EXHIBIT 10.5
TRANSITION SERVICES AGREEMENT
between
Aetna Inc.
(to be renamed "Lion Connecticut Holdings Inc.")
and
Aetna U.S. Healthcare Inc.
(to be renamed "Aetna Inc.")
dated as of
December 13, 2000
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS ....................................................1
SECTION 1.02. OTHER DEFINITIONS ..............................................2
ARTICLE 2
SERVICES
SECTION 2.01. SPINCO-PROVIDED SERVICES .......................................2
SECTION 2.02. AETNA-PROVIDED SERVICES ........................................3
SECTION 2.03. TERM ...........................................................4
SECTION 2.04. PRICING/SALES TAX ..............................................5
SECTION 2.05. OTHER SERVICE SPECIFICATIONS ...................................7
SECTION 2.06. BILLING AND CASH SETTLEMENT PROCEDURES ........................10
SECTION 2.07. OPERATING COMMITTEE ...........................................11
SECTION 2.08. OTHER TERMS AND CONDITIONS ....................................12
ARTICLE 3
OTHER TRANSITIONAL ARRANGEMENTS AND PAYMENTS
SECTION 3.01. USED ASSETS ...................................................14
SECTION 3.02. COST OF ELIMINATION OF SERVICES ...............................15
SECTION 3.03. REIMBURSEMENT OF CERTAIN AMOUNTS ..............................15
SECTION 3.04. SEPARATION COSTS OF HEADQUARTERS; TENANT IMPROVEMENTS .........15
SECTION 3.05. LICENSING AND OTHER COSTS .....................................16
ARTICLE 4
MISCELLANEOUS
SECTION 4.01. INDEMNIFICATION ...............................................16
SECTION 4.02. NOTICES .......................................................16
SECTION 4.03. AMENDMENTS; NO WAIVERS ........................................18
SECTION 4.04. EXPENSES ......................................................18
SECTION 4.05. SUCCESSORS AND ASSIGNS ........................................18
SECTION 4.06. GOVERNING LAW .................................................19
SECTION 4.07. COUNTERPARTS; EFFECTIVENESS ...................................19
SECTION 4.08. ENTIRE AGREEMENT ..............................................19
SECTION 4.09. JURISDICTION ..................................................19
SECTION 4.10. SEVERABILITY ..................................................19
SECTION 4.11. SURVIVAL ......................................................20
SECTION 4.12. CAPTIONS ......................................................20
Schedule 1A - I/T Services
Schedule 1B - Non-I/T Spinco-Provided Services
Schedule 2 - Aetna-Provided Services
Schedule 2.04 - Pricing
Schedule 2.05 - Problem Escalation and Notification
Schedule 2.06 - Form of Bill
Schedule 2.07 - Operating Committee
Schedule 2.08A - Spinco Systems Security Requirements
Schedule 2.08B - Aetna Systems Security Requirements
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT, dated as of December 13, 2000 (this
"AGREEMENT"), between Aetna Inc., a Connecticut corporation (to be renamed "Lion
Connecticut Holdings Inc." at the time of the Merger) ("AETNA") and Aetna U.S.
Healthcare Inc., a Pennsylvania corporation (to be renamed "Aetna Inc." at the
time of the Merger) ("SPINCO").
W I T N E S S E T H:
WHEREAS, Aetna and Spinco are concurrently herewith entering into a
Distribution Agreement (the "DISTRIBUTION AGREEMENT") providing for, among other
things, the distribution of the common stock of Spinco to the shareholders of
Aetna (the "DISTRIBUTION"), and
WHEREAS, for a transition period following the Distribution, Aetna and
Spinco wish to continue to provide certain services to each other.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. DEFINITIONS. Each of the following terms is defined in
the section set forth opposite such term:
Term Section
---- -------
Aetna Recitals
Aetna-Driven Deviations 2.01(a)
Aetna-Provided Services 2.02
Aetna Used Assets 3.01
Affected Party 2.04(b)(iii)
Agreement Recitals
Confidential Information 2.08(c)
Conversion Plan 2.03(d)
Critical Operation 2.05(b)(iii)
Distribution Recitals
Distribution Agreement Recitals
IT Services 2.01(a)
Operating Committee 2.07(a)
Other Party 2.04(b)(iii)
Service Level Breach 2.05(b)(iii)
Service Level Manager 2.05(b)(ii)
Service Provider 2.03(a)
Service Recipient 2.03(a)
Services 2.02
Spinco Recitals
Spinco-Driven Deviations 2.01(a)
Spinco-Provided Services 2.01(b)
Standards 2.0 1(a)
Systems Support 2.05(d)
Transition Period 2.03(a)
Section 1.02. OTHER DEFINITIONS . Capitalized terms used without
definition in this Agreement have the respective meanings assigned to them in
the Distribution Agreement.
ARTICLE 2
Services
Section 2.01. SPINCO-PROVIDED SERVICES.
(a) INFORMATION TECHNOLOGY, COMPUTING AND TELECOMMUNICATION SERVICES.
