EXHIBIT 10.3
MINIMUM PREMIUM FINANCIAL AGREEMENT
BY AND BETWEEN
ADMINISTAFF OF TEXAS, INC.
AND
UNITED HEALTHCARE INSURANCE COMPANY
HARTFORD, CONNECTICUT
*** indicates material has been omitted pursuant to a Confidential Treatment
Request filed with the Securities and Exchange Commission. A complete copy of
this agreement has been filed separately with the Securities and Exchange
Commission.
MINIMUM PREMIUM FINANCIAL AGREEMENT
TABLE OF CONTENTS
<Table>
Section 1: Definitions
Section 2: Insurance
Section 3: Premium
Section 4: Term and Termination of the Agreement
Section 5: Changes in Maximum Monthly Employer Benefit Obligation and Premium
Section 6: Representations of the Parties
Section 7: Guaranty of Administaff Inc.
Section 8: Notices
Section 9: Choice of Law
Section 10: Entire Agreement, Amendment and Waiver
Exhibit A Reviews and Establishment of Monthly Payable Rates
and Premiums
Exhibit B Non-MP Policies
Exhibit C Minimum Premium Financial Agreement Banking Arrangement
</Table>
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MINIMUM PREMIUM FINANCIAL AGREEMENT
BY AND BETWEEN
ADMINISTAFF OF TEXAS, INC.
AND
UNITED HEALTHCARE INSURANCE COMPANY
HARTFORD, CONNECTICUT
WHEREAS, the Employer is a "professional employer organization" that establishes
employment relationships with the employees of its clients; and
WHEREAS, the Employer has established an employee welfare plan (the "Plan") for
certain employees, former employees and their dependents of the Employer; and
WHEREAS, the Company has issued several group health insurance policies with
respect to the Plan;
NOW THEREFORE, in consideration of the mutual promises contained in the
Agreement, the Employer and the Company agree as follows:
1. DEFINITIONS
(a) "Agreement" means this Minimum Premium Financial Agreement, including
any attached Exhibits, as amended from time to time.
(b) "Arrangement Month" means each calendar month during the period that
both a Policy and the Agreement are effective.
(c) "Arrangement Quarter" means each calendar quarter during the period
that both a Policy and the Agreement are effective.
(d) "Check" means the instrument of payment issued by the Company for the
payment of Health Benefits pursuant to the Agreement, whether such
instrument is a draft, a check, an electronic funds transfer or
similar instrument.
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(e) "Claims Account" shall have the meaning assigned to it in section 2(a)
of the Agreement.
(f) "Company" means United HealthCare Insurance Company.
(g) "Employer" means Administaff of Texas, Inc.
(h) "Employee" means an employee or former employee of the Employer or of
a member of Employer's controlled group as defined in Section 414(b)
and (c) of the Internal Revenue Code of 1986, as amended, which is a
participating employer under the Plan who is covered under the Plan,
and a "qualified beneficiary" who is covered under the Plan pursuant
to Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended from time to time ("COBRA"), except that members of a
family unit who elect COBRA coverage as a single family unit shall be
considered a single "Employee."
(i) "Health Benefits" means the medical and dental benefits that are
payable by the Company under the terms of the Policies. For purposes
of the Agreement, overpayment and subrogation recoveries (less the
percentage of each such recovery that the Company retains or is
charged by its vendors for its services in pursuing the recovery)
shall be included as a credit to Health Benefits. There shall be no
credit to Health Benefits for any *** or other payments received by
the Company from *** or other third parties in connection with ***
benefits under the Plan.
In the second and third Arrangement Months of an Arrangement Quarter,
Health Benefits shall also include those Health Benefits Paid during
the prior Arrangement Month to the extent that they exceeded the ***.
(j) "Incurred" when referring to Health Benefits means that the Company
has become liable for payment of such Health Benefits under a Policy.
(k) "Investment Grade" means a debt rating of BBB- or better (in the case
of Standard & Poor's) and Baa3 or better (in the case of Moody's). If
the debt in question is rated by both Standard & Poor's and Moody's,
such debt shall not be deemed Investment Grade for purposes of the
Agreement unless the ratings provided by both rating services qualify
as Investment Grade as defined herein.
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(l) "MP Administrative Services Agreement" means the Minimum Premium
Administrative Services Agreement between the Employer and the
Company, as amended from time to time.
(m) "Maximum Monthly Employer Benefit Obligation" for an Arrangement Month
shall be the sum of the following:
*** of the *** for each *** Policy
*** of the *** for each *** Policy
The Maximum Monthly Employer Benefit Obligation for an Arrangement
Month (other than the first Arrangement Month of an Arrangement
Quarter) shall be increased by the amount by which the *** in the
Arrangement Month exceeded the Health Benefits Paid in that ***.
(n) "Minimum Premium Arrangement" and "Arrangement" mean the minimum
premium payment arrangement with respect to the Policies as described
in the Agreement.
(o) "MP Premium" has the meaning assigned to it in section 3(a) of the
Agreement.
(p) "Non-MP Policy" means a policy or group contract issued by the Company
providing benefits under the Plan which are not covered by the Minimum
Premium Arrangement. "Non-MP Policies" refer collectively to two or
more such policies, group contracts or both. Non-MP Policies are
identified in Exhibit B.
(q) "Paid" when referring to Health Benefits means that a Check for
payment of the Health Benefit has been presented to and paid by the
payor bank.
