contributed to a welfare benefit plan pursuant to an
election under a cafeteria plan) to Executive by the Company
during a calendar year which is in the most recent five-
consecutive-calendar-year period (or such shorter period of
consecutive calendar years during which Executive has been
employed by the Company) ending on or before the date of a
Change in Control:
(i) base salary; and
(ii) payments under any of the following
incentive programs:
* Supplemental Income Plan;
* Short Term Public Offering Bonus;
* Management Incentive Plan (MIP);
* ABCBS Incentive Plan (AIP);
* Long Term Incentive Program;
* Sign-On Bonus;
* Equity 2000;
* Cost Reduction Incentive Plan;
* Sales Incentive Plan; and
* payments under any other incentive programs to the extent
that the Compensation Committee of the RightCHOICE Managed
Care, Inc. Board of Directors specifically approves
payments under such incentive programs for inclusion in
Annual Compensation for purposes of this Agreement.
For purposes of clarity and without limiting the generality of
the foregoing definition, no amounts paid to Executive pursuant
to any qualified or nonqualified deferred compensation
arrangement, any cafeteria plan or any other benefit plan
qualify for inclusion in Annual Compensation, regardless of the
source of any such amounts and no award of stock options,
restricted stock or other rights under the Equity Incentive
Plan, nor any amounts received or income recognized in
connection with receipt of any such award or exercise of any
rights under any such award, shall be included in Annual
Compensation.
C. Base Pay. "Base Pay" shall have the same meaning as
that term is given under the Officer Agreement.
D. Cause. "Cause" shall have the same meaning as that
term is given under the Officer Agreement.
E. Change in Control. "Change in Control" shall mean
the occurrence, while Executive is employed by Company and this
Agreement is in effect, of any one or more of the following
events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc.
into or for Class A common stock of RightCHOICE Managed
Care, Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to
any other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other
group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 2(E)(iv) shall be
construed as deeming a Change in Control to have occurred
if any such person or entity that is considered to own
more than fifty (50) percent (based on total voting power)
of such class of Company's or Parent's outstanding stock
(or other equity ownership interests) prior to such
acquisition, acquires additional shares of such class of
stock (or other equity ownership). Where an entity does
not have outstanding stock (such as the Parent), the above
will be deemed to have occurred if a transaction occurs in
which the entity becomes subject to the direction or
oversight by a person that is not an Affiliate, and such
direction or oversight includes the ability of the person
to set policy for the entity, and/or govern the operations
of the Parent, and/or control the entity's assets or the
stock the entity owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the
persons who were directors of Company before such election
cease to constitute a majority of the directors of
Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to
constitute a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on
a nationally recognized stock exchange.
In the event that no single transaction or event has occurred
that qualifies as a Change in Control under the foregoing
definition, in determining whether a Change in Control has
occurred, a series of transactions and/or events may be
considered to be a single transaction or event; provided,
however, that elections occurring during no more than eighteen
(18) months shall be aggregated for purposes of determining
whether a series of transactions or events qualifies as a
Change in Control under Section 2(E)(v) or 2(E)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last
transaction or event included in the series of transactions
and/or events constituting such Change in Control or such
earlier date after the beginning of such series or transactions
and/or events as Executive elects. Any person or entity that is
regularly in the business of lending money may, under the terms
of an agreement executed in connection with extending
financing, be granted the right to enforce covenants requiring
certain financial ratios or business practices to be
maintained, so long as such requirements are typical of the
covenants required by lenders generally in connection with
financing similar to that provided in connection with such
agreement, without a Change in Control being deemed to have
occured. For purposes of this definition only, no entity shall
be considered a Parent or an Affiliate unless such entity had
that status prior to the transaction or event (or the first in
a series of transactions and/or events aggregated as a single
transaction or event pursuant to this paragraph) that would
have constituted a Change in Control.
F. Code. "Code" shall have the same meaning as that
term is given under the Officer Agreement.
G. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Executive and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE
or any other person or entity that subsequently employs
Executive and becomes bound by the provisions of this
Agreement, any of the protections, rights and remedies accruing
to the "Company" under the provisions of Section 4 of this
Agreement.
H. Date of Termination. "Date of Termination" shall
mean the effective date of Executive's termination of
employment. If Executive delivers a Notice of Termination
hereunder to Company, then the Date of Termination shall be
thirty (30) days following the date such Notice of Termination
is delivered or mailed to Company in accordance with Section
6(B) hereof; provided, however, that in such event Company
shall have the right to accelerate such Date of Termination by
written notice of such acceleration delivered or mailed to
Executive in accordance with Section 6(B) hereof. If Company
delivers or mails a Notice of Termination hereunder to
Executive in accordance with Section 6(B) hereof, then the Date
of Termination shall be the date specified by Company in such
Notice of Termination.
I. Designated Beneficiary. "Designated Beneficiary"
shall mean the beneficiary designated by Executive in
accordance with the Officer Agreement.
J. Disabled. "Disabled" shall have the same meaning as
that term is given under the Officer Agreement.
K. Employee Statement. "Employee Statement" shall have
the same meaning as that term is given under the Officer
Agreement.
L. Executive Severance Benefits. "Executive Severance
Benefits" shall mean the benefits described in Section 3(B)
hereof.
M. Good Reason. "Good Reason" shall mean the
occurrence, without the written consent of Executive and within
twenty-four (24) months following a Change in Control, of any
one or more of the following events (provided, however, that
none of the following events shall constitute Good Reason if at
the time of the occurrence of such event, or during the three-
month period prior to such occurrence, there is Cause):
(i) the assignment to Executive of any
duties or responsibilities inconsistent with
Executive's status as a senior executive (that is, an
executive holding the position of Senior Vice
President or above) of Company or a substantial
adverse alteration in the nature or status of
Executive's responsibilities, job title or position
from those in effect immediately prior to the Change
in Control;
(ii) a reduction by Company in the annual base
salary that was applicable to Executive immediately
prior to the Change in Control, a change to the short-
term bonus formula that was applicable to Executive
immediately prior to the Change in Control that
reduces the amount payable at target level of
performance, or a change to the long-term incentive
formula that was applicable to Executive immediately
prior to the Change in Control that reduces the stock
options (or other award) at target level of
performance;
(iii) the relocation of Executive's
principal place of performing his duties as an
employee of the Company to a location in excess of
seventy-five (75) miles from the location that was,
immediately prior to the Change in Control,
Executive's principal place of performing his duties
as an employee of Company;
(iv) a material reduction in the
benefits and perquisites provided to Executive by
Company or which Executive was eligible to receive
from Company immediately prior to the Change in
Control; or
(v) Company's terminating the Agreement in
violation of Section 5 hereof.
N. Good Reason Termination. "Good Reason Termination"
shall mean Executive's terminating employment with the Company
following the occurrence of an event constituting Good Reason,
but only if:
(i) Executive, within sixty (60) days after
being notified of or becoming aware of such event, objects
to such event by delivering Notice of Termination to
Company in accordance with Section 6(B) hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(N)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Good Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Executive terminates employment within
three (3) months after being notified of or becoming aware
of the occurrence of the event cited as constituting Good
Reason in the Notice of Termination.
O. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Executive's employment by action
of Company within twenty-four (24) months following a Change in
Control for any reason other than Cause; provided, however,
that the termination of Executive's employment by Company shall
not be an Involuntary Termination if, immediately following
such termination of employment, Executive is employed by
another employer that is to abide by the provisions of this
Agreement as described in Section 2(G) hereof.
P. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Executive to Company advising
Company of Executive's decision to terminate Executive's
employment; or
(ii) a notice from Company to Executive
advising Executive of Company's decision to terminate
Executive's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Executive to Company and if Executive believes such
termination is for Good Reason, then such Notice of Termination
shall specify that such termination is a termination for Good
Reason, the event(s) which Executive believes constitute Good
Reason and the facts and circumstances supporting such belief
of Executive. If a Notice of Termination is from Company to
Executive and if Company believes such termination is for
Cause, then such Notice of Termination shall specify that such
termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
Q. Parent. "Parent" shall mean any entity owning,
directly or indirectly, fifty percent (50%) or more (based on
voting power) of the Company's outstanding stock or other
equity ownership interests.
R. Standard Severance Benefits. "Standard Severance
Benefits" shall mean the benefits described in Section 3(A) of
the Officer Agreement.
SECTION 3
SEVERANCE BENEFITS
A. Standard Severance Benefits. No benefits shall be
payable to Executive under this Agreement unless and until all
conditions specified herein are met, including, without
limitation, the occurrence of a Change in Control with the
necessary subsequent effect on Executive's employment. Prior
to the occurrence of a Change in Control, any severance
benefits due to Executive upon termination of employment with
Company will be determined solely under the Officer Agreement.
Executive agrees that, if at any time Executive qualifies for
benefits under this Agreement, the Officer Agreement will
terminate automatically and the terms of the Officer Agreement
will be given no further effect whatsoever (except to the
extent such terms are incorporated herein or items in this
Agreement are determined with reference to such terms),
Executive will have no rights whatsoever arising under or in
connection with the Officer Agreement, no payment of any
benefits provided for in the Officer Agreement will be made to
Executive and this Agreement will constitute the sole and
exclusive authority for payment of severance benefits to
Executive. Regardless of anything to the contrary in the
preceding sentence, if at any time Executive begins receiving
Standard Severance Benefits, this Agreement will terminate
automatically and its terms will be given no further effect
whatsoever, Executive will have no rights whatsoever arising
under or in connection with this Agreement, no payment of any
benefits provided for herein will be made to Executive and the
Officer Agreement will constitute the sole and exclusive
authority of payment of severance benefits to Executive.
B. Executive Severance Benefits. Subject to Sections
3(C), 3(D), 3(E) and 4(D)(ii) hereof, in the event of
Executive's Involuntary Termination or Good Reason Termination,
Company shall pay for outplacement services for Executive of
the type customarily provided by Company to senior execuitves
at the time of Executive's Involuntary Termination or Good
Reason Termination and shall pay Executive an amount equal to
the greater of:
(i) two (2) times Executive's Annual
Compensation; or
(ii) an amount equal to:
(a) three (3) times Executive's Base Pay
plus,
(b) for a period of twelve (12) months
starting on the Date of Termination, an amount
equal to the portion of the premiums (to the
extent such premiums are due) for Executive's
health, dental, vision and life insurance that
is equivalent to the portion of the premiums for
such coverages that the Company pays on behalf
of similarly situated executives employed by
Company during such twelve (12) month period.
Such Executive Severance Benefits will commence as soon as
practicable following the Date of Termination, and will be paid
in twenty-four (24) substantially equal monthly installments,
in the case of Executive Severance Benefits under Section
3(B)(i) above, or in thirty-six (36) monthly installments, in
the case of Executive Severance Benefits under Section 3(B)(ii)
above, with the first 12 such installments equaling 1/36th of
the amount determined under Section 3(B)(ii)(a) plus 1/12th of
the amount determined under Section 3(B)(ii)(b) above and the
remaining such installments equaling 1/36th of the amount
determined under Section 3(B)(ii)(a). Company's obligation to
pay the amounts specified in Section 3(B)(ii)(b) above shall be
reduced by any and all amounts Company pays toward Executive's
health, dental, vision and life insurance with respect to
periods after the Date of Termination.
C. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this
Agreement notifies the other party pursuant to Section
6(B) hereof that one party disputes the position of the
other party with respect to any provision of this
Agreement, then Company may at any time elect to suspend
some or all payments hereunder with respect to Executive
(or elect not to commence such payments if payments have
not yet commenced) until such dispute is finally resolved
either by mutual written agreement of the parties or a
binding arbitration award pursuant to Section 6(H) hereof.
If pursuant to such resolution of the dispute, retroactive
payments are to be made to Executive or payments
representing reimbursements are to be made to Company,
then unless otherwise provided under such resolution, such
payments shall bear interest at the rate provided in
Section 1274(d)(2)(B) of the Code commencing at the time
such payments would have been made absent dispute (in the
case of retroactive payments) or commencing at the time
such payments were made (in the case of reimbursements).
(ii) Subsequent Employment. If at any time
while Executive is entitled to Executive Severance
Benefits hereunder, Executive is employed (including
employment by the Company or an Affiliate, employment by
any other employer or any form of self-employment) then
(a) Company may in its discretion at any time following
the date of commencement of such employment, pay to
Executive the aggregate remaining amounts to be paid to
Executive under Section 3(B)(i) or 3(B)(ii)(a) hereof in a
lump sum; and (b) payments for outplacement services and
payments under Section 3(B)(ii)(b) hereof shall cease as
of the date of commencement of such employment, but if
payments for outplacement services and/or under Section
3(B)(ii)(b) are
made by Company subsequent to such date then Company may
withhold the amount of any such payments from the amount
otherwise to be paid pursuant to Section 3(B)(ii)(a) hereof,
and Executive shall pay to Company on demand any such excess
amount not so withheld, with such excess amount to bear
interest at the rate provided in Section 1274(d)(2)(B) of the
Code commencing thirty (30) days after such demand.
(iii) Disability. If Executive is Disabled
during any period while Executive is entitled to Executive
Severance Benefits hereunder, then, during any such period
that Executive is Disabled, any amounts payable under Section
3(B) hereof during such period shall be reduced (but not to
less than zero) by the amounts paid or to be paid with
respect to such period to Executive pursuant to any long-term
disability plan maintained by Company.
(iv) Death. If Executive dies during any
period while Executive is entitled to Executive Severance
Benefits hereunder, then a lump sum amount equal to the total
remaining amounts payable to Executive at the time of
Executive's death under Section 3(B) hereof shall be paid to
Executive's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Executive's death
to any beneficiary designated by Executive other than Company
under any Company life insurance program.
(v) Criminal Charges. If at any time after
Executive Severance Benefits become payable hereunder and
prior to the completion of the payment of such benefits
Executive is charged with a felony, or other crime involving
moral turpitude, which crime relates to activities of
Executive occurring during the period Executive was employed
by Company or its predecessor(s) under this Agreement, then
Company may suspend such payments until such criminal charge
is resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of the
Code) commencing at the time such payments would have been
made absent suspension under this Section 3(C)(v) after such
criminal charge is resolved; provided, however, that such
payments shall cease and no further payments shall be made at
any time Executive is convicted of, or enters a guilty plea
to, such crime by or before a court of competent
jurisdiction.
D. Limitations on Benefits.
(i) Code Limitations. In the event that the
aggregate of any amounts payable to or on behalf of Executive
under the Agreement and under any other plan, agreement or
policy of Company or any Affiliate would otherwise result in
the imposition of tax under Section 4999 of the Code due to
an excess parachute payment, as determined by Company's
independent auditors, then the amounts payable to or on
behalf of Executive under the Agreement shall be reduced to
the extent necessary (but not below zero) so that such
aggregate amounts shall not be a parachute payment. For
purposes of determining any limitation under this Section
3(D)(ii): (a) no portion of any benefit the receipt or
enjoyment of which Executive shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in
accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If the
Company's independent auditors determine that payment that
would be a parachute payment has been made to Executive
hereunder, then the excess of (a) the amount of such payment
actually made hereunder over (b) the amount that could be
paid hereunder without any amount payable hereunder being a
parachute payment, shall constitute a loan by Company to
Executive, payable to Company upon demand with interest at
the rate provided in Section 1274(d)(2)(B) of the Code
commencing as of the date or dates of payment by Company of
such excess amount.
E. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Executive acknowledges
that in addition to other conditions set forth in the Agreement,
Executive Severance Benefits shall be conditioned upon the prior
execution by Executive of a general waiver and release
(hereinafter referred to as "Waiver") as described in this Section
3(E), and Executive shall not be eligible for Executive Severance
Benefits unless and until Executive has executed the Waiver within
ninety (90) days following the later of Executive's termination of
employment. The Waiver shall be substantially in the form
attached hereto as Exhibit A and shall generally waive all claims
Executive has or may have against Company or an Affiliate, and any
successors or predecessors thereto, and shall release Company and
all Affiliates, and any successors and predecessors thereto, from
all liability with respect to any such claims; provided, however,
that Executive shall not waive, and there shall be no release with
respect to, any claim (other than a claim disputing the validity
of this Section 3(E) or the Waiver) of Executive to enforce any
one or more of the provisions of the Agreement.
SECTION 4
EXECUTIVE'S COVENANTS
A. Employee Statement. Executive agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Executive acknowledges that
during the course of Executive's employment with Company,
Executive has or will have access to and knowledge of certain
information and data which Company considers confidential, and
that the release of such information or data to unauthorized
persons could be detrimental to Company or an Affiliate. As a
consequence, Executive hereby agrees and acknowledges that
Executive owes a duty to Company not to disclose, and agrees that,
during and after the term of Executive's employment, Executive
will not communicate, publish or disclose to any person anywhere
or use any Confidential Information (as defined below) for any
purpose except in accordance with the prior written consent of
Company, where necessary or appropriate to carry out Executive's
duties as an employee of Company, or as required by law or legal
process. Executive will use Executive's best efforts at all times
to hold in confidence and to safeguard any Confidential
Information from becoming known by any unauthorized person and, in
particular, will not permit any Confidential Information to be
read, duplicated or copied except in accordance with the prior
written consent of the Company, where necessary or appropriate to
carry out Executive's duties as an employee of Company, or as may
be required by law or legal process. Executive will return to
Company all Confidential Information in Executive's possession or
under Executive's control when the duties of Executive as an
employee of the Company no longer require Executive's possession
thereof, or whenever Company shall
so request, and, in any event, will promptly return all such
Confidential Information if Executive's employment with Company
terminates and will not retain any copies thereof. For the purpose
of this Agreement, "Confidential Information" shall mean any
information or data used by or belonging or relating to Company or
an Affiliate which, if disclosed, could be detrimental to Company
or an Affiliate, including, but not limited to, any such
information relating to Company's, or an Affiliate's, members or
insureds, trade secrets, proprietary data and information relating
to Company's, or an Affiliate's, past, present or future business,
price lists, client lists, processes, procedures or standards,
know-how, manuals, business strategies, records, drawings,
specifications, designs, financial information, whether or not
reduced to writing, or any other information or data which Company
advises Executive is Confidential Information.
C. Covenant Not to Compete.
(i) Executive agrees that during the term of
Executive s employment by Company and for a period consisting
of the greater of: (i) the period over which any Executive
Severance Benefits are to be paid under this Agreement
(whether or not payment is accelerated hereunder), or (ii)
one year from and after the termination of Executive's
employment (such term of employment and applicable subsequent
period are referred to collectively herein as the
"Noncompetition Period"), Executive will not directly or
indirectly, without the express prior written consent of
Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during the
Noncompetition Period is engaged in competition in any
substantial manner with Company or an Affiliate,
provided Executive in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate;
(b) divert or attempt to divert clients,
customers or accounts of Company which are clients,
customers or accounts during the Noncompetition Period;
or
(c) hire, or attempt to solicit to hire,
for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Executive, any current employee of Company
as of the time of such hire or attempt to solicit to
hire or former employee of Company who has been employed
by Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit to
hire.
(ii) With respect to Executive's obligations
under this Section 4(C), Executive acknowledges that
Company's geographic market is: (a) the State of Missouri;
and (b) a seventy-five (75) mile radius surrounding each of
St. Louis, Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be fair,
reasonable and necessary for the protection of the legitimate
business interests of Company.
(iv) Executive acknowledges that Executive's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent Executive from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Executive contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach will
be inadequate, if after written notice of breach delivered or
mailed to Executive in accordance with Section 6(B) hereof
Executive takes no satisfactory action to remedy such breach
and abide by this Agreement, or absent such notice in the
event such breach cannot be remedied, then Company, in
addition to such other rights or remedies which may be
available to it (including, without limitation, recovery of
monetary damages from Executive), shall be entitled to an
injunction, including a mandatory injunction, to be issued by
any court of competent jurisdiction ordering compliance with
this Agreement or enjoining and restraining Executive, and
each and every person, firm or company acting in concert or
participation with Executive, from the continuation of such
breach and, in addition thereto, Executive shall pay to
Company all ascertainable damages, including costs and
reasonable attorneys' fees, sustained by Company by reason of
the breach or threatened breach of said covenants and
assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Executive Company shall no longer be obligated
to pay any benefits to Executive under this Agreement.
(iii) The covenants and obligations of
Executive under this Section 4 are each independent covenants
and are in addition to and not in lieu of or exclusive of any
other obligations and duties of Executive to the Company,
whether express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
Company may terminate this Agreement effective as of any date
by giving Executive, in accordance with Section 6(B) hereof, at
least one hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Executive's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs and/or
Executive incurs termination for Cause, Involuntary Termination or
Proper Reason Termination. Regardless of anything to the contrary
in this Agreement, no termination of this Agreement shall
terminate Executive's obligations under Sections 4(A) and (B) of
this Agreement. Company and Executive may amend this Agreement at
any time by written instrument signed by Company and Executive.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Executive any right to be retained in the
employ of Company, and no rights granted under this Agreement
shall be construed as creating a contract of employment. The right
and power of Company to dismiss or discharge Executive "at will"
is expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Executive:
Last known address shown on records of Company
or to such other address as either party may have furnished to the
other in writing, except that notice of change of address shall be
effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other than
the Officer Agreement) relating to the subject matter of this
Agreement, written or oral, between the parties hereto and
contains the entire understanding of the parties hereto and shall
not be amended, modified or supplemented in any manner whatsoever
except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only and
shall in no way restrict or otherwise modify any of the terms or
provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Executive, but it may be assigned by Company,
without notice to or consent of Executive, to any assignee
provided such assignee agrees to abide by and be bound by the
provisions of the Agreement and the Agreement shall thereafter be
enforceable by such assignee. During Executive's lifetime the
Agreement and all rights and obligations of Executive hereunder
shall be enforceable by and binding upon Executive's guardian or
other legal representative in the event Executive is unable to act
on his own behalf for any reason whatsoever, and upon Executive's
death the Agreement and all rights and obligations of Executive
hereunder shall inure to the benefit of and be enforceable by and
binding upon Executive's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis, Missouri,
in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that, regardless of
anything to the contrary in the rules of the American Arbitration
Association, the arbitrator shall have authority to review all
findings of fact, determinations of benefits and interpretations
of this Agreement made by the Company and to overturn same, and
substitute a different finding of fact, determination of benefits
or interpretation of this Agreement therefor, if the arbitrator
determines, based on the record in such arbitration and such other
factors as he determines are relevant, that he would have made a
different finding of fact, determination of benefits or
interpretation of this Agreement than the Company made in any
particular instance. Judgment may be entered on the arbitrator's
award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of the Agreement is adjudicated to be invalid
or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited only to the extent required by
applicable law and shall be enforced as so limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may withhold
from amounts payable to Executive by Company outside of the
Agreement amounts equal to any taxes required to be withheld from
payments made pursuant to the Agreement, unless Executive has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Executive has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By /s/ John A. O'Rourke
Title President and CEO
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires: August 29, 1999
/s/ Edward J. Tenholder
Executive
Subscribed and sworn to before me, a Notary Public, this 12th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires: August 29, 1999
EXHIBIT A
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates, officers,
directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not to
apply for rehire at the Company, it's subsidaries, affiliates or
parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically reserves
the right to suspend or terminate benefits under the Severance
Agreement, if, subsequent to the execution of this Waiver, Company
becomes aware of information, or an event occurs, which indicates
noncompliance with this section or which would otherwise result in
a suspension or termination of such benefits in accordance with
the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related to
Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive, compensatory
or statutory), expenses of any type or description (including,
without limitation, attorney's fees)), any arising under the Civil
Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq.,
the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et seq., the
Rehabilitation Act of 1973, 29 U.S.C. 701 et seq., the Americans
with Disabilities Act, 42 U.S.C. 2101, the Civil Rights Act of
1871, 42 U.S.C. 1981, the Family and Medical Leave Act of 1993,
19 U.S.C. 2601 et seq., the Missouri Human Rights Act, 213.010
RSMo et seq., the Missouri Workers Compensation law, 287 RSMo et
seq., the Missouri Service Letter Statute, 290.140 RSMo, or any
other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and there
shall be no release with respect to, any claim (other than a claim
disputing the validity of section 3(D) of the Severance Agreement
or the provisions of this Waiver) of Officer to enforce any one or
more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations under
this Waiver, Company shall be entitled, in addition to any other
legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of this Waiver is adjudicated to be invalid or
unenforceable because it is overbroad, that provision shall not be
void but rather shall be limited only to the extent required by
applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.47
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 1st day of January, 1998, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Sandra Van Trease (the
"Executive").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of
Executive as an "at-will" employee of RightCHOICE; and
WHEREAS, RightCHOICE and Executive have entered into an
Officer Severance Agreement dated January 1, 1998 (the
"Officer Agreement") under which, as a condition of
Executive's employment, Executive has agreed to be bound by
certain covenants set forth in the Officer Agreement and
RightCHOICE has agreed to provide Executive certain
severance benefits upon the terms and conditions set forth
in the Officer Agreement;
WHEREAS, the Compensation Committee of RightCHOICE's
Board of Directors believes that the concerns applicable to
senior executives when certain corporate events occur are
such that, in order to facilitate senior executives'
focusing on management issues in a manner that best serves
the interests of all stakeholders, such executives of
RightCHOICE should have the protections set forth herein in
the event that a Change in Control, as defined herein,
occurs;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, the
parties hereto do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the date first
written above and shall continue in effect until terminated
in accordance with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall have the same
meaning as it is given in the Officer Agreement.
B. Annual Compensation. "Annual Compensation" shall
mean the highest aggregate amount of the following items of
compensation paid in cash (or which would have been paid in
cash if they were not deferred pursuant to any qualified or
nonqualified deferred compensation arrangement or
contributed to a welfare benefit plan pursuant to an
election under a cafeteria plan) to Executive by the Company
during a calendar year which is in the most recent five-
consecutive-calendar-year period (or such shorter period of
consecutive calendar years during which Executive has been
employed by the Company) ending on or before the date of a
Change in Control:
(i) base salary; and
(ii) payments under any of the following
incentive programs:
* Supplemental Income Plan;
* Short Term Public Offering Bonus;
* Management Incentive Plan (MIP);
* ABCBS Incentive Plan (AIP);
* Long Term Incentive Program;
* Sign-On Bonus;
* Equity 2000;
* Cost Reduction Incentive Plan;
* Sales Incentive Plan; and
* payments under any other incentive programs to the extent
that the Compensation Committee of the RightCHOICE Managed
Care, Inc. Board of Directors specifically approves
payments under such incentive programs for inclusion
in Annual Compensation for purposes of this Agreement.
For purposes of clarity and without limiting the generality of
the foregoing definition, no amounts paid to Executive pursuant
to any qualified or nonqualified deferred compensation
arrangement, any cafeteria plan or any other benefit plan
qualify for inclusion in Annual Compensation, regardless of the
source of any such amounts and no award of stock options,
restricted stock or other rights under the Equity Incentive
Plan, nor any amounts received or income recognized in
connection with receipt of any such award or exercise of any
rights under any such award, shall be included in Annual
Compensation.
C. Base Pay. "Base Pay" shall have the same meaning as
that term is given under the Officer Agreement.
D. Cause. "Cause" shall have the same meaning as that
term is given under the Officer Agreement.
E. Change in Control. "Change in Control" shall mean
the occurrence, while Executive is employed by Company and this
Agreement is in effect, of any one or more of the following
events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc.
into or for Class A common stock of RightCHOICE Managed
Care, Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to
any other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other
group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 2(E)(iv) shall be
construed as deeming a Change in Control to have occurred
if any such person or entity that is considered to own
more than fifty (50) percent (based on total voting power)
of such class of Company's or Parent's outstanding stock
(or other equity ownership interests) prior to such
acquisition, acquires additional shares of such class of
stock (or other equity ownership). Where an entity does
not have outstanding stock (such as the Parent), the above
will be deemed to have occurred if a transaction occurs in
which the entity becomes subject to the direction or
oversight by a person that is not an Affiliate, and such
direction or oversight includes the ability of the person
to set policy for the entity, and/or govern the operations
of the Parent, and/or control the entity's assets or the
stock the entity owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the
persons who were directors of Company before such election
cease to constitute a majority of the directors of
Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to
constitute a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on
a nationally recognized stock exchange.
In the event that no single transaction or event has occurred
that qualifies as a Change in Control under the foregoing
definition, in determining whether a Change in Control has
occurred, a series of transactions and/or events may be
considered to be a single transaction or event; provided,
however, that elections occurring during no more than eighteen
(18) months shall be aggregated for purposes of determining
whether a series of transactions or events qualifies as a
Change in Control under Section 2(E)(v) or 2(E)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last
transaction or event included in the series of transactions
and/or events constituting such Change in Control or such
earlier date after the beginning of such series or transactions
and/or events as Executive elects. Any person or entity that is
regularly in the business of lending money may, under the terms
of an agreement executed in connection with extending
financing, be granted the right to enforce covenants requiring
certain financial ratios or business practices to be
maintained, so long as such requirements are typical of the
covenants required by lenders generally in connection with
financing similar to that provided in connection with such
agreement, without a Change in Control being deemed to have
occured. For purposes of this definition only, no entity shall
be considered a Parent or an Affiliate unless such entity had
that status prior to the transaction or event (or the first in
a series of transactions and/or events aggregated as a single
transaction or event pursuant to this paragraph) that would
have constituted a Change in Control.
F. Code. "Code" shall have the same meaning as that
term is given under the Officer Agreement.
G. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Executive and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE
or any other person or entity that subsequently employs
Executive and becomes bound by the provisions of this
Agreement, any of the protections, rights and remedies accruing
to the "Company" under the provisions of Section 4 of this
Agreement.
H. Date of Termination. "Date of Termination" shall
mean the effective date of Executive's termination of
employment. If Executive delivers a Notice of Termination
hereunder to Company, then the Date of Termination shall be
thirty (30) days following the date such Notice of Termination
is delivered or mailed to Company in accordance with Section
6(B) hereof; provided, however, that in such event Company
shall have the right to accelerate such Date of Termination by
written notice of such acceleration delivered or mailed to
Executive in accordance with Section 6(B) hereof. If Company
delivers or mails a Notice of Termination hereunder to
Executive in accordance with Section 6(B) hereof, then the Date
of Termination shall be the date specified by Company in such
Notice of Termination.
I. Designated Beneficiary. "Designated Beneficiary"
shall mean the beneficiary designated by Executive in
accordance with the Officer Agreement.
J. Disabled. "Disabled" shall have the same meaning as
that term is given under the Officer Agreement.
K. Employee Statement. "Employee Statement" shall have
the same meaning as that term is given under the Officer
Agreement.
L. Executive Severance Benefits. "Executive Severance
Benefits" shall mean the benefits described in Section 3(B)
hereof.
M. Good Reason. "Good Reason" shall mean the
occurrence, without the written consent of Executive and within
twenty-four (24) months following a Change in Control, of any
one or more of the following events (provided, however, that
none of the following events shall constitute Good Reason if at
the time of the occurrence of such event, or during the three-
month period prior to such occurrence, there is Cause):
(i) the assignment to Executive of any
duties or responsibilities inconsistent with
Executive's status as a senior executive (that is, an
executive holding the position of Senior Vice
President or above) of Company or a substantial
adverse alteration in the nature or status of
Executive's responsibilities, job title or position
from those in effect immediately prior to the Change
in Control;
(ii) a reduction by Company in the annual base
salary that was applicable to Executive immediately
prior to the Change in Control, a change to the short-
term bonus formula that was applicable to Executive
immediately prior to the Change in Control that
reduces the amount payable at target level of
performance, or a change to the long-term incentive
formula that was applicable to Executive immediately
prior to the Change in Control that reduces the stock
options (or other award) at target level of
performance;
(iii) the relocation of Executive's
principal place of performing his duties as an
employee of the Company to a location in excess of
seventy-five (75) miles from the location that was,
immediately prior to the Change in Control,
Executive's principal place of performing his duties
as an employee of Company;
(iv) a material reduction in the
benefits and perquisites provided to Executive by
Company or which Executive was eligible to receive
from Company immediately prior to the Change in
Control; or
(v) Company's terminating the Agreement in
violation of Section 5 hereof.
N. Good Reason Termination. "Good Reason Termination"
shall mean Executive's terminating employment with the Company
following the occurrence of an event constituting Good Reason,
but only if:
(i) Executive, within sixty (60) days after
being notified of or becoming aware of such event, objects
to such event by delivering Notice of Termination to
Company in accordance with Section 6(B) hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(N)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Good Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Executive terminates employment within
three (3) months after being notified of or becoming aware
of the occurrence of the event cited as constituting Good
Reason in the Notice of Termination.
O. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Executive's employment by action
of Company within twenty-four (24) months following a Change in
Control for any reason other than Cause; provided, however,
that the termination of Executive's employment by Company shall
not be an Involuntary Termination if, immediately following
such termination of employment, Executive is employed by
another employer that is to abide by the provisions of this
Agreement as described in Section 2(G) hereof.
P. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Executive to Company advising
Company of Executive's decision to terminate Executive's
employment; or
(ii) a notice from Company to Executive
advising Executive of Company's decision to terminate
Executive's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Executive to Company and if Executive believes such
termination is for Good Reason, then such Notice of Termination
shall specify that such termination is a termination for Good
Reason, the event(s) which Executive believes constitute Good
Reason and the facts and circumstances supporting such belief
of Executive. If a Notice of Termination is from Company to
Executive and if Company believes such termination is for
Cause, then such Notice of Termination shall specify that such
termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
Q. Parent. "Parent" shall mean any entity owning,
directly or indirectly, fifty percent (50%) or more (based on
voting power) of the Company's outstanding stock or other
equity ownership interests.
R. Standard Severance Benefits. "Standard Severance
Benefits" shall mean the benefits described in Section 3(A) of
the Officer Agreement.
SECTION 3
SEVERANCE BENEFITS
A. Standard Severance Benefits. No benefits shall be
payable to Executive under this Agreement unless and until all
conditions specified herein are met, including, without
limitation, the occurrence of a Change in Control with the
necessary subsequent effect on Executive's employment. Prior
to the occurrence of a Change in Control, any severance
benefits due to Executive upon termination of employment with
Company will be determined solely under the Officer Agreement.
Executive agrees that, if at any time Executive qualifies for
benefits under this Agreement, the Officer Agreement will
terminate automatically and the terms of the Officer Agreement
will be given no further effect whatsoever (except to the
extent such terms are incorporated herein or items in this
Agreement are determined with reference to such terms),
Executive will have no rights whatsoever arising under or in
connection with the Officer Agreement, no payment of any
benefits provided for in the Officer Agreement will be made to
Executive and this Agreement will constitute the sole and
exclusive authority for payment of severance benefits to
Executive. Regardless of anything to the contrary in the
preceding sentence, if at any time Executive begins receiving
Standard Severance Benefits, this Agreement will terminate
automatically and its terms will be given no further effect
whatsoever, Executive will have no rights whatsoever arising
under or in connection with this Agreement, no payment of any
benefits provided for herein will be made to Executive and the
Officer Agreement will constitute the sole and exclusive
authority of payment of severance benefits to Executive.