Spinco shall provide to the Aetna Group (which for the avoidance of doubt for
purposes of this Agreement shall also include Hartford-located operations of
ING National Trust as conducted as of the date hereof) the following
information technology, computing and telecommunications services ("IT
SERVICES"): (i) the services set forth on Schedule 1A, as such may be amended
by the parties; (ii) any other IT Services that (a) the Aetna Business, as
conducted in the ordinary course prior to the Distribution Date, received in
whole or part from the Spinco Group or in reliance upon or in connection with
the Spinco Assets (but, in the case of a service provided only in part by the
Spinco Group, only to the extent such service was provided in the ordinary
course prior to the Distribution Date by the Spinco Group), (b) are
identified in writing by Aetna to Spinco within forty-five (45) calendar days
following the Distribution Date and (c) are reasonably needed in order to
conduct the operations of the Aetna Business, as conducted in the ordinary
course prior to the Distribution Date, and the reasonable growth thereof,
consistent with the historical provision of such services and the other terms
of this Agreement, or otherwise upon pricing and other terms and conditions
reasonably acceptable to Spinco and Aetna; and (iii) reasonable additional
incidental IT Services as Aetna needs to conduct its business, as conducted
in the ordinary course prior to the Distribution Date, and
the reasonable growth thereof; PROVIDED that such IT Services (a) were
provided by Spinco to Aetna in the ordinary course prior to the Distribution
Date and (b) are provided upon pricing and other terms consistent with the
historical provision of such services and the other terms of this Agreement.
Aetna acknowledges that a critical element of Spinco's historical delivery of
services to Aetna was Spinco's ability to establish and maintain technology
and architectural infrastructure standards (the "STANDARDS"). Spinco
acknowledges that, having defined the Standards, it implemented changes to
those Standards only after providing considerable notice to Aetna and after
taking into account business impact to Aetna. In order to continue the spirit
of cooperation that characterized the historical delivery of services, the
parties agree that the "Non-Standard Products and Services" process set forth
on Schedule IA will govern (1) Aetna requests for support of deviations from
the Standards in effect at the Distribution Date ("AETNA-DRIVEN DEVIATIONS"),
and (ii) Aetna requests for continued support for Standards that have become
obsolete as a result of Spinco's changes to the Standards during the term of
this Agreement ("Spinco-Driven Deviations").
(b) OTHER TRANSITION SERVICES. Spinco shall provide to the Aetna
Group the following services (together with the IT Services, the
"SPINCO-PROVIDED SERVICES"): (i) the services set forth on Schedule lB including
Systems Support, as such may be amended by the parties; (ii) any other services
that (a) the Aetna Business, as conducted in the ordinary course prior to the
Distribution Date, received in whole or part from the Spinco Group or in
reliance upon or in connection with the Spinco Assets (but, in the case of a
service provided only in part by the Spinco Group, only to the extent such
service was provided in the ordinary course prior to the Distribution Date by
the Spinco Group), (b) are identified in writing by Aetna to Spinco within
forty-five (45) calendar days following the Distribution Date and (c) are
reasonably needed in order to conduct the operations of the Aetna Business, as
conducted in the ordinary course prior to the Distribution Date, and the
reasonable growth thereof, consistent with the historical provision of such
services and the other terms of this Agreement, or otherwise upon pricing and
other terms and conditions reasonably acceptable to Spinco and Aetna; and (iii)
reasonable additional incidental services as Aetna needs to conduct its
business, as conducted in the ordinary course prior to the Distribution Date,
and the reasonable growth thereof; PROVIDED, that such services (a) were
provided by Spinco to Aetna to in the ordinary course prior to the Distribution
Date and (b) are provided upon pricing and other terms consistent with the
historical provision of such services and the other terms of this Agreement.
Section 2.02. AETNA-PROVIDED SERVICES. Aetna shall provide to the
Spinco Group the following services (the "AETNA-PROVIDED SERVICES" and, together
with the Spinco-Provided Services, the "SERVICES"): (A) the services set forth
on
Schedule 2, as such may be amended by the parties; (B) any other services that
(i) the Spinco Group, as conducted in the ordinary course prior to the
Distribution Date, received in whole or part from the Aetna Group or in reliance
upon or in connection with the Aetna Assets (but, in the case of a service
provided only in part by the Aetna Group, only to the extent such service was
provided in the ordinary course prior to the Distribution Date by the Aetna
Group), (ii) are identified in writing by Spinco to Aetna within forty-five (45)
calendar days following the Distribution Date and (iii) are reasonably needed in
order to conduct the operations of the business of the Spinco Group, as
conducted in the ordinary course prior to the Distribution Date, and the
reasonable growth thereof, and otherwise upon pricing and other terms and
consistent with the historical provision of such services and the other terms of
this Agreement, or conditions reasonably acceptable to Spinco and Aetna; and (C)
reasonable additional incidental services as Spinco needs to conduct its
business, as conducted in the ordinary course prior to the Distribution Date,
and the reasonable growth thereof; PROVIDED, that such services (i) were
provided by Aetna to Spinco in the ordinary course prior to the Distribution
Date and (ii) are provided upon pricing and other terms consistent with the
historical provision of such services and the other terms of this Agreement
Section 2.03. TERM.
(a) The period during which any Service is being provided by
Spinco or Aetna shall be referred to as the "TRANSITION PERIOD" for such
Service. The party providing a Service shall be referred to as the "SERVICE
PROVIDER", and the party for whose benefit the Service is provided the "SERVICE
RECIPIENT". Subject to Section 2.03(b), below, the Service Provider will provide
each Service for the period specified in the applicable Schedule or, if no time
period is specified, then for a period not to exceed twelve (12) months after
the Distribution Date. The Transition Period for any Service may be modified by
mutual consent of Spinco and Aetna.
(b) Notwithstanding anything to the contrary in Section 2.03(a),
above, the Transition Period shall be deemed to be extended, as and for the
period needed but in any event not to exceed six (6) months, on account of: (i)
a requirement by a Governmental Entity; (ii) at the discretion of the
non-breaching party, any failure by Aetna or Spinco, as the case may be, to
perform any action required on its part under this Agreement, including any
Schedules thereto, but only to the extent of such failure; or (iii) the
inability of the Parties to achieve the timetables set forth in an applicable
Conversion Plan, after applying reasonable best efforts; PROVIDED, that to the
extent the Transition Period is extended pursuant to clause (i) or (iii), in
addition to the amounts otherwise due pursuant to Section 2.04 of this Agreement
the Service Recipient shall pay all costs actually incurred by reason of
the extension including, without limitation, incremental software licensing
costs. The Service Provider shall make commercially reasonable efforts (which
shall not require it to incur any out-of-pocket costs) to minimize the costs
referred to in the preceding sentence.
(c) The Service Recipient, may, without cause, upon sixty (60)
calendar days written notice terminate the purchase of any or all Services;
PROVIDED that any partial termination of Services shall be of a category of
Services as specified in a line item in any Schedule to Sections 2.01 or 2.02,
or as otherwise agreed to by Spinco and Aetna; and PROVIDED, that the Service
Recipient shall pay for all expenses (other than the Service Provider's internal
costs) incurred as a result of such early termination of Services. If the
Service Recipient elects to terminate the purchase of less than all Services,
the Service Provider shall continue to be obligated to provide the remaining
Services.
(d) Spinco and Aetna shall work in good faith and in a
commercially reasonable fashion to eliminate the Service Recipient's need to
receive the Services from the Service Provider. Spinco and Aetna each
acknowledge that mutual efforts will be needed in order to enable the Service
Recipient to conduct its business in the ordinary course without receiving the
Services from the Service Provider. The parties will employ reasonable best
efforts so that not later than forty-five (45) calendar days following the
Distribution Date (or within forty-five (45) calendar days following
identification of additional Services under Sections 2.01 or 2.02, as
applicable), Spinco and Aetna shall jointly submit to the Operating Committee
(as defined below) one or more plans (each a "CONVERSION PLAN") for eliminating
the need for each Service. Spinco and Aetna thereafter may jointly amend a
Conversion Plan, which amended plan shall become the operative Conversion Plan
when it is transmitted to the Operating Committee. Each Conversion Plan shall
state in reasonable detail the actions and performance schedule required of the
Service Provider and Service Recipient. Each Conversion Plan shall specify a
target date for completing all actions needed to allow the Service Recipient to
conduct its business in the ordinary course without receiving from the Service
Provider the Services that are the subject of such Conversion Plan.
Section 2.04. PRICING/SALES TAX.
(a) PRICING OF SERVICES. For each period in which it receives a
Service, the Service Recipient shall pay the Service Provider its actual
out-of-pocket cost for such Service, including a proportionate share of its
overhead (if applicable), computed in accordance with internal charge-back
methodologies historically used by the Service Provider (but excluding profit),
or, to the extent the pricing for such Service is specified on a Schedule to
this Agreement, the amount
specified in or calculated in accordance with the method applicable to such
Service in the applicable Schedule. For any Service priced on a monthly basis,
the monthly charge will be equitably prorated if the Distribution Date or the
date on which a Service is terminated is not the first calendar day or the last
calendar day, respectively, of a calendar month. Except as otherwise
specifically provided herein, (i) in no event shall the amount paid by the
Service Recipient to the Service Provider in respect of a Service be less than
the Service Provider's actual out-of-pocket cost attributable to the provision
of such Service calculated in accordance with the method applicable to such
Service in the applicable Schedule, and (ii) it is the intent of the parties
hereto that no party thereto shall realize a gain or loss as a result of the
provision or receipt of the Services under this Agreement.
(b) SALES TAX.
(i) For state and local sales tax purposes, Spinco and
Aetna will cooperate in good faith to segregate amounts payable under
this Agreement into the following categories: (a) taxable Services; (b)
non-taxable Services; and (c) payments made by Spinco or Aetna, as
applicable, merely as a payment agent for the Service Recipient in
procuring goods, supplies or Services.
(ii) The Service Provider shall collect from the Service
Recipient all state and local sales tax and shall timely remit such
taxes to the appropriate state and local tax authorities. The Service
Recipient shall pay such taxes to the Service Provider monthly, or as
otherwise reasonably required by the Service Provider. The Service
Provider shall be responsible for any interest or penalties imposed as
a result of its failure to timely collect and remit taxes. The Service
Recipient shall be responsible for any additional taxes, interest or
penalties imposed as a result of a sales tax audit by any taxing
authority.