B. Executive Severance Benefits. Subject to Sections
3(C), 3(D), 3(E) and 4(D)(ii) hereof, in the event of
Executive's Involuntary Termination or Good Reason Termination,
Company shall pay for outplacement services for Executive of
the type customarily provided by Company to senior execuitves
at the time of Executive's Involuntary Termination or Good
Reason Termination and shall pay Executive an amount equal to
the greater of:
(i) two (2) times Executive's Annual
Compensation; or
(ii) an amount equal to:
(a) three (3) times Executive's Base Pay
plus,
(b) for a period of twelve (12) months
starting on the Date of Termination, an amount
equal to the portion of the premiums (to the
extent such premiums are due) for Executive's
health, dental, vision and life insurance that
is equivalent to the portion of the premiums for
such coverages that the Company pays on behalf
of similarly situated executives employed by
Company during such twelve (12) month period.
Such Executive Severance Benefits will commence as soon as
practicable following the Date of Termination, and will be paid
in twenty-four (24) substantially equal monthly installments,
in the case of Executive Severance Benefits under Section
3(B)(i) above, or in thirty-six (36) monthly installments, in
the case of Executive Severance Benefits under Section 3(B)(ii)
above, with the first 12 such installments equaling 1/36th of
the amount determined under Section 3(B)(ii)(a) plus 1/12th of
the amount determined under Section 3(B)(ii)(b) above and the
remaining such installments equaling 1/36th of the amount
determined under Section 3(B)(ii)(a). Company's obligation to
pay the amounts specified in Section 3(B)(ii)(b) above shall be
reduced by any and all amounts Company pays toward Executive's
health, dental, vision and life insurance with respect to
periods after the Date of Termination.
C. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this
Agreement notifies the other party pursuant to Section
6(B) hereof that one party disputes the position of the
other party with respect to any provision of this
Agreement, then Company may at any time elect to suspend
some or all payments hereunder with respect to Executive
(or elect not to commence such payments if payments have
not yet commenced) until such dispute is finally resolved
either by mutual written agreement of the parties or a
binding arbitration award pursuant to Section 6(H) hereof.
If pursuant to such resolution of the dispute, retroactive
payments are to be made to Executive or payments
representing reimbursements are to be made to Company,
then unless otherwise provided under such resolution, such
payments shall bear interest at the rate provided in
Section 1274(d)(2)(B) of the Code commencing at the time
such payments would have been made absent dispute (in the
case of retroactive payments) or commencing at the time
such payments were made (in the case of reimbursements).
(ii) Subsequent Employment. If at any time
while Executive is entitled to Executive Severance
Benefits hereunder, Executive is employed (including
employment by the Company or an Affiliate, employment by
any other employer or any form of self-employment) then
(a) Company may in its discretion at any time following
the date of commencement of such employment, pay to
Executive the aggregate remaining amounts to be paid to
Executive under Section 3(B)(i) or 3(B)(ii)(a) hereof in a
lump sum; and (b) payments for outplacement services and
payments under Section 3(B)(ii)(b) hereof shall cease as
of the date of commencement of such employment, but if
payments for outplacement services and/or under Section
3(B)(ii)(b) are
made by Company subsequent to such date then Company may
withhold the amount of any such payments from the amount
otherwise to be paid pursuant to Section 3(B)(ii)(a) hereof,
and Executive shall pay to Company on demand any such excess
amount not so withheld, with such excess amount to bear
interest at the rate provided in Section 1274(d)(2)(B) of the
Code commencing thirty (30) days after such demand.
(iii) Disability. If Executive is Disabled
during any period while Executive is entitled to Executive
Severance Benefits hereunder, then, during any such period
that Executive is Disabled, any amounts payable under Section
3(B) hereof during such period shall be reduced (but not to
less than zero) by the amounts paid or to be paid with
respect to such period to Executive pursuant to any long-term
disability plan maintained by Company.
(iv) Death. If Executive dies during any
period while Executive is entitled to Executive Severance
Benefits hereunder, then a lump sum amount equal to the total
remaining amounts payable to Executive at the time of
Executive's death under Section 3(B) hereof shall be paid to
Executive's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Executive's death
to any beneficiary designated by Executive other than Company
under any Company life insurance program.
(v) Criminal Charges. If at any time after
Executive Severance Benefits become payable hereunder and
prior to the completion of the payment of such benefits
Executive is charged with a felony, or other crime involving
moral turpitude, which crime relates to activities of
Executive occurring during the period Executive was employed
by Company or its predecessor(s) under this Agreement, then
Company may suspend such payments until such criminal charge
is resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of the
Code) commencing at the time such payments would have been
made absent suspension under this Section 3(C)(v) after such
criminal charge is resolved; provided, however, that such
payments shall cease and no further payments shall be made at
any time Executive is convicted of, or enters a guilty plea
to, such crime by or before a court of competent
jurisdiction.
D. Limitations on Benefits.
(i) Code Limitations. In the event that the
aggregate of any amounts payable to or on behalf of Executive
under the Agreement and under any other plan, agreement or
policy of Company or any Affiliate would otherwise result in
the imposition of tax under Section 4999 of the Code due to
an excess parachute payment, as determined by Company's
independent auditors, then the amounts payable to or on
behalf of Executive under the Agreement shall be reduced to
the extent necessary (but not below zero) so that such
aggregate amounts shall not be a parachute payment. For
purposes of determining any limitation under this Section
3(D)(ii): (a) no portion of any benefit the receipt or
enjoyment of which Executive shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in
accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If the
Company's independent auditors determine that payment that
would be a parachute payment has been made to Executive
hereunder, then the excess of (a) the amount of such payment
actually made hereunder over (b) the amount that could be
paid hereunder without any amount payable hereunder being a
parachute payment, shall constitute a loan by Company to
Executive, payable to Company upon demand with interest at
the rate provided in Section 1274(d)(2)(B) of the Code
commencing as of the date or dates of payment by Company of
such excess amount.
E. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Executive acknowledges
that in addition to other conditions set forth in the Agreement,
Executive Severance Benefits shall be conditioned upon the prior
execution by Executive of a general waiver and release
(hereinafter referred to as "Waiver") as described in this Section
3(E), and Executive shall not be eligible for Executive Severance
Benefits unless and until Executive has executed the Waiver within
ninety (90) days following the later of Executive's termination of
employment. The Waiver shall be substantially in the form
attached hereto as Exhibit A and shall generally waive all claims
Executive has or may have against Company or an Affiliate, and any
successors or predecessors thereto, and shall release Company and
all Affiliates, and any successors and predecessors thereto, from
all liability with respect to any such claims; provided, however,
that Executive shall not waive, and there shall be no release with
respect to, any claim (other than a claim disputing the validity
of this Section 3(E) or the Waiver) of Executive to enforce any
one or more of the provisions of the Agreement.
SECTION 4
EXECUTIVE'S COVENANTS
A. Employee Statement. Executive agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Executive acknowledges that
during the course of Executive's employment with Company,
Executive has or will have access to and knowledge of certain
information and data which Company considers confidential, and
that the release of such information or data to unauthorized
persons could be detrimental to Company or an Affiliate. As a
consequence, Executive hereby agrees and acknowledges that
Executive owes a duty to Company not to disclose, and agrees that,
during and after the term of Executive's employment, Executive
will not communicate, publish or disclose to any person anywhere
or use any Confidential Information (as defined below) for any
purpose except in accordance with the prior written consent of
Company, where necessary or appropriate to carry out Executive's
duties as an employee of Company, or as required by law or legal
process. Executive will use Executive's best efforts at all times
to hold in confidence and to safeguard any Confidential
Information from becoming known by any unauthorized person and, in
particular, will not permit any Confidential Information to be
read, duplicated or copied except in accordance with the prior
written consent of the Company, where necessary or appropriate to
carry out Executive's duties as an employee of Company, or as may
be required by law or legal process. Executive will return to
Company all Confidential Information in Executive's possession or
under Executive's control when the duties of Executive as an
employee of the Company no longer require Executive's possession
thereof, or whenever Company shall
so request, and, in any event, will promptly return all such
Confidential Information if Executive's employment with Company
terminates and will not retain any copies thereof. For the purpose
of this Agreement, "Confidential Information" shall mean any
information or data used by or belonging or relating to Company or
an Affiliate which, if disclosed, could be detrimental to Company
or an Affiliate, including, but not limited to, any such
information relating to Company's, or an Affiliate's, members or
insureds, trade secrets, proprietary data and information relating
to Company's, or an Affiliate's, past, present or future business,
price lists, client lists, processes, procedures or standards,
know-how, manuals, business strategies, records, drawings,
specifications, designs, financial information, whether or not
reduced to writing, or any other information or data which Company
advises Executive is Confidential Information.
C. Covenant Not to Compete.
(i) Executive agrees that during the term of
Executive s employment by Company and for a period consisting
of the greater of: (i) the period over which any Executive
Severance Benefits are to be paid under this Agreement
(whether or not payment is accelerated hereunder), or (ii)
one year from and after the termination of Executive's
employment (such term of employment and applicable subsequent
period are referred to collectively herein as the
"Noncompetition Period"), Executive will not directly or
indirectly, without the express prior written consent of
Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during the
Noncompetition Period is engaged in competition in any
substantial manner with Company or an Affiliate,
provided Executive in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate;
(b) divert or attempt to divert clients,
customers or accounts of Company which are clients,
customers or accounts during the Noncompetition Period;
or
(c) hire, or attempt to solicit to hire,
for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Executive, any current employee of Company
as of the time of such hire or attempt to solicit to
hire or former employee of Company who has been employed
by Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit to
hire.
(ii) With respect to Executive's obligations
under this Section 4(C), Executive acknowledges that
Company's geographic market is: (a) the State of Missouri;
and (b) a seventy-five (75) mile radius surrounding each of
St. Louis, Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be fair,
reasonable and necessary for the protection of the legitimate
business interests of Company.
(iv) Executive acknowledges that Executive's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent Executive from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Executive contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach will
be inadequate, if after written notice of breach delivered or
mailed to Executive in accordance with Section 6(B) hereof
Executive takes no satisfactory action to remedy such breach
and abide by this Agreement, or absent such notice in the
event such breach cannot be remedied, then Company, in
addition to such other rights or remedies which may be
available to it (including, without limitation, recovery of
monetary damages from Executive), shall be entitled to an
injunction, including a mandatory injunction, to be issued by
any court of competent jurisdiction ordering compliance with
this Agreement or enjoining and restraining Executive, and
each and every person, firm or company acting in concert or
participation with Executive, from the continuation of such
breach and, in addition thereto, Executive shall pay to
Company all ascertainable damages, including costs and
reasonable attorneys' fees, sustained by Company by reason of
the breach or threatened breach of said covenants and
assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Executive Company shall no longer be obligated
to pay any benefits to Executive under this Agreement.
(iii) The covenants and obligations of
Executive under this Section 4 are each independent covenants
and are in addition to and not in lieu of or exclusive of any
other obligations and duties of Executive to the Company,
whether express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
Company may terminate this Agreement effective as of any date
by giving Executive, in accordance with Section 6(B) hereof, at
least one hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Executive's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs and/or
Executive incurs termination for Cause, Involuntary Termination or
Proper Reason Termination. Regardless of anything to the contrary
in this Agreement, no termination of this Agreement shall
terminate Executive's obligations under Sections 4(A) and (B) of
this Agreement. Company and Executive may amend this Agreement at
any time by written instrument signed by Company and Executive.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Executive any right to be retained in the
employ of Company, and no rights granted under this Agreement
shall be construed as creating a contract of employment. The right
and power of Company to dismiss or discharge Executive "at will"
is expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Executive:
Last known address shown on records of Company
or to such other address as either party may have furnished to the
other in writing, except that notice of change of address shall be
effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other than
the Officer Agreement) relating to the subject matter of this
Agreement, written or oral, between the parties hereto and
contains the entire understanding of the parties hereto and shall
not be amended, modified or supplemented in any manner whatsoever
except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only and
shall in no way restrict or otherwise modify any of the terms or
provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Executive, but it may be assigned by Company,
without notice to or consent of Executive, to any assignee
provided such assignee agrees to abide by and be bound by the
provisions of the Agreement and the Agreement shall thereafter be
enforceable by such assignee. During Executive's lifetime the
Agreement and all rights and obligations of Executive hereunder
shall be enforceable by and binding upon Executive's guardian or
other legal representative in the event Executive is unable to act
on his own behalf for any reason whatsoever, and upon Executive's
death the Agreement and all rights and obligations of Executive
hereunder shall inure to the benefit of and be enforceable by and
binding upon Executive's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis, Missouri,
in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that, regardless of
anything to the contrary in the rules of the American Arbitration
Association, the arbitrator shall have authority to review all
findings of fact, determinations of benefits and interpretations
of this Agreement made by the Company and to overturn same, and
substitute a different finding of fact, determination of benefits
or interpretation of this Agreement therefor, if the arbitrator
determines, based on the record in such arbitration and such other
factors as he determines are relevant, that he would have made a
different finding of fact, determination of benefits or
interpretation of this Agreement than the Company made in any
particular instance. Judgment may be entered on the arbitrator's
award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of the Agreement is adjudicated to be invalid
or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited only to the extent required by
applicable law and shall be enforced as so limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may withhold
from amounts payable to Executive by Company outside of the
Agreement amounts equal to any taxes required to be withheld from
payments made pursuant to the Agreement, unless Executive has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Executive has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By /s/ John A. O'Rourke
Title President and CEO
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires: August 29, 1999
/s/ Sandra Van Trease
Executive
Subscribed and sworn to before me, a Notary Public, this 15th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires: August 29, 1999
EXHIBIT A
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates, officers,
directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not to
apply for rehire at the Company, it's subsidaries, affiliates or
parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically reserves
the right to suspend or terminate benefits under the Severance
Agreement, if, subsequent to the execution of this Waiver, Company
becomes aware of information, or an event occurs, which indicates
noncompliance with this section or which would otherwise result in
a suspension or termination of such benefits in accordance with
the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related to
Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive, compensatory
or statutory), expenses of any type or description (including,
without limitation, attorney's fees)), any arising under the Civil
Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq.,
the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et seq., the
Rehabilitation Act of 1973, 29 U.S.C. 701 et seq., the Americans
with Disabilities Act, 42 U.S.C. 2101, the Civil Rights Act of
1871, 42 U.S.C. 1981, the Family and Medical Leave Act of 1993,
19 U.S.C. 2601 et seq., the Missouri Human Rights Act, 213.010
RSMo et seq., the Missouri Workers Compensation law, 287 RSMo et
seq., the Missouri Service Letter Statute, 290.140 RSMo, or any
other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and there
shall be no release with respect to, any claim (other than a claim
disputing the validity of section 3(D) of the Severance Agreement
or the provisions of this Waiver) of Officer to enforce any one or
more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations under
this Waiver, Company shall be entitled, in addition to any other
legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of this Waiver is adjudicated to be invalid or
unenforceable because it is overbroad, that provision shall not be
void but rather shall be limited only to the extent required by
applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.48
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 29th day of January, 1997, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Herbert B. Schneiderman
(the "Executive").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of
Executive as an "at-will" employee of RightCHOICE; and
WHEREAS, RightCHOICE and Executive have entered into an
Officer Severance Agreement dated January 29, 1997 (the
"Officer Agreement") under which, as a condition of
Executive's employment, Executive has agreed to be bound by
certain covenants set forth in the Officer Agreement and
RightCHOICE has agreed to provide Executive certain
severance benefits upon the terms and conditions set forth
in the Officer Agreement;
WHEREAS, the Compensation Committee of RightCHOICE's
Board of Directors believes that the concerns applicable to
senior executives when certain corporate events occur are
such that, in order to facilitate senior executives'
focusing on management issues in a manner that best serves
the interests of all stakeholders, such executives of
RightCHOICE should have the protections set forth herein in
the event that a Change in Control, as defined herein,
occurs;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, the
parties hereto do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the date first
written above and shall continue in effect until terminated
in accordance with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall have the same
meaning as it is given in the Officer Agreement.
B. Annual Compensation. "Annual Compensation" shall
mean the highest aggregate amount of the following items of
compensation paid in cash (or which would have been paid in
cash if they were not deferred pursuant to any qualified or
nonqualified deferred compensation arrangement or
contributed to a welfare benefit plan pursuant to an
election under a cafeteria plan) to Executive by the Company
during a calendar year which is in the most recent five-
consecutive-calendar-year period (or such shorter period of
consecutive calendar years during which Executive has been
employed by the Company) ending on or before the date of a
Change in Control:
(i) base salary; and
(ii) payments under any of the following
incentive programs:
* Supplemental Income Plan;
* Short Term Public Offering Bonus;
* Management Incentive Plan (MIP);
* ABCBS Incentive Plan (AIP);
* Long Term Incentive Program;
* Sign-On Bonus;
* Equity 2000;
* Cost Reduction Incentive Plan;
* Sales Incentive Plan; and
* payments under any other incentive programs to the extent
that the Compensation Committee of the RightCHOICE Managed
Care, Inc. Board of Directors specifically approves
payments under such incentive programs for inclusion in
Annual Compensation for purposes of this Agreement.
For purposes of clarity and without limiting the generality of
the foregoing definition, no amounts paid to Executive pursuant
to any qualified or nonqualified deferred compensation
arrangement, any cafeteria plan or any other benefit plan
qualify for inclusion in Annual Compensation, regardless of the
source of any such amounts and no award of stock options,
restricted stock or other rights under the Equity Incentive
Plan, nor any amounts received or income recognized in
connection with receipt of any such award or exercise of any
rights under any such award, shall be included in Annual
Compensation.
C. Base Pay. "Base Pay" shall have the same meaning as
that term is given under the Officer Agreement.
D. Cause. "Cause" shall have the same meaning as that
term is given under the Officer Agreement.
E. Change in Control. "Change in Control" shall mean
the occurrence, while Executive is employed by Company and this
Agreement is in effect, of any one or more of the following
events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc.
into or for Class A common stock of RightCHOICE Managed
Care, Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to
any other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other
group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 2(E)(iv) shall be
construed as deeming a Change in Control to have occurred
if any such person or entity that is considered to own
more than fifty (50) percent (based on total voting power)
of such class of Company's or Parent's outstanding stock
(or other equity ownership interests) prior to such
acquisition, acquires additional shares of such class of
stock (or other equity ownership). Where an entity does
not have outstanding stock (such as the Parent), the above
will be deemed to have occurred if a transaction occurs in
which the entity becomes subject to the direction or
oversight by a person that is not an Affiliate, and such
direction or oversight includes the ability of the person
to set policy for the entity, and/or govern the operations
of the Parent, and/or control the entity's assets or the
stock the entity owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the
persons who were directors of Company before such election
cease to constitute a majority of the directors of
Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to
constitute a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on
a nationally recognized stock exchange.
In the event that no single transaction or event has occurred
that qualifies as a Change in Control under the foregoing
definition, in determining whether a Change in Control has
occurred, a series of transactions and/or events may be
considered to be a single transaction or event; provided,
however, that elections occurring during no more than eighteen
(18) months shall be aggregated for purposes of determining
whether a series of transactions or events qualifies as a
Change in Control under Section 2(E)(v) or 2(E)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last
transaction or event included in the series of transactions
and/or events constituting such Change in Control or such
earlier date after the beginning of such series or transactions
and/or events as Executive elects. Any person or entity that is
regularly in the business of lending money may, under the terms
of an agreement executed in connection with extending
financing, be granted the right to enforce covenants requiring
certain financial ratios or business practices to be
maintained, so long as such requirements are typical of the
covenants required by lenders generally in connection with
financing similar to that provided in connection with such
agreement, without a Change in Control being deemed to have
occured. For purposes of this definition only, no entity shall
be considered a Parent or an Affiliate unless such entity had
that status prior to the transaction or event (or the first in
a series of transactions and/or events aggregated as a single
transaction or event pursuant to this paragraph) that would
have constituted a Change in Control.
F. Code. "Code" shall have the same meaning as that
term is given under the Officer Agreement.
G. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Executive and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE
or any other person or entity that subsequently employs
Executive and becomes bound by the provisions of this
Agreement, any of the protections, rights and remedies accruing
to the "Company" under the provisions of Section 4 of this
Agreement.
H. Date of Termination. "Date of Termination" shall
mean the effective date of Executive's termination of
employment. If Executive delivers a Notice of Termination
hereunder to Company, then the Date of Termination shall be
thirty (30) days following the date such Notice of Termination
is delivered or mailed to Company in accordance with Section
6(B) hereof; provided, however, that in such event Company
shall have the right to accelerate such Date of Termination by
written notice of such acceleration delivered or mailed to
Executive in accordance with Section 6(B) hereof. If Company
delivers or mails a Notice of Termination hereunder to
Executive in accordance with Section 6(B) hereof, then the Date
of Termination shall be the date specified by Company in such
Notice of Termination.
I. Designated Beneficiary. "Designated Beneficiary"
shall mean the beneficiary designated by Executive in
accordance with the Officer Agreement.
J. Disabled. "Disabled" shall have the same meaning as
that term is given under the Officer Agreement.
K. Employee Statement. "Employee Statement" shall have
the same meaning as that term is given under the Officer
Agreement.
L. Executive Severance Benefits. "Executive Severance
Benefits" shall mean the benefits described in Section 3(B)
hereof.
M. Good Reason. "Good Reason" shall mean the
occurrence, without the written consent of Executive and within
twenty-four (24) months following a Change in Control, of any
one or more of the following events (provided, however, that
none of the following events shall constitute Good Reason if at
the time of the occurrence of such event, or during the three-
month period prior to such occurrence, there is Cause):
(i) the assignment to Executive of any
duties or responsibilities inconsistent with
Executive's status as a senior executive (that is, an
executive holding the position of Senior Vice
President or above) of Company or a substantial
adverse alteration in the nature or status of
Executive's responsibilities, job title or position
from those in effect immediately prior to the Change
in Control;
(ii) a reduction by Company in the annual base
salary that was applicable to Executive immediately
prior to the Change in Control, a change to the short-
term bonus formula that was applicable to Executive
immediately prior to the Change in Control that
reduces the amount payable at target level of
performance, or a change to the long-term incentive
formula that was applicable to Executive immediately
prior to the Change in Control that reduces the stock
options (or other award) at target level of
performance;
(iii) the relocation of Executive's
principal place of performing his duties as an
employee of the Company to a location in excess of
seventy-five (75) miles from the location that was,
immediately prior to the Change in Control,
Executive's principal place of performing his duties
as an employee of Company;
(iv) a material reduction in the
benefits and perquisites provided to Executive by
Company or which Executive was eligible to receive
from Company immediately prior to the Change in
Control; or
(v) Company's terminating the Agreement in
violation of Section 5 hereof.
N. Good Reason Termination. "Good Reason Termination"
shall mean Executive's terminating employment with the Company
following the occurrence of an event constituting Good Reason,
but only if:
(i) Executive, within sixty (60) days after
being notified of or becoming aware of such event, objects
to such event by delivering Notice of Termination to
Company in accordance with Section 6(B) hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(N)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Good Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Executive terminates employment within
three (3) months after being notified of or becoming aware
of the occurrence of the event cited as constituting Good
Reason in the Notice of Termination.
O. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Executive's employment by action
of Company within twenty-four (24) months following a Change in
Control for any reason other than Cause; provided, however,
that the termination of Executive's employment by Company shall
not be an Involuntary Termination if, immediately following
such termination of employment, Executive is employed by
another employer that is to abide by the provisions of this
Agreement as described in Section 2(G) hereof.
P. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Executive to Company advising
Company of Executive's decision to terminate Executive's
employment; or
(ii) a notice from Company to Executive
advising Executive of Company's decision to terminate
Executive's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Executive to Company and if Executive believes such
termination is for Good Reason, then such Notice of Termination
shall specify that such termination is a termination for Good
Reason, the event(s) which Executive believes constitute Good
Reason and the facts and circumstances supporting such belief
of Executive. If a Notice of Termination is from Company to
Executive and if Company believes such termination is for
Cause, then such Notice of Termination shall specify that such
termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
Q. Parent. "Parent" shall mean any entity owning,
directly or indirectly, fifty percent (50%) or more (based on
voting power) of the Company's outstanding stock or other
equity ownership interests.
R. Standard Severance Benefits. "Standard Severance
Benefits" shall mean the benefits described in Section 3(A) of
the Officer Agreement.
SECTION 3
SEVERANCE BENEFITS
A. Standard Severance Benefits. No benefits shall be
payable to Executive under this Agreement unless and until all
conditions specified herein are met, including, without
limitation, the occurrence of a Change in Control with the
necessary subsequent effect on Executive's employment. Prior
to the occurrence of a Change in Control, any severance
benefits due to Executive upon termination of employment with
Company will be determined solely under the Officer Agreement.
Executive agrees that, if at any time Executive qualifies for
benefits under this Agreement, the Officer Agreement will
terminate automatically and the terms of the Officer Agreement
will be given no further effect whatsoever (except to the
extent such terms are incorporated herein or items in this
Agreement are determined with reference to such terms),
Executive will have no rights whatsoever arising under or in
connection with the Officer Agreement, no payment of any
benefits provided for in the Officer Agreement will be made to
Executive and this Agreement will constitute the sole and
exclusive authority for payment of severance benefits to
Executive. Regardless of anything to the contrary in the
preceding sentence, if at any time Executive begins receiving
Standard Severance Benefits, this Agreement will terminate
automatically and its terms will be given no further effect
whatsoever, Executive will have no rights whatsoever arising
under or in connection with this Agreement, no payment of any
benefits provided for herein will be made to Executive and the
Officer Agreement will constitute the sole and exclusive
authority of payment of severance benefits to Executive.
B. Executive Severance Benefits. Subject to Sections
3(C), 3(D), 3(E) and 4(D)(ii) hereof, in the event of
Executive's Involuntary Termination or Good Reason Termination,
Company shall pay for outplacement services for Executive of
the type customarily provided by Company to senior execuitves
at the time of Executive's Involuntary Termination or Good
Reason Termination and shall pay Executive an amount equal to
the greater of:
(i) two (2) times Executive's Annual
Compensation; or
(ii) an amount equal to:
(a) three (3) times Executive's Base Pay
plus,
(b) for a period of twelve (12) months
starting on the Date of Termination, an amount
equal to the portion of the premiums (to the
extent such premiums are due) for Executive's
health, dental, vision and life insurance that
is equivalent to the portion of the premiums for
such coverages that the Company pays on behalf
of similarly situated executives employed by
Company during such twelve (12) month period.
Such Executive Severance Benefits will commence as soon as
practicable following the Date of Termination, and will be paid
in twenty-four (24) substantially equal monthly installments,
in the case of Executive Severance Benefits under Section
3(B)(i) above, or in thirty-six (36) monthly installments, in
the case of Executive Severance Benefits under Section 3(B)(ii)
above, with the first 12 such installments equaling 1/36th of
the amount determined under Section 3(B)(ii)(a) plus 1/12th of
the amount determined under Section 3(B)(ii)(b) above and the
remaining such installments equaling 1/36th of the amount
determined under Section 3(B)(ii)(a). Company's obligation to
pay the amounts specified in Section 3(B)(ii)(b) above shall be
reduced by any and all amounts Company pays toward Executive's
health, dental, vision and life insurance with respect to
periods after the Date of Termination.
C. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this
Agreement notifies the other party pursuant to Section
6(B) hereof that one party disputes the position of the
other party with respect to any provision of this
Agreement, then Company may at any time elect to suspend
some or all payments hereunder with respect to Executive
(or elect not to commence such payments if payments have
not yet commenced) until such dispute is finally resolved
either by mutual written agreement of the parties or a
binding arbitration award pursuant to Section 6(H) hereof.
If pursuant to such resolution of the dispute, retroactive
payments are to be made to Executive or payments
representing reimbursements are to be made to Company,
then unless otherwise provided under such resolution, such
payments shall bear interest at the rate provided in
Section 1274(d)(2)(B) of the Code commencing at the time
such payments would have been made absent dispute (in the
case of retroactive payments) or commencing at the time
such payments were made (in the case of reimbursements).
(ii) Subsequent Employment. If at any time
while Executive is entitled to Executive Severance
Benefits hereunder, Executive is employed (including
employment by the Company or an Affiliate, employment by
any other employer or any form of self-employment) then
(a) Company may in its discretion at any time following
the date of commencement of such employment, pay to
Executive the aggregate remaining amounts to be paid to
Executive under Section 3(B)(i) or 3(B)(ii)(a) hereof in a
lump sum; and (b) payments for outplacement services and
payments under Section 3(B)(ii)(b) hereof shall cease as
of the date of commencement of such employment, but if
payments for outplacement services and/or under Section
3(B)(ii)(b) are
made by Company subsequent to such date then Company may
withhold the amount of any such payments from the amount
otherwise to be paid pursuant to Section 3(B)(ii)(a) hereof,
and Executive shall pay to Company on demand any such excess
amount not so withheld, with such excess amount to bear
interest at the rate provided in Section 1274(d)(2)(B) of the
Code commencing thirty (30) days after such demand.
(iii) Disability. If Executive is Disabled
during any period while Executive is entitled to Executive
Severance Benefits hereunder, then, during any such period
that Executive is Disabled, any amounts payable under Section
3(B) hereof during such period shall be reduced (but not to
less than zero) by the amounts paid or to be paid with
respect to such period to Executive pursuant to any long-term
disability plan maintained by Company.
(iv) Death. If Executive dies during any
period while Executive is entitled to Executive Severance
Benefits hereunder, then a lump sum amount equal to the total
remaining amounts payable to Executive at the time of
Executive's death under Section 3(B) hereof shall be paid to
Executive's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Executive's death
to any beneficiary designated by Executive other than Company
under any Company life insurance program.
(v) Criminal Charges. If at any time after
Executive Severance Benefits become payable hereunder and
prior to the completion of the payment of such benefits
Executive is charged with a felony, or other crime involving
moral turpitude, which crime relates to activities of
Executive occurring during the period Executive was employed
by Company or its predecessor(s) under this Agreement, then
Company may suspend such payments until such criminal charge
is resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of the
Code) commencing at the time such payments would have been
made absent suspension under this Section 3(C)(v) after such
criminal charge is resolved; provided, however, that such
payments shall cease and no further payments shall be made at
any time Executive is convicted of, or enters a guilty plea
to, such crime by or before a court of competent
jurisdiction.
D. Limitations on Benefits.
(i) Code Limitations. In the event that the
aggregate of any amounts payable to or on behalf of Executive
under the Agreement and under any other plan, agreement or
policy of Company or any Affiliate would otherwise result in
the imposition of tax under Section 4999 of the Code due to
an excess parachute payment, as determined by Company's
independent auditors, then the amounts payable to or on
behalf of Executive under the Agreement shall be reduced to
the extent necessary (but not below zero) so that such
aggregate amounts shall not be a parachute payment. For
purposes of determining any limitation under this Section
3(D)(ii): (a) no portion of any benefit the receipt or
enjoyment of which Executive shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in
accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If the
Company's independent auditors determine that payment that
would be a parachute payment has been made to Executive
hereunder, then the excess of (a) the amount of such payment
actually made hereunder over (b) the amount that could be
paid hereunder without any amount payable hereunder being a
parachute payment, shall constitute a loan by Company to
Executive, payable to Company upon demand with interest at
the rate provided in Section 1274(d)(2)(B) of the Code
commencing as of the date or dates of payment by Company of
such excess amount.
E. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Executive acknowledges
that in addition to other conditions set forth in the Agreement,
Executive Severance Benefits shall be conditioned upon the prior
execution by Executive of a general waiver and release
(hereinafter referred to as "Waiver") as described in this Section
3(E), and Executive shall not be eligible for Executive Severance
Benefits unless and until Executive has executed the Waiver within
ninety (90) days following the later of Executive's termination of
employment. The Waiver shall be substantially in the form
attached hereto as Exhibit A and shall generally waive all claims
Executive has or may have against Company or an Affiliate, and any
successors or predecessors thereto, and shall release Company and
all Affiliates, and any successors and predecessors thereto, from
all liability with respect to any such claims; provided, however,
that Executive shall not waive, and there shall be no release with
respect to, any claim (other than a claim disputing the validity
of this Section 3(E) or the Waiver) of Executive to enforce any
one or more of the provisions of the Agreement.
SECTION 4
EXECUTIVE'S COVENANTS
A. Employee Statement. Executive agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Executive acknowledges that
during the course of Executive's employment with Company,
Executive has or will have access to and knowledge of certain
information and data which Company considers confidential, and
that the release of such information or data to unauthorized
persons could be detrimental to Company or an Affiliate. As a
consequence, Executive hereby agrees and acknowledges that
Executive owes a duty to Company not to disclose, and agrees that,
during and after the term of Executive's employment, Executive
will not communicate, publish or disclose to any person anywhere
or use any Confidential Information (as defined below) for any
purpose except in accordance with the prior written consent of
Company, where necessary or appropriate to carry out Executive's
duties as an employee of Company, or as required by law or legal
process. Executive will use Executive's best efforts at all times
to hold in confidence and to safeguard any Confidential
Information from becoming known by any unauthorized person and, in
particular, will not permit any Confidential Information to be
read, duplicated or copied except in accordance with the prior
written consent of the Company, where necessary or appropriate to
carry out Executive's duties as an employee of Company, or as may
be required by law or legal process. Executive will return to
Company all Confidential Information in Executive's possession or
under Executive's control when the duties of Executive as an
employee of the Company no longer require Executive's possession
thereof, or whenever Company shall
so request, and, in any event, will promptly return all such
Confidential Information if Executive's employment with Company
terminates and will not retain any copies thereof. For the purpose
of this Agreement, "Confidential Information" shall mean any
information or data used by or belonging or relating to Company or
an Affiliate which, if disclosed, could be detrimental to Company
or an Affiliate, including, but not limited to, any such
information relating to Company's, or an Affiliate's, members or
insureds, trade secrets, proprietary data and information relating
to Company's, or an Affiliate's, past, present or future business,
price lists, client lists, processes, procedures or standards,
know-how, manuals, business strategies, records, drawings,
specifications, designs, financial information, whether or not
reduced to writing, or any other information or data which Company
advises Executive is Confidential Information.
C. Covenant Not to Compete.
(i) Executive agrees that during the term of
Executive s employment by Company and for a period consisting
of the greater of: (i) the period over which any Executive
Severance Benefits are to be paid under this Agreement
(whether or not payment is accelerated hereunder), or (ii)
one year from and after the termination of Executive's
employment (such term of employment and applicable subsequent
period are referred to collectively herein as the
"Noncompetition Period"), Executive will not directly or
indirectly, without the express prior written consent of
Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during the
Noncompetition Period is engaged in competition in any
substantial manner with Company or an Affiliate,
provided Executive in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate;
(b) divert or attempt to divert clients,
customers or accounts of Company which are clients,
customers or accounts during the Noncompetition Period;
or
(c) hire, or attempt to solicit to hire,
for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Executive, any current employee of Company
as of the time of such hire or attempt to solicit to
hire or former employee of Company who has been employed
by Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit to
hire.