(iii) Within thirty (30) calendar days of receiving
notification of the commencement of any sale or use tax audit by a
taxing authority which involves any Services provided hereunder or any
purchases made as purchasing agent pursuant hereto, the Service
Provider or the Service Recipient, as applicable (hereinafter, the
"Affected Party") shall notify the other party (hereinafter, the "Other
Party") of such audit. Thereafter, the Affected Party shall take
reasonable steps to keep the Other Party informed of the progress of
any such audit. The Other Party shall have the right (but not the duty)
to participate in any proceeding brought by the Affected Party to
contest sales or use tax liability, and shall have the right to retain
tax advisers or counsel at its own expense.
Section 2.05. OTHER SERVICE SPECIFICATIONS.
(a) VOLUME. The Service Provider shall cause the Services to be
made available at levels sufficient to permit operation of the
businesses or functions to which such Services relate consistent with
the ordinary volume and other aspects of such businesses or functions
in the twelve (12) months prior to the Distribution Date as well as a
reasonable level of growth in the Service Recipient's operations but
excluding (i) the addition of any products or product features not
being offered by the Service Recipient on the Distribution Date, except
that the Service Recipient may add products or features in an amount
and manner consistent with its ordinary operations (including, without
limitation, normal business introduction cycles) during the twelve (12)
months prior to the Distribution Date; and (ii) volumes associated with
any entity that is not an Existing Affiliate.
(b) SERVICE LEVELS; CURES; REMEDIES UPON DEFAULT.
(i) Except to the extent otherwise expressly provided in
any Schedule to this Agreement, the service levels for any Services
shall be equivalent to those provided to the Service Provider's ongoing
operations or, if the Service Provider and Service Recipient do not
have comparable operations with respect to a Service, then the service
level shall be equivalent to the standards provided to the Service
Recipient for the twelve (12) months prior to the Distribution Date.
Compliance with such service level standards shall be contingent upon
(x) receipt by the Service Provider of all information reasonably
required from the Service Recipient in order for the Service Provider
to render such Service; and (y) reasonable adherence by the Service
Recipient to all Service Provider's standard processes and use by
Service Recipient of all Service Provider's standard reporting tools,
but only to the extent Service Recipient has received prior reasonable
written notice of such processes and tools. In addition, to the extent
that Aetna installs new, modifies, alters or upgrades any software or
hardware component including, without limitation, any fixed assets
owned or otherwise controlled by Aetna, without Spinco's prior approval
consistent with the "Non-Standard Products and Services" description of
Schedule 1A, for which Spinco is providing I/T Services, Spinco shall
have no obligation to meet service levels or effect cures for, and
Aetna shall have no remedy with respect to, such components.
(ii) Spinco and Aetna each will designate a "SERVICE LEVEL
MANAGER" who will have overall responsibility for summarizing and
reporting the respective party's results against service levels
(iii) If the Service Recipient becomes aware of a material
deficiency in the Service Provider's performance (a "SERVICE LEVEL
BREACH"), the Service Recipient may deliver a written notice thereof to
the Service Provider. Upon receipt of such notice, the Service Provider
shall use its reasonable best efforts to remedy the Service Level
Breach as soon as reasonably possible. For any Service that a Schedule
hereto identifies as critical to the Service Recipient's operations (a
"CRITICAL OPERATION" with respect to such Service), if the Service
Level Breach is not (or the Operating Committee determines that in all
probability such Service Level Breach will not be) remedied within a
reasonable period of time, then the Service Recipient may outsource the
provision of such Service to a third party and the Service Provider
shall reimburse the Service Recipient for any increase in the cost of
such Service (offset by any amounts that, absent such breach, the
Service Recipient would have paid pursuant to the applicable Conversion
Plan). For each Critical Operation, the definition of a Service Level
Breach shall be as is set forth in the Schedule identifying such
Critical Operation. The remedy specified above in this clause (iii)
shall be in addition to the remedies otherwise specified herein.
(iv) (x) Except to the extent that a Schedule to this
Agreement specifies a different period, if the Service Provider fails
to cure a Service Level Breach within thirty (30) calendar days (or
such shorter period as the Operating Committee may determine is
appropriate as to a particular Service, taking into account the
importance of such Service to the Service Recipient's operations) after
receipt of written notice thereof, the Service Provider shall forfeit
(and, if previously collected from the Service Recipient, refund) the
fees or charges otherwise due with respect to such Service from the
date that the Service Level Breach commenced, and the Service Level
Provider shall not be entitled to collect fees with respect to such
Service until it has cured such Service Level Breach; or (y) if a
Service Level Breach causes an immediate and significant harm to the
Service Recipient (including, without limitation, significant adverse
publicity, customer dissatisfaction or monetary loss), then the Service
Recipient shall be entitled to such equitable remedy as may be
determined by the Operating Committee, which remedy may include a
forfeiture or refund of fees otherwise payable for such Service or
actual costs incurred or actual damages suffered by the Service
Recipient as a result of such breach.