(ii) With respect to Executive's obligations
under this Section 4(C), Executive acknowledges that
Company's geographic market is: (a) the State of Missouri;
and (b) a seventy-five (75) mile radius surrounding each of
St. Louis, Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be fair,
reasonable and necessary for the protection of the legitimate
business interests of Company.
(iv) Executive acknowledges that Executive's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent Executive from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Executive contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach will
be inadequate, if after written notice of breach delivered or
mailed to Executive in accordance with Section 6(B) hereof
Executive takes no satisfactory action to remedy such breach
and abide by this Agreement, or absent such notice in the
event such breach cannot be remedied, then Company, in
addition to such other rights or remedies which may be
available to it (including, without limitation, recovery of
monetary damages from Executive), shall be entitled to an
injunction, including a mandatory injunction, to be issued by
any court of competent jurisdiction ordering compliance with
this Agreement or enjoining and restraining Executive, and
each and every person, firm or company acting in concert or
participation with Executive, from the continuation of such
breach and, in addition thereto, Executive shall pay to
Company all ascertainable damages, including costs and
reasonable attorneys' fees, sustained by Company by reason of
the breach or threatened breach of said covenants and
assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Executive Company shall no longer be obligated
to pay any benefits to Executive under this Agreement.
(iii) The covenants and obligations of
Executive under this Section 4 are each independent covenants
and are in addition to and not in lieu of or exclusive of any
other obligations and duties of Executive to the Company,
whether express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
Company may terminate this Agreement effective as of any date
by giving Executive, in accordance with Section 6(B) hereof, at
least one hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Executive's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs and/or
Executive incurs termination for Cause, Involuntary Termination or
Proper Reason Termination. Regardless of anything to the contrary
in this Agreement, no termination of this Agreement shall
terminate Executive's obligations under Sections 4(A) and (B) of
this Agreement. Company and Executive may amend this Agreement at
any time by written instrument signed by Company and Executive.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Executive any right to be retained in the
employ of Company, and no rights granted under this Agreement
shall be construed as creating a contract of employment. The right
and power of Company to dismiss or discharge Executive "at will"
is expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Executive:
Last known address shown on records of Company
or to such other address as either party may have furnished to the
other in writing, except that notice of change of address shall be
effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other than
the Officer Agreement) relating to the subject matter of this
Agreement, written or oral, between the parties hereto and
contains the entire understanding of the parties hereto and shall
not be amended, modified or supplemented in any manner whatsoever
except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only and
shall in no way restrict or otherwise modify any of the terms or
provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Executive, but it may be assigned by Company,
without notice to or consent of Executive, to any assignee
provided such assignee agrees to abide by and be bound by the
provisions of the Agreement and the Agreement shall thereafter be
enforceable by such assignee. During Executive's lifetime the
Agreement and all rights and obligations of Executive hereunder
shall be enforceable by and binding upon Executive's guardian or
other legal representative in the event Executive is unable to act
on his own behalf for any reason whatsoever, and upon Executive's
death the Agreement and all rights and obligations of Executive
hereunder shall inure to the benefit of and be enforceable by and
binding upon Executive's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis, Missouri,
in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that, regardless of
anything to the contrary in the rules of the American Arbitration
Association, the arbitrator shall have authority to review all
findings of fact, determinations of benefits and interpretations
of this Agreement made by the Company and to overturn same, and
substitute a different finding of fact, determination of benefits
or interpretation of this Agreement therefor, if the arbitrator
determines, based on the record in such arbitration and such other
factors as he determines are relevant, that he would have made a
different finding of fact, determination of benefits or
interpretation of this Agreement than the Company made in any
particular instance. Judgment may be entered on the arbitrator's
award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of the Agreement is adjudicated to be invalid
or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited only to the extent required by
applicable law and shall be enforced as so limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may withhold
from amounts payable to Executive by Company outside of the
Agreement amounts equal to any taxes required to be withheld from
payments made pursuant to the Agreement, unless Executive has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Executive has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By /s/ Edward J. Tenholder
Title Senior Vice President
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1997.
/s/ Marilyn L. Geile
Notary Public
My Commission Expires: 12/11/97
/s/ Herbert B. Schneiderman
Executive
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1997.
/s/ Marilyn L. Geile
Notary Public
My Commission Expires: 12/11/97
EXHIBIT A
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Executive") and
RightCHOICE Managed Care, Inc. including its affiliates, officers,
directors, agents and employees (the "Company").
WHEREAS, Executive's active employment ended on
_______________, 19 and Executive wants to begin receiving
benefits under the Executive Severance Agreement ("Severance
Agreement"), previously entered into between Executive and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Executive to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Executive represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Executive's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
2. Based on the representations and warranties provided by
Executive in clause No. 1 above, Company hereby acknowledges that
Executive's termination of employment with Company qualifies as
either an Involuntary Termination or a Good Reason Termination
within the meaning of the Severance Agreement.
3. Executive agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Executive further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically reserves
the right to suspend or terminate benefits under the Severance
Agreement, if, subsequent to the execution of this Waiver, Company
becomes aware of information, or an event occurs, which indicates
noncompliance with this section or which would otherwise result in
a suspension or termination of such benefits in accordance with
the provisions of the Severance Agreement.
4. Executive agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Executive and
Company including, but not limited to, those in any way related to
Executive's employment and/or termination.
Executive further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Executive and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Executive's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive, compensatory
or statutory), expenses of any type or description (including,
without limitation, attorney's fees)), any arising under the Civil
Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq.,
the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et seq., the
Rehabilitation Act of 1973, 29 U.S.C. 701 et seq., the Americans
with Disabilities Act, 42 U.S.C. 2101, the Civil Rights Act of
1871, 42 U.S.C. 1981, the Family and Medical Leave Act of 1993,
19 U.S.C. 2601 et seq., the Missouri Human Rights Act, 213.010
RSMo et seq., the Missouri Workers Compensation law, 287 RSMo et
seq., the Missouri Service Letter Statute, 290.140 RSMo, or any
other federal, state, or local
statutes or ordinances. Executive further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Executive affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Executive shall not waive, and there
shall be no release with respect to, any claim (other than a claim
disputing the validity of section 3(E) of the Severance Agreement
or the provisions of this Waiver) of Executive to enforce any one or
more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Executive agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Executive's separation that involves issues relating to
Executive's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Executive's duties and obligations under
this Waiver, Company shall be entitled, in addition to any other
legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or enforceability
of the remaining provisions shall be unaffected. To the extent
that any provision of this Waiver is adjudicated to be invalid or
unenforceable because it is overbroad, that provision shall not be
void but rather shall be limited only to the extent required by
applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Executive hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Executive or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Executive
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.49
OFFICER SEVERANCE AGREEMENT
THIS OFFICER SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 1st day of January, 1998, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Ed Tenholder (the "Officer").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Officer as
an "at-will" employee of RightCHOICE; and
WHEREAS, as a condition of Officer's employment, Officer
agrees to be bound by certain covenants set forth herein and
RightCHOICE agrees to provide Officer certain severance benefits
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, RightCHOICE
and Officer do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the day first written
above and shall continue in effect until terminated in accordance
with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall mean any corporation or
other legal entity (other than Company) that is part of a group
of corporations and/or other legal entities under common control,
which group includes the Company and in which group each
corporation (or other legal entity) is deemed to be under common
control with the others if:
(i) it is in an unbroken chain of organizations
each of which is connected to a common parent corporation
(or other legal entity) by having at least 50% (based on
voting power) of its outstanding stock or other outstanding
equity ownership interest owned directly or indirectly by
that common parent corporation (or other legal entity); or
(ii) its board of directors (or, in the case of an
entity other than a corporation, other management authority
which, under the terms of its organizational documents,
serves a similar policy setting and governance function),
pursuant to the terms of a formal written agreement, is
subject to the direction or oversight by a person that is
not an Affiliate, such oversight includes setting policy
and/or governance of operations;
provided, however, that no corporation or entity shall be
considered an Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, L.C. and provided
further that no person or entity that is regularly in the
business of lending money shall be deemed to be an Affiliate
solely because, under the terms of an agreement executed in
connection with extending financing, the lender has the right to
enforce covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement. For purposes of clarity only (and without
limiting the generality of the foregoing definition), it is noted
that the common parent corporation referred to in the foregoing
definition qualifies as an Affiliate.
B. Base Pay. "Base Pay" shall mean the dollar amount
equal to the highest annual base salary rate applicable to
Officer during the two (2) years immediately prior to Officer's
Date of Termination.
C. Cause. "Cause" shall mean any one or more of the
following:
(i) Company's becoming aware of, or being
notified of, Officer's conviction of, or Officer's entry of
a guilty plea to, a felony or any other crime involving
moral turpitude by or before a court of competent
jurisdiction;
(ii) gross failure by Officer to perform
Officer's expected duties with Company (other than any such
failure resulting from Officer's incapacity due to physical
or mental illness or any such actual or anticipated failure
occurring after, and not before, the issuance of a Notice of
Termination by Officer for Proper Reason which is not
thereafter successfully disputed by Company) which gross
failure occurs or continues after: (a) the Company delivers
to Officer a written demand for substantial performance that
specifically identifies the expected duties of Officer, the
manner in which Company believes that Officer has not
substantially performed Officer's duties, and the time by
which Officer must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by Officer to perform
such duties has occurred, and (b) the Officer has failed to
demonstrate that he is performing or has resumed performance
of the duties specified in such notice by the time specified
in such notice;
(iii) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines is likely to be materially damaging or
detrimental to Company or to an Affiliate; or
(iv) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines constitutes a material violation by
Officer of the Employee Statement.
D. Code. "Code" shall mean the Internal Revenue Code of
1986 as from time to time amended.
E. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Officer and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Officer and
becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
F. Date of Termination. "Date of Termination" shall mean
the effective date of Officer's termination of employment with
Company. If Officer delivers a Notice of Termination hereunder
to Company, then the Date of Termination shall be thirty (30)
days following the date such Notice of Termination is delivered
or mailed to Company in accordance with Section 6(B) hereof;
provided, however, that in such event Company shall have the
right to accelerate such Date of Termination by written notice of
such acceleration delivered or mailed to Officer in accordance
with Section 6(B) hereof. If Company delivers or mails a Notice
of Termination hereunder to Officer in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
G. Designated Beneficiary. "Designated Beneficiary" shall
mean one or more individuals or legal entities designated by
Officer on Exhibit A to this Agreement, but if there is no such
effective beneficiary designation at the time of Officer's death,
then Designated Beneficiary shall mean the legal representative
of Officer's estate. Exhibit A to this Agreement may be revoked
by Officer at any time by written instrument delivered to
Company, in which event a new Exhibit A may be completed and
executed by Officer and shall be effective upon receipt by
Company prior to the date of Officer's death.
H. Disabled. "Disabled" shall mean Officer is receiving,
or is currently entitled to receive pursuant to a determination
made by the Company, benefits under Company's long-term
disability plan, if any.
I. Employee Statement. "Employee Statement" shall mean
the Company's Code of Business Conduct, or, with respect to any
periods during which such Code of Business Conduct is not
applicable, any predecessor or successor thereto, or any other
set of rules and guidelines serving a similar purpose that may
become applicable, as each may be amended from time to time.
J. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Officer's employment by action of
Company for any reason other than Cause; provided, however, that
the termination of Officer's employment by Company shall not be
an Involuntary Termination if immediately following such
termination of employment Officer is employed by another employer
that is to abide by the provisions of this Agreement as described
in Section 2(E) hereof.
K. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Officer to Company advising
Company of Officer's decision to terminate Officer's
employment; or
(ii) a notice from Company to Officer
advising Officer of Company's decision to terminate
Officer's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Officer to Company and if Officer believes such
termination is a Proper Reason Termination, then such Notice of
Termination shall specify that such termination is a Proper
Reason Termination, the event(s) which Officer believes
constitute Proper Reason and the facts and circumstances
supporting such belief of Officer. If a Notice of Termination is
from Company to Officer and if Company believes such termination
is for Cause, then such Notice of Termination shall specify that
such termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
L. Proper Reason. "Proper Reason" shall mean (i) the
reduction of Officer's normal base salary rate by twenty percent
(20%) or more, or (ii) a change in a short-term or long-term
incentive formula (e.g., a change in the percentage of base
salary to be awarded at target level of achievement) which
directly results in a reduction of twenty percent (20%) or more
in the overall target compensation which applies to Officer in a
given period compared to the overall target compensation which
would have applied to Officer during that period without such
change in bonus formula, or (iii) a change in Officer's primary
work location of more than seventy-five (75) miles from the
Officer's former primary work location; provided, however, that
no base salary rate reduction or bonus formula change or change
in primary work location shall constitute Proper Reason if:
(i) Officer consents in writing to such reduction
or change; or
(ii) at the time of such reduction or change,
or during the three-month period prior to the effective date
of such reduction or change, there is Cause; or
(iii) such reduction or change similarly
affects all officers of Company.
M. Proper Reason Termination. "Proper Reason Termination"
shall mean Officer's termination of his employment with the
Company following the occurrence of an event constituting Proper
Reason, but only if:
(i) Officer, within sixty (60) days after being
notified of or becoming aware of, whichever is earlier, such
event, objects to such event by delivering Notice of
Termination to Company in accordance with Section 6(B)
hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(M)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Proper Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Officer terminates employment within
three (3) months after being notified of or becoming aware
of, whichever is earlier, the occurrence of the event cited
as constituting Proper Reason in the Notice of Termination.
N. Severance Benefits. "Severance Benefits" shall mean
the benefits described in Section 3(A) hereof.
SECTION 3
SEVERANCE BENEFITS
A. Severance Benefits. Subject to Sections 3(B), 3(C),
3(D) and 4(D)(ii) hereof, in the event of Officer's Involuntary
Termination or Officer's Proper Reason Termination, Company will:
(i) pay to Officer an amount equal to the
multiple of Officer's Base Pay specified in Exhibit B
hereto, payable in the number of substantially equal monthly
installments specified in Exhibit B, and commencing as soon
as practicable following the Date of Termination;
(ii) pay to Officer, for a period of twelve
(12) months starting on the Date of Termination, an amount
equal to the portion of the monthly premiums (to the extent
such premiums are due) for Officer's health, dental, vision
and life insurance that is equivalent to the portion of the
monthly premiums for such coverages that the Company pays on
behalf of similarly situated Officers employed by Company
during such twelve (12) month period; and
(iii) pay for outplacement services for
Officer of the type customarily provided by Company to
officers at the time of Officer's Involuntary Termination or
Proper Reason Termination.
Company's obligation to pay the amounts specified in Section
3(A)(ii) above shall be reduced by any and all amounts Company
pays toward Officer's health, dental, vision and life insurance
with respect to periods after the Date of Termination.
B. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this Agreement
notifies the other party pursuant to Section 6(B) hereof
that one party disputes the position of the other party with
respect to any provision of this Agreement, then Company may
at any time elect to suspend some or all payments hereunder
with respect to Officer (or elect not to commence such
payments if payments have not yet commenced) until such
dispute is finally resolved either by mutual written
agreement of the parties or a binding arbitration award
pursuant to Section 6(H) hereof. If pursuant to such
resolution of the dispute, retroactive payments are to be
made to Officer or payments representing reimbursements are
to be made to Company, then unless otherwise provided under
such resolution, such payments shall bear interest at the
rate provided in Section 1274(d)(2)(B) of the Code
commencing at the time such payments would have been made
absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case
of reimbursements).
(ii) Subsequent Employment. If at any time
while Officer is entitled to Severance Benefits hereunder
Officer is employed (including employment by Company,
employment by any other employer or any form of
self-employment) then (a) Company may in its discretion at
any time following the date of commencement of such
employment, pay to Officer the aggregate remaining amounts
to be paid to Officer under Section 3(A)(i) hereof in a lump
sum; and (b) payments under Sections 3(A)(ii) and 3(A)(iii)
hereof shall cease as of the date of commencement of such
employment, but if payments under Sections 3(A)(ii) and
3(A)(iii) are made by Company subsequent to such date then
Company may withhold the amount of any such payments from
the amount otherwise to be paid pursuant to Section 3(A)(i)
hereof, and Officer shall pay to Company on demand any such
excess amount not so withheld, with such excess amount to
bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing thirty (30) days after such demand.
(iii) Disability. If Officer is Disabled
during any period while Officer is entitled to Severance
Benefits hereunder, then during any such period that Officer
is Disabled, any amounts payable under Section 3(A)(i)
hereof during such period shall be reduced (but not to less
than zero) by the amounts paid or to be paid with respect to
such period to Officer pursuant to any long-term disability
plan maintained by Company.
(iv) Death. If Officer dies during any
period while Officer is entitled to Severance Benefits
hereunder, then a lump sum amount equal to the total
remaining amounts payable to Officer at the time of
Officer's death under Section 3(A)(i) hereof shall be paid
to Officer's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Officer's death
to any beneficiary other than Company under any Company life
insurance program.
(v) Criminal Charges. If at any time after
Severance Benefits become payable hereunder and prior to the
completion of the payment of such benefits Officer is
charged with a felony, or other crime involving moral
turpitude, which crime relates to activities of Officer
occurring during the period Officer was employed by Company
or its predecessor(s) under this Agreement, then Company may
suspend such payments until such criminal charge is
resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section (3)(B)(v)
after such criminal charge is resolved; provided, however,
that such payments shall cease and no further payments shall
be made at any time Officer is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
C. Code Limitations. In the event that the aggregate of
any amounts payable to or on behalf of Officer under the
Agreement and under any other plan, agreement or policy of
Company or any Affiliate would otherwise result in the imposition
of tax under Section 4999 of the Code due to an excess parachute
payment, as determined by Company's independent auditors, then
the amounts payable to or on behalf of Officer under the
Agreement shall be reduced to the extent necessary (but not below
zero) so that such aggregate amounts shall not be a parachute
payment. For purposes of determining any limitation under this
Section 3(C): (a) no portion of any benefit the receipt or
enjoyment of which Officer shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
If the Company's independent auditors determine that payment that
would be a parachute payment has been made to Officer hereunder,
then the excess of (a) the amount of such payment actually made
hereunder over (b) the amount that could be paid hereunder
without any amount payable hereunder being a parachute payment,
shall constitute a loan by Company to Officer, payable to Company
upon demand with interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing as of the date or dates of
payment by Company of such excess amount.
D. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Officer acknowledges
that in addition to other conditions set forth in the Agreement,
Severance Benefits shall be conditioned upon the prior execution
by Officer of a general waiver and release (hereinafter "Waiver")
as described in this Section 3(D), and Officer shall not be
eligible for Severance Benefits unless and until Officer has
executed the Waiver within ninety (90) days following Officer's
termination of employment.. The Waiver shall be substantially in
the form attached hereto as Exhibit C and shall generally waive
all claims Officer has or may have against Company, any
Affiliate, and any successors or predecessors thereto, and shall
release Company and all Affiliates, and any successors and
predecessors thereto, from all liability with respect to any such
claims; provided, however, that Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of this Section 3(D) or the
Waiver) of Officer to enforce any one or more of the provisions
of the Agreement.
SECTION 4
OFFICER'S COVENANTS
A. Employee Statement. Officer agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Officer acknowledges that
during the course of Officer's employment with Company, Officer
has or will have access to and knowledge of certain information
and data which Company considers confidential, and that the
release of such information or data to unauthorized persons could
be detrimental to Company or an Affiliate. As a consequence,
Officer hereby agrees and acknowledges that Officer owes a duty
to Company not to disclose, and agrees that, during and after the
term of Officer's employment, Officer will not communicate,
publish or disclose to any person anywhere or use any
Confidential Information (as defined below) for any purpose
except in accordance with the prior written consent of Company,
where necessary or appropriate to carry out Officer's duties as
an employee of Company, or as required by law or legal process.
Officer will use Officer's best efforts at all times to hold in
confidence and to safeguard any Confidential Information from
becoming known by any unauthorized person and, in particular,
will not permit any Confidential Information to be read,
duplicated or copied except in accordance with the prior written
consent of the Company, where necessary or appropriate to carry
out Officer's duties as an employee of the Company, or as may be
required by law or legal process. Officer will return to Company
all Confidential Information in Officer's possession or under
Officer's control when the duties of Officer as an employee of
the Company no longer require Officer's possession thereof, or
whenever Company shall so request, and in any event will promptly
return all such Confidential Information if Officer's employment
with Company terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to Company or an Affiliate which, if disclosed, could be
detrimental to Company or an Affiliate, including, but not
limited to any such information relating to Company's, or an
Affiliate's, members or insureds, trade secrets, proprietary data
and information relating to Company's, or an Affiliate's past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Officer is Confidential
Information.
C. Covenant Not to Compete.
(i) Officer agrees that during the term of
Officer's employment by Company and for a period consisting
of the greater of: (a) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (b) one year from and
after the termination of Officer's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), Officer
will not directly or indirectly, without the express prior
written consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Officer in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate; or
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Officer, any current employee of Company as
of the time of such hire or attempt to solicit to hire
or former employee of Company who has been employed by
Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to Officer's obligations
under this Section 4(C), Officer acknowledges that Company's
geographic market is: (a) the State of Missouri; and (b) a
seventy-five (75) mile radius surrounding each of St. Louis,
Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Officer acknowledges that Officer's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent the Officer from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Officer contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if, after written notice of breach
delivered or mailed to Officer in accordance with Section
6(B) hereof Officer takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Officer), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Officer, and each and every person, firm or company acting
in concert or participation with Officer, from the
continuation of such breach and, in addition thereto,
Officer shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Officer, Company shall no longer be obligated
to pay any benefits to Officer under this Agreement.
(iii) The covenants and obligations of Officer
under this Section 4 are each independent covenants and are
in addition to and not in lieu of or exclusive of any other
obligations and duties of Officer to the Company, whether
express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
A. Termination and Amendment Procedures. Company may
terminate this Agreement effective as of any date by giving
Officer, in accordance with Section 6(B) hereof, at least one
hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Officer's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Officer incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Officer's obligations under Sections
4(A) and (B) of this Agreement. Company and Officer may amend
this Agreement at any time by written instrument signed by
Company and Officer.
B. Definition of Change in Control. For purposes of this
Section 5, "Change in Control" shall mean the occurrence, while
Officer is employed by Company and this Agreement is in effect,
of any one or more of the following events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 5(B)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
For purposes of this Section 5(B), "Parent" shall mean any entity
owning, directly or indirectly, fifty percent (50%) or more
(based on voting power) of the Company's outstanding stock or
other equity ownership interests. In the event that no single
transaction or event has occurred that qualifies as a Change in
Control under the foregoing definition, in determining whether a
Change in Control has occurred, a series of transactions and/or
events may be considered to be a single transaction or event;
provided, however, that elections occurring during no more than
eighteen (18) months shall be aggregated for purposes of
determining whether a series of transactions or events qualifies
as a Change in Control under Section 5(B)(v) or 5(B)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
Officer elects. Any person or entity that is regularly in the
business of lending money may, under the terms of an agreement
executed in connection with extending financing, be granted the
right to enforce covenants requiring certain financial ratios or
business practices to be maintained, so long as such requirements
are typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control related to (iv)
above being deemed to have occured. For purposes of this
definition only, no entity shall be considered a Parent or an
Affiliate unless such entity had that status prior to the
transaction or event (or the first in a series of transactions
and/or events aggregated as a single transaction or event
pursuant to this paragraph) that would have constituted a Change
in Control.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Officer any right to be retained in the employ
of Company, and no rights granted under this Agreement shall be
construed as creating a contract of employment. The right and
power of Company to dismiss or discharge Officer at will is
expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested postage prepaid addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Officer:
Last known address shown on records of Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than any Executive Severance Agreement between RightCHOICE and
Executive dated January __, 1997 or later) relating to the
subject matter of this Agreement, written or oral, between the
parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented
in any manner whatsoever except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Officer, but it may be assigned by Company, without
notice to or consent of Officer, to any assignee provided such
assignee agrees to abide by and be bound by the provisions of the
Agreement and the Agreement shall thereafter be enforceable by
such assignee. During Officer's lifetime, the Agreement and all
rights and obligations of Officer hereunder shall be enforceable
by and binding upon Officer's guardian or other legal
representative in the event Officer is unable to act on his own
behalf for any reason whatsoever, and, upon Officer's death, the
Agreement and all rights and obligations of Officer hereunder
shall inure to the benefit of and be enforceable by and binding
upon Officer's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Officer by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Officer has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Officer has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ John A. O'Rourke
Title: President and CEO
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires:
August 29, 1999
OFFICER
/s/ Edward J. Tenholder
(Signature)
Edward J. Tenholder
(Print Name)
Subscribed and sworn to before me, a Notary Public, this 12th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires:
August 29, 1999
EXHIBIT A
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer Edward J. Tenholder
Original Date of Agreement
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Mark Twain Bank, N.A., Trustee under will dated 9/30/88
Date Officer's Signature /s/ Edward J. Tenholder
Receipt acknowledged on behalf of Company.
Date RIGHTCHOICE MANAGED CARE, INC.
By /s/ John A. O'Rourke
EXHIBIT B
SEVERANCE BENEFITS
The multiple of Officer's Base Pay which is specified for
purposes of Section 3(A)(i) of this Agreement is Three. If the
benefit determined by application of such multiple becomes
payable to Officer, such benefit shall be payable in thirty six
substantially equal monthly installments, as provided in
this Agreement.
EXHIBIT C
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.50
OFFICER SEVERANCE AGREEMENT
THIS OFFICER SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 1st day of January, 1998, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Sandra Van Trease (the "Officer").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Officer as
an "at-will" employee of RightCHOICE; and
WHEREAS, as a condition of Officer's employment, Officer
agrees to be bound by certain covenants set forth herein and
RightCHOICE agrees to provide Officer certain severance benefits
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, RightCHOICE
and Officer do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the day first written
above and shall continue in effect until terminated in accordance
with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall mean any corporation or
other legal entity (other than Company) that is part of a group
of corporations and/or other legal entities under common control,
which group includes the Company and in which group each
corporation (or other legal entity) is deemed to be under common
control with the others if:
(i) it is in an unbroken chain of organizations
each of which is connected to a common parent corporation
(or other legal entity) by having at least 50% (based on
voting power) of its outstanding stock or other outstanding
equity ownership interest owned directly or indirectly by
that common parent corporation (or other legal entity); or
(ii) its board of directors (or, in the case of an
entity other than a corporation, other management authority
which, under the terms of its organizational documents,
serves a similar policy setting and governance function),
pursuant to the terms of a formal written agreement, is
subject to the direction or oversight by a person that is
not an Affiliate, such oversight includes setting policy
and/or governance of operations;
provided, however, that no corporation or entity shall be
considered an Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, L.C. and provided
further that no person or entity that is regularly in the
business of lending money shall be deemed to be an Affiliate
solely because, under the terms of an agreement executed in
connection with extending financing, the lender has the right to
enforce covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement. For purposes of clarity only (and without
limiting the generality of the foregoing definition), it is noted
that the common parent corporation referred to in the foregoing
definition qualifies as an Affiliate.
B. Base Pay. "Base Pay" shall mean the dollar amount
equal to the highest annual base salary rate applicable to
Officer during the two (2) years immediately prior to Officer's
Date of Termination.
C. Cause. "Cause" shall mean any one or more of the
following:
(i) Company's becoming aware of, or being
notified of, Officer's conviction of, or Officer's entry of
a guilty plea to, a felony or any other crime involving
moral turpitude by or before a court of competent
jurisdiction;
(ii) gross failure by Officer to perform
Officer's expected duties with Company (other than any such
failure resulting from Officer's incapacity due to physical
or mental illness or any such actual or anticipated failure
occurring after, and not before, the issuance of a Notice of
Termination by Officer for Proper Reason which is not
thereafter successfully disputed by Company) which gross
failure occurs or continues after: (a) the Company delivers
to Officer a written demand for substantial performance that
specifically identifies the expected duties of Officer, the
manner in which Company believes that Officer has not
substantially performed Officer's duties, and the time by
which Officer must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by Officer to perform
such duties has occurred, and (b) the Officer has failed to
demonstrate that he is performing or has resumed performance
of the duties specified in such notice by the time specified
in such notice;
(iii) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines is likely to be materially damaging or
detrimental to Company or to an Affiliate; or
(iv) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines constitutes a material violation by
Officer of the Employee Statement.
D. Code. "Code" shall mean the Internal Revenue Code of
1986 as from time to time amended.
E. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Officer and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Officer and
becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
F. Date of Termination. "Date of Termination" shall mean
the effective date of Officer's termination of employment with
Company. If Officer delivers a Notice of Termination hereunder
to Company, then the Date of Termination shall be thirty (30)
days following the date such Notice of Termination is delivered
or mailed to Company in accordance with Section 6(B) hereof;
provided, however, that in such event Company shall have the
right to accelerate such Date of Termination by written notice of
such acceleration delivered or mailed to Officer in accordance
with Section 6(B) hereof. If Company delivers or mails a Notice
of Termination hereunder to Officer in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
G. Designated Beneficiary. "Designated Beneficiary" shall
mean one or more individuals or legal entities designated by
Officer on Exhibit A to this Agreement, but if there is no such
effective beneficiary designation at the time of Officer's death,
then Designated Beneficiary shall mean the legal representative
of Officer's estate. Exhibit A to this Agreement may be revoked
by Officer at any time by written instrument delivered to
Company, in which event a new Exhibit A may be completed and
executed by Officer and shall be effective upon receipt by
Company prior to the date of Officer's death.
H. Disabled. "Disabled" shall mean Officer is receiving,
or is currently entitled to receive pursuant to a determination
made by the Company, benefits under Company's long-term
disability plan, if any.
I. Employee Statement. "Employee Statement" shall mean
the Company's Code of Business Conduct, or, with respect to any
periods during which such Code of Business Conduct is not
applicable, any predecessor or successor thereto, or any other
set of rules and guidelines serving a similar purpose that may
become applicable, as each may be amended from time to time.
J. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Officer's employment by action of
Company for any reason other than Cause; provided, however, that
the termination of Officer's employment by Company shall not be
an Involuntary Termination if immediately following such
termination of employment Officer is employed by another employer
that is to abide by the provisions of this Agreement as described
in Section 2(E) hereof.
K. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Officer to Company advising
Company of Officer's decision to terminate Officer's
employment; or
(ii) a notice from Company to Officer
advising Officer of Company's decision to terminate
Officer's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Officer to Company and if Officer believes such
termination is a Proper Reason Termination, then such Notice of
Termination shall specify that such termination is a Proper
Reason Termination, the event(s) which Officer believes
constitute Proper Reason and the facts and circumstances
supporting such belief of Officer. If a Notice of Termination is
from Company to Officer and if Company believes such termination
is for Cause, then such Notice of Termination shall specify that
such termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
L. Proper Reason. "Proper Reason" shall mean (i) the
reduction of Officer's normal base salary rate by twenty percent
(20%) or more, or (ii) a change in a short-term or long-term
incentive formula (e.g., a change in the percentage of base
salary to be awarded at target level of achievement) which
directly results in a reduction of twenty percent (20%) or more
in the overall target compensation which applies to Officer in a
given period compared to the overall target compensation which
would have applied to Officer during that period without such
change in bonus formula, or (iii) a change in Officer's primary
work location of more than seventy-five (75) miles from the
Officer's former primary work location; provided, however, that
no base salary rate reduction or bonus formula change or change
in primary work location shall constitute Proper Reason if:
(i) Officer consents in writing to such reduction
or change; or
(ii) at the time of such reduction or change,
or during the three-month period prior to the effective date
of such reduction or change, there is Cause; or
(iii) such reduction or change similarly
affects all officers of Company.
M. Proper Reason Termination. "Proper Reason Termination"
shall mean Officer's termination of his employment with the
Company following the occurrence of an event constituting Proper
Reason, but only if:
(i) Officer, within sixty (60) days after being
notified of or becoming aware of, whichever is earlier, such
event, objects to such event by delivering Notice of
Termination to Company in accordance with Section 6(B)
hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(M)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Proper Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Officer terminates employment within
three (3) months after being notified of or becoming aware
of, whichever is earlier, the occurrence of the event cited
as constituting Proper Reason in the Notice of Termination.
N. Severance Benefits. "Severance Benefits" shall mean
the benefits described in Section 3(A) hereof.
SECTION 3
SEVERANCE BENEFITS
A. Severance Benefits. Subject to Sections 3(B), 3(C),
3(D) and 4(D)(ii) hereof, in the event of Officer's Involuntary
Termination or Officer's Proper Reason Termination, Company will:
(i) pay to Officer an amount equal to the
multiple of Officer's Base Pay specified in Exhibit B
hereto, payable in the number of substantially equal monthly
installments specified in Exhibit B, and commencing as soon
as practicable following the Date of Termination;
(ii) pay to Officer, for a period of twelve
(12) months starting on the Date of Termination, an amount
equal to the portion of the monthly premiums (to the extent
such premiums are due) for Officer's health, dental, vision
and life insurance that is equivalent to the portion of the
monthly premiums for such coverages that the Company pays on
behalf of similarly situated Officers employed by Company
during such twelve (12) month period; and
(iii) pay for outplacement services for
Officer of the type customarily provided by Company to
officers at the time of Officer's Involuntary Termination or
Proper Reason Termination.
Company's obligation to pay the amounts specified in Section
3(A)(ii) above shall be reduced by any and all amounts Company
pays toward Officer's health, dental, vision and life insurance
with respect to periods after the Date of Termination.
B. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this Agreement
notifies the other party pursuant to Section 6(B) hereof
that one party disputes the position of the other party with
respect to any provision of this Agreement, then Company may
at any time elect to suspend some or all payments hereunder
with respect to Officer (or elect not to commence such
payments if payments have not yet commenced) until such
dispute is finally resolved either by mutual written
agreement of the parties or a binding arbitration award
pursuant to Section 6(H) hereof. If pursuant to such
resolution of the dispute, retroactive payments are to be
made to Officer or payments representing reimbursements are
to be made to Company, then unless otherwise provided under
such resolution, such payments shall bear interest at the
rate provided in Section 1274(d)(2)(B) of the Code
commencing at the time such payments would have been made
absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case
of reimbursements).
(ii) Subsequent Employment. If at any time
while Officer is entitled to Severance Benefits hereunder
Officer is employed (including employment by Company,
employment by any other employer or any form of
self-employment) then (a) Company may in its discretion at
any time following the date of commencement of such
employment, pay to Officer the aggregate remaining amounts
to be paid to Officer under Section 3(A)(i) hereof in a lump
sum; and (b) payments under Sections 3(A)(ii) and 3(A)(iii)
hereof shall cease as of the date of commencement of such
employment, but if payments under Sections 3(A)(ii) and
3(A)(iii) are made by Company subsequent to such date then
Company may withhold the amount of any such payments from
the amount otherwise to be paid pursuant to Section 3(A)(i)
hereof, and Officer shall pay to Company on demand any such
excess amount not so withheld, with such excess amount to
bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing thirty (30) days after such demand.
(iii) Disability. If Officer is Disabled
during any period while Officer is entitled to Severance
Benefits hereunder, then during any such period that Officer
is Disabled, any amounts payable under Section 3(A)(i)
hereof during such period shall be reduced (but not to less
than zero) by the amounts paid or to be paid with respect to
such period to Officer pursuant to any long-term disability
plan maintained by Company.
(iv) Death. If Officer dies during any
period while Officer is entitled to Severance Benefits
hereunder, then a lump sum amount equal to the total
remaining amounts payable to Officer at the time of
Officer's death under Section 3(A)(i) hereof shall be paid
to Officer's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Officer's death
to any beneficiary other than Company under any Company life
insurance program.
(v) Criminal Charges. If at any time after
Severance Benefits become payable hereunder and prior to the
completion of the payment of such benefits Officer is
charged with a felony, or other crime involving moral
turpitude, which crime relates to activities of Officer
occurring during the period Officer was employed by Company
or its predecessor(s) under this Agreement, then Company may
suspend such payments until such criminal charge is
resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section (3)(B)(v)
after such criminal charge is resolved; provided, however,
that such payments shall cease and no further payments shall
be made at any time Officer is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
C. Code Limitations. In the event that the aggregate of
any amounts payable to or on behalf of Officer under the
Agreement and under any other plan, agreement or policy of
Company or any Affiliate would otherwise result in the imposition
of tax under Section 4999 of the Code due to an excess parachute
payment, as determined by Company's independent auditors, then
the amounts payable to or on behalf of Officer under the
Agreement shall be reduced to the extent necessary (but not below
zero) so that such aggregate amounts shall not be a parachute
payment. For purposes of determining any limitation under this
Section 3(C): (a) no portion of any benefit the receipt or
enjoyment of which Officer shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
If the Company's independent auditors determine that payment that
would be a parachute payment has been made to Officer hereunder,
then the excess of (a) the amount of such payment actually made
hereunder over (b) the amount that could be paid hereunder
without any amount payable hereunder being a parachute payment,
shall constitute a loan by Company to Officer, payable to Company
upon demand with interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing as of the date or dates of
payment by Company of such excess amount.
D. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Officer acknowledges
that in addition to other conditions set forth in the Agreement,
Severance Benefits shall be conditioned upon the prior execution
by Officer of a general waiver and release (hereinafter "Waiver")
as described in this Section 3(D), and Officer shall not be
eligible for Severance Benefits unless and until Officer has
executed the Waiver within ninety (90) days following Officer's
termination of employment.. The Waiver shall be substantially in
the form attached hereto as Exhibit C and shall generally waive
all claims Officer has or may have against Company, any
Affiliate, and any successors or predecessors thereto, and shall
release Company and all Affiliates, and any successors and
predecessors thereto, from all liability with respect to any such
claims; provided, however, that Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of this Section 3(D) or the
Waiver) of Officer to enforce any one or more of the provisions
of the Agreement.
SECTION 4
OFFICER'S COVENANTS
A. Employee Statement. Officer agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Officer acknowledges that
during the course of Officer's employment with Company, Officer
has or will have access to and knowledge of certain information
and data which Company considers confidential, and that the
release of such information or data to unauthorized persons could
be detrimental to Company or an Affiliate. As a consequence,
Officer hereby agrees and acknowledges that Officer owes a duty
to Company not to disclose, and agrees that, during and after the
term of Officer's employment, Officer will not communicate,
publish or disclose to any person anywhere or use any
Confidential Information (as defined below) for any purpose
except in accordance with the prior written consent of Company,
where necessary or appropriate to carry out Officer's duties as
an employee of Company, or as required by law or legal process.
Officer will use Officer's best efforts at all times to hold in
confidence and to safeguard any Confidential Information from
becoming known by any unauthorized person and, in particular,
will not permit any Confidential Information to be read,
duplicated or copied except in accordance with the prior written
consent of the Company, where necessary or appropriate to carry
out Officer's duties as an employee of the Company, or as may be
required by law or legal process. Officer will return to Company
all Confidential Information in Officer's possession or under
Officer's control when the duties of Officer as an employee of
the Company no longer require Officer's possession thereof, or
whenever Company shall so request, and in any event will promptly
return all such Confidential Information if Officer's employment
with Company terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to Company or an Affiliate which, if disclosed, could be
detrimental to Company or an Affiliate, including, but not
limited to any such information relating to Company's, or an
Affiliate's, members or insureds, trade secrets, proprietary data
and information relating to Company's, or an Affiliate's past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Officer is Confidential
Information.
C. Covenant Not to Compete.
(i) Officer agrees that during the term of
Officer's employment by Company and for a period consisting
of the greater of: (a) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (b) one year from and
after the termination of Officer's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), Officer
will not directly or indirectly, without the express prior
written consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Officer in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate; or
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Officer, any current employee of Company as
of the time of such hire or attempt to solicit to hire
or former employee of Company who has been employed by
Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to Officer's obligations
under this Section 4(C), Officer acknowledges that Company's
geographic market is: (a) the State of Missouri; and (b) a
seventy-five (75) mile radius surrounding each of St. Louis,
Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Officer acknowledges that Officer's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent the Officer from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Officer contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if, after written notice of breach
delivered or mailed to Officer in accordance with Section
6(B) hereof Officer takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Officer), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Officer, and each and every person, firm or company acting
in concert or participation with Officer, from the
continuation of such breach and, in addition thereto,
Officer shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Officer, Company shall no longer be obligated
to pay any benefits to Officer under this Agreement.
(iii) The covenants and obligations of Officer
under this Section 4 are each independent covenants and are
in addition to and not in lieu of or exclusive of any other
obligations and duties of Officer to the Company, whether
express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
A. Termination and Amendment Procedures. Company may
terminate this Agreement effective as of any date by giving
Officer, in accordance with Section 6(B) hereof, at least one
hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Officer's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Officer incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Officer's obligations under Sections
4(A) and (B) of this Agreement. Company and Officer may amend
this Agreement at any time by written instrument signed by
Company and Officer.
B. Definition of Change in Control. For purposes of this
Section 5, "Change in Control" shall mean the occurrence, while
Officer is employed by Company and this Agreement is in effect,
of any one or more of the following events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 5(B)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
For purposes of this Section 5(B), "Parent" shall mean any entity
owning, directly or indirectly, fifty percent (50%) or more
(based on voting power) of the Company's outstanding stock or
other equity ownership interests. In the event that no single
transaction or event has occurred that qualifies as a Change in
Control under the foregoing definition, in determining whether a
Change in Control has occurred, a series of transactions and/or
events may be considered to be a single transaction or event;
provided, however, that elections occurring during no more than
eighteen (18) months shall be aggregated for purposes of
determining whether a series of transactions or events qualifies
as a Change in Control under Section 5(B)(v) or 5(B)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
Officer elects. Any person or entity that is regularly in the
business of lending money may, under the terms of an agreement
executed in connection with extending financing, be granted the
right to enforce covenants requiring certain financial ratios or
business practices to be maintained, so long as such requirements
are typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control related to (iv)
above being deemed to have occured. For purposes of this
definition only, no entity shall be considered a Parent or an
Affiliate unless such entity had that status prior to the
transaction or event (or the first in a series of transactions
and/or events aggregated as a single transaction or event
pursuant to this paragraph) that would have constituted a Change
in Control.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Officer any right to be retained in the employ
of Company, and no rights granted under this Agreement shall be
construed as creating a contract of employment. The right and
power of Company to dismiss or discharge Officer at will is
expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested postage prepaid addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Officer:
Last known address shown on records of Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than any Executive Severance Agreement between RightCHOICE and
Executive dated January __, 1997 or later) relating to the
subject matter of this Agreement, written or oral, between the
parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented
in any manner whatsoever except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Officer, but it may be assigned by Company, without
notice to or consent of Officer, to any assignee provided such
assignee agrees to abide by and be bound by the provisions of the
Agreement and the Agreement shall thereafter be enforceable by
such assignee. During Officer's lifetime, the Agreement and all
rights and obligations of Officer hereunder shall be enforceable
by and binding upon Officer's guardian or other legal
representative in the event Officer is unable to act on his own
behalf for any reason whatsoever, and, upon Officer's death, the
Agreement and all rights and obligations of Officer hereunder
shall inure to the benefit of and be enforceable by and binding
upon Officer's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Officer by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Officer has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Officer has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ John A. O'Rourke
Title: President and CEO
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires:
August 29, 1999
OFFICER
/s/ Sandra Van Trease
(Signature)
Sandra Van Trease
(Print Name)
Subscribed and sworn to before me, a Notary Public, this 15th
day of January, 1998.
/s/ Michelle L. Toenjes
Notary Public
My Commission Expires:
August 29, 1999
EXHIBIT A
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer Sandra Van Trease
Original Date of Agreement 1/1/98
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Virgil Van Trease Spouse 1721 Kenmont Rd.
St. Louis, MO 63124
Date 1/15/98 Officer's Signature /s/ Sandra Van Trease
Receipt acknowledged on behalf of Company.
Date RIGHTCHOICE MANAGED CARE, INC.
By /s/ John A. O'Rourke
EXHIBIT B
SEVERANCE BENEFITS
The multiple of Officer's Base Pay which is specified for
purposes of Section 3(A)(i) of this Agreement is Three. If the
benefit determined by application of such multiple becomes
payable to Officer, such benefit shall be payable in thirty six
substantially equal monthly installments, as provided in
this Agreement.
EXHIBIT C
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.51
OFFICER SEVERANCE AGREEMENT
THIS OFFICER SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the 29th day of January, 1997, by and
between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and Herbert B. Schneiderman (the "Officer").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Officer as
an "at-will" employee of RightCHOICE; and
WHEREAS, as a condition of Officer's employment, Officer
agrees to be bound by certain covenants set forth herein and
RightCHOICE agrees to provide Officer certain severance benefits
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, RightCHOICE
and Officer do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the day first written
above and shall continue in effect until terminated in accordance
with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall mean any corporation or
other legal entity (other than Company) that is part of a group
of corporations and/or other legal entities under common control,
which group includes the Company and in which group each
corporation (or other legal entity) is deemed to be under common
control with the others if:
(i) it is in an unbroken chain of organizations
each of which is connected to a common parent corporation
(or other legal entity) by having at least 50% (based on
voting power) of its outstanding stock or other outstanding
equity ownership interest owned directly or indirectly by
that common parent corporation (or other legal entity); or
(ii) its board of directors (or, in the case of an
entity other than a corporation, other management authority
which, under the terms of its organizational documents,
serves a similar policy setting and governance function),
pursuant to the terms of a formal written agreement, is
subject to the direction or oversight by a person that is
not an Affiliate, such oversight includes setting policy
and/or governance of operations;
provided, however, that no corporation or entity shall be
considered an Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, L.C. and provided
further that no person or entity that is regularly in the
business of lending money shall be deemed to be an Affiliate
solely because, under the terms of an agreement executed in
connection with extending financing, the lender has the right to
enforce covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement. For purposes of clarity only (and without
limiting the generality of the foregoing definition), it is noted
that the common parent corporation referred to in the foregoing
definition qualifies as an Affiliate.
B. Base Pay. "Base Pay" shall mean the dollar amount
equal to the highest annual base salary rate applicable to
Officer during the two (2) years immediately prior to Officer's
Date of Termination.
C. Cause. "Cause" shall mean any one or more of the
following:
(i) Company's becoming aware of, or being
notified of, Officer's conviction of, or Officer's entry of
a guilty plea to, a felony or any other crime involving
moral turpitude by or before a court of competent
jurisdiction;
(ii) gross failure by Officer to perform
Officer's expected duties with Company (other than any such
failure resulting from Officer's incapacity due to physical
or mental illness or any such actual or anticipated failure
occurring after, and not before, the issuance of a Notice of
Termination by Officer for Proper Reason which is not
thereafter successfully disputed by Company) which gross
failure occurs or continues after: (a) the Company delivers
to Officer a written demand for substantial performance that
specifically identifies the expected duties of Officer, the
manner in which Company believes that Officer has not
substantially performed Officer's duties, and the time by
which Officer must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by Officer to perform
such duties has occurred, and (b) the Officer has failed to
demonstrate that he is performing or has resumed performance
of the duties specified in such notice by the time specified
in such notice;
(iii) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines is likely to be materially damaging or
detrimental to Company or to an Affiliate; or
(iv) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines constitutes a material violation by
Officer of the Employee Statement.
D. Code. "Code" shall mean the Internal Revenue Code of
1986 as from time to time amended.
E. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Officer and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Officer and
becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
F. Date of Termination. "Date of Termination" shall mean
the effective date of Officer's termination of employment with
Company. If Officer delivers a Notice of Termination hereunder
to Company, then the Date of Termination shall be thirty (30)
days following the date such Notice of Termination is delivered
or mailed to Company in accordance with Section 6(B) hereof;
provided, however, that in such event Company shall have the
right to accelerate such Date of Termination by written notice of
such acceleration delivered or mailed to Officer in accordance
with Section 6(B) hereof. If Company delivers or mails a Notice
of Termination hereunder to Officer in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
G. Designated Beneficiary. "Designated Beneficiary" shall
mean one or more individuals or legal entities designated by
Officer on Exhibit A to this Agreement, but if there is no such
effective beneficiary designation at the time of Officer's death,
then Designated Beneficiary shall mean the legal representative
of Officer's estate. Exhibit A to this Agreement may be revoked
by Officer at any time by written instrument delivered to
Company, in which event a new Exhibit A may be completed and
executed by Officer and shall be effective upon receipt by
Company prior to the date of Officer's death.
H. Disabled. "Disabled" shall mean Officer is receiving,
or is currently entitled to receive pursuant to a determination
made by the Company, benefits under Company's long-term
disability plan, if any.
I. Employee Statement. "Employee Statement" shall mean
the Company's Code of Business Conduct, or, with respect to any
periods during which such Code of Business Conduct is not
applicable, any predecessor or successor thereto, or any other
set of rules and guidelines serving a similar purpose that may
become applicable, as each may be amended from time to time.
J. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Officer's employment by action of
Company for any reason other than Cause; provided, however, that
the termination of Officer's employment by Company shall not be
an Involuntary Termination if immediately following such
termination of employment Officer is employed by another employer
that is to abide by the provisions of this Agreement as described
in Section 2(E) hereof.
K. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Officer to Company advising
Company of Officer's decision to terminate Officer's
employment; or
(ii) a notice from Company to Officer
advising Officer of Company's decision to terminate
Officer's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Officer to Company and if Officer believes such
termination is a Proper Reason Termination, then such Notice of
Termination shall specify that such termination is a Proper
Reason Termination, the event(s) which Officer believes
constitute Proper Reason and the facts and circumstances
supporting such belief of Officer. If a Notice of Termination is
from Company to Officer and if Company believes such termination
is for Cause, then such Notice of Termination shall specify that
such termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
L. Proper Reason. "Proper Reason" shall mean (i) the
reduction of Officer's normal base salary rate by twenty percent
(20%) or more, or (ii) a change in a short-term or long-term
incentive formula (e.g., a change in the percentage of base
salary to be awarded at target level of achievement) which
directly results in a reduction of twenty percent (20%) or more
in the overall target compensation which applies to Officer in a
given period compared to the overall target compensation which
would have applied to Officer during that period without such
change in bonus formula, or (iii) a change in Officer's primary
work location of more than seventy-five (75) miles from the
Officer's former primary work location; provided, however, that
no base salary rate reduction or bonus formula change or change
in primary work location shall constitute Proper Reason if:
(i) Officer consents in writing to such reduction
or change; or
(ii) at the time of such reduction or change,
or during the three-month period prior to the effective date
of such reduction or change, there is Cause; or
(iii) such reduction or change similarly
affects all officers of Company.
M. Proper Reason Termination. "Proper Reason Termination"
shall mean Officer's termination of his employment with the
Company following the occurrence of an event constituting Proper
Reason, but only if:
(i) Officer, within sixty (60) days after being
notified of or becoming aware of, whichever is earlier, such
event, objects to such event by delivering Notice of
Termination to Company in accordance with Section 6(B)
hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(M)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Proper Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Officer terminates employment within
three (3) months after being notified of or becoming aware
of, whichever is earlier, the occurrence of the event cited
as constituting Proper Reason in the Notice of Termination.
N. Severance Benefits. "Severance Benefits" shall mean
the benefits described in Section 3(A) hereof.
SECTION 3
SEVERANCE BENEFITS
A. Severance Benefits. Subject to Sections 3(B), 3(C),
3(D) and 4(D)(ii) hereof, in the event of Officer's Involuntary
Termination or Officer's Proper Reason Termination, Company will:
(i) pay to Officer an amount equal to the
multiple of Officer's Base Pay specified in Exhibit B
hereto, payable in the number of substantially equal monthly
installments specified in Exhibit B, and commencing as soon
as practicable following the Date of Termination;
(ii) pay to Officer, for a period of twelve
(12) months starting on the Date of Termination, an amount
equal to the portion of the monthly premiums (to the extent
such premiums are due) for Officer's health, dental, vision
and life insurance that is equivalent to the portion of the
monthly premiums for such coverages that the Company pays on
behalf of similarly situated Officers employed by Company
during such twelve (12) month period; and
(iii) pay for outplacement services for
Officer of the type customarily provided by Company to
officers at the time of Officer's Involuntary Termination or
Proper Reason Termination.
Company's obligation to pay the amounts specified in Section
3(A)(ii) above shall be reduced by any and all amounts Company
pays toward Officer's health, dental, vision and life insurance
with respect to periods after the Date of Termination.
B. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this Agreement
notifies the other party pursuant to Section 6(B) hereof
that one party disputes the position of the other party with
respect to any provision of this Agreement, then Company may
at any time elect to suspend some or all payments hereunder
with respect to Officer (or elect not to commence such
payments if payments have not yet commenced) until such
dispute is finally resolved either by mutual written
agreement of the parties or a binding arbitration award
pursuant to Section 6(H) hereof. If pursuant to such
resolution of the dispute, retroactive payments are to be
made to Officer or payments representing reimbursements are
to be made to Company, then unless otherwise provided under
such resolution, such payments shall bear interest at the
rate provided in Section 1274(d)(2)(B) of the Code
commencing at the time such payments would have been made
absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case
of reimbursements).
(ii) Subsequent Employment. If at any time
while Officer is entitled to Severance Benefits hereunder
Officer is employed (including employment by Company,
employment by any other employer or any form of
self-employment) then (a) Company may in its discretion at
any time following the date of commencement of such
employment, pay to Officer the aggregate remaining amounts
to be paid to Officer under Section 3(A)(i) hereof in a lump
sum; and (b) payments under Sections 3(A)(ii) and 3(A)(iii)
hereof shall cease as of the date of commencement of such
employment, but if payments under Sections 3(A)(ii) and
3(A)(iii) are made by Company subsequent to such date then
Company may withhold the amount of any such payments from
the amount otherwise to be paid pursuant to Section 3(A)(i)
hereof, and Officer shall pay to Company on demand any such
excess amount not so withheld, with such excess amount to
bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing thirty (30) days after such demand.
(iii) Disability. If Officer is Disabled
during any period while Officer is entitled to Severance
Benefits hereunder, then during any such period that Officer
is Disabled, any amounts payable under Section 3(A)(i)
hereof during such period shall be reduced (but not to less
than zero) by the amounts paid or to be paid with respect to
such period to Officer pursuant to any long-term disability
plan maintained by Company.
(iv) Death. If Officer dies during any
period while Officer is entitled to Severance Benefits
hereunder, then a lump sum amount equal to the total
remaining amounts payable to Officer at the time of
Officer's death under Section 3(A)(i) hereof shall be paid
to Officer's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Officer's death
to any beneficiary other than Company under any Company life
insurance program.
(v) Criminal Charges. If at any time after
Severance Benefits become payable hereunder and prior to the
completion of the payment of such benefits Officer is
charged with a felony, or other crime involving moral
turpitude, which crime relates to activities of Officer
occurring during the period Officer was employed by Company
or its predecessor(s) under this Agreement, then Company may
suspend such payments until such criminal charge is
resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section (3)(B)(v)
after such criminal charge is resolved; provided, however,
that such payments shall cease and no further payments shall
be made at any time Officer is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
C. Code Limitations. In the event that the aggregate of
any amounts payable to or on behalf of Officer under the
Agreement and under any other plan, agreement or policy of
Company or any Affiliate would otherwise result in the imposition
of tax under Section 4999 of the Code due to an excess parachute
payment, as determined by Company's independent auditors, then
the amounts payable to or on behalf of Officer under the
Agreement shall be reduced to the extent necessary (but not below
zero) so that such aggregate amounts shall not be a parachute
payment. For purposes of determining any limitation under this
Section 3(C): (a) no portion of any benefit the receipt or
enjoyment of which Officer shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
If the Company's independent auditors determine that payment that
would be a parachute payment has been made to Officer hereunder,
then the excess of (a) the amount of such payment actually made
hereunder over (b) the amount that could be paid hereunder
without any amount payable hereunder being a parachute payment,
shall constitute a loan by Company to Officer, payable to Company
upon demand with interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing as of the date or dates of
payment by Company of such excess amount.
D. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Officer acknowledges
that in addition to other conditions set forth in the Agreement,
Severance Benefits shall be conditioned upon the prior execution
by Officer of a general waiver and release (hereinafter "Waiver")
as described in this Section 3(D), and Officer shall not be
eligible for Severance Benefits unless and until Officer has
executed the Waiver within ninety (90) days following Officer's
termination of employment.. The Waiver shall be substantially in
the form attached hereto as Exhibit C and shall generally waive
all claims Officer has or may have against Company, any
Affiliate, and any successors or predecessors thereto, and shall
release Company and all Affiliates, and any successors and
predecessors thereto, from all liability with respect to any such
claims; provided, however, that Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of this Section 3(D) or the
Waiver) of Officer to enforce any one or more of the provisions
of the Agreement.
SECTION 4
OFFICER'S COVENANTS
A. Employee Statement. Officer agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Officer acknowledges that
during the course of Officer's employment with Company, Officer
has or will have access to and knowledge of certain information
and data which Company considers confidential, and that the
release of such information or data to unauthorized persons could
be detrimental to Company or an Affiliate. As a consequence,
Officer hereby agrees and acknowledges that Officer owes a duty
to Company not to disclose, and agrees that, during and after the
term of Officer's employment, Officer will not communicate,
publish or disclose to any person anywhere or use any
Confidential Information (as defined below) for any purpose
except in accordance with the prior written consent of Company,
where necessary or appropriate to carry out Officer's duties as
an employee of Company, or as required by law or legal process.
Officer will use Officer's best efforts at all times to hold in
confidence and to safeguard any Confidential Information from
becoming known by any unauthorized person and, in particular,
will not permit any Confidential Information to be read,
duplicated or copied except in accordance with the prior written
consent of the Company, where necessary or appropriate to carry
out Officer's duties as an employee of the Company, or as may be
required by law or legal process. Officer will return to Company
all Confidential Information in Officer's possession or under
Officer's control when the duties of Officer as an employee of
the Company no longer require Officer's possession thereof, or
whenever Company shall so request, and in any event will promptly
return all such Confidential Information if Officer's employment
with Company terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to Company or an Affiliate which, if disclosed, could be
detrimental to Company or an Affiliate, including, but not
limited to any such information relating to Company's, or an
Affiliate's, members or insureds, trade secrets, proprietary data
and information relating to Company's, or an Affiliate's past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Officer is Confidential
Information.
C. Covenant Not to Compete.
(i) Officer agrees that during the term of
Officer's employment by Company and for a period consisting
of the greater of: (a) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (b) one year from and
after the termination of Officer's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), Officer
will not directly or indirectly, without the express prior
written consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Officer in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate; or
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Officer, any current employee of Company as
of the time of such hire or attempt to solicit to hire
or former employee of Company who has been employed by
Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to Officer's obligations
under this Section 4(C), Officer acknowledges that Company's
geographic market is: (a) the State of Missouri; and (b) a
seventy-five (75) mile radius surrounding each of St. Louis,
Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Officer acknowledges that Officer's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent the Officer from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Officer contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if, after written notice of breach
delivered or mailed to Officer in accordance with Section
6(B) hereof Officer takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Officer), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Officer, and each and every person, firm or company acting
in concert or participation with Officer, from the
continuation of such breach and, in addition thereto,
Officer shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Officer, Company shall no longer be obligated
to pay any benefits to Officer under this Agreement.
(iii) The covenants and obligations of Officer
under this Section 4 are each independent covenants and are
in addition to and not in lieu of or exclusive of any other
obligations and duties of Officer to the Company, whether
express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
A. Termination and Amendment Procedures. Company may
terminate this Agreement effective as of any date by giving
Officer, in accordance with Section 6(B) hereof, at least one
hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Officer's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Officer incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Officer's obligations under Sections
4(A) and (B) of this Agreement. Company and Officer may amend
this Agreement at any time by written instrument signed by
Company and Officer.
B. Definition of Change in Control. For purposes of this
Section 5, "Change in Control" shall mean the occurrence, while
Officer is employed by Company and this Agreement is in effect,
of any one or more of the following events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 5(B)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
For purposes of this Section 5(B), "Parent" shall mean any entity
owning, directly or indirectly, fifty percent (50%) or more
(based on voting power) of the Company's outstanding stock or
other equity ownership interests. In the event that no single
transaction or event has occurred that qualifies as a Change in
Control under the foregoing definition, in determining whether a
Change in Control has occurred, a series of transactions and/or
events may be considered to be a single transaction or event;
provided, however, that elections occurring during no more than
eighteen (18) months shall be aggregated for purposes of
determining whether a series of transactions or events qualifies
as a Change in Control under Section 5(B)(v) or 5(B)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
Officer elects. Any person or entity that is regularly in the
business of lending money may, under the terms of an agreement
executed in connection with extending financing, be granted the
right to enforce covenants requiring certain financial ratios or
business practices to be maintained, so long as such requirements
are typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control related to (iv)
above being deemed to have occured. For purposes of this
definition only, no entity shall be considered a Parent or an
Affiliate unless such entity had that status prior to the
transaction or event (or the first in a series of transactions
and/or events aggregated as a single transaction or event
pursuant to this paragraph) that would have constituted a Change
in Control.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Officer any right to be retained in the employ
of Company, and no rights granted under this Agreement shall be
construed as creating a contract of employment. The right and
power of Company to dismiss or discharge Officer at will is
expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested postage prepaid addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Officer:
Last known address shown on records of Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than any Executive Severance Agreement between RightCHOICE and
Executive dated January __, 1997 or later) relating to the
subject matter of this Agreement, written or oral, between the
parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented
in any manner whatsoever except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Officer, but it may be assigned by Company, without
notice to or consent of Officer, to any assignee provided such
assignee agrees to abide by and be bound by the provisions of the
Agreement and the Agreement shall thereafter be enforceable by
such assignee. During Officer's lifetime, the Agreement and all
rights and obligations of Officer hereunder shall be enforceable
by and binding upon Officer's guardian or other legal
representative in the event Officer is unable to act on his own
behalf for any reason whatsoever, and, upon Officer's death, the
Agreement and all rights and obligations of Officer hereunder
shall inure to the benefit of and be enforceable by and binding
upon Officer's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Officer by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Officer has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Officer has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Edward J. Tenholder
Title: Senior Vice President
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1997.
/s/ Marilyn L. Geile
Notary Public
My Commission Expires:
December 11, 1997
OFFICER
/s/ Herbert B. Schneiderman
(Signature)
Herbert B. Schneiderman
(Print Name)
Subscribed and sworn to before me, a Notary Public, this 29th
day of January, 1997.
/s/ Marilyn L. Geile
Notary Public
My Commission Expires:
December 11, 1997
EXHIBIT A
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer Herbert B. Schneiderman
Original Date of Agreement January 29, 1997
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Eilene Sue Schneiderman Spouse 491 Whitree Lane
and the successor Chesterfield, MO 63017
co-trustee U/T/I dated
12/11/93 F/B/O
Herbert B. Schneiderman
Date 1/29/97 Officer's Signature /s/ Herbert B. Schneiderman
Receipt acknowledged on behalf of Company.
Date 1/29/97 RIGHTCHOICE MANAGED CARE, INC.
By /s/ Edward J. Tenholder
EXHIBIT B
SEVERANCE BENEFITS
The multiple of Officer's Base Pay which is specified for
purposes of Section 3(A)(i) of this Agreement is Two (2). If the
benefit determined by application of such multiple becomes
payable to Officer, such benefit shall be payable in 24
substantially equal monthly installments, as provided in
this Agreement.
EXHIBIT C
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
Exhibit 10.52
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the day of
, 19__, by and between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and
(the "Executive").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Executive
as an "at-will" employee of RightCHOICE; and
WHEREAS, RightCHOICE and Executive have entered into an
Officer Severance Agreement dated _____________, 199__ (the
"Officer Agreement") under which, as a condition of Executive's
employment, Executive has agreed to be bound by certain covenants
set forth in the Officer Agreement and RightCHOICE has agreed to
provide Executive certain severance benefits upon the terms and
conditions set forth in the Officer Agreement;
WHEREAS, the Compensation Committee of RightCHOICE's Board
of Directors believes that the concerns applicable to senior
executives when certain corporate events occur are such that, in
order to facilitate senior executives' focusing on management
issues in a manner that best serves the interests of all
stakeholders, such executives of RightCHOICE should have the
protections set forth herein in the event that a Change in
Control, as defined herein, occurs;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, the parties
hereto do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the date first
written above and shall continue in effect until terminated in
accordance with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall have the same meaning as
it is given in the Officer Agreement.
B. Annual Compensation. "Annual Compensation" shall mean
the highest aggregate amount of the following items of
compensation paid in cash (or which would have been paid in cash
if they were not deferred pursuant to any qualified or
nonqualified deferred compensation arrangement or contributed to
a welfare benefit plan pursuant to an election under a cafeteria
plan) to Executive by the Company during a calendar year which is
in the most recent five-consecutive-calendar-year period (or such
shorter period of consecutive calendar years during which
Executive has been employed by the Company) ending on or before
the date of a Change in Control:
(i) base salary; and
(ii) payments under any of the following incentive
programs:
* Supplemental Income Plan;
* Short Term Public Offering Bonus;
* Management Incentive Plan (MIP);
* ABCBS Incentive Plan (AIP);
* Long Term Incentive Program;
* Sign-On Bonus;
* Equity 2000;
* Cost Reduction Incentive Plan;
* Sales Incentive Plan; and
* payments under any other incentive programs to the
extent that the Compensation Committee of the RightCHOICE
Managed Care, Inc. Board of Directors specifically approves
payments under such incentive programs for inclusion in Annual
Compensation for purposes of this Agreement.
For purposes of clarity and without limiting the generality of
the foregoing definition, no amounts paid to Executive pursuant
to any qualified or nonqualified deferred compensation
arrangement, any cafeteria plan or any other benefit plan qualify
for inclusion in Annual Compensation, regardless of the source of
any such amounts and no award of stock options, restricted stock
or other rights under the Equity Incentive Plan, nor any amounts
received or income recognized in connection with receipt of any
such award or exercise of any rights under any such award, shall
be included in Annual Compensation.
C. Base Pay. "Base Pay" shall have the same meaning as
that term is given under the Officer Agreement.
D. Cause. "Cause" shall have the same meaning as that
term is given under the Officer Agreement.
E. Change in Control. "Change in Control" shall mean the
occurrence, while Executive is employed by Company and this
Agreement is in effect, of any one or more of the following
events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 2(E)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
In the event that no single transaction or event has occurred
that qualifies as a Change in Control under the foregoing
definition, in determining whether a Change in Control has
occurred, a series of transactions and/or events may be
considered to be a single transaction or event; provided,
however, that elections occurring during no more than eighteen
(18) months shall be aggregated for purposes of determining
whether a series of transactions or events qualifies as a Change
in Control under Section 2(E)(v) or 2(E)(vi). If a series of
transactions and/or events is deemed to constitute a single
transaction or event constituting a Change in Control under the
preceding sentence, such Change in Control will be deemed to
occur on the date of completion of the last transaction or event
included in the series of transactions and/or events constituting
such Change in Control or such earlier date after the beginning
of such series or transactions and/or events as Executive elects.
Any person or entity that is regularly in the business of lending
money may, under the terms of an agreement executed in connection
with extending financing, be granted the right to enforce
covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control being deemed to
have occured. For purposes of this definition only, no entity
shall be considered a Parent or an Affiliate unless such entity
had that status prior to the transaction or event (or the first
in a series of transactions and/or events aggregated as a single
transaction or event pursuant to this paragraph) that would have
constituted a Change in Control.
F. Code. "Code" shall have the same meaning as that term
is given under the Officer Agreement.
G. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Executive and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Executive
and becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
H. Date of Termination. "Date of Termination" shall mean
the effective date of Executive's termination of employment. If
Executive delivers a Notice of Termination hereunder to Company,
then the Date of Termination shall be thirty (30) days following
the date such Notice of Termination is delivered or mailed to
Company in accordance with Section 6(B) hereof; provided,
however, that in such event Company shall have the right to
accelerate such Date of Termination by written notice of such
acceleration delivered or mailed to Executive in accordance with
Section 6(B) hereof. If Company delivers or mails a Notice of
Termination hereunder to Executive in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
I. Designated Beneficiary. "Designated Beneficiary" shall
mean the beneficiary designated by Executive in accordance with
the Officer Agreement.
J. Disabled. "Disabled" shall have the same meaning as
that term is given under the Officer Agreement.
K. Employee Statement. "Employee Statement" shall have
the same meaning as that term is given under the Officer
Agreement.
L. Executive Severance Benefits. "Executive Severance
Benefits" shall mean the benefits described in Section 3(B)
hereof.
M. Good Reason. "Good Reason" shall mean the occurrence,
without the written consent of Executive and within twenty-four
(24) months following a Change in Control, of any one or more of
the following events (provided, however, that none of the
following events shall constitute Good Reason if at the time of
the occurrence of such event, or during the three-month period
prior to such occurrence, there is Cause):
(i) the assignment to Executive of any
duties or responsibilities inconsistent with
Executive's status as a senior executive (that is, an
executive holding the position of Senior Vice President
or above) of Company or a substantial adverse
alteration in the nature or status of Executive's
responsibilities, job title or position from those in
effect immediately prior to the Change in Control;
(ii) a reduction by Company in the annual
base salary that was applicable to Executive
immediately prior to the Change in Control, a change to
the short-term bonus formula that was applicable to
Executive immediately prior to the Change in Control
that reduces the amount payable at target level of
performance, or a change to the long-term incentive
formula that was applicable to Executive immediately
prior to the Change in Control that reduces the stock
options (or other award) at target level of
performance;
(iii) the relocation of Executive's
principal place of performing his duties as an employee
of the Company to a location in excess of seventy-five
(75) miles from the location that was, immediately
prior to the Change in Control, Executive's principal
place of performing his duties as an employee of
Company;
(iv) a material reduction in the
benefits and perquisites provided to Executive by
Company or which Executive was eligible to receive from
Company immediately prior to the Change in Control; or
(v) Company's terminating the Agreement in
violation of Section 5 hereof.