(c) PERSONNEL. At the Service Provider's sole expense, the Service
Provider will employ and retain staff, and contract with third party
subcontractors and other vendors, with a level of experience, skill, diligence
and expertise, consistent with the Service Provider's normal business practices,
needed to
perform the Services the Service Provider is obligated to perform. The
delegation of performance to a subcontractor shall not relieve the Service
Provider of any of its duties or obligations under this Agreement. Except with
the prior written consent of the Service Recipient (which shall not be
unreasonably withheld or delayed), the Service Provider shall not contract with
a third party subcontractor for a Service if (i) the Service Provider is
providing such solely for the benefit of the Service Recipient; and (ii) the
anticipated aggregate fees for the portion of the Service being subcontracted
exceeds Fifty Thousand Dollars ($50,000) per month. The provisions of this
Section 2.05(c) shall not apply to contracts which shall have been entered into
prior to the Distribution Date.
(d) SYSTEMS SUPPORT. In each instance where the Service Provider
provides application or infrastructure support to the Service Recipient under
Schedule 1A, Schedule lB or Schedule 2, "SYSTEMS SUPPORT" shall include the
following, where applicable:
(i) Database Administration - Monitoring of database size
and performance; implementation of database expansions and housekeeping
as required; installation support for changes to database structures.
(ii) Technical Support - Answering questions concerning
applications and functionality; production installation and
configuration; coordination for job setup.
(iii) Emergency Fixes - Modification and installation of
applications as required to resolve production problems or change
functionality.
(iv) Production Problem Solving - Research and problem
solving during production processing.
(v) Production Monitoring - Monitoring of production
performance (e.g., nightly table update processing, backups and
reporting during critical periods - month end).
(vi) Security Administration - Support additions and
deletions of security access; maintenance of user profiles in
accordance with the Service Provider's standards.
(vii) Problem Escalation and Notification - Management of a
reported problem through the process as set forth on Schedule 2.05.
(viii) Application Support - Modifications or upgrades to
software as required to meet business processing needs.
Section 2.06. BILLING AND CASH SETTLEMENT PROCEDURES.
(a) SERVICES. Billing and cash settlement for Services shall occur
monthly. Each Service Provider shall send bills in a format and containing a
level of detail sufficient to identify the Services that are the subject of such
bill in a form attached hereto as Schedule 2.06. Spinco and Aetna shall settle
amounts so due within fourteen (14) calendar days following the receipt of a
monthly bill in good order and supported by proper documentation. Any billing or
payment errors shall be corrected promptly after discovery thereof.
(b) PAYROLL AND BENEFITS REIMBURSEMENTS. On each payroll issue
date, Aetna shall reimburse Spinco for amounts Spinco (i) paid or will pay to
Aetna Group employees on such payroll issue date and (ii) withheld or will
withhold from such employees' earnings and paid on their behalf to Governmental
Entities, benefit providers or other third parties. Aetna shall reimburse Spinco
by wire transfer of immediately available funds on the same Business Day it
receives advice from Spinco of any amounts that Spinco has paid on behalf of
Aetna for medical/dental premiums or claims (or on the following Business Day if
such advice is received after 9:00 a.m., Eastern time).
(c) VENDOR REIMBURSEMENTS. Spinco shall advise Aetna weekly of the
total amount that Spinco has paid during the prior five (5) Business Days to
vendors on Aetna's behalf. Aetna shall reimburse Spinco for such amount by wire
transfer of immediately available funds. Each reimbursement shall be due the
Friday of the week during which Spinco advises Aetna of the reimbursement amount
(or on the following Business Day if such advice is received after 5:00 p.m.,
Eastern time on the immediately preceding Business Day or if such Friday is not
a Business Day). In addition to the remedy specified below in Section 2.06(f),
Aetna shall reimburse Spinco for any costs incurred arising from Aetna's failure
to timely reimburse Spinco.
(d) OTHER REIMBURSEMENTS. Except as specified in Sections 2.06(b)
and 2.06(c), Aetna shall reimburse Spinco bimonthly for any amounts paid by
Spinco on Aetna's behalf.
(e) OTHER SETTLEMENTS.
(i) PASS-THROUGH CHARGES. Pass-through expenses and
chargebacks (e.g., postage and express mail fees) identified on the
Schedules hereto and not otherwise specifically provided for herein
shall be separately billed to and promptly paid by the Service
Recipient.
(ii) MISDIRECTED PAYMENTS. Any payment received by one
party that properly belongs to the other party shall be rerouted by the
receiving party to the other party promptly after such misdirected
payment is identified.
(f) REIMBURSEMENT NOTICE, FORM OF SETTLEMENT. Reimbursement
notices shall be communicated to Aetna via fax to: 770-933-3664 (Immediate
Attention: ING Treasury). Settlement for amounts due under this Section 2.06
shall be made by wire transfer of immediately available funds. If any amount
remains unsettled after the date when due, such amount shall bear interest at
the 90-Day Treasury Rate from the date due until the full settlement thereof.