N. Good Reason Termination. "Good Reason Termination"
shall mean Executive's terminating employment with the Company
following the occurrence of an event constituting Good Reason,
but only if:
(i) Executive, within sixty (60) days after being
notified of or becoming aware of such event, objects to such
event by delivering Notice of Termination to Company in
accordance with Section 6(B) hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(N)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Good Reason within ten
(10) days after receiving such Notice of Termination; and
(iii) Executive terminates employment within
three (3) months after being notified of or becoming aware
of the occurrence of the event cited as constituting Good
Reason in the Notice of Termination.
O. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Executive's employment by action of
Company within twenty-four (24) months following a Change in
Control for any reason other than Cause; provided, however, that
the termination of Executive's employment by Company shall not be
an Involuntary Termination if, immediately following such
termination of employment, Executive is employed by another
employer that is to abide by the provisions of this Agreement as
described in Section 2(G) hereof.
P. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Executive to Company advising
Company of Executive's decision to terminate Executive's
employment; or
(ii) a notice from Company to Executive
advising Executive of Company's decision to terminate
Executive's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Executive to Company and if Executive believes such
termination is for Good Reason, then such Notice of Termination
shall specify that such termination is a termination for Good
Reason, the event(s) which Executive believes constitute Good
Reason and the facts and circumstances supporting such belief of
Executive. If a Notice of Termination is from Company to
Executive and if Company believes such termination is for Cause,
then such Notice of Termination shall specify that such
termination is for Cause and shall set forth in reasonable detail
the facts and circumstances supporting such belief of Company.
Q. Parent. "Parent" shall mean any entity owning,
directly or indirectly, fifty percent (50%) or more (based on
voting power) of the Company's outstanding stock or other equity
ownership interests.
R. Standard Severance Benefits. "Standard Severance
Benefits" shall mean the benefits described in Section 3(A) of
the Officer Agreement.
SECTION 3
SEVERANCE BENEFITS
A. Standard Severance Benefits. No benefits shall be
payable to Executive under this Agreement unless and until all
conditions specified herein are met, including, without
limitation, the occurrence of a Change in Control with the
necessary subsequent effect on Executive's employment. Prior to
the occurrence of a Change in Control, any severance benefits due
to Executive upon termination of employment with Company will be
determined solely under the Officer Agreement. Executive agrees
that, if at any time Executive qualifies for benefits under this
Agreement, the Officer Agreement will terminate automatically and
the terms of the Officer Agreement will be given no further
effect whatsoever (except to the extent such terms are
incorporated herein or items in this Agreement are determined
with reference to such terms), Executive will have no rights
whatsoever arising under or in connection with the Officer
Agreement, no payment of any benefits provided for in the Officer
Agreement will be made to Executive and this Agreement will
constitute the sole and exclusive authority for payment of
severance benefits to Executive. Regardless of anything to the
contrary in the preceding sentence, if at any time Executive
begins receiving Standard Severance Benefits, this Agreement will
terminate automatically and its terms will be given no further
effect whatsoever, Executive will have no rights whatsoever
arising under or in connection with this Agreement, no payment of
any benefits provided for herein will be made to Executive and
the Officer Agreement will constitute the sole and exclusive
authority of payment of severance benefits to Executive.
B. Executive Severance Benefits. Subject to Sections
3(C), 3(D), 3(E) and 4(D)(ii) hereof, in the event of Executive's
Involuntary Termination or Good Reason Termination, Company shall
pay for outplacement services for Executive of the type
customarily provided by Company to senior execuitves at the time
of Executive's Involuntary Termination or Good Reason Termination
and shall pay Executive an amount equal to the greater of:
(i) two (2) times Executive's Annual
Compensation; or
(ii) an amount equal to:
(a) three (3) times Executive's Base Pay
plus,
(b) for a period of twelve (12) months
starting on the Date of Termination, an amount
equal to the portion of the premiums (to the
extent such premiums are due) for Executive's
health, dental, vision and life insurance that is
equivalent to the portion of the premiums for such
coverages that the Company pays on behalf of
similarly situated executives employed by Company
during such twelve (12) month period.
Such Executive Severance Benefits will commence as soon as
practicable following the Date of Termination, and will be paid
in twenty-four (24) substantially equal monthly installments, in
the case of Executive Severance Benefits under Section 3(B)(i)
above, or in thirty-six (36) monthly installments, in the case of
Executive Severance Benefits under Section 3(B)(ii) above, with
the first 12 such installments equaling 1/36th of the amount
determined under Section 3(B)(ii)(a) plus 1/12th of the amount
determined under Section 3(B)(ii)(b) above and the remaining such
installments equaling 1/36th of the amount determined under
Section 3(B)(ii)(a). Company's obligation to pay the amounts
specified in Section 3(B)(ii)(b) above shall be reduced by any
and all amounts Company pays toward Executive's health, dental,
vision and life insurance with respect to periods after the Date
of Termination.
C. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this
Agreement notifies the other party pursuant to Section 6(B)
hereof that one party disputes the position of the other
party with respect to any provision of this Agreement, then
Company may at any time elect to suspend some or all
payments hereunder with respect to Executive (or elect not
to commence such payments if payments have not yet
commenced) until such dispute is finally resolved either by
mutual written agreement of the parties or a binding
arbitration award pursuant to Section 6(H) hereof. If
pursuant to such resolution of the dispute, retroactive
payments are to be made to Executive or payments
representing reimbursements are to be made to Company, then
unless otherwise provided under such resolution, such
payments shall bear interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing at the time such
payments would have been made absent dispute (in the case of
retroactive payments) or commencing at the time such
payments were made (in the case of reimbursements).
(ii) Subsequent Employment. If at any time
while Executive is entitled to Executive Severance Benefits
hereunder, Executive is employed (including employment by
the Company or an Affiliate, employment by any other
employer or any form of self-employment) then (a) Company
may in its discretion at any time following the date of
commencement of such employment, pay to Executive the
aggregate remaining amounts to be paid to Executive under
Section 3(B)(i) or 3(B)(ii)(a) hereof in a lump sum; and (b)
payments for outplacement services and payments under
Section 3(B)(ii)(b) hereof shall cease as of the date of
commencement of such employment, but if payments for
outplacement services and/or under Section 3(B)(ii)(b) are
made by Company subsequent to such date then Company may
withhold the amount of any such payments from the amount
otherwise to be paid pursuant to Section 3(B)(ii)(a) hereof,
and Executive shall pay to Company on demand any such excess
amount not so withheld, with such excess amount to bear
interest at the rate provided in Section 1274(d)(2)(B) of
the Code commencing thirty (30) days after such demand.
(iii) Disability. If Executive is Disabled
during any period while Executive is entitled to Executive
Severance Benefits hereunder, then, during any such period
that Executive is Disabled, any amounts payable under
Section 3(B) hereof during such period shall be reduced (but
not to less than zero) by the amounts paid or to be paid
with respect to such period to Executive pursuant to any
long-term disability plan maintained by Company.
(iv) Death. If Executive dies during any
period while Executive is entitled to Executive Severance
Benefits hereunder, then a lump sum amount equal to the
total remaining amounts payable to Executive at the time of
Executive's death under Section 3(B) hereof shall be paid to
Executive's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Executive's death
to any beneficiary designated by Executive other than
Company under any Company life insurance program.
(v) Criminal Charges. If at any time after
Executive Severance Benefits become payable hereunder and
prior to the completion of the payment of such benefits
Executive is charged with a felony, or other crime involving
moral turpitude, which crime relates to activities of
Executive occurring during the period Executive was employed
by Company or its predecessor(s) under this Agreement, then
Company may suspend such payments until such criminal charge
is resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section 3(C)(v) after
such criminal charge is resolved; provided, however, that
such payments shall cease and no further payments shall be
made at any time Executive is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
D. Limitations on Benefits.
(i) Code Limitations. In the event that the
aggregate of any amounts payable to or on behalf of
Executive under the Agreement and under any other plan,
agreement or policy of Company or any Affiliate would
otherwise result in the imposition of tax under Section 4999
of the Code due to an excess parachute payment, as
determined by Company's independent auditors, then the
amounts payable to or on behalf of Executive under the
Agreement shall be reduced to the extent necessary (but not
below zero) so that such aggregate amounts shall not be a
parachute payment. For purposes of determining any
limitation under this Section 3(D)(ii): (a) no portion of
any benefit the receipt or enjoyment of which Executive
shall have effectively waived in writing shall be taken into
account, and (b) the value of any non-cash benefit or any
deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If
the Company's independent auditors determine that payment
that would be a parachute payment has been made to Executive
hereunder, then the excess of (a) the amount of such payment
actually made hereunder over (b) the amount that could be
paid hereunder without any amount payable hereunder being a
parachute payment, shall constitute a loan by Company to
Executive, payable to Company upon demand with interest at
the rate provided in Section 1274(d)(2)(B) of the Code
commencing as of the date or dates of payment by Company of
such excess amount.
E. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Executive
acknowledges that in addition to other conditions set forth in
the Agreement, Executive Severance Benefits shall be conditioned
upon the prior execution by Executive of a general waiver and
release (hereinafter referred to as "Waiver") as described in
this Section 3(E), and Executive shall not be eligible for
Executive Severance Benefits unless and until Executive has
executed the Waiver within ninety (90) days following the later
of Executive's termination of employment. The Waiver shall be
substantially in the form attached hereto as Exhibit A and shall
generally waive all claims Executive has or may have against
Company or an Affiliate, and any successors or predecessors
thereto, and shall release Company and all Affiliates, and any
successors and predecessors thereto, from all liability with
respect to any such claims; provided, however, that Executive
shall not waive, and there shall be no release with respect to,
any claim (other than a claim disputing the validity of this
Section 3(E) or the Waiver) of Executive to enforce any one or
more of the provisions of the Agreement.
SECTION 4
EXECUTIVE'S COVENANTS
A. Employee Statement. Executive agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Executive acknowledges that
during the course of Executive's employment with Company,
Executive has or will have access to and knowledge of certain
information and data which Company considers confidential, and
that the release of such information or data to unauthorized
persons could be detrimental to Company or an Affiliate. As a
consequence, Executive hereby agrees and acknowledges that
Executive owes a duty to Company not to disclose, and agrees
that, during and after the term of Executive's employment,
Executive will not communicate, publish or disclose to any person
anywhere or use any Confidential Information (as defined below)
for any purpose except in accordance with the prior written
consent of Company, where necessary or appropriate to carry out
Executive's duties as an employee of Company, or as required by
law or legal process. Executive will use Executive's best efforts
at all times to hold in confidence and to safeguard any
Confidential Information from becoming known by any unauthorized
person and, in particular, will not permit any Confidential
Information to be read, duplicated or copied except in accordance
with the prior written consent of the Company, where necessary or
appropriate to carry out Executive's duties as an employee of
Company, or as may be required by law or legal process. Executive
will return to Company all Confidential Information in
Executive's possession or under Executive's control when the
duties of Executive as an employee of the Company no longer
require Executive's possession thereof, or whenever Company shall
so request, and, in any event, will promptly return all such
Confidential Information if Executive's employment with Company
terminates and will not retain any copies thereof. For the
purpose of this Agreement, "Confidential Information" shall mean
any information or data used by or belonging or relating to
Company or an Affiliate which, if disclosed, could be detrimental
to Company or an Affiliate, including, but not limited to, any
such information relating to Company's, or an Affiliate's,
members or insureds, trade secrets, proprietary data and
information relating to Company's, or an Affiliate's, past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Executive is
Confidential Information.
C. Covenant Not to Compete.
(i) Executive agrees that during the term of
Executive s employment by Company and for a period
consisting of the greater of: (i) the period over which any
Executive Severance Benefits are to be paid under this
Agreement (whether or not payment is accelerated hereunder),
or (ii) one year from and after the termination of
Executive's employment (such term of employment and
applicable subsequent period are referred to collectively
herein as the "Noncompetition Period"), Executive will not
directly or indirectly, without the express prior written
consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Executive in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate;
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Executive, any current employee of Company
as of the time of such hire or attempt to solicit to
hire or former employee of Company who has been
employed by Company within the twelve-month period
immediately preceding the date of such hire or attempt
to solicit to hire.
(ii) With respect to Executive's obligations
under this Section 4(C), Executive acknowledges that
Company's geographic market is: (a) the State of Missouri;
and (b) a seventy-five (75) mile radius surrounding each of
St. Louis, Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Executive acknowledges that Executive's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent Executive from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Executive contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if after written notice of breach
delivered or mailed to Executive in accordance with Section
6(B) hereof Executive takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Executive), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Executive, and each and every person, firm or company acting
in concert or participation with Executive, from the
continuation of such breach and, in addition thereto,
Executive shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Executive Company shall no longer be obligated
to pay any benefits to Executive under this Agreement.
(iii) The covenants and obligations of
Executive under this Section 4 are each independent
covenants and are in addition to and not in lieu of or
exclusive of any other obligations and duties of Executive
to the Company, whether express or implied in fact or in
law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
Company may terminate this Agreement effective as of any
date by giving Executive, in accordance with Section 6(B) hereof,
at least one hundred eighty (180) days' prior written notice of
such termination of this Agreement, specifying the effective date
of such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Executive's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Executive incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Executive's obligations under Sections
4(A) and (B) of this Agreement. Company and Executive may amend
this Agreement at any time by written instrument signed by
Company and Executive.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Executive any right to be retained in the
employ of Company, and no rights granted under this Agreement
shall be construed as creating a contract of employment. The
right and power of Company to dismiss or discharge Executive "at
will" is expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Executive:
Last known address shown on records of
Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than the Officer Agreement) relating to the subject matter of
this Agreement, written or oral, between the parties hereto and
contains the entire understanding of the parties hereto and shall
not be amended, modified or supplemented in any manner whatsoever
except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Executive, but it may be assigned by Company,
without notice to or consent of Executive, to any assignee
provided such assignee agrees to abide by and be bound by the
provisions of the Agreement and the Agreement shall thereafter be
enforceable by such assignee. During Executive's lifetime the
Agreement and all rights and obligations of Executive hereunder
shall be enforceable by and binding upon Executive's guardian or
other legal representative in the event Executive is unable to
act on his own behalf for any reason whatsoever, and upon
Executive's death the Agreement and all rights and obligations of
Executive hereunder shall inure to the benefit of and be
enforceable by and binding upon Executive's Designated
Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect; provided, however, that,
regardless of anything to the contrary in the rules of the
American Arbitration Association, the arbitrator shall have
authority to review all findings of fact, determinations of
benefits and interpretations of this Agreement made by the
Company and to overturn same, and substitute a different finding
of fact, determination of benefits or interpretation of this
Agreement therefor, if the arbitrator determines, based on the
record in such arbitration and such other factors as he
determines are relevant, that he would have made a different
finding of fact, determination of benefits or interpretation of
this Agreement than the Company made in any particular instance.
Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Executive by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Executive
has previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Executive has hereunto set his hand,
on the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By
Title
Subscribed and sworn to before me, a Notary Public, this
day of , 1996.
Notary Public
My Commission Expires:
Executive
Subscribed and sworn to before me, a Notary Public, this
day of , 199_.
Notary Public
My Commission Expires:
EXHIBIT A
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
List of Senior Vice Presidents who have executed executive severance agreements:
Stuart K. Campbell Senior VP, Client Services
Mike Fulk Senior VP, Sales and Marketing
Connie L. Van Fleet Senior VP and Chief Information Officer
Exhibit 10.53
OFFICER SEVERANCE AGREEMENT
THIS OFFICER SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the day of
, 19__, by and between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and (the "Officer").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Officer as
an "at-will" employee of RightCHOICE; and
WHEREAS, as a condition of Officer's employment, Officer
agrees to be bound by certain covenants set forth herein and
RightCHOICE agrees to provide Officer certain severance benefits
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, RightCHOICE
and Officer do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the day first written
above and shall continue in effect until terminated in accordance
with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall mean any corporation or
other legal entity (other than Company) that is part of a group
of corporations and/or other legal entities under common control,
which group includes the Company and in which group each
corporation (or other legal entity) is deemed to be under common
control with the others if:
(i) it is in an unbroken chain of organizations
each of which is connected to a common parent corporation
(or other legal entity) by having at least 50% (based on
voting power) of its outstanding stock or other outstanding
equity ownership interest owned directly or indirectly by
that common parent corporation (or other legal entity); or
(ii) its board of directors (or, in the case of an
entity other than a corporation, other management authority
which, under the terms of its organizational documents,
serves a similar policy setting and governance function),
pursuant to the terms of a formal written agreement, is
subject to the direction or oversight by a person that is
not an Affiliate, such oversight includes setting policy
and/or governance of operations;
provided, however, that no corporation or entity shall be
considered an Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, L.C. and provided
further that no person or entity that is regularly in the
business of lending money shall be deemed to be an Affiliate
solely because, under the terms of an agreement executed in
connection with extending financing, the lender has the right to
enforce covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement. For purposes of clarity only (and without
limiting the generality of the foregoing definition), it is noted
that the common parent corporation referred to in the foregoing
definition qualifies as an Affiliate.
B. Base Pay. "Base Pay" shall mean the dollar amount
equal to the highest annual base salary rate applicable to
Officer during the two (2) years immediately prior to Officer's
Date of Termination.
C. Cause. "Cause" shall mean any one or more of the
following:
(i) Company's becoming aware of, or being
notified of, Officer's conviction of, or Officer's entry of
a guilty plea to, a felony or any other crime involving
moral turpitude by or before a court of competent
jurisdiction;
(ii) gross failure by Officer to perform
Officer's expected duties with Company (other than any such
failure resulting from Officer's incapacity due to physical
or mental illness or any such actual or anticipated failure
occurring after, and not before, the issuance of a Notice of
Termination by Officer for Proper Reason which is not
thereafter successfully disputed by Company) which gross
failure occurs or continues after: (a) the Company delivers
to Officer a written demand for substantial performance that
specifically identifies the expected duties of Officer, the
manner in which Company believes that Officer has not
substantially performed Officer's duties, and the time by
which Officer must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by Officer to perform
such duties has occurred, and (b) the Officer has failed to
demonstrate that he is performing or has resumed performance
of the duties specified in such notice by the time specified
in such notice;
(iii) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines is likely to be materially damaging or
detrimental to Company or to an Affiliate; or
(iv) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines constitutes a material violation by
Officer of the Employee Statement.
D. Code. "Code" shall mean the Internal Revenue Code of
1986 as from time to time amended.
E. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Officer and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Officer and
becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
F. Date of Termination. "Date of Termination" shall mean
the effective date of Officer's termination of employment with
Company. If Officer delivers a Notice of Termination hereunder
to Company, then the Date of Termination shall be thirty (30)
days following the date such Notice of Termination is delivered
or mailed to Company in accordance with Section 6(B) hereof;
provided, however, that in such event Company shall have the
right to accelerate such Date of Termination by written notice of
such acceleration delivered or mailed to Officer in accordance
with Section 6(B) hereof. If Company delivers or mails a Notice
of Termination hereunder to Officer in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
G. Designated Beneficiary. "Designated Beneficiary" shall
mean one or more individuals or legal entities designated by
Officer on Exhibit A to this Agreement, but if there is no such
effective beneficiary designation at the time of Officer's death,
then Designated Beneficiary shall mean the legal representative
of Officer's estate. Exhibit A to this Agreement may be revoked
by Officer at any time by written instrument delivered to
Company, in which event a new Exhibit A may be completed and
executed by Officer and shall be effective upon receipt by
Company prior to the date of Officer's death.
H. Disabled. "Disabled" shall mean Officer is receiving,
or is currently entitled to receive pursuant to a determination
made by the Company, benefits under Company's long-term
disability plan, if any.
I. Employee Statement. "Employee Statement" shall mean
the Company's Code of Business Conduct, or, with respect to any
periods during which such Code of Business Conduct is not
applicable, any predecessor or successor thereto, or any other
set of rules and guidelines serving a similar purpose that may
become applicable, as each may be amended from time to time.
J. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Officer's employment by action of
Company for any reason other than Cause; provided, however, that
the termination of Officer's employment by Company shall not be
an Involuntary Termination if immediately following such
termination of employment Officer is employed by another employer
that is to abide by the provisions of this Agreement as described
in Section 2(E) hereof.
K. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Officer to Company advising
Company of Officer's decision to terminate Officer's
employment; or
(ii) a notice from Company to Officer
advising Officer of Company's decision to terminate
Officer's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Officer to Company and if Officer believes such
termination is a Proper Reason Termination, then such Notice of
Termination shall specify that such termination is a Proper
Reason Termination, the event(s) which Officer believes
constitute Proper Reason and the facts and circumstances
supporting such belief of Officer. If a Notice of Termination is
from Company to Officer and if Company believes such termination
is for Cause, then such Notice of Termination shall specify that
such termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
L. Proper Reason. "Proper Reason" shall mean (i) the
reduction of Officer's normal base salary rate by twenty percent
(20%) or more, or (ii) a change in a short-term or long-term
incentive formula (e.g., a change in the percentage of base
salary to be awarded at target level of achievement) which
directly results in a reduction of twenty percent (20%) or more
in the overall target compensation which applies to Officer in a
given period compared to the overall target compensation which
would have applied to Officer during that period without such
change in bonus formula, or (iii) a change in Officer's primary
work location of more than seventy-five (75) miles from the
Officer's former primary work location; provided, however, that
no base salary rate reduction or bonus formula change or change
in primary work location shall constitute Proper Reason if:
(i) Officer consents in writing to such reduction
or change; or
(ii) at the time of such reduction or change,
or during the three-month period prior to the effective date
of such reduction or change, there is Cause; or
(iii) such reduction or change similarly
affects all officers of Company.
M. Proper Reason Termination. "Proper Reason Termination"
shall mean Officer's termination of his employment with the
Company following the occurrence of an event constituting Proper
Reason, but only if:
(i) Officer, within sixty (60) days after being
notified of or becoming aware of, whichever is earlier, such
event, objects to such event by delivering Notice of
Termination to Company in accordance with Section 6(B)
hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(M)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Proper Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Officer terminates employment within
three (3) months after being notified of or becoming aware
of, whichever is earlier, the occurrence of the event cited
as constituting Proper Reason in the Notice of Termination.
N. Severance Benefits. "Severance Benefits" shall mean
the benefits described in Section 3(A) hereof.
SECTION 3
SEVERANCE BENEFITS
A. Severance Benefits. Subject to Sections 3(B), 3(C),
3(D) and 4(D)(ii) hereof, in the event of Officer's Involuntary
Termination or Officer's Proper Reason Termination, Company will:
(i) pay to Officer an amount equal to the
multiple of Officer's Base Pay specified in Exhibit B
hereto, payable in the number of substantially equal monthly
installments specified in Exhibit B, and commencing as soon
as practicable following the Date of Termination;
(ii) pay to Officer, for a period of twelve
(12) months starting on the Date of Termination, an amount
equal to the portion of the monthly premiums (to the extent
such premiums are due) for Officer's health, dental, vision
and life insurance that is equivalent to the portion of the
monthly premiums for such coverages that the Company pays on
behalf of similarly situated Officers employed by Company
during such twelve (12) month period; and
(iii) pay for outplacement services for
Officer of the type customarily provided by Company to
officers at the time of Officer's Involuntary Termination or
Proper Reason Termination.
Company's obligation to pay the amounts specified in Section
3(A)(ii) above shall be reduced by any and all amounts Company
pays toward Officer's health, dental, vision and life insurance
with respect to periods after the Date of Termination.
B. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this Agreement
notifies the other party pursuant to Section 6(B) hereof
that one party disputes the position of the other party with
respect to any provision of this Agreement, then Company may
at any time elect to suspend some or all payments hereunder
with respect to Officer (or elect not to commence such
payments if payments have not yet commenced) until such
dispute is finally resolved either by mutual written
agreement of the parties or a binding arbitration award
pursuant to Section 6(H) hereof. If pursuant to such
resolution of the dispute, retroactive payments are to be
made to Officer or payments representing reimbursements are
to be made to Company, then unless otherwise provided under
such resolution, such payments shall bear interest at the
rate provided in Section 1274(d)(2)(B) of the Code
commencing at the time such payments would have been made
absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case
of reimbursements).
(ii) Subsequent Employment. If at any time
while Officer is entitled to Severance Benefits hereunder
Officer is employed (including employment by Company,
employment by any other employer or any form of
self-employment) then (a) Company may in its discretion at
any time following the date of commencement of such
employment, pay to Officer the aggregate remaining amounts
to be paid to Officer under Section 3(A)(i) hereof in a lump
sum; and (b) payments under Sections 3(A)(ii) and 3(A)(iii)
hereof shall cease as of the date of commencement of such
employment, but if payments under Sections 3(A)(ii) and
3(A)(iii) are made by Company subsequent to such date then
Company may withhold the amount of any such payments from
the amount otherwise to be paid pursuant to Section 3(A)(i)
hereof, and Officer shall pay to Company on demand any such
excess amount not so withheld, with such excess amount to
bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing thirty (30) days after such demand.
(iii) Disability. If Officer is Disabled
during any period while Officer is entitled to Severance
Benefits hereunder, then during any such period that Officer
is Disabled, any amounts payable under Section 3(A)(i)
hereof during such period shall be reduced (but not to less
than zero) by the amounts paid or to be paid with respect to
such period to Officer pursuant to any long-term disability
plan maintained by Company.
(iv) Death. If Officer dies during any
period while Officer is entitled to Severance Benefits
hereunder, then a lump sum amount equal to the total
remaining amounts payable to Officer at the time of
Officer's death under Section 3(A)(i) hereof shall be paid
to Officer's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Officer's death
to any beneficiary other than Company under any Company life
insurance program.
(v) Criminal Charges. If at any time after
Severance Benefits become payable hereunder and prior to the
completion of the payment of such benefits Officer is
charged with a felony, or other crime involving moral
turpitude, which crime relates to activities of Officer
occurring during the period Officer was employed by Company
or its predecessor(s) under this Agreement, then Company may
suspend such payments until such criminal charge is
resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section (3)(B)(v)
after such criminal charge is resolved; provided, however,
that such payments shall cease and no further payments shall
be made at any time Officer is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
C. Code Limitations. In the event that the aggregate of
any amounts payable to or on behalf of Officer under the
Agreement and under any other plan, agreement or policy of
Company or any Affiliate would otherwise result in the imposition
of tax under Section 4999 of the Code due to an excess parachute
payment, as determined by Company's independent auditors, then
the amounts payable to or on behalf of Officer under the
Agreement shall be reduced to the extent necessary (but not below
zero) so that such aggregate amounts shall not be a parachute
payment. For purposes of determining any limitation under this
Section 3(C): (a) no portion of any benefit the receipt or
enjoyment of which Officer shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
If the Company's independent auditors determine that payment that
would be a parachute payment has been made to Officer hereunder,
then the excess of (a) the amount of such payment actually made
hereunder over (b) the amount that could be paid hereunder
without any amount payable hereunder being a parachute payment,
shall constitute a loan by Company to Officer, payable to Company
upon demand with interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing as of the date or dates of
payment by Company of such excess amount.
D. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Officer acknowledges
that in addition to other conditions set forth in the Agreement,
Severance Benefits shall be conditioned upon the prior execution
by Officer of a general waiver and release (hereinafter "Waiver")
as described in this Section 3(D), and Officer shall not be
eligible for Severance Benefits unless and until Officer has
executed the Waiver within ninety (90) days following Officer's
termination of employment.. The Waiver shall be substantially in
the form attached hereto as Exhibit C and shall generally waive
all claims Officer has or may have against Company, any
Affiliate, and any successors or predecessors thereto, and shall
release Company and all Affiliates, and any successors and
predecessors thereto, from all liability with respect to any such
claims; provided, however, that Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of this Section 3(D) or the
Waiver) of Officer to enforce any one or more of the provisions
of the Agreement.
SECTION 4
OFFICER'S COVENANTS
A. Employee Statement. Officer agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Officer acknowledges that
during the course of Officer's employment with Company, Officer
has or will have access to and knowledge of certain information
and data which Company considers confidential, and that the
release of such information or data to unauthorized persons could
be detrimental to Company or an Affiliate. As a consequence,
Officer hereby agrees and acknowledges that Officer owes a duty
to Company not to disclose, and agrees that, during and after the
term of Officer's employment, Officer will not communicate,
publish or disclose to any person anywhere or use any
Confidential Information (as defined below) for any purpose
except in accordance with the prior written consent of Company,
where necessary or appropriate to carry out Officer's duties as
an employee of Company, or as required by law or legal process.
Officer will use Officer's best efforts at all times to hold in
confidence and to safeguard any Confidential Information from
becoming known by any unauthorized person and, in particular,
will not permit any Confidential Information to be read,
duplicated or copied except in accordance with the prior written
consent of the Company, where necessary or appropriate to carry
out Officer's duties as an employee of the Company, or as may be
required by law or legal process. Officer will return to Company
all Confidential Information in Officer's possession or under
Officer's control when the duties of Officer as an employee of
the Company no longer require Officer's possession thereof, or
whenever Company shall so request, and in any event will promptly
return all such Confidential Information if Officer's employment
with Company terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to Company or an Affiliate which, if disclosed, could be
detrimental to Company or an Affiliate, including, but not
limited to any such information relating to Company's, or an
Affiliate's, members or insureds, trade secrets, proprietary data
and information relating to Company's, or an Affiliate's past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Officer is Confidential
Information.
C. Covenant Not to Compete.
(i) Officer agrees that during the term of
Officer's employment by Company and for a period consisting
of the greater of: (a) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (b) one year from and
after the termination of Officer's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), Officer
will not directly or indirectly, without the express prior
written consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Officer in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate; or
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Officer, any current employee of Company as
of the time of such hire or attempt to solicit to hire
or former employee of Company who has been employed by
Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to Officer's obligations
under this Section 4(C), Officer acknowledges that Company's
geographic market is: (a) the State of Missouri; and (b) a
seventy-five (75) mile radius surrounding each of St. Louis,
Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Officer acknowledges that Officer's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent the Officer from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Officer contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if, after written notice of breach
delivered or mailed to Officer in accordance with Section
6(B) hereof Officer takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Officer), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Officer, and each and every person, firm or company acting
in concert or participation with Officer, from the
continuation of such breach and, in addition thereto,
Officer shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Officer, Company shall no longer be obligated
to pay any benefits to Officer under this Agreement.
(iii) The covenants and obligations of Officer
under this Section 4 are each independent covenants and are
in addition to and not in lieu of or exclusive of any other
obligations and duties of Officer to the Company, whether
express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
A. Termination and Amendment Procedures. Company may
terminate this Agreement effective as of any date by giving
Officer, in accordance with Section 6(B) hereof, at least one
hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Officer's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Officer incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Officer's obligations under Sections
4(A) and (B) of this Agreement. Company and Officer may amend
this Agreement at any time by written instrument signed by
Company and Officer.
B. Definition of Change in Control. For purposes of this
Section 5, "Change in Control" shall mean the occurrence, while
Officer is employed by Company and this Agreement is in effect,
of any one or more of the following events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 5(B)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
For purposes of this Section 5(B), "Parent" shall mean any entity
owning, directly or indirectly, fifty percent (50%) or more
(based on voting power) of the Company's outstanding stock or
other equity ownership interests. In the event that no single
transaction or event has occurred that qualifies as a Change in
Control under the foregoing definition, in determining whether a
Change in Control has occurred, a series of transactions and/or
events may be considered to be a single transaction or event;
provided, however, that elections occurring during no more than
eighteen (18) months shall be aggregated for purposes of
determining whether a series of transactions or events qualifies
as a Change in Control under Section 5(B)(v) or 5(B)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
Officer elects. Any person or entity that is regularly in the
business of lending money may, under the terms of an agreement
executed in connection with extending financing, be granted the
right to enforce covenants requiring certain financial ratios or
business practices to be maintained, so long as such requirements
are typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control related to (iv)
above being deemed to have occured. For purposes of this
definition only, no entity shall be considered a Parent or an
Affiliate unless such entity had that status prior to the
transaction or event (or the first in a series of transactions
and/or events aggregated as a single transaction or event
pursuant to this paragraph) that would have constituted a Change
in Control.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Officer any right to be retained in the employ
of Company, and no rights granted under this Agreement shall be
construed as creating a contract of employment. The right and
power of Company to dismiss or discharge Officer at will is
expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested postage prepaid addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Officer:
Last known address shown on records of
Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than any Executive Severance Agreement between RightCHOICE and
Executive dated January __, 1997 or later) relating to the
subject matter of this Agreement, written or oral, between the
parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented
in any manner whatsoever except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Officer, but it may be assigned by Company, without
notice to or consent of Officer, to any assignee provided such
assignee agrees to abide by and be bound by the provisions of the
Agreement and the Agreement shall thereafter be enforceable by
such assignee. During Officer's lifetime, the Agreement and all
rights and obligations of Officer hereunder shall be enforceable
by and binding upon Officer's guardian or other legal
representative in the event Officer is unable to act on his own
behalf for any reason whatsoever, and, upon Officer's death, the
Agreement and all rights and obligations of Officer hereunder
shall inure to the benefit of and be enforceable by and binding
upon Officer's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Officer by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Officer has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Officer has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of , 199_.
Notary Public
My Commission Expires:
OFFICER
(Signature)
(Print Name)
Subscribed and sworn to before me, a Notary Public, this
day of , 199_.
Notary Public
My Commission Expires:
EXHIBIT A
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer
Original Date of Agreement
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Date Officer's Signature
Receipt acknowledged on behalf of Company.
Date RIGHTCHOICE MANAGED CARE, INC.
By
EXHIBIT B
SEVERANCE BENEFITS
The multiple of Officer's Base Pay which is specified for
purposes of Section 3(A)(i) of this Agreement is _Two_. If the
benefit determined by application of such multiple becomes
payable to Officer, such benefit shall be payable in _twenty-
four_ substantially equal monthly installments, as provided in
this Agreement.
EXHIBIT C
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
List of Senior Vice Presidents who have executed officer severance agreements:
Stuart K. Campbell Senior VP, Client Services
Mike Fulk Senior VP, Sales and Marketing
Connie L. Van Fleet Senior VP and Chief Information Officer
Exhibit 10.54
OFFICER SEVERANCE AGREEMENT
THIS OFFICER SEVERANCE AGREEMENT (the "Agreement") is
entered into as of the day of
, 19__, by and between RightCHOICE Managed Care, Inc., a Missouri
corporation ("RightCHOICE"), and (the "Officer").
W I T N E S S E T H:
WHEREAS, RightCHOICE has engaged the services of Officer as
an "at-will" employee of RightCHOICE; and
WHEREAS, as a condition of Officer's employment, Officer
agrees to be bound by certain covenants set forth herein and
RightCHOICE agrees to provide Officer certain severance benefits
upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound, RightCHOICE
and Officer do hereby agree as follows:
SECTION 1
TERM OF AGREEMENT
The Agreement shall be effective as of the day first written
above and shall continue in effect until terminated in accordance
with the provisions of Section 5 hereof.
SECTION 2
DEFINITIONS
The following definitions shall apply for purposes of the
Agreement:
A. Affiliate. "Affiliate" shall mean any corporation or
other legal entity (other than Company) that is part of a group
of corporations and/or other legal entities under common control,
which group includes the Company and in which group each
corporation (or other legal entity) is deemed to be under common
control with the others if:
(i) it is in an unbroken chain of organizations
each of which is connected to a common parent corporation
(or other legal entity) by having at least 50% (based on
voting power) of its outstanding stock or other outstanding
equity ownership interest owned directly or indirectly by
that common parent corporation (or other legal entity); or
(ii) its board of directors (or, in the case of an
entity other than a corporation, other management authority
which, under the terms of its organizational documents,
serves a similar policy setting and governance function),
pursuant to the terms of a formal written agreement, is
subject to the direction or oversight by a person that is
not an Affiliate, such oversight includes setting policy
and/or governance of operations;
provided, however, that no corporation or entity shall be
considered an Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, L.C. and provided
further that no person or entity that is regularly in the
business of lending money shall be deemed to be an Affiliate
solely because, under the terms of an agreement executed in
connection with extending financing, the lender has the right to
enforce covenants requiring certain financial ratios or business
practices to be maintained, so long as such requirements are
typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement. For purposes of clarity only (and without
limiting the generality of the foregoing definition), it is noted
that the common parent corporation referred to in the foregoing
definition qualifies as an Affiliate.
B. Base Pay. "Base Pay" shall mean the dollar amount
equal to the highest annual base salary rate applicable to
Officer during the two (2) years immediately prior to Officer's
Date of Termination.
C. Cause. "Cause" shall mean any one or more of the
following:
(i) Company's becoming aware of, or being
notified of, Officer's conviction of, or Officer's entry of
a guilty plea to, a felony or any other crime involving
moral turpitude by or before a court of competent
jurisdiction;
(ii) gross failure by Officer to perform
Officer's expected duties with Company (other than any such
failure resulting from Officer's incapacity due to physical
or mental illness or any such actual or anticipated failure
occurring after, and not before, the issuance of a Notice of
Termination by Officer for Proper Reason which is not
thereafter successfully disputed by Company) which gross
failure occurs or continues after: (a) the Company delivers
to Officer a written demand for substantial performance that
specifically identifies the expected duties of Officer, the
manner in which Company believes that Officer has not
substantially performed Officer's duties, and the time by
which Officer must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by Officer to perform
such duties has occurred, and (b) the Officer has failed to
demonstrate that he is performing or has resumed performance
of the duties specified in such notice by the time specified
in such notice;
(iii) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines is likely to be materially damaging or
detrimental to Company or to an Affiliate; or
(iv) Company's becoming aware of, or being
notified of, Officer's willfully engaging in conduct which
Company determines constitutes a material violation by
Officer of the Employee Statement.
D. Code. "Code" shall mean the Internal Revenue Code of
1986 as from time to time amended.
E. Company. "Company" shall mean RightCHOICE, except
that, if any person or entity other than RightCHOICE employs
Officer and is obligated by agreement, operation of law or
otherwise to abide by and be bound by the provisions of this
Agreement, then "Company" shall mean that person or entity;
provided, however, that the substitution of another person or
entity as "Company" under this Agreement shall not be construed
as removing from, or eliminating with respect to, RightCHOICE or
any other person or entity that subsequently employs Officer and
becomes bound by the provisions of this Agreement, any of the
protections, rights and remedies accruing to the "Company" under
the provisions of Section 4 of this Agreement.
F. Date of Termination. "Date of Termination" shall mean
the effective date of Officer's termination of employment with
Company. If Officer delivers a Notice of Termination hereunder
to Company, then the Date of Termination shall be thirty (30)
days following the date such Notice of Termination is delivered
or mailed to Company in accordance with Section 6(B) hereof;
provided, however, that in such event Company shall have the
right to accelerate such Date of Termination by written notice of
such acceleration delivered or mailed to Officer in accordance
with Section 6(B) hereof. If Company delivers or mails a Notice
of Termination hereunder to Officer in accordance with Section
6(B) hereof, then the Date of Termination shall be the date
specified by Company in such Notice of Termination.
G. Designated Beneficiary. "Designated Beneficiary" shall
mean one or more individuals or legal entities designated by
Officer on Exhibit A to this Agreement, but if there is no such
effective beneficiary designation at the time of Officer's death,
then Designated Beneficiary shall mean the legal representative
of Officer's estate. Exhibit A to this Agreement may be revoked
by Officer at any time by written instrument delivered to
Company, in which event a new Exhibit A may be completed and
executed by Officer and shall be effective upon receipt by
Company prior to the date of Officer's death.
H. Disabled. "Disabled" shall mean Officer is receiving,
or is currently entitled to receive pursuant to a determination
made by the Company, benefits under Company's long-term
disability plan, if any.
I. Employee Statement. "Employee Statement" shall mean
the Company's Code of Business Conduct, or, with respect to any
periods during which such Code of Business Conduct is not
applicable, any predecessor or successor thereto, or any other
set of rules and guidelines serving a similar purpose that may
become applicable, as each may be amended from time to time.
J. Involuntary Termination. "Involuntary Termination"
shall mean the termination of Officer's employment by action of
Company for any reason other than Cause; provided, however, that
the termination of Officer's employment by Company shall not be
an Involuntary Termination if immediately following such
termination of employment Officer is employed by another employer
that is to abide by the provisions of this Agreement as described
in Section 2(E) hereof.
K. Notice of Termination. "Notice of Termination" shall
mean:
(i) a notice from Officer to Company advising
Company of Officer's decision to terminate Officer's
employment; or
(ii) a notice from Company to Officer
advising Officer of Company's decision to terminate
Officer's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 6(B) hereof. If a Notice of Termination
is from Officer to Company and if Officer believes such
termination is a Proper Reason Termination, then such Notice of
Termination shall specify that such termination is a Proper
Reason Termination, the event(s) which Officer believes
constitute Proper Reason and the facts and circumstances
supporting such belief of Officer. If a Notice of Termination is
from Company to Officer and if Company believes such termination
is for Cause, then such Notice of Termination shall specify that
such termination is for Cause and shall set forth in reasonable
detail the facts and circumstances supporting such belief of
Company.
L. Proper Reason. "Proper Reason" shall mean (i) the
reduction of Officer's normal base salary rate by twenty percent
(20%) or more, or (ii) a change in a short-term or long-term
incentive formula (e.g., a change in the percentage of base
salary to be awarded at target level of achievement) which
directly results in a reduction of twenty percent (20%) or more
in the overall target compensation which applies to Officer in a
given period compared to the overall target compensation which
would have applied to Officer during that period without such
change in bonus formula, or (iii) a change in Officer's primary
work location of more than seventy-five (75) miles from the
Officer's former primary work location; provided, however, that
no base salary rate reduction or bonus formula change or change
in primary work location shall constitute Proper Reason if:
(i) Officer consents in writing to such reduction
or change; or
(ii) at the time of such reduction or change,
or during the three-month period prior to the effective date
of such reduction or change, there is Cause; or
(iii) such reduction or change similarly
affects all officers of Company.
M. Proper Reason Termination. "Proper Reason Termination"
shall mean Officer's termination of his employment with the
Company following the occurrence of an event constituting Proper
Reason, but only if:
(i) Officer, within sixty (60) days after being
notified of or becoming aware of, whichever is earlier, such
event, objects to such event by delivering Notice of
Termination to Company in accordance with Section 6(B)
hereof;
(ii) Company, having received Notice of
Termination pursuant to Section 2(M)(i), does not reverse
the action or otherwise remedy the situation cited in the
Notice of Termination as constituting Proper Reason within
ten (10) days after receiving such Notice of Termination;
and
(iii) Officer terminates employment within
three (3) months after being notified of or becoming aware
of, whichever is earlier, the occurrence of the event cited
as constituting Proper Reason in the Notice of Termination.
N. Severance Benefits. "Severance Benefits" shall mean
the benefits described in Section 3(A) hereof.
SECTION 3
SEVERANCE BENEFITS
A. Severance Benefits. Subject to Sections 3(B), 3(C),
3(D) and 4(D)(ii) hereof, in the event of Officer's Involuntary
Termination or Officer's Proper Reason Termination, Company will:
(i) pay to Officer an amount equal to the
multiple of Officer's Base Pay specified in Exhibit B
hereto, payable in the number of substantially equal monthly
installments specified in Exhibit B, and commencing as soon
as practicable following the Date of Termination;
(ii) pay to Officer, for a period of twelve
(12) months starting on the Date of Termination, an amount
equal to the portion of the monthly premiums (to the extent
such premiums are due) for Officer's health, dental, vision
and life insurance that is equivalent to the portion of the
monthly premiums for such coverages that the Company pays on
behalf of similarly situated Officers employed by Company
during such twelve (12) month period; and
(iii) pay for outplacement services for
Officer of the type customarily provided by Company to
officers at the time of Officer's Involuntary Termination or
Proper Reason Termination.
Company's obligation to pay the amounts specified in Section
3(A)(ii) above shall be reduced by any and all amounts Company
pays toward Officer's health, dental, vision and life insurance
with respect to periods after the Date of Termination.
B. Suspension or Termination of Severance Benefits:
Nonentitlement.
(i) Dispute. If at any time a party to this Agreement
notifies the other party pursuant to Section 6(B) hereof
that one party disputes the position of the other party with
respect to any provision of this Agreement, then Company may
at any time elect to suspend some or all payments hereunder
with respect to Officer (or elect not to commence such
payments if payments have not yet commenced) until such
dispute is finally resolved either by mutual written
agreement of the parties or a binding arbitration award
pursuant to Section 6(H) hereof. If pursuant to such
resolution of the dispute, retroactive payments are to be
made to Officer or payments representing reimbursements are
to be made to Company, then unless otherwise provided under
such resolution, such payments shall bear interest at the
rate provided in Section 1274(d)(2)(B) of the Code
commencing at the time such payments would have been made
absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case
of reimbursements).
(ii) Subsequent Employment. If at any time
while Officer is entitled to Severance Benefits hereunder
Officer is employed (including employment by Company,
employment by any other employer or any form of
self-employment) then (a) Company may in its discretion at
any time following the date of commencement of such
employment, pay to Officer the aggregate remaining amounts
to be paid to Officer under Section 3(A)(i) hereof in a lump
sum; and (b) payments under Sections 3(A)(ii) and 3(A)(iii)
hereof shall cease as of the date of commencement of such
employment, but if payments under Sections 3(A)(ii) and
3(A)(iii) are made by Company subsequent to such date then
Company may withhold the amount of any such payments from
the amount otherwise to be paid pursuant to Section 3(A)(i)
hereof, and Officer shall pay to Company on demand any such
excess amount not so withheld, with such excess amount to
bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing thirty (30) days after such demand.
(iii) Disability. If Officer is Disabled
during any period while Officer is entitled to Severance
Benefits hereunder, then during any such period that Officer
is Disabled, any amounts payable under Section 3(A)(i)
hereof during such period shall be reduced (but not to less
than zero) by the amounts paid or to be paid with respect to
such period to Officer pursuant to any long-term disability
plan maintained by Company.
(iv) Death. If Officer dies during any
period while Officer is entitled to Severance Benefits
hereunder, then a lump sum amount equal to the total
remaining amounts payable to Officer at the time of
Officer's death under Section 3(A)(i) hereof shall be paid
to Officer's Designated Beneficiary; provided, however, that
such lump sum amount shall be reduced, but not to less than
zero, by any amounts payable on account of Officer's death
to any beneficiary other than Company under any Company life
insurance program.
(v) Criminal Charges. If at any time after
Severance Benefits become payable hereunder and prior to the
completion of the payment of such benefits Officer is
charged with a felony, or other crime involving moral
turpitude, which crime relates to activities of Officer
occurring during the period Officer was employed by Company
or its predecessor(s) under this Agreement, then Company may
suspend such payments until such criminal charge is
resolved. Company shall resume payments and make any
retroactive payments (with interest on such retroactive
payments at the rate provided in Section 1274(d)(2)(B) of
the Code) commencing at the time such payments would have
been made absent suspension under this Section (3)(B)(v)
after such criminal charge is resolved; provided, however,
that such payments shall cease and no further payments shall
be made at any time Officer is convicted of, or enters a
guilty plea to, such crime by or before a court of competent
jurisdiction.
C. Code Limitations. In the event that the aggregate of
any amounts payable to or on behalf of Officer under the
Agreement and under any other plan, agreement or policy of
Company or any Affiliate would otherwise result in the imposition
of tax under Section 4999 of the Code due to an excess parachute
payment, as determined by Company's independent auditors, then
the amounts payable to or on behalf of Officer under the
Agreement shall be reduced to the extent necessary (but not below
zero) so that such aggregate amounts shall not be a parachute
payment. For purposes of determining any limitation under this
Section 3(C): (a) no portion of any benefit the receipt or
enjoyment of which Officer shall have effectively waived in
writing shall be taken into account, and (b) the value of any
non-cash benefit or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.
If the Company's independent auditors determine that payment that
would be a parachute payment has been made to Officer hereunder,
then the excess of (a) the amount of such payment actually made
hereunder over (b) the amount that could be paid hereunder
without any amount payable hereunder being a parachute payment,
shall constitute a loan by Company to Officer, payable to Company
upon demand with interest at the rate provided in Section
1274(d)(2)(B) of the Code commencing as of the date or dates of
payment by Company of such excess amount.
D. General Waiver and Release. Notwithstanding any
provision to the contrary in the Agreement, Officer acknowledges
that in addition to other conditions set forth in the Agreement,
Severance Benefits shall be conditioned upon the prior execution
by Officer of a general waiver and release (hereinafter "Waiver")
as described in this Section 3(D), and Officer shall not be
eligible for Severance Benefits unless and until Officer has
executed the Waiver within ninety (90) days following Officer's
termination of employment.. The Waiver shall be substantially in
the form attached hereto as Exhibit C and shall generally waive
all claims Officer has or may have against Company, any
Affiliate, and any successors or predecessors thereto, and shall
release Company and all Affiliates, and any successors and
predecessors thereto, from all liability with respect to any such
claims; provided, however, that Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of this Section 3(D) or the
Waiver) of Officer to enforce any one or more of the provisions
of the Agreement.
SECTION 4
OFFICER'S COVENANTS
A. Employee Statement. Officer agrees to abide by the
Employee Statement (including, but not limited to, the Company
Statement of Corporate Ethics).
B. Covenant Not To Disclose. Officer acknowledges that
during the course of Officer's employment with Company, Officer
has or will have access to and knowledge of certain information
and data which Company considers confidential, and that the
release of such information or data to unauthorized persons could
be detrimental to Company or an Affiliate. As a consequence,
Officer hereby agrees and acknowledges that Officer owes a duty
to Company not to disclose, and agrees that, during and after the
term of Officer's employment, Officer will not communicate,
publish or disclose to any person anywhere or use any
Confidential Information (as defined below) for any purpose
except in accordance with the prior written consent of Company,
where necessary or appropriate to carry out Officer's duties as
an employee of Company, or as required by law or legal process.
Officer will use Officer's best efforts at all times to hold in
confidence and to safeguard any Confidential Information from
becoming known by any unauthorized person and, in particular,
will not permit any Confidential Information to be read,
duplicated or copied except in accordance with the prior written
consent of the Company, where necessary or appropriate to carry
out Officer's duties as an employee of the Company, or as may be
required by law or legal process. Officer will return to Company
all Confidential Information in Officer's possession or under
Officer's control when the duties of Officer as an employee of
the Company no longer require Officer's possession thereof, or
whenever Company shall so request, and in any event will promptly
return all such Confidential Information if Officer's employment
with Company terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to Company or an Affiliate which, if disclosed, could be
detrimental to Company or an Affiliate, including, but not
limited to any such information relating to Company's, or an
Affiliate's, members or insureds, trade secrets, proprietary data
and information relating to Company's, or an Affiliate's past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which Company advises Officer is Confidential
Information.
C. Covenant Not to Compete.
(i) Officer agrees that during the term of
Officer's employment by Company and for a period consisting
of the greater of: (a) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (b) one year from and
after the termination of Officer's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), Officer
will not directly or indirectly, without the express prior
written consent of Company:
(a) own or have any interest in or act
as an officer, director, partner, principal, employee,
agent, representative, consultant to or independent
contractor of, any person, firm, corporation,
partnership, business trust, limited liability company
or any other entity or business located in or doing
business in Company's geographic market which during
the Noncompetition Period is engaged in competition in
any substantial manner with Company or an Affiliate,
provided Officer in any such capacity directly or
indirectly performs services in an aspect of such
business which is competitive with Company or an
Affiliate; or
(b) divert or attempt to divert
clients, customers or accounts of Company which are
clients, customers or accounts during the
Noncompetition Period; or
(c) hire, or attempt to solicit to
hire, for any other person, firm, company, corporation,
partnership, business trust, limited liability company
or any other entity, whether or not owned (in whole or
in part) by Officer, any current employee of Company as
of the time of such hire or attempt to solicit to hire
or former employee of Company who has been employed by
Company within the twelve-month period immediately
preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to Officer's obligations
under this Section 4(C), Officer acknowledges that Company's
geographic market is: (a) the State of Missouri; and (b) a
seventy-five (75) mile radius surrounding each of St. Louis,
Missouri and Kansas City, Missouri.
(iii) The restrictions contained in this
Section 4(C) are considered by the parties hereto to be
fair, reasonable and necessary for the protection of the
legitimate business interests of Company.
(iv) Officer acknowledges that Officer's
experience and capabilities are such that, notwithstanding
the restrictions imposed in this Section 4(C), he believes
that he can obtain employment reasonably equivalent to his
position with Company, and an injunction against any
violation of the provisions of this Section 4(C) will not
prevent the Officer from earning a livelihood reasonably
equivalent to that provided through his position with
Company.
D. Certain Remedies.
(i) Recognizing that irreparable injury will
result to Company in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
Officer contained in this Section 4, and that Company's
remedies at law for any such breach or threatened breach
will be inadequate, if, after written notice of breach
delivered or mailed to Officer in accordance with Section
6(B) hereof Officer takes no satisfactory action to remedy
such breach and abide by this Agreement, or absent such
notice in the event such breach cannot be remedied, then
Company, in addition to such other rights or remedies which
may be available to it (including, without limitation,
recovery of monetary damages from Officer), shall be
entitled to an injunction, including a mandatory injunction,
to be issued by any court of competent jurisdiction ordering
compliance with this Agreement or enjoining and restraining
Officer, and each and every person, firm or company acting
in concert or participation with Officer, from the
continuation of such breach and, in addition thereto,
Officer shall pay to Company all ascertainable damages,
including costs and reasonable attorneys' fees, sustained by
Company by reason of the breach or threatened breach of said
covenants and assurances.
(ii) In addition to the remedies described in
Section 4(D)(i), in the event of a material breach of this
Agreement by Officer, Company shall no longer be obligated
to pay any benefits to Officer under this Agreement.
(iii) The covenants and obligations of Officer
under this Section 4 are each independent covenants and are
in addition to and not in lieu of or exclusive of any other
obligations and duties of Officer to the Company, whether
express or implied in fact or in law.
SECTION 5
AMENDMENT OR TERMINATION OF AGREEMENT
A. Termination and Amendment Procedures. Company may
terminate this Agreement effective as of any date by giving
Officer, in accordance with Section 6(B) hereof, at least one
hundred eighty (180) days' prior written notice of such
termination of this Agreement, specifying the effective date of
such termination; provided, however, that Company may not
terminate this Agreement within twenty-four (24) months following
a Change in Control, even if notice of termination of this
Agreement was given prior to such Change in Control. No notice of
termination of this Agreement shall be given any effect
whatsoever, and Officer's and Company's obligations under this
Agreement shall continue as if such notice of termination had not
been given, in the event that, while this Agreement remains in
effect during the notice period, a Change in Control occurs
and/or Officer incurs termination for Cause, Involuntary
Termination or Proper Reason Termination. Regardless of anything
to the contrary in this Agreement, no termination of this
Agreement shall terminate Officer's obligations under Sections
4(A) and (B) of this Agreement. Company and Officer may amend
this Agreement at any time by written instrument signed by
Company and Officer.
B. Definition of Change in Control. For purposes of this
Section 5, "Change in Control" shall mean the occurrence, while
Officer is employed by Company and this Agreement is in effect,
of any one or more of the following events:
(i) the merger, consolidation or other
reorganization of Company in which any class of the
outstanding common stock of Company is converted into or
exchanged for a different class of securities of the
Company, a class of securities of any other issuer, except
an Affiliate, cash or other property (provided, however,
that, regardless of anything to the contrary in this
Agreement, the conversion or exchange of the outstanding
Class B common stock of RightCHOICE Managed Care, Inc. into
or for Class A common stock of RightCHOICE Managed Care,
Inc. shall not be deemed to be a Change in Control);
(ii) the sale, lease or exchange of all or
substantially all of the assets of Company or Parent to any
other corporation or entity (except an Affiliate);
(iii) the final adoption, in a manner making
such plan legally effective without any higher level of
approval or action, of a plan of complete liquidation and
dissolution of the Company or Parent;
(iv) the acquisition (other than acquisition
pursuant to any other clause of this definition) by any
person or entity (including without limitation a
partnership, limited partnership, syndicate or other group),
of more than fifty (50) percent (based on total voting
power) of any class of Company's or Parent's outstanding
stock (or other equity ownership interests); provided,
however, that nothing in this Section 5(B)(iv) shall be
construed as deeming a Change in Control to have occurred if
any such person or entity that is considered to own more
than fifty (50) percent (based on total voting power) of
such class of Company's or Parent's outstanding stock (or
other equity ownership interests) prior to such acquisition,
acquires additional shares of such class of stock (or other
equity ownership). Where an entity does not have
outstanding stock (such as the Parent), the above will be
deemed to have occurred if a transaction occurs in which the
entity becomes subject to the direction or oversight by a
person that is not an Affiliate, and such direction or
oversight includes the ability of the person to set policy
for the entity, and/or govern the operations of the Parent,
and/or control the entity's assets or the stock the entity
owns in RightCHOICE Managed Care, Inc.
(v) as a result of, or in connection with, a
contested election of directors of the Company, the persons
who were directors of Company before such election cease to
constitute a majority of the directors of Company;
(vi) as a result of, or in connection with, an
election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute
a majority of the directors of Parent; or
(vii) RightCHOICE Managed Care, Inc. ceasing
to have a class of its stock listed and actively traded on a
nationally recognized stock exchange.
For purposes of this Section 5(B), "Parent" shall mean any entity
owning, directly or indirectly, fifty percent (50%) or more
(based on voting power) of the Company's outstanding stock or
other equity ownership interests. In the event that no single
transaction or event has occurred that qualifies as a Change in
Control under the foregoing definition, in determining whether a
Change in Control has occurred, a series of transactions and/or
events may be considered to be a single transaction or event;
provided, however, that elections occurring during no more than
eighteen (18) months shall be aggregated for purposes of
determining whether a series of transactions or events qualifies
as a Change in Control under Section 5(B)(v) or 5(B)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
Officer elects. Any person or entity that is regularly in the
business of lending money may, under the terms of an agreement
executed in connection with extending financing, be granted the
right to enforce covenants requiring certain financial ratios or
business practices to be maintained, so long as such requirements
are typical of the covenants required by lenders generally in
connection with financing similar to that provided in connection
with such agreement, without a Change in Control related to (iv)
above being deemed to have occured. For purposes of this
definition only, no entity shall be considered a Parent or an
Affiliate unless such entity had that status prior to the
transaction or event (or the first in a series of transactions
and/or events aggregated as a single transaction or event
pursuant to this paragraph) that would have constituted a Change
in Control.
SECTION 6
MISCELLANEOUS
A. Employment. This Agreement does not, and shall not be
construed to, give Officer any right to be retained in the employ
of Company, and no rights granted under this Agreement shall be
construed as creating a contract of employment. The right and
power of Company to dismiss or discharge Officer at will is
expressly reserved.
B. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested postage prepaid addressed as follows:
If to the Company:
Human Resources Department
Attention: Vice President of Human Resources
1831 Chestnut Street
St. Louis, MO 63I03-2275
If to Officer:
Last known address shown on records of
Company
or to such other address as either party may have furnished to
the other in writing, except that notice of change of address
shall be effective only upon receipt.
C. Entire Agreement. This Agreement cancels and
supersedes all previous and contemporaneous agreements (other
than any Executive Severance Agreement between RightCHOICE and
Executive dated January __, 1997 or later) relating to the
subject matter of this Agreement, written or oral, between the
parties hereto and contains the entire understanding of the
parties hereto and shall not be amended, modified or supplemented
in any manner whatsoever except as otherwise provided herein.
D. Captions. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall in no way restrict or otherwise modify any of the terms
or provisions hereof.
E. Governing Law. This Agreement and all rights and
obligations of the parties hereunder shall be governed by, and
construed and interpreted in accordance with, the laws of the
State of Missouri without regard to that state's choice of law
provisions.
F. Assignment. This Agreement is personal and not
assignable by Officer, but it may be assigned by Company, without
notice to or consent of Officer, to any assignee provided such
assignee agrees to abide by and be bound by the provisions of the
Agreement and the Agreement shall thereafter be enforceable by
such assignee. During Officer's lifetime, the Agreement and all
rights and obligations of Officer hereunder shall be enforceable
by and binding upon Officer's guardian or other legal
representative in the event Officer is unable to act on his own
behalf for any reason whatsoever, and, upon Officer's death, the
Agreement and all rights and obligations of Officer hereunder
shall inure to the benefit of and be enforceable by and binding
upon Officer's Designated Beneficiary.
G. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
H. Binding Arbitration. Any dispute or controversy
arising under or in connection with this Agreement shall be
settled exclusively by binding arbitration in St. Louis,
Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
I. Invalidity of Provisions. In the event that any
provision of the Agreement is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of the Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and shall be enforced as so
limited.
J. Waiver of Breach. Failure of Company to demand strict
compliance with any of the terms, covenants or conditions hereof
shall not be deemed a waiver of that term, covenant or condition,
nor shall any waiver or relinquishment by Company of any right or
power hereunder at any one time or more times be deemed a waiver
or relinquishment of that right or power at any other time or
times.
K. Pronouns. Pronouns in this Agreement used in the
masculine gender shall also include the feminine gender.
L. Withholding of Taxes. Company shall cause taxes to be
withheld from amounts paid pursuant to the Agreement as required
by law, and to the extent deemed necessary by Company may
withhold from amounts payable to Officer by Company outside of
the Agreement amounts equal to any taxes required to be withheld
from payments made pursuant to the Agreement, unless Officer has
previously remitted the amount of such taxes to Company.
M. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of any successors and/or
assigns of the Company.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, Company has caused this Agreement to be duly
executed in duplicate, and Officer has hereunto set his hand, on
the day and year first above written.
RIGHTCHOICE MANAGED CARE, INC.
By:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of , 199_.
Notary Public
My Commission Expires:
OFFICER
(Signature)
(Print Name)
Subscribed and sworn to before me, a Notary Public, this
day of , 199_.
Notary Public
My Commission Expires:
EXHIBIT A
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer
Original Date of Agreement
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Date Officer's Signature
Receipt acknowledged on behalf of Company.
Date RIGHTCHOICE MANAGED CARE, INC.
By
EXHIBIT B
SEVERANCE BENEFITS
The multiple of Officer's Base Pay which is specified for
purposes of Section 3(A)(i) of this Agreement is _One_. If the
benefit determined by application of such multiple becomes
payable to Officer, such benefit shall be payable in _twelve_
substantially equal monthly installments, as provided in this
Agreement.
EXHIBIT C
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
Regardless as to the reason for termination, Officer agrees not
to apply for rehire at the Company, it's subsidaries, affiliates
or parent.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: ,
Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By:
Name:
Title:
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
List of Vice Presidents who have executed officer severance agreements:
Daniel D. Anderson VP, Actuarial
Morris L. Berger VP, Human Resources
Julia Bietsch VP, Provider Affairs
Ron Ekstrand VP, Strategy
Roger R. Fischer VP, Information Services
Larry Glascott VP, Controller
Ruth M. Hollenback VP, Network Management
Clara Kinner VP, Corporate Communications
Gary Maienschein VP, Government Affairs
Debra Moss VP, Medical Affairs
Thomas P. Ogden VP, Information Services
Basil D. Pappas VP, Corporate Taxes
Michael F. Patton VP, Marketing
Jane I. Potter VP, Medical Delivery Systems
Mary L. Redshaw VP, Custom Accounts
Randy D. Ressel VP, Outstate Sales
Dennis J. Sullivan VP, IS Operations/Services
Gary Whitworth VP, BCBSMo
Kathleen M. Zorica VP, Product Management
Exhibit 10.55
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of September 1, 1995, by and between RIGHTCHOICE
MANAGED CARE, INC., ("employer"), and RICHARD S. SMITH
("Employee").
WHEREAS, Employer desires to continue to employ Employee,
and Employee desires to remain employed by Employer, upon the
terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and
agreements herein contained, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Term of Agreement. This Agreement shall continue in
full force and effect for a period (the "Term") continuing
through the date which is three (3) years from the date set forth
above, unless sooner terminated as hereinafter provided.
2. Employment. Employee shall serve as a Senior Vice
President of Employer, or in such other Senior Vice President
capacities as designated by Employer, subject to the reasonable
directions of Employer, and shall devote such of his working time
and effort to the business and affairs of Employer as shall be
reasonably necessary to faithfully discharge the duties and
responsibilities of his office. Employee shall be responsible
for such activities as Employer may designate from time to time.
3. Compensation. As compensation for the services to be
performed by the Employee, Employee's current base salary and
benefits shall continue and Employee's base salary shall be
reviewed by Employer from time to time at its discretion in
accordance with Employer's normal salary increase decision-making
process.
4. Benefits.
a. Health, Disability and Other Fringe Benefits. During
the Term of this Agreement, Employee shall be entitled to
participate in or receive benefits under Employer's health
insurance plans, life insurance plans, long-term disability,
401(k) and stock option plans, and all other employee benefit
plans and other fringe benefits in effect on the date hereof for
such a period of time as such plans and arrangements shall remain
in effect and subject to such contribution or qualification
requirements of such plans.
b. Vacation and Holidays. Employee shall be entitled to
paid vacations and holidays in accordance with the Employer's
policies and practices in effect from time to time.
c. Retirement Plan. In the event of termination of this
Agreement or non-renewal of this Agreement, and Employee's
employment hereunder for any reason, by Employee or by Employer,
Employee shall, regardless of the position held by Employee at
the time of such termination, be entitled to receive the benefits
provided to Senior Executives and other members of the Corporate
Staff under the terms of the Supplemental Executive Retirement
Plan or any other retirement plan which may be in effect at the
time of Employee's separation, whichever provides Employee with
the greatest payment(s).
d. Severance Payments. In addition to, and not in lieu
of, any other benefits described herein, in the event this
Agreement is not renewed and Employee's employment terminates or
this Agreement terminates for any reason other than for cause as
defined in Section 7b, Employer shall either: (i continue to pay
Employee's salary at a rate equal to the higher of the rate in
effect as of the termination date or the rate paid to Employee as
of the date set forth above for a period of twenty-four (24)
months from the date of termination, and, during the same period,
continue to pay Employee all benefits described in Section 4(a)
hereof, or (ii)pay Employee in accordance with the Executive
Severance Agreements generally provided by Employer to senior
executives at any time during Employee's employment, whichever
method (4(d)(i) or 4(d)(ii)) provides Employee with the greatest
monetary benefit.
5. Expenses. During the term hereof, Employee shall be
entitled to receive prompt reimbursement of all reasonable
travel, entertainment, and other business expenses incurred by
Employee (in accordance with the policies and procedures from
time to time adopted by the Board of Directors of Employer) in
performing the services contemplated hereunder.
6. Confidentiality and Covenant Not to Compete.
a. Confidentiality. Employee acknowledges that during the
course of Employee's employment with Employer, Employee has or
will have access to and knowledge of certain information and data
which Employer considers confidential, and that the release of
such information or data to unauthorized persons could be
detrimental to Employer or a Subsidiary or Parent. As a
consequence, Employee hereby agrees and acknowledges that
Employee owes a duty to Employer not to disclose, and agrees
that, during or after the term of Employee's employment, without
the prior written consent of Employer, Employee will not
communicate, publish or disclose to any person anywhere or use
any Confidential Information (as defined below) for any purpose
except where necessary or appropriate to carry out Employee's
duties or as required by law or legal process. Employee will use
Employee's best efforts at all times to hold in confidence and to
safeguard any Confidential Information from becoming known by any
unauthorized person and, in particular, will not permit any
Confidential Information to be read, duplicated or copied except
where necessary or appropriate to carry out Employee's duties or
as may be required by law or legal process. Employee will return
to Employer all Confidential Information in Employee's possession
or under Employee's control when the duties of Employee no longer
require Employee's possession thereof, or whenever employer shall
so request, and in any event will promptly return all such
Confidential Information if Employee's employment with Employer
is terminated and will not retain any copies thereof. For the
purpose of this Agreement, "Confidential Information" shall mean
any information or data used by or belonging or relating to
Employer or a Subsidiary or Parent which if disclosed could be
detrimental to Employer or a Subsidiary or Parent, including, but
not limited to any such information relating to Employer's, or a
Subsidiary's or Parent's, members or insureds, trade secrets,
propriety data and information relating to Employer's or
Subsidiary's or Parent's, past, present or future business, price
lists, client lists, processes, procedures or standards, know-
how, manuals, business strategies, records, drawings,
specifications, designs, financial information, whether or not
reduced to writing, or any other information or data which
Employer advises Employee is Confidential Information.
b. Covenant Not to Compete.
(i) Employee agrees that during the term of Employee's
employment by Employer and for the period during which severance
payments are made to Employee under the provisions of Section
4(d), Employee will not without the express written consent of
Employer:
a. own or have any interest in or act as an
officer, director, partner, employee, agent, representative,
consultant to or independent contractor of, any person, firm,
corporation, partnership, business trust, limited liability
company or any other entity or business located in or doing
business in Employer's geographic market (as defined below) which
during the Noncompetition Period is engaged in competition in any
substantial manner with Employer or a Subsidiary or Parent,
provided Employee in any such capacity directly or indirectly
performs services in an aspect of such business which is
competitive with Employer or a Subsidiary or Parent; or
b. divert or attempt to divert clients,
customers or accounts of Employer which are clients, customers or
accounts during the Noncompetition Period;
c. hire, or attempt to solicit to hire, for any
other person, firm, company, corporation, partnership, business
trust, limited liability company or any other entity, whether or
not owned (in whole or in part) by Employee, any current employee
of Employer as of the time such hire or attempt to solicit to
hire or former employee of Employer who has been employed by
Employer within the twelve-month period immediately preceding the
date of such hire or attempt to solicit to hire.