The "90-Day Treasury Rate" means the annual yield rate, as of any given date, of
actively traded U.S. Treasury securities having a remaining duration to maturity
of three months, as such rate is published under "Treasury Constant Maturities"
in Federal Reserve Statistical Release H. 15(519).
Section 2.07. OPERATING COMMITTEE.
(a) ORGANIZATION OF THE OPERATING COMMITTEE. Spinco and Aetna each
hereby appoint three (3) employees as set forth on Schedule 2.07 hereto, at
least one of whom is a senior executive, to the "OPERATING COMMITTEE". The
Operating Committee will oversee the implementation and ongoing operation of
this Agreement and shall attempt in good faith to resolve disputes between the
parties. Each of Spinco and Aetna shall have the right to replace one or more of
its Operating Committee members with employees or officers with comparable
knowledge, expertise and decision-making authority.
(b) DECISION MAKING. The Operating Committee shall act by a
majority vote of its members. If the Operating Committee fails to make a
decision, resolve a dispute, agree upon any necessary action, or if the Service
Recipient so requests in the event of a material breach significantly and
adversely affecting a Critical Operation, a senior officer of Spinco and Aetna
or his or her designee, shall attempt in good faith within a period of fifteen
(15) (or, in the event of a significant and adverse impairment of a Critical
Operation, seven (7)) calendar days to conclusively resolve any such unresolved
matter.
(c) MEETINGS. During the Transition Period, the Operating
Committee shall meet, in person or via teleconference, at least once every other
calendar month; PROVIDED, however, that the Operating Committee may, by majority
vote of its members, elect to meet more or less frequently as it deems
necessary. In addition, the Operating Committee shall meet as necessary to
promptly resolve any disputes submitted to it.
(d) DISPUTES. Any dispute arising out of or relating to this
Agreement will be submitted for resolution pursuant to Section 2.07(b) before
any party may bring any legal proceeding in connection therewith. A party's
failure to comply with the preceding sentence shall constitute cause for the
dismissal without prejudice of any such legal proceeding.
SECTION 2.08. OTHER TERMS AND CONDITIONS.
(a) SECURITY. The Service Provider shall provide physical and data
security for the businesses or functions to which the Services relate including,
without limitation, code asset management practices at levels equal to or
greater than the Service Provider's applicable standards during the twelve (12)
month period prior to the Distribution Date, as specified in Schedule 2.08A
(Spinco) and 2.08B (Aetna) hereto. Each party agrees to comply with the other
party's systems security procedures and shall not circumvent such procedures.
Each party retains the right to monitor and audit the other party's compliance
with such systems security procedures. If either party reasonably determines
that personnel from the other party have attempted to circumvent its systems
security procedures, that party may immediately terminate such personnel's
access to its systems and shall immediately advise the other party of such
incident and termination.
(b) SYSTEMS SECURITY REQUIREMENTS.
(i) SPINCO'S SYSTEMS SECURITY REQUIREMENTS. Spinco may
amend its current systems security requirements, as set forth on
Schedule 2.08A hereto, from time to time in its sole discretion, and
shall provide thirty (30) calendar days' prior written notice to Aetna
of any such amendments. In addition, Aetna agrees to comply with any
written instructions or written policies communicated to Aetna by
Spinco in connection with the use of or access to any of Spinco's
systems or to software. Aetna further agrees to execute any document
reasonably required by Spinco or required by its licensors in order to
retain software and/or data in confidence.
(ii) AETNA'S SYSTEMS SECURITY REQUIREMENTS. Aetna may
amend its current systems security requirements, as set forth on
Schedule 2.08B hereto, from time to time in its sole discretion, and
shall provide thirty (30) calendar days' prior written notice to Spinco
of any such amendments. In addition, Spinco agrees to comply with any
written instructions or written policies communicated to Spinco by
Aetna in connection with the use of or access to any of Aetna's systems
or to software. Spinco further agrees to execute any document
reasonably
required by Aetna or required by its licensors in order to retain
software and/or data in confidence.
(c) CONFIDENTIALITY.
(i) DEFINITION OF CONFIDENTIAL INFORMATION. For purposes
of this Agreement, "CONFIDENTIAL INFORMATION" shall have a meaning
ascribed to such term in the Distribution Agreement and shall include,
without limitation, the following: (a) information relating to planned
or existing computer systems and systems architecture and security,
including, without limitation, computer hardware, computer software,
source code, object code, documentation, methods of processing and
operational methods; (b) policyholder data, customer lists, sales,
customer information, profits, organizational restructuring, new
business initiatives and financial information; (c) information that
describes insurance and financial products, including, without
limitation, actuarial calculations, product designs, and how such
products are administered and managed; (d) information that describes
product strategies, tax interpretations, and the tax positions and
treatment of any item; and (e) confidential information of third
parties with which a party conducts business; provided, that Tax
information shall be governed by the Tax Sharing Agreement
(ii) Confidential Information shall be subject to Section
6.06 of the Distribution Agreement and Tax information shall be subject
to Section 7.04 of the Tax Sharing Agreement. In addition, each party
shall use commercially reasonable efforts to restrict access to the
other party's Confidential Information to those employees of such party
requiring access for the purpose of providing Services to the other
party hereunder. Subject to its obligations under Section 6.05 of the
Distribution Agreement (Retention of Records) (or Section 7.02 of the
Tax Sharing Agreement (Corporate Records), as to Tax information), each
party shall destroy all Confidential Information obtained from the
other party in connection with this Agreement in accordance with the
receiving party's normal document retention policies but, in any event,
immediately following the expiration of this Agreement. Notwithstanding
the foregoing, Spinco and Aetna and their respective Affiliates may
share Confidential Information with any subcontractor utilized to
provide Services, PROVIDED that the party sharing such Confidential
Information shall remain responsible for compliance with the provisions
of this Section.
(iii) FULFILLMENT AND CONFIDENTIALITY OF VENDOR CONTRACTS
AND SOFTWARE. Spinco and Aetna respectively shall (a) comply with the
terms
of, and keep confidential and, except as required by law, not disclose,
reveal or duplicate (x) any information related to any of their
respective vendor contracts to which the other party is provided access
in connection with this Agreement and/or (y) the other party's or any
third party's computer systems, software, information and/or data to
which they are provided access and/or use in connection with this
Agreement and (b) take such other actions and execute such additional
documentation required by any vendor in order to access and/or use such
vendor's goods or services in connection with such vendor's contracts
with the Aetna Group or the Spinco Group, as applicable.
(d) LIMITATION OF REMEDIES. Except if and to the extent arising
out of a Service Provider's willful misconduct, in no event shall a Service
Provider be obligated to pay to the Service Recipient in respect of breaches or
alleged breaches of this Agreement any amount in excess of the amount received
by such Service Provider for the Services it renders. This cumulative limitation
shall apply to all monetary remedies provided for in this Agreement or any
Schedule thereto, regardless of whether they are characterized as damages,
indemnification (including, without limitation, indemnification for defense
costs), refund of fees or otherwise.
ARTICLE 3
Other Transitional Arrangements and Payments
Section 3.01. USED ASSETS. As of the date hereof, a Spinco Group member
owns or leases certain information technology equipment, furniture, fine art and
vehicles which are used for the business of the Aetna Group ("AETNA USED
ASSETS"). Spinco shall take all actions necessary on its part to cause Aetna or
an Affiliate to become the owner or lessor of all such assets as follows:
(a) Spinco shall provide to Aetna an inventory in reasonable
detail of Aetna Used Assets that are owned by a Spinco Group entity. Upon
execution of this Agreement, Aetna shall pay Aetna Life Insurance Company the
net book value of such assets as of the Distribution Date. Spinco concurrently
shall deliver a bill of sale and/or other documentation reasonably evidencing
such transfer of ownership including a list of assets purchased at a level of
detail reasonable in relation to the types of assets being transferred. For the
purposes of this Agreement, net book value shall be determined as Aetna Life
Insurance Company's cost less accumulated depreciation calculated in accordance
with generally accepted accounting principles consistently applied.
(b) For Aetna Used Assets that are leased by a Spinco Group
entity, Aetna and Spinco shall jointly employ reasonable best efforts to cause
the leases
to be assigned to Aetna or an Affiliate and, if such efforts are unsuccessful,
Aetna shall purchase such assets and shall pay all costs incurred in connection
therewith including, without limitation, prepayment penalties or similar
charges, each as set forth in the relevant lease or on terms that Aetna may
agree to with the lessor.
Section 3.02. COST OF ELIMINATION OF SERVICES. The Service Recipient
shall be solely responsible for all expenses (other than the Service Provider's
internal costs) associated with eliminating the Service Recipient's need to
receive Services from the Service Provider including, without limitation, costs
of transferring data from the Service Provider's information technology
environment and of acquiring any computer hardware or software associated with
implementation of any Conversion Plan.
Section 3.03. REIMBURSEMENT OF CERTAIN AMOUNTS. Upon execution of this
Agreement, Aetna shall reimburse Aetna Life Insurance Company for all amounts it
has paid for goods or services ordered or received after March 31, 2000, net of
any amounts paid or accrued by Aetna for such goods or services after March 31,
2000, for: (i) purchase of information technology equipment, or licensing of
information technology software, primarily for use in the Aetna Business; and
(ii) tenant improvements on properties leased primarily for use in the Aetna
Business, in the case of each of clause (i) and (ii) to the extent permitted
under the Merger Agreement or the Distribution Agreement.
Section 3.04. SEPARATION COSTS OF HEADQUARTERS; TENANT IMPROVEMENTS.
(a) Upon execution of this Agreement, Aetna shall pay Aetna Life
Insurance Company One Million Five Hundred Thousand Dollars ($1,500,000) toward
the costs of physically separating the premises at 151 Farmington Avenue,
Hartford, Connecticut, which physical changes shall include, without limitation,
fitness center access, security control points and the removal, purchase and
replacement of signage on the Tower Building and monument signage as approved
and designated by Aetna, all as more specifically provided in the other
Ancillary Agreements.
(b) Upon execution of this Agreement, in addition to the amount
payable pursuant to Section 3.03, above, Aetna shall pay Aetna Life Insurance
Company the net book value as of the Distribution Date of the building
improvements in the Tower Building and the tenant improvements on State House
Square and field office properties (including any co-location properties) that
relate primarily to the Aetna Business.