(ii) With respect to Employee's obligations under
Section 6(b), Employee acknowledges that Employer's geographic
market is: (a) the State of Missouri; and (b) a seventy-five
(75) mile radius surrounding each of St. Louis, Missouri and
Kansas City, Missouri.
(iii) The restrictions contained in this Section
6(b) are considered by the parties hereto to be fair, reasonable
and necessary for the protection of the legitimate business
interests of Company.
7. Termination.
a. Death. This Agreement and Employee's employment
hereunder shall terminate immediately upon death.
b. For Cause. Employer may terminate Employee's
employment hereunder at any time, effective immediately upon
written notice, for cause. For the purposes of this Agreement
"cause" shall mean:
(i) Employee's conviction of, or Employee's entry of a
guilty plea to, a felony, or any other crime involving moral
turpitude, by or before a court of competent jurisdiction;
(ii) the gross failure by Employee to perform
Employee's expected duties with Company (other than any such
failure resulting from Employee's incapacity due to physical or
mental illness) after a written demand for substantial
performance is delivered to Employee by Employer, which demand
specifically identifies the expected duties of Employee, the
manner in which Employer believes that Employee has not
substantially performed Employee's duties and the time period by
which Employee must demonstrate performance of such duties before
Employer will determine there has been a gross failure by
Employee to perform such duties; provided, however, that in all
such cases Employee shall have a period of at least sixty (60)
days to cure such performance deficiencies; or
(iii) the willful engaging by Employee in conduct
which is materially damaging or detrimental to Employer or to a
Subsidiary or Parent.
(iv) a material violation by Employee of the Employee
Statement of Compliance, which incorporates Employer's Statement
of Corporate Ethics, as each may reasonably be amended from time
to time.
c. Disability. In the event that Employee shall be
unable to perform the services contemplated hereunder by reason
of a disability (as defined by the Americans with Disabilities
Act), such inability or failure to so perform such duties shall
not be grounds for terminating the employment of Employee by
Employer and Employee shall continue to be compensated during
such period of disability at his regular salary rate.
d. By Employee.
(i) Employee may resign his employment at any time
upon sixty (60) days notice to Employer, and upon resignation,
shall be entitled only to any earned but unpaid salary and
vacation pay, as well as any benefits due to Employee under the
provisions of Section 4(c) above.
8. General Provisions.
a. Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly
given when personally served in writing, when deposited in the
United States mail, postage prepaid, addressed to Employer or
Employee at their respective last known address. Either party
may change its address by written notice given in accordance with
this subparagraph.
b. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective
executors, administrators, successors, and assigns; provided,
however, that Employee may not assign any or all of Employee's
rights hereunder without the prior written consent of Employer.
c. This Agreement is made and entered into, is to be
performed primarily within, and shall be governed by and
construed in all respects in accordance with the laws of the
State of Missouri.
d. Captions and paragraph headings used herein are
for convenience only and are not a part of the Agreement and
shall not be used in construing it. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute
one and the same instrument.
e. Should any provision of this Agreement for any
reason be declared invalid, void, or unenforceable by a court of
competent jurisdiction, the validity and binding effect of any
remaining portions shall not be affected, and the remaining
portions of the Agreement shall remain in full force and effect
as if this Agreement has been executed with said provision
eliminated.
f. This Agreement contains the entire agreement of
the parties and supersedes all prior agreements between the
parties (other than the Supplemental Executive Retirement Plan as
specified herein), whether written or oral. Each party to this
Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not
embodied herein or therein, and that no other agreement,
statement or promise not contained herein or therein shall be
relied upon or be valid or binding. This Agreement may not be
modified or amended by oral agreements, but only by an agreement
in writing signed by Employer on the one hand, and by Employee on
the other hand.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above
written.
EMPLOYER RIGHTCHOICE MANAGED CARE, INC.
By: /s/Roy R. Heimburger
Title: Chairman and CEO
By: /s/Norman J. Tice
Title: Vice Chairman
EMPLOYEE: /s/ Richard S. Smith
Exhibit 10.56
1997
ABCBS
Incentive
Plan
Senior Vice President
The ABCBS Incentive Plan
Eligibility
The 1997 ABCBS Incentive Plan (AIP) is a short-term incentive
program designed to reward the key management team for the
achievement of financial and individual goals. Those who hold the
title of manager or above, or have an equivalent position during
1997 are eligible to participate.
ABCBS reserves the right to update, modify or repeal this program,
permanently or temporarily, if it is in the best interest of ABCBS
to do so. The description of this program contained in this
booklet should not be construed to imply that it is an employment
contract for any period of time.
Elements
There are two elements that determine a participant's incentive
payment:
* Achievement of the corporate financial goal as defined by the
company's net income.
* Achievement of pre-determined individual goals (discretionary
and budget goals).
Incentive Pool & Incentive Payment
The key element in determining the size of each participant's
incentive pool is the overall corporate financial performance as
measured by the company's 1997 net income. Your maximum incentive
payment will be determined by the company's financial performance
according to the incentive pool chart below. The actual amount
paid will ultimately depend on the accomplishment of the corporate
financial goal (net income) and individual goals.
Net Income of $2.5 Million must be achieved for any payout to
occur. There will be no incentive payment for performance below
the threshold level.
In 1997, the incentive pool size is expressed as a percentage of
each participant's base salary as of December 31, 1997, or salary
range midpoint, whichever is higher.
Incentive Pool
Threshold Target Maximum
Net Income:* $2.5 $7.5 million $11.3 million
million
Pool Size as a % of
midpoint or base 13% 38% 58%
salary:
*Net income is our ABCBS total income, excluding one-time charges,
such as relocation.
As a Senior Vice President, your target incentive pool is 38% of
your base salary or salary range midpoint, whichever is higher.
Source: Corporate Financial Statements
Performance results for the pool will be interpolated.
Corporate Financial Incentive and Individual Incentive
Corporate Financial Incentive - 75% of your incentive payment (from
the available pool described on the previous page) is based solely
on the accomplishment of the corporate financial goal, i.e., you
will receive 75% of the Incentive Payment, based on the Incentive
Pool chart on the previous page.
Individual Incentive - Additionally, 25% of your incentive payment
is funded based on the accomplishment of the corporate financial
goal, but is only paid if you meet your individual goals.
Individual goals will be comprised of two components: discretionary
and budget.
Each participant will have specific, and in many cases, unique
discretionary goals that will be tied to and support ABCBS's
overall corporate goals. These goals may be individual or team
goals that focus on key projects, productivity, quality, process
improvement, or organizational effectiveness, to which all
participants contribute. All discretionary goals must be approved
by the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a payout
equal to 100% of your potential payout for individual goals. (The
potential payout is based on the available pool created by
corporate financial performance.) The maximum payout for
discretionary and budget goal performance, 150% of your potential
payout for individual goals, may be achieved based on exceptional
performance against individual goals. Please see Appendix 1 for
more information pertaining to individual goals.
Minimum Incentive Payout -- There is no minimum incentive for
1997.
Administration of the Program
Year end corporate financial results for 1997 are expected to be
available by March 1998. Overall performance against the corporate
General and Administrative expenses budget goal, as well as the
results of specific group/division General and Administrative
expense budget goals will be forwarded to Human Resources by the
Finance Division. Participants will summarize their performance
against their individual discretionary goals and forward these to
executive management for approval.
After receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to occur in
March 1998, following acceptance and approval by the Board of
Directors or their designee.
Incentives for those who are promoted into a management position,
move from one management level to another, or move out of a
management position and into another position within the company,
will be prorated according to the number of full months spent in
the eligible position(s).
Administration of the Program (continued)
If the participant moves into or out of an eligible position, or
moves from one AIP level to another, (ex. Manager to Vice
President), the incentive pool will be based on the participant's
salary range midpoint or base salary, whichever is higher, for the
time spent in that position or at that level. The actual amount
paid will ultimately depend on the accomplishment of financial and
individual goals.
Incentives for those newly hired into positions eligible for the
AIP will be calculated using the participant's hire date rather
than a full-month proration.
If an eligible participant receives a performance rating of DNM
(Does Not Meet Standards), he or she will become ineligible to
receive a payment for their participation in the AIP.
A participant whose employment is terminated during 1997 will be
ineligible to receive a payment under this plan, except when the
reason for termination is retirement, job elimination, or death.
In these cases, payments will be prorated according to the number
of full months the participant spent in the position(s).
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314) 923-
4947.
Appendix 1
Individual Incentive Goals - ABCBS
Discretionary Goals
Goal worksheets may be found in "HR Forms" in the Shared Folders.
Target Maximum
Payout schedule as a
% of Individual 80% 120%
Goals:
Budget Goals
Achieve 98% of the budgeted corporate General and Administrative
expenses per member per month of $8.73.
Threshold Target Maximum
G & A costs per
member per month: $8.73 $8.56 $8.47
Payout schedule as a
% of Individual 0% 5% 7.5%
Goals:
Meet group/division General and Administrative budget for
participant's area.
Threshold Target Maximum
Percent of
group/division >101% 100% 98%
budget:
Payout schedule as
a 0% 15% 22.5%
% of Individual
Goals:
Performance results for individual goals will be interpolated.
Exhibit 10.57
1997
ABCBS/BCBSMo
Incentive
Plan
President/CEO
The ABCBS/BCBSMo Incentive Plan
Eligibility
The 1997 ABCBS/BCBSMo Incentive Plan (AIP) is a short-term
incentive program designed to reward you for the achievement
of corporate and individual goals. As this program is
designed for the President/CEO of both companies, it is a
combination of the ABCBS's and BCBSMo's incentive plans.
ABCBS and BCBSMo reserve the right to update, modify or
repeal this program, permanently or temporarily, if it is in
the best interest of the companies to do so. The
description of this program contained in this booklet should
not be construed to imply that it is an employment contract
for any period of time.
Overall Program Description
For 1997, 50% of your annual incentive opportunity will be
based upon ABCBS corporate financial performance, and 50%
will be based on BCBSMo corporate financial performance.
Two incentive pools, one for each company's performance,
have been established to determine your total incentive
opportunity.
The key element in determining the size of your incentive
pools are: the overall corporate financial performance as
measured by ABCBS's 1997 net income and by BCBSMo's 1997
Operating Profit.
Your total target incentive pool is 43% of your base salary
or salary range midpoint, whichever is higher. The target
pools attributed to ABCBS and BCBSMo are 21.5% and 21.5%,
respectively.
ABCBS's incentive payment and BCBSMo's incentive payment
will be calculated separately, and then combined into your
total incentive payout.
ABCBS Incentive Component
ABCBS Incentive Pool
The key element in determining the size of your ABCBS
incentive pool is the overall corporate financial
performance as measured by the company's 1997 net income.
Your maximum incentive payment will be determined by the
company's financial performance according to the incentive
pool chart below. The actual amount paid will ultimately
depend on the accomplishment of the corporate financial goal
(net income) and individual goals.
Net Income of $2.5 Million must be achieved for any payout
to occur. There will be no incentive payment for
performance below the threshold level.
In 1997, the incentive pool size is expressed as a
percentage of your base salary as of December 31, 1997, or
salary range midpoint, whichever is higher.
ABCBS Incentive Pool Funding
Threshold Target Maximum
Net Income, excluding
one-time charges such
as relocation $2.5 million $7.5 million $11.3 million
Pool Size as a % of
midpoint or base 7% 21.5% 33%
salary:
Source: Corporate Financial Statements
Performance results for the pool will be interpolated.
BCBSMo Incentive Component
BCBSMo Incentive Pool
The key element in determining the size of your BCBSMo
incentive pool is the overall corporate financial
performance as measured by the company's 1997 Operating
Profit, excluding Investment Income, Extraordinary
Income/Expense and Taxes on Income. Your maximum incentive
payment will be determined by the company's financial
performance according to the incentive pool chart below.
The actual amount paid will ultimately depend on the
accomplishment of the corporate financial goal and
individual goals.
The threshold for Operating Profit (a loss of $2.4 Million)
must be achieved for any payout to occur. There will be no
incentive payment for performance below the threshold level.
In 1997, the incentive pool size is expressed as a
percentage of your participantOs base salary as of December
31, 1997, or salary range midpoint, whichever is higher.
BCBSMo Incentive Pool Funding
Threshold Target Maximum
Operating Profit,
excluding
Investment Income,
Extraordinary
Income/Expense and -$2.4 -$1.9 -$1.4
Taxes on Income million million million
Pool Size as a % of
midpoint or base 7% 21.5% 33%
salary:
Source: Corporate Financial Statements
Performance results for the pool will be interpolated.
Corporate and Individual Incentives
The following description applies to both the ABCBS and
BCBSMo components of the incentive plan. This describes the
split between corporate and individual incentives.
Corporate Financial Incentive - 75% of your incentive
payment is based solely on the accomplishment of the
corporate financial goal, i.e., you receive 75% of the
Incentive Payment, based on the Incentive Pool charts for
ABCBS and BCBSMo.
Individual Incentive - Additionally, 25% of your incentive
payment is based on the accomplishment of the corporate
financial goal, but is only paid if you meet your individual
goals.
Your individual goals will be specific and/or unique
discretionary goals that will be tied to and support the
overall corporate goals. These goals may be individual or
team goals that focus on key projects, productivity,
quality, process improvement, or organizational
effectiveness, to which all participants contribute. All
discretionary goals must be approved by the Compensation
Committee of the Board.
Achievement of all individual goal targets will result in a
payout equal to 100% of your potential payout for individual
goals. (The potential payout is based on the available pool
created by corporate financial performance.) The maximum
payout for discretionary and budget goal performance, 150%
of your potential payout for individual goals, may be
achieved based on exceptional performance against individual
goals.
Minimum Incentive Payout -- There is no minimum incentive
for 1997.
Administration of the Program
Year end corporate financial results for 1997 are expected
to be available by March 1998. Overall performance against
the corporate General and Administrative expenses budget
goal, as well as the results of specific group/division
General and Administrative expense budget goals will be
forwarded to Human Resources by the Finance Division. Once
known, your performance results as measured against your
individual discretionary goals should be forwarded to the
appropriate Compensation Committee of the Board for
approval.
After receiving all necessary information, Human Resources
will calculate the incentive payments with payout expected
to occur in March 1998, following acceptance and approval by
the Board of Directors or their designee.
Administration of the Program (continued)
Incentives for those who are promoted into a management
position, move from one management level to another, or move
out of a management position and into another position
within the company, will be prorated according to the number
of full months spent in the eligible position(s).
If the participant moves into or out of an eligible
position, or moves from one AIP level to another, (ex.
Manager to Vice President), the incentive pool will be based
on the participantOs salary range midpoint or base salary,
whichever is higher, for the time spent in that position or
at that level. The actual amount paid will ultimately
depend on the accomplishment of financial and individual
goals.
Incentives for those newly hired into positions eligible for
the AIP will be calculated using the participantOs hire date
rather than a full-month proration.
If an eligible participant receives a performance rating of
DNM (Does Not Meet Standards), he or she will become
ineligible to receive a payment for their participation in
the AIP.
A participant whose employment is terminated during 1997
will be ineligible to receive a payment under this plan,
except when the reason for termination is retirement, job
elimination, or death. In these cases, payments will be
prorated according to the number of full months the
participant spent in the position(s).
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314)
923-4947.
Exhibit 10.58
1997
ABCBS
Incentive
Plan
Chief Internal Auditor
The ABCBS Incentive Plan
Eligibility
The 1997 ABCBS Incentive Plan (AIP) is a short-term incentive
program designed to reward the key management team for the
achievement of financial and individual goals. Those who hold the
title of manager or above, or have an equivalent position during
1997 are eligible to participate.
ABCBS reserves the right to update, modify or repeal this program,
permanently or temporarily, if it is in the best interest of ABCBS
to do so. The description of this program contained in this
booklet should not be construed to imply that it is an employment
contract for any period of time.
Elements
There are two elements that determine a participantOs incentive
payment:
* Achievement of the corporate financial goal as defined by the
company's net income.
* Achievement of pre-determined individual goals (discretionary
and budget goals).
Incentive Pool & Incentive Payment
The key element in determining the size of each participant's
incentive pool is the overall corporate financial performance as
measured by the company's 1997 net income. Your maximum incentive
payment will be determined by the company's financial performance
according to the incentive pool chart below. The actual amount
paid will ultimately depend on the accomplishment of the corporate
financial goal (net income) and individual goals.
Net Income of $2.5 Million must be achieved for any payout to
occur. There will be no incentive payment for performance below
the threshold level.
In 1997, the incentive pool size is expressed as a percentage of
each participant's base salary as of December 31, 1997, or salary
range midpoint, whichever is higher.
Incentive Pool
Threshold Target Maximum
Net Income:* $2.5 million $7.5 million $11.3 million
Pool Size as a % of
midpoint or base 10% 30% 50%
salary:
*Net income is our ABCBS total income, excluding one-time charges,
such as relocation.
Your target incentive pool is 30% of your base salary or salary
range midpoint, whichever is higher.
Source: Corporate Financial Statements
Performance results for the pool will be interpolated.
Corporate Financial Incentive and Individual Incentive
Corporate Financial Incentive - 75% of your incentive payment (from
the available pool described on the previous page) is based solely
on the accomplishment of the corporate financial goal, i.e., you
will receive 75% of the Incentive Payment, based on the Incentive
Pool chart on the previous page.
Individual Incentive - Additionally, 25% of your incentive payment
is funded based on the accomplishment of the corporate financial
goal, but is only paid if you meet your individual goals.
Individual goals will be comprised of two components: discretionary
and budget.
Each participant will have specific, and in many cases, unique
discretionary goals that will be tied to and support ABCBS's
overall corporate goals. These goals may be individual or team
goals that focus on key projects, productivity, quality, process
improvement, or organizational effectiveness, to which all
participants contribute. All discretionary goals must be approved
by the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a payout
equal to 100% of your potential payout for individual goals. (The
potential payout is based on the available pool created by
corporate financial performance.) The maximum payout for
discretionary and budget goal performance, 150% of your potential
payout for individual goals, may be achieved based on exceptional
performance against individual goals. Please see Appendix 1 for
more information pertaining to individual goals.
Minimum Incentive Payout -- There is no minimum incentive for
1997.
Administration of the Program
Year end corporate financial results for 1997 are expected to be
available by March 1998. Overall performance against the corporate
General and Administrative expenses budget goal, as well as the
results of specific group/division General and Administrative
expense budget goals will be forwarded to Human Resources by the
Finance Division. Participants will summarize their performance
against their individual discretionary goals and forward these to
executive management for approval.
After receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to occur in
March 1998, following acceptance and approval by the Board of
Directors or their designee.
Incentives for those who are promoted into a management position,
move from one management level to another, or move out of a
management position and into another position within the company,
will be prorated according to the number of full months spent in
the eligible position(s).
Administration of the Program (continued)
If the participant moves into or out of an eligible position, or
moves from one AIP level to another, (ex. Manager to Vice
President), the incentive pool will be based on the participantOs
salary range midpoint or base salary, whichever is higher, for the
time spent in that position or at that level. The actual amount
paid will ultimately depend on the accomplishment of financial and
individual goals.
Incentives for those newly hired into positions eligible for the
AIP will be calculated using the participant's hire date rather
than a full-month proration.
If an eligible participant receives a performance rating of DNM
(Does Not Meet Standards), he or she will become ineligible to
receive a payment for their participation in the AIP.
A participant whose employment is terminated during 1997 will be
ineligible to receive a payment under this plan, except when the
reason for termination is retirement, job elimination, or death.
In these cases, payments will be prorated according to the number
of full months the participant spent in the position(s).
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314) 923-
4947.
Appendix 1
Individual Incentive Goals - ABCBS
Discretionary Goals
Goal worksheets may be found in "HR Forms" in the Shared Folders.
Target Maximum
Payout schedule as a
% of Individual 80% 120%
Goals:
Budget Goals
Achieve 98% of the budgeted corporate General and Administrative
expenses per member per month of $8.73.
Threshold Target Maximum
G & A costs per
member per month: $8.73 $8.56 $8.47
Payout schedule as a
% of Individual 0% 5% 7.5%
Goals:
Meet group/division General and Administrative budget for
participant's area.
Threshold Target Maximum
Percent of
group/division >101% 100% 98%
budget:
Payout schedule as
a 0% 15% 22.5%
% of Individual
Goals:
Performance results for individual goals will be interpolated.
Exhibit 10.59
1998
ABCBS
Incentive
Plan
Senior Vice President
The ABCBS Incentive Plan
Eligibility
The 1998 ABCBS Incentive Plan (AIP) is a short-term incentive
program designed to reward the key management team for the
achievement of financial and individual goals. This booklet
contains specific incentive plan guidelines designed exclusively
for Senior Vice Presidents of ABCBS.
ABCBS reserves the right to update, modify or repeal this program,
permanently or temporarily, if it is in the best interest of ABCBS
to do so. The description of this program contained in this
booklet should not be construed to imply that it is an employment
contract for any period of time.
Elements
There are two elements that determine a participantOs incentive
payment:
* Achievement of the corporate financial goal as defined by the
company's net income.
* Achievement of pre-determined individual goals (discretionary
and budget goals).
Incentive Pool & Incentive Payment
The key element in determining the size of each participant's
incentive pool is the overall corporate financial performance as
measured by the company's 1998 net income. Your maximum incentive
opportunity will be determined by the company's financial
performance according to the incentive pool chart below. The
actual amount paid will ultimately depend on the accomplishment of
the corporate financial goal (net income) and individual goals.
Net income of $1.8 million must be achieved for any payout to
occur. There will be no incentive payment for performance below
the threshold level.
In 1998, the incentive pool size is expressed as a percentage of
each participant's base salary as of December 31, 1998.
Incentive Pool Funding
Threshold Target Maximum
Net Income:* $1.8 million $5.5 million $8.3 million
Pool Size as a %
of 13% 38% 58%
base salary:
*Net income is ABCBS total income, excluding one time charges.
Source: Corporate Financial Statements
Note: Performance results for the pool will be interpolated.
As a Senior Vice President, your target incentive is 38% of your
base salary.
Corporate Financial Incentive and Individual Incentive
Corporate Financial Incentive - 75% of your incentive payment (from
the available pool described on the previous page) is based solely
on the accomplishment of the corporate financial goal, i.e., you
will receive 75% of the incentive payment as shown in the incentive
pool table on page 2.
Individual Incentive - Additionally, 25% of your incentive payment
is based on the accomplishment of individual goals. The corporate
financial goal result (ABCBS net income) will determine the
incentive pool available for individual goal accomplishment. The
corporate financial goal threshold must be met before any payout
for individual goals will occur.
Individual goals will be comprised of two components: discretionary
and budget. The discretionary and budget goals will be weighted
80% and 20%, respectively.
Each participant will have specific, and in many cases, unique
discretionary goals that will be tied to and support ABCBS's
overall corporate goals. These goals may be individual or team
goals that focus on key projects, productivity, quality, process
improvement, or organizational effectiveness, to which all
participants contribute. All discretionary goals must be approved
by the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a payout
equal to 100% of your potential payout for individual goals. (The
potential payout is based on the available pool created by
corporate financial performance.) The maximum payout for
individual goal performance, 150% of your potential payout for
individual goals, may be achieved based on exceptional performance
against individual goals.
The types and weighting of discretionary goals will vary, but the
sum of their target weights will equal 80%. Goals should be
weighted according to the importance of ABCBS business and
operating objectives, and should include such areas as management
development, organizational effectiveness, process improvement of
division/department operations, and/or major projects.
Target payout percentages for discretionary goals should be equal
to the goal's weight; and, the maximum payout percentage should be
150% of the target payout percentage.
Discretionary Goals
Goal worksheets may be found in "HR Forms" in the Shared/Public
Folders.
Target Maximum
Payout schedule as a
% of Individual 80% 120%
Goals:
Performance results for individual goals will be interpolated.
Budget Goals
Achieve 98% of the budgeted corporate General and Administrative
expenses per member per month of $8.54.
Threshold Target Maximum
G & A costs per
member per month: $8.54 $8.37 $8.28
Payout schedule as a
% of Individual 0% 5% 7.5%
Goals:
Meet group/division General and Administrative budget for
participant's area.
Threshold Target Maximum
Percent of
group/division >101% 100% 98%
budget:
Payout schedule as a
% of Individual 0% 15% 22.5%
Goals:
Administration of the Program
Year-end corporate financial results for 1998 are expected to be
available by March 1999. Overall performance against the corporate
General and Administrative expenses budget goal, as well as the
results of specific group/division General and Administrative
expense budget goals will be forwarded to Human Resources by the
Finance Division. Participants will summarize their performance
against their individual discretionary goals and forward these to
the Executive Vice President of ABCBS, President/CEO, and the
Compensation Committee of the Board for approval.
After receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to occur in
March 1999, following acceptance and approval by the Board of
Directors or their designee.
The size of the Financial Performance Component and the Individual
Performance Component is expressed as a percentage of each
participantOs base salary as of December 31, 1998.
Incentives for those who are promoted into a management position,
move from one management level to another, or move out of a
management position and into another position within the company,
will be prorated according to the number of full months spent in
the eligible position(s). Incentives for those newly hired into
positions eligible for the AIP will be calculated using the
participant's hire date.
If the participant moves into or out of an eligible position, or
moves from one AIP level to another, (ex. Vice President to Senior
Vice President), the incentive pool will be based on the
participant's base salary for the time spent in that position or at
that level. The actual amount paid will ultimately depend on the
accomplishment of financial and individual goals.
If an eligible participant receives a performance rating of DNM
(Does Not Meet Standards) at his or her annual performance review,
he or she will become ineligible to receive an incentive payment
for that year.
A participant whose employment is terminated for any reason during
1998 will be ineligible to receive a payment under this plan. The
only exception to this relates to death while employed. In this
case, the incentive payment will be prorated according to the
number of full months the participant spent in the position(s), and
then paid to the participant's beneficiary, as specified in the
company provided life insurance policy.
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314) 923-
4947.
Exhibit 10.60
1998
ABCBS
Incentive
Plan
Senior Vice President
The ABCBS Incentive Plan
Eligibility
The 1998 ABCBS Incentive Plan (AIP) is a short-term incentive
program designed to reward the key management team for the
achievement of financial and individual goals. This booklet
contains specific incentive plan guidelines designed exclusively
for Senior Vice Presidents of ABCBS.
ABCBS reserves the right to update, modify or repeal this program,
permanently or temporarily, if it is in the best interest of ABCBS
to do so. The description of this program contained in this
booklet should not be construed to imply that it is an employment
contract for any period of time.
Elements
There are two elements that determine a participant's incentive
payment:
* Achievement of the corporate financial goal as defined by the
company's net income.
* Achievement of pre-determined individual goals (discretionary
and budget goals).
Incentive Pool & Incentive Payment
The key element in determining the size of each participant's
incentive pool is the overall corporate financial performance as
measured by the company's 1998 net income. Your maximum incentive
opportunity will be determined by the company's financial
performance according to the incentive pool chart below. The
actual amount paid will ultimately depend on the accomplishment of
the corporate financial goal (net income) and individual goals.
Net income of $1.8 million must be achieved for any payout to
occur. There will be no incentive payment for performance below
the threshold level.
In 1998, the incentive pool size is expressed as a percentage of
each participant's base salary as of December 31, 1998.
Incentive Pool Funding
Threshold Target Maximum
Net Income:* $1.8 million $5.5 million $8.3 million
Pool Size as a %
of 13% 38% 58%
base salary:
*Net income is ABCBS total income, excluding one time charges.
Source: Corporate Financial Statements
Note: Performance results for the pool will be interpolated.
As a Senior Vice President, your target incentive is 38% of your
base salary.
Corporate Financial Incentive and Individual Incentive
Corporate Financial Incentive - 50% of your incentive payment (from
the available pool described on the previous page) is based solely
on the accomplishment of the corporate financial goal, i.e., you
will receive 50% of the incentive payment as shown in the incentive
pool table on page 2.
Individual Incentive - Additionally, 50% of your incentive payment
is based on the accomplishment of individual goals. The corporate
financial goal result (ABCBS net income) will determine the
incentive pool available for individual goal accomplishment. The
corporate financial goal threshold must be met before any payout
for individual goals will occur.
Individual goals will be comprised of two components: discretionary
and budget. The discretionary and budget goals will be weighted
80% and 20%, respectively.
Each participant will have specific, and in many cases, unique
discretionary goals that will be tied to and support ABCBS's
overall corporate goals. These goals may be individual or team
goals that focus on key projects, productivity, quality, process
improvement, or organizational effectiveness, to which all
participants contribute. All discretionary goals must be approved
by the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a payout
equal to 100% of your potential payout for individual goals. (The
potential payout is based on the available pool created by
corporate financial performance.) The maximum payout for
individual goal performance, 150% of your potential payout for
individual goals, may be achieved based on exceptional performance
against individual goals.
The types and weighting of discretionary goals will vary, but the
sum of their target weights will equal 80%. Goals should be
weighted according to the importance of ABCBS business and
operating objectives, and should include such areas as management
development, organizational effectiveness, process improvement of
division/department operations, and/or major projects.
Target payout percentages for discretionary goals should be equal
to the goal's weight; and, the maximum payout percentage should be
150% of the target payout percentage.
Discretionary Goals
Goal worksheets may be found in "HR Forms" in the Shared/Public
Folders.
Target Maximum
Payout schedule as a
% of Individual 80% 120%
Goals:
Performance results for individual goals will be interpolated.
Budget Goals
Achieve 98% of the budgeted corporate General and Administrative
expenses per member per month of $8.54.
Threshold Target Maximum
G & A costs per
member per month: $8.54 $8.37 $8.28
Payout schedule as a
% of Individual 0% 5% 7.5%
Goals:
Meet group/division General and Administrative budget for
participant's area.
Threshold Target Maximum
Percent of
group/division >101% 100% 98%
budget:
Payout schedule as a
% of Individual 0% 15% 22.5%
Goals:
Administration of the Program
Year-end corporate financial results for 1998 are expected to be
available by March 1999. Overall performance against the corporate
General and Administrative expenses budget goal, as well as the
results of specific group/division General and Administrative
expense budget goals will be forwarded to Human Resources by the
Finance Division. Participants will summarize their performance
against their individual discretionary goals and forward these to
the Executive Vice President of ABCBS, President/CEO, and the
Compensation Committee of the Board for approval.
After receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to occur in
March 1999, following acceptance and approval by the Board of
Directors or their designee.
The size of the Financial Performance Component and the Individual
Performance Component is expressed as a percentage of each
participant's base salary as of December 31, 1998.
Incentives for those who are promoted into a management position,
move from one management level to another, or move out of a
management position and into another position within the company,
will be prorated according to the number of full months spent in
the eligible position(s). Incentives for those newly hired into
positions eligible for the AIP will be calculated using the
participant's hire date.
If the participant moves into or out of an eligible position, or
moves from one AIP level to another, (ex. Vice President to Senior
Vice President), the incentive pool will be based on the
participant's base salary for the time spent in that position or at
that level. The actual amount paid will ultimately depend on the
accomplishment of financial and individual goals.
If an eligible participant receives a performance rating of DNM
(Does Not Meet Standards) at his or her annual performance review,
he or she will become ineligible to receive an incentive payment
for that year.
A participant whose employment is terminated for any reason during
1998 will be ineligible to receive a payment under this plan. The
only exception to this relates to death while employed. In this
case, the incentive payment will be prorated according to the
number of full months the participant spent in the position(s), and
then paid to the participant's beneficiary, as specified in the
company provided life insurance policy.
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314) 923-
4947.
Exhibit 10.61
1998
ABCBS/BCBSMo
Incentive
Plan
President/CEO
The ABCBS/BCBSMo Incentive Plan
Eligibility
The 1998 ABCBS Incentive Plan (AIP) and the 1998 BCBSMo
Management Incentive Plan (MIP) are short-term incentive
programs designed to reward the key management team for the
achievement of financial and individual goals. As this
program is designed exclusively for the President/CEO of
both companies, it is a combination of the ABCBS's and
BCBSMo's incentive plans.
ABCBS and BCBSMo reserve the right to update, modify or
repeal this program, permanently or temporarily, if it is in
the best interest of the companies to do so. The
description of this program contained in this booklet should
not be construed to imply that it is an employment contract
for any period of time.
Overall Program Description
For 1998, 50% of your annual incentive opportunity will be
based upon ABCBS corporate financial performance, and 50%
will be based on BCBSMo corporate financial performance.
Two incentive pools, one for each company's performance,
have been established to determine your total incentive
opportunity.
The key element in determining the size of your incentive
pools are: the overall corporate financial performance as
measured by ABCBS's 1998 net income and by BCBSMo's 1998
operating income.
Your total target incentive pool is 43% of your base salary.
The target pools attributed to ABCBS and BCBSMo are 21.5%
and 21.5%, respectively.
ABCBS's incentive payment and BCBSMo's incentive payment
will be calculated separately, and then combined into your
total incentive payout.
ABCBS Incentive Component
ABCBS Incentive Pool
The key element in determining the size of your ABCBS
incentive pool is the overall corporate financial
performance as measured by the company's 1998 net income.
Your maximum incentive payment will be determined by the
company's financial performance according to the incentive
pool chart below. The actual amount paid will ultimately
depend on the accomplishment of the corporate financial goal
(net income) and individual goals.
Net income of $1.8 million must be achieved for any payout
to occur. There will be no incentive payment for
performance below the threshold level.
In 1998, the incentive pool size is expressed as a
percentage of your base salary as of December 31, 1998.
ABCBS Incentive Pool Funding
Threshold Target Maximum
Net Income:* $1.8 $5.5 $8.3
million million million
Pool Size as a %
of 7% 21.5% 33%
base salary:
*Net income is ABCBS total income, excluding one time
charges.
Source: Corporate Financial Statements
Note: Performance results for the pool will be
interpolated.
BCBSMo Incentive Component
BCBSMo Incentive Pool
The key element in determining the size of your BCBSMo
incentive pool is the overall corporate financial
performance as measured by the company's 1998 operating
income. Your maximum incentive payment will be determined by
the company's financial performance according to the
incentive pool chart below. The actual amount paid will
ultimately depend on the accomplishment of the corporate
financial goal (operating income) and individual goals.
Operating income of $1.25 million must be achieved for any
payout to occur. There will be no incentive payment for
performance below the threshold level.
In 1998, the incentive pool size is expressed as a
percentage of your base salary as of December 31, 1998.
BCBSMo Incentive Pool Funding
Threshold Target Maximum
Operating Income:* $1.25 $2.00 $2.75
million million million
Pool Size as a %
of 7% 21.5% 33%
base salary:
*Operating Income is income excluding non-reoccurring items
as reported on the BCBSMo monthly financial statement.
Specific exclusions include investment income/loss,
extraordinary income and expenses, and taxes.