Section 3.05. LICENSING AND OTHER COSTS. Aetna shall bear the entire
expense (other than Spinco's internal costs or any related, incidental
out-of-pocket expenses or other charge paid to Spinco's advisors or
representatives, if any) of (i) transferring, or obtaining new licenses with
respect to, software used primarily in the Aetna Business; (ii) additional
licensing or similar fees paid by Spinco to third party vendors by reason of
Spinco providing any Service pursuant to this Agreement; and (iii) any other
fees or costs associated with terminating, assigning or transferring to the
Aetna Group any contract that relates primarily to the Aetna Business.
ARTICLE 4
Miscellaneous
SECTION 4.01. INDEMNIFICATION. Except as otherwise specifically
provided in this Agreement, the provisions of Article 4 of the Distribution
Agreement shall govern all matters relating to indemnities.
SECTION 4.02. NOTICES. Except as provided in Section 2.06(f), above,
with respect to reimbursement notices, all notices and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be deemed given when received addressed as follows:
If to Aetna, to:
Lion Connecticut Holdings Inc.
c/o Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156
Attention: Michael W. Cunningham
Executive Vice President &
Chief Financial Officer
Fax:
With copies to:
Parent
c/o ING North America Insurance Corp.
5780 Powers Ferry Road, NW
Atlanta, Georgia 30327-4390
Attention: Wayne Huneke
General Manager &
Chief Financial Officer
Fax: 770-980-3303
B. Scott Burton
Senior Vice President &
Deputy General Counsel
Fax: 770-850-7660
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Joseph B. Frumkin, Esq.
William D. Torchiana, Esq.
Fax: 212-558-3588
If to Spinco, to:
Aetna Inc.
151 Farmington Avenue
Hartford, CT 06156-7505
Attention: L. Edward Shaw, Jr.
General Counsel
William J. Casazza
Corporate Secretary
Fax: 860-273-8340
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Lewis B. Kaden
Fax: (212) 450-4800
Any party may, by written notice so delivered to the other parties,
change the address to which delivery of any notice shall thereafter be made.
Section 4.03. AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by Aetna and Spinco, or in
the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 4.04. EXPENSES. (a) Except as otherwise specifically provided
herein, all costs and expenses incurred in connection with the preparation,
execution and delivery of this Agreement shall be paid by the party incurring
such expense.
(b) Each reference in this Agreement to expenses, fees and
out-of-pocket costs shall mean such expenses, fees and out-of-pocket costs as
the party incurring such expenses, fees or out-of-pocket costs would reasonably
incur in connection with its own business under circumstances where such
expenses, fees and out-of-pocket costs are not subject to reimbursement.
Section 4.05. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Each party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement only to an
Affiliate of such party without the prior written consent of the other party
hereto. If any party or any of its successors or assigns (a) shall consolidate
with or merge into any other Person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (b) shall transfer all
or substantially all of its properties and assets to any Person, then, and in
each such case, proper provisions shall be made so that the successors and
assigns of such party shall assume all of the obligations of such party under
this Agreement. Any assignment not conforming to the provisions of this
Agreement shall be invalid and void.
Section 4.06. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware, without regard
to the conflict of laws rules thereof.
Section 4.07. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other party hereto.
Section 4.08. ENTIRE AGREEMENT. This Agreement, the Merger Agreement,
the Confidentiality Agreement and the other Distribution Documents constitute
the entire understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof and thereof. No representation, inducement, promise,
understanding, condition or warranty not set forth herein or in the Merger
Agreement, the Confidentiality Agreement or the other Distribution Documents has
been made or relied upon by any party hereto.
Section 4.09. JURISDICTION. Except as otherwise expressly provided in
this Agreement, any Action seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby may be brought in the United States District Court for the
District of Delaware, and each of the parties hereby consents to the
jurisdiction of such court (and of the appropriate appellate courts therefrom)
in any such Action and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such Action in any such court or that any such Action which is brought in
any such court has been brought in an inconvenient forum. Process in any such
Action may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 4.02
shall be deemed effective service of process on such party.
Section 4.10. SEVERABILITY. If any one or more of the provisions
contained in this Agreement should be declared invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not in any way be affected or
impaired thereby so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such a declaration, the parties shall modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner so that the transactions contemplated hereby are consummated
as originally contemplated to the fullest extent possible.
Section 4.11. SURVIVAL. All covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date indefinitely,
unless a specific survival or other applicable period is expressly set forth
therein.
Section 4.12. CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
IN WITNESS WHEREOF the parties hereto have caused this Transition
Services Agreement to be duly executed by their respective authorized officers
as of the date first above written.
AETNA INC.
By: /s/ Alfred P. Quirk, Jr.
---------------------------------------
Name: Alfred P. Quirk, Jr.
Title: Vice President, Finance & Treasurer
AETNA U.S. HEALTHCARE INC.
By: /s/ Alfred P. Quirk, Jr.
---------------------------------------
Name: Alfred P. Quirk, Jr.
Title: Vice President, Finance & Treasurer