Note: Performance results for the pool will be interpolated.
Corporate and Individual Incentives
The following description applies to both the ABCBS and
BCBSMo components of the incentive plan. This describes the
split between corporate and individual incentives.
Corporate Financial Incentive - 75% of your incentive
payment is based solely on the accomplishment of the
corporate financial goal, i.e., you receive 75% of the
incentive payment based on the Incentive Pool charts for
ABCBS and BCBSMo.
Individual Incentive - Additionally, 25% of your incentive
payment is based on the accomplishment of individual goals.
Corporate financial goal results (ABCBS net income and
BCBSMo operating income) will determine the incentive pools
available for individual goal accomplishment. Corporate
financial goal thresholds must be met before any payout for
individual goals will occur.
Your individual goals will be specific and/or unique
discretionary goals that will be tied to and support the
overall corporate goals. These goals may be individual or
team goals that focus on key projects, productivity,
quality, process improvement, or organizational
effectiveness, to which all participants contribute. All
discretionary goals must be approved by the Compensation
Committee of the Board.
Achievement of all individual goal targets will result in a
payout equal to 100% of your potential payout for individual
goals. (The potential payout is based on the available pool
created by corporate financial performance.) The maximum
payout for individual goal performance, 150% of your
potential payout for individual goals, may be achieved based
on exceptional performance against individual goals.
Minimum Incentive Payout -- There is no minimum incentive
for 1998.
Administration of the Program
Year-end corporate financial results for 1998 are expected
to be available by March 1999. Once known, your performance
results as measured against your individual discretionary
goals should be forwarded to the Compensation Committee of
the Board for approval. After receiving all necessary
information, Human Resources will calculate the incentive
payments with payout expected to occur in March 1999,
following acceptance and approval by the Board of Directors
or their designee.
Incentives for those who are promoted into a management
position, move from one management level to another, or move
out of a management position and into another position
within the company, will be prorated according to the number
of full months spent in the eligible position(s).
Incentives for those newly hired into positions eligible for
the AIP/MIP will be calculated using the participant's hire
date.
Administration of the Program (continued)
The size of the financial and individual performance
components is expressed as a percentage of your base salary
as of December 31, 1998. If the participant moves into or
out of an eligible position, or moves from one AIP/MIP level
to another, (ex. Vice President to Senior Vice President),
the incentive pool will be based on the participant's base
salary for the time spent in that position or at that level.
The actual amount paid will ultimately depend on the
accomplishment of financial and individual goals.
If an eligible participant receives a performance rating of
DNM (Does Not Meet Standards) at his or her annual
performance review, he or she will become ineligible to
receive an incentive payment for that year.
A participant whose employment is terminated for any reason
during 1998 will be ineligible to receive a payment under
this plan. The only exception to this relates to death
while employed. In this case, the incentive payment will be
prorated according to the number of full months the
participant spent in the position(s), and then paid to the
participant's beneficiary, as specified in the company
provided life insurance policy.
If you have any questions about the AIP/MIP, contact Joe
Jones, Incentive Compensation Analyst in Human Resources at
(314) 923-4947.
Exhibit 10.62
1998
ABCBS
Incentive
Plan
Executive Vice President
The ABCBS Incentive Plan
Eligibility
The 1998 ABCBS Incentive Plan (AIP) is a short-term
incentive program designed to reward the key management team
for the achievement of financial and individual goals. This
booklet contains specific incentive plan guidelines designed
exclusively for the Executive Vice President of ABCBS.
ABCBS reserves the right to update, modify or repeal this
program, permanently or temporarily, if it is in the best
interest of the company to do so. The description of this
program contained in this booklet should not be construed to
imply that it is an employment contract for any period of
time.
Overall Program Description
The key element in determining your AIP incentive
opportunity is overall corporate financial performance as
measured by ABCBS's 1998 net income. Your incentive
opportunity is based on ABCBS's accomplishment of specific
and previously determined net income goals. An incentive
pool will be created as long as ABCBS meets a threshold
level of net income shown on page 2. As net income rises
above this threshold, so will your incentive opportunity.
For 1998, your target incentive is 43% of your base salary.
This target percentage is aligned with ABCBS's target net
income objective as shown in the incentive pool table on
page 2.
Incentive Pool
The key element in determining the size of your incentive
pool is the overall corporate financial performance as
measured by the company's 1998 net income. Your maximum
incentive payment will be determined by the company's
financial performance according to the incentive pool chart
below. The actual amount paid will ultimately depend on the
accomplishment of the corporate financial goal (net income)
and individual goals.
Net income of $1.8 million must be achieved for any payout
to occur. There will be no incentive payment for
performance below the threshold level.
In 1998, the incentive pool size is expressed as a
percentage of your base salary as of December 31, 1998.
Incentive Pool Funding
Threshold Target Maximum
Net Income:* $1.8 $5.5 $8.3
million million million
Pool Size as a %
of 14% 43% 66%
base salary:
*Net income is ABCBS total income, excluding one time
charges.
Source: Corporate Financial Statements
Note: Performance results for the pool will be
interpolated.
Corporate and Individual Incentives
Corporate Financial Incentive - 75% of your incentive
payment is based solely on the accomplishment of the
corporate financial goal, i.e., you receive 75% of the
incentive payment as shown in the incentive pool table on
page 2.
Individual Incentive - Additionally, 25% of your incentive
payment is based on the accomplishment of individual goals.
The corporate financial goal result (ABCBS net income) will
determine the incentive pool available for individual goal
accomplishment. The corporate financial goal threshold must
be met before any payout for individual goals will occur.
Your individual goals will be specific and/or unique
discretionary goals that will be tied to and support the
overall corporate goals. These goals may be individual or
team goals that focus on key projects, productivity,
quality, process improvement, or organizational
effectiveness, to which all participants contribute. All
discretionary goals must be approved by the President/CEO
and the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a
payout equal to 100% of your potential payout for individual
goals. (The potential payout is based on the available pool
created by corporate financial performance.) The maximum
payout for individual goal performance, 150% of your
potential payout for individual goals, may be achieved based
on exceptional performance against individual goals.
Minimum Incentive Payout -- There is no minimum incentive
for 1998.
Administration of the Program
Year-end corporate financial results for 1998 are expected
to be available by March 1999. Once known, your performance
results as measured against your individual discretionary
goals should be forwarded to the President/CEO and the
Compensation Committee of the Board for approval. After
receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to
occur in March 1999, following acceptance and approval by
the Board of Directors or their designee.
Incentives for those who are promoted into a management
position, move from one management level to another, or move
out of a management position and into another position
within the company, will be prorated according to the number
of full months spent in the eligible position(s).
Incentives for those newly hired into positions eligible for
the AIP will be calculated using the participant's hire
date.
Administration of the Program (continued)
The size of the financial and individual performance
components is expressed as a percentage of your base salary
as of December 31, 1998. If the participant moves into or
out of an eligible position, or moves from one AIP level to
another, (ex. Vice President to Senior Vice President), the
incentive pool will be based on the participant's base
salary for the time spent in that position or at that level.
The actual amount paid will ultimately depend on the
accomplishment of financial and individual goals.
If an eligible participant receives a performance rating of
DNM (Does Not Meet Standards) at his or her annual
performance review, he or she will become ineligible to
receive an incentive payment for that year.
A participant whose employment is terminated for any reason
during 1998 will be ineligible to receive a payment under
this plan. The only exception to this relates to death
while employed. In this case, the incentive payment will be
prorated according to the number of full months the
participant spent in the position(s), and then paid to the
participant's beneficiary, as specified in the company
provided life insurance policy.
If you have any questions about the AIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314)
923-4947.
Exhibit 10.63
1998
BCBSMo
Management
Incentive
Plan
Executive Vice President
The BCBSMo Management Incentive Plan
Eligibility
The 1998 BCBSMo Management Incentive Plan (MIP) is a short-
term incentive program designed to reward the key management
team for the achievement of financial and individual goals.
This booklet contains specific incentive plan guidelines
designed exclusively for the Executive Vice President of
BCBSMo.
BCBSMo reserves the right to update, modify or repeal this
program, permanently or temporarily, if it is in the best
interest of the company to do so. The description of this
program contained in this booklet should not be construed to
imply that it is an employment contract for any period of
time.
Overall Program Description
The key element in determining your MIP incentive
opportunity is overall corporate financial performance as
measured by BCBSMo's 1998 operating income. Your incentive
opportunity is based on BCBSMo's accomplishment of specific
and previously determined operating income goals. An
incentive pool will be created as long as BCBSMo meets a
threshold level of operating income shown on page 2. As
operating income rises above this threshold, so will your
incentive opportunity.
For 1998, your target incentive is 43% of your base salary.
This target percentage is aligned with BCBSMo's target
operating income objective as shown in the incentive pool
table on page 2.
Incentive Pool
The key element in determining the size of your incentive
pool is the overall corporate financial performance as
measured by the company's 1998 operating income. Your
maximum incentive payment will be determined by the
company's financial performance according to the incentive
pool chart below. The actual amount paid will ultimately
depend on the accomplishment of the corporate financial goal
(operating income) and individual goals.
Operating income of $1.25 million must be achieved for any
payout to occur. There will be no incentive payment for
performance below the threshold level.
In 1998, the incentive pool size is expressed as a
percentage of your base salary as of December 31, 1998.
Incentive Pool Funding
Threshold Target Maximum
Operating Income:* $1.25 $2.00 $2.75
million million million
Pool Size as a %
of 14% 43% 66%
base salary:
*Operating Income is income excluding non-reoccurring items
as reported on the BCBSMo monthly financial statement.
Specific exclusions include investment income/loss,
extraordinary income and expenses, and taxes.
Note: Performance results for the pool will be interpolated.
Corporate and Individual Incentives
Corporate Financial Incentive - 75% of your incentive
payment is based solely on the accomplishment of the
corporate financial goal, i.e., you receive 75% of the
incentive payment as shown in the incentive pool table on
page 2.
Individual Incentive - Additionally, 25% of your incentive
payment is based on the accomplishment of individual goals.
The corporate financial goal result (BCBSMo operating
income) will determine the incentive pool available for
individual goal accomplishment. The corporate financial
goal threshold must be met before any payout for individual
goals will occur.
Your individual goals will be specific and/or unique
discretionary goals that will be tied to and support the
overall corporate goals. These goals may be individual or
team goals that focus on key projects, productivity,
quality, process improvement, or organizational
effectiveness, to which all participants contribute. All
discretionary goals must be approved by the President/CEO
and the Compensation Committee of the Board.
Achievement of all individual goal targets will result in a
payout equal to 100% of your potential payout for individual
goals. (The potential payout is based on the available pool
created by corporate financial performance.) The maximum
payout for individual goal performance, 150% of your
potential payout for individual goals, may be achieved based
on exceptional performance against individual goals.
Minimum Incentive Payout -- There is no minimum incentive
for 1998.
Administration of the Program
Year-end corporate financial results for 1998 are expected
to be available by March 1999. Once known, your performance
results as measured against your individual discretionary
goals should be forwarded to the President/CEO and the
Compensation Committee of the Board for approval. After
receiving all necessary information, Human Resources will
calculate the incentive payments with payout expected to
occur in March 1999, following acceptance and approval by
the Board of Directors or their designee.
Incentives for those who are promoted into a management
position, move from one management level to another, or move
out of a management position and into another position
within the company, will be prorated according to the number
of full months spent in the eligible position(s).
Incentives for those newly hired into positions eligible for
the MIP will be calculated using the participant's hire
date.
Administration of the Program (continued)
The size of the financial and individual performance
components is expressed as a percentage of your base salary
as of December 31, 1998. If the participant moves into or
out of an eligible position, or moves from one MIP level to
another, (ex. Vice President to Senior Vice President), the
incentive pool will be based on the participant's base
salary for the time spent in that position or at that level.
The actual amount paid will ultimately depend on the
accomplishment of financial and individual goals.
If an eligible participant receives a performance rating of
DNM (Does Not Meet Standards) at his or her annual
performance review, he or she will become ineligible to
receive an incentive payment for that year.
A participant whose employment is terminated for any reason
during 1998 will be ineligible to receive a payment under
this plan. The only exception to this relates to death
while employed. In this case, the incentive payment will be
prorated according to the number of full months the
participant spent in the position(s), and then paid to the
participant's beneficiary, as specified in the company
provided life insurance policy.
If you have any questions about the MIP, contact Joe Jones,
Incentive Compensation Analyst in Human Resources at (314)
923-4947.
Exhibit 10.64
GUARANTOR AGREEMENT
HMO MISSOURI, INC.
and
BLUE CROSS AND BLUE SHIELD OF MISSOURI
This Agreement is made and entered into as of this 30th day
of July, 1987, by and between HMO Missouri, Inc., a
corporation organized under the laws of the State of
Missouri (hereinafter referred to as "HMO") and Blue Cross
and Blue Shield of Missouri (hereinafter referred to as
"BCBSMo"), a corporation organized and existing under the
laws of the State of Missouri.
WHEREAS, HMO is desirous of operating a health
maintenance organization to arrange and pay for the
provision of medical and hospital services; and
WHEREAS, HMO intends to enter into agreement with groups
and individuals to arrange for the provision of medical
and hospital services to Subscribers and their Dependents
and with providers to deliver these services; and
WHEREAS , BCBSMo is desirous of assisting in the development
of HMO by entering into a grantor agreement which will
protect Subscribers and their Dependents in the event of
insolvency so as to constitute an insolvency protection
plan.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and benefits hereinafter described, the
parties hereto agree as follows:
1. Definitions
A. "Group" means a business, association or other
such organization which offers the medical and
hospital services arranged by HMO as a health
benefits plan for its employees or members.
B. "Subscriber" means a person (1) who is a member
or employee of a Group and who meets the
eligibility requirements of, and has been
enrolled ~n accordance with a medical and hospital
service agreement between HMO and Group or (2)
who is a party to a non-group medical and hospital
service agreement with HMO.
C. "Dependent" means any member of a Subscriber's
family who meets the applicable eligibility
requirements of, and has been enrolled in
accordance with a group or non-group medical and
hospital service agreement as applicable.
D. "Member" means a Subscriber or Dependent.
E. "Insolvency" means wither (1) or (2) below:
(1) determination by the appropriate state
department that HMO is
no longer financially responsible and is unable
to meet its obligations, or
2) the inability of any Member to receive treatment or
benefits under the HMO's Group or Non-Group medical and
hospital service agreements as a result of the financial
inability of HMO to meet its obligations under such
member agreements and/or any agreements with health care
providers.
2. Obligations of BCBSMo
In the event of HMO's insolvency, BCBSMo agrees:
A. To pay all expenses and claims incurred by HMO prior
to insolvency, and all expenses and claims incurred by HMO
subsequent to insolvency pursuant to its obligations under
its agreements with Groups and Subscribers, until the end
of the contract period for which payment has been made in
accordance with such agreement (subject to the
limitations of Section II. B.). Such expenses and
claims shall include, but not limited to, all hospital
charges (subject to the limitations of Section II. B.)
and any other fee-for-service bill(s) for services and/or
benefits for which HMO is liable, capitation payments to
health care providers who have contracted with HMO, and
payments to health care providers not under contract with
HMO for covered services rendered to a Member.
B. To pay all expenses and claims associated with the
continuation of benefits and services under the agreements
with Group and Subscribers or Members who are confined on
the date of Insolvency in an inpatient facility up to
Member's discharge or the transfer of Member to another
health plan providing substantially equivalent benefits,
whichever first occurs.
3 Obligations of HMO
In consideration for the obligations of BCBSMo set
forth in this Agreement, HMO agrees to proceed with its
application to the Missouri Division of Insurance to
become and remain a Licensed prepaid health care
delivery plan under the State of Missouri.
4. Miscellaneous
A. This Agreement shall become effective on the
date HMO receives a certificate of authority to
operate a health maintenance organization in the
State of Missouri and shall continue thereafter
until mutually rescinded by the parties; provided,
however, that such recision shall not be effective
until thirty (30) days after notice has been
given to the Missouri Division of Insurance.
B. Any notice required to be given pursuant to the
terms and provisions hereof shall be in writing
and shall be sent by certified mail, return
receipt required, postage prepaid, to HMO at:
Blue Cross and Blue Shield of Missouri
6644 Forest Park
St. Louis, Missouri 63108-2292
and to BCBSMo at:
980 Jolly Road
P.O. Box 1109
Blue Bell, Pennsylvania 9422
C. This Agreement constitutes the entire understanding
between the parties hereto, and no changes,
amendments or alterations shall be effective unless
agreed to in writing by all parties to this Agreement.
D. This Agreement, intending to secure the services of
BCBSMo, shall not be assigned, sublet or transferred by
BCBSMo without the written consent of HMO.
The invalidity of unenforceability of any terms or
provisions hereof shall in no way affect the validity or
enforceability or any other term or provision.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
HMO MISSOURI, INC. (HMO)
By: /s/ Seymour Kaplan
Title: Chief Executive Officer
Date: July 30, 1987
BLUE CROSS AND BLUE SHIELD OF MISSOURI (BCBSMo)
By: /s/ Roy Heimburger
Title: President and Chief Executive Officer
Date: July 30, 1987
Exhibit 10.65
LINE OF CREDIT AGREEMENT
HMO MISSOURI, INC.
AND
BLUE CROSS AND BLUE SHIELD OF MISSOURI
THIS AGREEMENT is made and entered into this 30th day of
July, 1987 by and between HMO Missouri, Inc., a Missouri
corporation, (hereinafter referred to as "HMO") and Blue
Cross and Blue Shield of Missouri (hereinafter referred to
as "BCBSMo"), a corporation organized and existing under the
laws of the State of Missouri.
NOW, THEREFORE, in consideration of the mutual agreements
and covenants herein contained, the parties hereto agree as
follows:
BCBSMo hereby grants an irrevocable of credit to HMO in the
amount of Three Million Five Hundred Thousand Dollars
($3,500,000) to be used at such time and in such amounts
as shall be required by HMO in order to finance future
operating costs and to meet further cash needs. Credit
shall be extended subject to the following terms and
conditions:
1. Advances Under Line of Credit. HMO may draw upon the
line of credit from time to time by written request from a
duly authorized officer to a duly authorized office of
BCBSMo, stating the amount and proposed date of such draw.
Upon approval by BCBSMo, such sums as have been so approved
shall constitute a debt of HMO to BCBSMo on which interest
shall accrue on any rate of return being earned by BCBSMo on
its investments. A record of all funds drawn shall be
maintained by the Treasurer of BCBSMo.
BCBSMo may at any time declare the indebtedness, together
with accrued interest thereon, to be due and payable,
whereupon such amounts shall become immediately due and
payable. BCBSMo, shall promptly advise HMO of any such
declaration, but failure to do so shall not impair the
effect of such declaration.
2. Successors and Assigns. This Agreement shall be
binding upon BCBSMo and HMO shall not be assigned, sublet,
delegated or transferred without written consent of both
parties. With such written consent, this Agreement shall be
binding upon each party's respective successors and assigns
and shall inure to the benefit of the respective successors
and assigns of HMO and BCBSMo.
3. Governing Law. This Agreement is to be construed under
the laws of the State of Missouri.
4. Subordination Agreement. This Agreement shall be
subject to the restrictions and limitations set forth in the
Subordination Agreement executed in conjunction with this
Agreement, a copy of which is attached hereto and
incorporated herein by reference.
5. Entire Agreement. This Agreement constitutes the
entire understanding between the parties hereto, and no
changes, amendments or alterations shall be effective unless
agreed to in writing by all parties to this Agreement and
prior approval obtained from the Directors of the Missouri
Division of Insurance. Notice to or consent of Members
shall not be required to effect any modifications to this
Agreement.
6. Miscellaneous. This Agreement is an integrated
document, and all terms and provisions are embodied herein
and shall not be varied by parol.
No delay or failure of either party in exercising any
right, power or privilege hereunder shall affect such
right, power or privilege, nor shall any single or
partial exercise preclude any further exercise thereof or the
exercise of any other rights, powers or
privileges.
The captions for the paragraphs contained in this
Agreement have been inserted for convenience only and
form no part of this Agreement and shall not be deemed to
affect the meaning or construction of any of the
conditions or terms hereof, and wherever the context so
requires, words used in this Agreement in the singular
shall include the plural and words used in the plural
shall include the singular.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
HMO MISSOURI, INC. (HMO)
By: /s/ Seymour Kaplan
Title: Chief Executive Officer
Date: July 30, 1987
BLUE CROSS AND BLUE SHIELD OF MISSOURI (BCBSMo)
By: /s/ Roy Heimburger
Title: President and Chief Executive Officer
Date: July 30, 1987
Exhibit 10.66
SUBORDINATION AGREEMENT
HMO MISSOURI, INC.
AND
BLUE CROSS AND BLUE SHIELD OF MISSOURI
This Subordination Agreement made and executed this 30th day of
July, 1987, by and between HMO Missouri, Inc. ("HMO"), a Missouri
Corporation, and Blue Cross and Blue Shield of Missouri
("BCBSMo") is made in reference to the following facts:
A. BCBSMo is related to HMO in that HMO is a wholly-owned
subsidiary of BCBSMo.
B. HMO seeks to maintain the necessary approvals of a state
licensed and federally qualified health maintenance organization.
C. In order to assure the federal government and the State of
Missouri of the financial viability of HMO, BCBSMo will, with the
execution of this Agreement, extend a line of credit to HMO in
the amount of $3,500,000.
D. It is necessary for BCBSMo irrevocably and fully to
subordinate all right, title and interest to receive payment of
principal and interest on such amounts as are advanced, to all
other present and future creditors of HMO.
NOW, THEREFORE, in consideration of the mutual covenants and
promises hereinafter set forth, HMO and BCBSMo do agree as
follows:
1. Concurrent with the execution of the Subordination
Agreement, HMO will execute a line of credit agreement as set
forth in Paragraph C above.
2. BCBSMo hereby covenants and agrees with respect to any
indebtedness incurred under such line of credit agreement as
follows:
a. to irrevocably and fully subordinate all right, title and
interest in and to said indebtedness to all other present and
future creditors of HMO;
b. that the payment by HMO of principal and/or interest to
BCBSMo pursuant to such line of credit shall be suspended where
either the federal government or the State of Missouri advises
HMO in writing that making any such payment shall jeopardize the
financial stability of HMO;
c. that in the event of liquidation and dissolution, the
payment by HMO of an indebtedness pursuant to such line of credit
is fully subordinated and subject to the prior payment or
provision for payment in full of any claims of all other present
and future creditors of HMO;
d. that BCBSMo shall seek payment of indebtedness pursuant to
such line of credit exclusively from the surpluses generated from
HMOs operations and shall have no recourse against any HMO
reserve funds.
3. This Subordination Agreement shall not be subject to
cancellation by either HMO or BCBSMo, nor may this Subordination
Agreement be terminated, rescinded or modified by mutual consent
or otherwise, except that either party may assign its rights and
responsibilities under this Agreement with the written consent of
the other party and with prior approval by the Commissioner of
the Missouri Insurance Department.
4. This instrument embodies the entire Subordination Agreement
between HMO and BCBSMo.
5. The provisions of this Subordination Agreement shall be
binding upon BCBSMo.
6. This Subordination Agreement shall be deemed to have been
under, and shall be governed by the laws of the State of Missouri
in all respects.
IN WITNESS WHEREOF, the parties have executed this Agreement.
HMO MISSOURI, INC. (HMO) BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ Seymour Kaplan By: /s/ Roy Heimburger
Title: Chief Executive Officer Title: President and Chief
Executive Officer
Date: July 30, 1987 Date: July 30, 1987
Exhibit 10.67
AGREEMENT OF INDEMNIFICATION
AGREEMENT OF INDEMNIFICATION, dated as of August
8, 1994, by and between BLUE CROSS AND BLUE SHIELD OF
MISSOURI, a Missouri not-for-profit corporation ("BCBSMo")
and RIGHTCHOICE MANAGED CARE, INC., a Missouri corporation
("RightCHOICE").
W I T N E S S E T H
WHEREAS, the parties have entered into that
certain Reorganization Agreement, dated as of August 8, 1994
(the "Reorganization Agreement'), by and among BCBSMo,
RightCHOICE and Healthy Alliance Life Insurance Company, a
Missouri insurance company;
WHEREAS, pursuant to the terms of the
Reorganization Agreement RightCHOICE has agreed to assume
certain liabilities and obligations of BCBSMo, and BCBSMo
has agreed to retain and discharge certain other liabilities
and obligations of BCBSMo;
WHEREAS, BCBSMo wishes to indemnify and hold
harmless RightCHOICE for any liabilities and obligations of
BCBSMo retained by BCBSMo pursuant to the terms of the
Reorganization Agreement;
WHEREAS, RightCHOICE wishes to indemnify and
hold harmless BCBSMo for any liabilities and obligations of
BCBSMo assumed by RightCHOICE pursuant to the terms of the
Reorganization Agreement;
WHEREAS, it is a condition precedent to the terms of
the Reorganization Agreement that the parties enter into
this Agreement;
WHEREAS, the parties hereto desire to satisfy
such condition by entering into this Agreement pursuant to
which each party will indemnify the other party and its
subsidiaries;
NOW, THEREFORE, in consideration of the
foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND CONSTRUCTION
SECTION 1.01. Definitions. For purposes of this
Agreement, capitalized terms shall, unless otherwise
specified herein, have the meanings specified in the
Reorganization Agreement (such meanings to be equally
applicable to both the singular and plural forms of the
terms defined).
SECTION 1.02. Construction. In this Agreement,
unless the context otherwise requires:
(a) Articles and Sections referred to by
number shall mean the corresponding Articles and Sections of
this Agreement.
(b) The terms "hereby," "hereof," 'hereto,"
"herein," "hereunder," and any similar terms, as used in
this Agreement refer to this Agreement, and the term
"hereafter" shall mean after, and the term "heretofore"
shall mean before the date of execution of this Agreement.
(c) Words of the masculine gender shall be
deemed and construed to include correlative words of the
feminine and neuter genders. Words importing the singular
number shall include the plural number and vice versa, and
words importing persons shall include corporations and
associations, including public bodies, as well as natural
persons.
ARTICLE II
INDEMNIFICATION
SECTION 2.01. Indemnification.
(a) BCBSMo shall indemnify and hold
harmless RightCHOICE and each of its subsidiaries and their
respective officers, directors, shareholders, agents,
employees, representatives, successors and assigns from and
against any and all losses, claims, damages, obligations,
demands, assessments, judgments, liabilities (whether based
on contract, tort or otherwise) or expenses (including,
without limitation, settlement costs and reasonable legal or
other expenses for investigating or defending any action or
threatened action) based on, or directly or indirectly
resulting from or in connection with the Excluded
Liabilities .
(b) RightCHOICE shall indemnify and hold
harmless BCBSMo and each of its subsidiaries and their
respective officers, directors, shareholders, agents,
employees, representatives, successors and assigns from and
against any and all losses, claims, damages, obligations,
demands, assessments, judgments, liabilities (whether based
on contract, tort or otherwise) or expenses (including,
without limitation, settlement costs and reasonable legal or
other expenses for investigating or defending any action or
threatened action) based on, or directly or indirectly
resulting from or in connection with the Assumed
Liabilities.
SECTION 2.02 Procedure. All claims for
indemnification by a party under this Agreement (the party
claiming indemnification and the party against whom such
claims are asserted being hereinafter called the
"Indemnified Party" and the "Indemnifying Party,"
respectively) shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party
hereunder is asserted against or sought to be collected from
such Indemnified Party by a third party, such Indemnified
Party shall with reasonable promptness give notice (the
"Claim Notice'") to the Indemnifying Party of such claim or
demand, specifying the nature of and specific basis for such
claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall
not he conclusive of the final amount of such claim and
demand). The Indemnifying Party shall not be obligated to
indemnify an Indemnified Party under this Agreement with
respect to any such claim or demand if such Indemnified
Party fails to notify the Indemnifying Party thereof in
accordance with the provisions of this Agreement, and, as a
result of such failure, the Indemnifying Party's ability to
defend against the claim or demand is materially prejudiced.
The Indemnifying Party shall have thirty (30) days from the
delivery or mailing of the Claim Notice (the "Notice
Period") to notify an Indemnified Party (i) whether or not
it disputes the liability of the Indemnifying Party to such
Indemnified Party hereunder with
respect to such claim or demand, and (ii) whether or not it
desires, at the cost and expense of the Indemnifying Party,
to defend the Indemnified Party against such claim or
demand; provided, however, that any Indemnified Party is
hereby authorized, but is not obligated, prior to and during
the Notice Period, to file any motion, answer or other
pleading that it shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party. If
the Indemnifying Party notifies the Indemnified Party within
the Notice Period that it desires to defend the Indemnified
Party against such claim or demand, the Indemnifying Party
shall, subject to the last sentence of this paragraph, have
the right to control the defense against the claim by all
appropriate proceedings and any settlement negotiations. If
the Indemnified Party desires to participate in, but not
control, any such defense or settlement, it may do so at its
sole cost and expense. If the Indemnifying Party fails to
respond to the Indemnified Party within the Notice Period,
elects not to defend the Indemnified Party, or after
electing to defend fails to commence or reasonably pursue
such defense, then the Indemnified Party shall have the
right, but not the obligation, to undertake or continue the
defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter all
on behalf, for the account and at the risk of the
Indemnifying Party.
(b) If requested by an Indemnifying Party,
each Indemnified Party agrees, at the Indemnifying Party's
expense, to cooperate with the Indemnifying Party and its
counsel in contesting am claim or demand which the
Indemnifying Party elects to contest, or, if appropriate and
related to the claim in question, in making any counterclaim
against the person asserting the third party claim or
demand, or any cross-complaint against any person. No claim
as to which indemnification is sought under this Agreement
may be settled without the consent of the Indemnifying
Party, except as provided in paragraph (a) of this Section.
(c) If an Indemnified Party should have a
claim against an Indemnifying Parry hereunder which does nor
involve a claim or demand being asserted against or sought
to be collected from it by a third party, the Indemnified
Party shall send a Claim Notice with respect to such claim
to the Indemnifying Party. If the Indemnifying Party
disputes such claim, such dispute shall be resolved by
litigation in an appropriate court of competent
jurisdiction,
SECTION 2.03. Costs. If any legal action or
other proceeding is brought for the enforcement or
interpretation of any of the rights or provisions of this
Agreement, or because of an alleged dispute, default or
misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall
be entitled to recover reasonable attorneys' fees and all
other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may
be entitled.
ARTICLE III
MISCELLANEOUS
SECTION 3.01. Notices. All notices, requests,
consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or
certified mail return receipt requested with first class
postage prepaid as follows:
If to BCBSMo:
Blue Cross and Blue Shield of Missouri
1831 Chestnut Street
St. Louis, Missouri 63103
Attn.: Executive Vice President
If to RightCHOICE:
RightCHOICE Managed Care, Inc.
1831 Chestnut Street
St. Louis, Missouri 63103
Attn.: Chief Operating Officer
or such other address as any person may request by notice
given as aforesaid. Notices sent as provided herein shall be
deemed to have been delivered on the fifth business day
following the date on which it is so mailed,
SECTION 3.02. GOVERNING LAW. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE
STATE OF MISSOURI WITHOUT REGARD TO SUCH STATE'S PROVISIONS
PERTAINING TO CHOICE OF LAW.
SECTION 3.03. Amendment. This Agreement,
including all other agreements and documents executed in
connection herewith, constitutes the entire agreement among
the parties hereto with respect to the subject hereof and no
amendment, alteration or modification of this Agreement
shall be valid unless in each instance such amendment,
alteration or modification is expressed in a written
instrument duly executed by each party hereto.
SECTION 3.04. Headings. The headings contained in
this Agreement have been inserted for the convenience of
reference only and shall in no way restrict or modify any of
the terms or provisions hereof.
SECTION 3.05. No Third Party Beneficiaries. Each
of the provisions of this Agreement is for the sole and
exclusive benefit of the parties hereto, respectively, as
their interests shall appear, and shall not be deemed to be
for the benefit of any other person or entity or group of
persons or entities.
SECTION 3.06. Successors and Assigns. This
Agreement shall bind and inure to the benefit of each party
hereto, and to each party's successors, assigns, agents and
representatives.
SECTION 3.07. Partial Invalidity. In the event
that any term or provision of this Agreement shall to any
extent be held by a court of proper jurisdiction to be
invalid or unenforceable for any reason, the remainder of
this Agreement shall not be
affected thereby, and the remaining terms and provisions
hereof shall remain in full force
and effect. The invalid or unenforceable provisions shall,
to the extent permitted by law, be deemed amended and given
such interpretation as will achieve the intent of this
Agreement.
SECTION 3.08. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have entered into
this Agreement as of the date hereinabove written.
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ Roy R. Heimburger
Name: Roy R. Heimburger
Title: Chief Executive Officer
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Roy R. Heimburger
Name: Roy R. Heimburger
Title: President and Chief
Executive Officer
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
The following are subsidiaries of RightCHOICE Managed Care, Inc. as of
December 31, 1997:
State of
Incorporation
or
Name Organization
HMO Missouri, Inc. (BlueCHOICE) Missouri
Diversified Life Insurance Agency of Missouri, Inc. Missouri
Healthy Alliance Life Insurance Company Missouri
HealthLink, Inc. Illinois
HeatlhLink HMO, Inc. Missouri
The EPOCH Group, L.C. Missouri
RightCHOICE Insurance Company Illinois
Preferred Health Plans of Missouri, Inc. Missouri
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-90608, No. 333-33317, and No. 333-33293) of
RightCHOICE Managed Care, Inc. of our report dated February 14, 1997,
which appears in this Annual Report on Form 10-K.
Price Waterhouse LLP
St. Louis, Missouri
March 20, 1998
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statements
of RightCHOICE Managed Care, Inc. on Form S-8 (File No. 33-90608,
333-33293 & 333-33317) of our report dated February 19, 1998, except for
Note 13 for which the date is March 19, 1998, on our audit of the
consolidated financial statements of RightCHOICE Managed Care, Inc. as
of December 31, 1997 and for the year then ended, which report is included
in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
St. Louis, Missouri
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the RightCHOICE Managed Care, Inc. Form 10-K for the
annual period ended December 31, 1997 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-END> DEC-31-1997
<CASH> 29,872
<SECURITIES> 220,972
<RECEIVABLES> 60,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 346,397
<PP&E> 106,383
<DEPRECIATION> 45,781
<TOTAL-ASSETS> 506,363
<CURRENT-LIABILITIES> 276,653
<BONDS> 56,909
0
0
<COMMON> 187
<OTHER-SE> 140,678
<TOTAL-LIABILITY-AND-EQUITY> 506,363
<SALES> 0
<TOTAL-REVENUES> 719,411
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<TOTAL-COSTS> 780,411
<OTHER-EXPENSES> 1,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,681
<INCOME-PRETAX> (33,555)
<INCOME-TAX> (9,521)
<INCOME-CONTINUING> (24,034)
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<EPS-PRIMARY> (1.29)
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