(r) "Plan" has the meaning assigned to it in the recitals to the
Agreement.
(s) "Policy" means each of the following policies issued by the Company to
provide Health Benefits under the Plan:
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(i) Policy No. 701648 (DA, DB, DC, DD, CX) (""Medical Policy")
(i) Policy No. 701648 (DE) ("Dental Policy")
The Medical Policy and Dental Policy are referred to collectively as
"the Policies." The Employer and the Company may agree to designate
another policy (or component) issued by the Company as a "Policy"
hereunder, to substitute a new policy for a Policy currently
designated or to remove a Policy (or component) from this definition.
(t) "Policy Year" means each calendar year or portion thereof during which
a Policy is in effect.
(u) "Prior Policy" means Group Policy No. GP-608634 issued by Aetna Life
Insurance Company to the Employer. Expenses for medical and dental
benefits incurred under the Prior Policy are not covered by any of the
Policies.
(v) "Quoted Premium" means the total amount of premium the Employer would
have been charged for Health Benefits of each Policy for an
Arrangement Month if the provisions of the Agreement were not in
effect, as determined by the Company in accordance with the terms of
the Agreement. For purposes of calculating the Maximum Monthly
Employer Benefit Obligation and the MP Premium during the term of the
Agreement, the Quoted Premium for an Arrangement Month shall be deemed
to include any adjustments authorized in Exhibit E of the MP
Administrative Services Agreement in respect of previous Arrangement
Months including any enrollment additions, terminations or changes in
coverage not known at the beginning of the Arrangement Month to which
such Quoted Premium applies. Any such adjustment shall be based on the
Quoted Premium in effect for the Arrangement Month in respect of which
an adjustment is made.
The Quoted Premiums under the Policies shall be periodically reviewed
and adjusted in accordance with Exhibit A to the Agreement.
(w) "Security Deposit" has the meaning assigned in the Security Deposit
Agreement.
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(x) "Security Deposit Agreement" is the Security Deposit Agreement between
the Company and the Employer, as amended from time to time.
2. INSURANCE
The Company's agreement under the Policies to insure the Employer's Employees is
changed as follows:
(a) Benefit Payments Paid during Policy Continuance. The Company shall pay
from the claims account established as provided in section 2(d) below
(the "Claims Account") those Health Benefits of the Policies that are
Paid during the Arrangement Month and that in the aggregate are equal
to or less than the Maximum Monthly Employer Benefit Obligation for
the Arrangement Month. The Employer shall fund that Claims Account as
provided in section 2(d) of the Agreement. For Health Benefits that
are Paid prior to termination of the Policies, the Company shall pay
from its own funds those Health Benefits that are Paid during an
Arrangement Month to the extent that they exceed the Maximum Monthly
Employer Benefit Obligation for the Arrangement Month.
(b) Benefits Paid After Policy Termination. In the event that a Policy is
terminated, the Company shall be responsible for paying from its own
funds Health Benefits of such Policy that are Incurred but not Paid
before such Policy terminates. The Maximum Monthly Employer Benefit
Obligation does not apply to such Health Benefits.
(c) Company's Obligation. Any Health Benefits of the Policies that are
required to be paid from the Claims Account shall be paid by the
Company from its own funds if the Health Benefits are not paid by
another source, which may include the Employer or another funding
vehicle established or maintained by the Employer for that purpose.
The Employer agrees to reimburse the Company for any Health Benefits
paid by the Company pursuant to this obligation.
(d) Claims Account. The Company and the Employer shall establish and
maintain those banking arrangements, including the Claims Account,
described in Exhibit C to the Agreement.
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In addition to its obligations under Exhibit C, the Employer shall
fund the Claims Account as necessary to enable the Company to pay in a
timely manner from the Claims Account the Health Benefits described in
section 2(a).
(i) If the Employer does not maintain the banking arrangements
required in this section or in Exhibit C, including any required
balance, the Company will provide notice to the Employer so that
it can take corrective action, and the Company may terminate the
Agreement in accordance with section 4 of the Agreement.
(ii) After a reasonable period of time as determined by the Company,
the Company shall place stop payment instructions on Checks
issued pursuant to the Agreement that are not Paid. The Company
shall be responsible for complying with applicable abandoned
property laws, if any, with respect to any Checks that are not
Paid prior to the termination of the Agreement. Any amount
transferred to a state in compliance with such laws shall be
treated as Paid on the date that the transfer is made.
(iii) Upon termination of the Agreement, the Claims Account shall be
closed as soon as reasonably practicable after the Company
determines that all Health Benefits required to be Paid from the
Claims Account have been Paid, and any funds remaining in the
Claims Account shall be recovered by the Employer, subject to
the Company's right to offset such funds against amounts owed
to it under the Minimum Premium Arrangement.
3. PREMIUM
The amount of premium to be paid by the Employer to the Company for insurance of
the Health Benefits payable under the Policies, as modified by the Agreement, is
changed to be equal to the sum of (a) the MP Premium, and (b) the ***. All of
the provisions of each Policy that apply to "premium" for Health Benefits of the
Policy apply to the MP Premium and the ***.
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(a) MP Premium. The MP Premium for the Policies for the Arrangement Month
shall be the sum of the following:
*** of the for each *** policy
*** of the for each *** policy
The MP Premium is due on the first day of the Arrangement Month to
which it applies. As provided in section 1(v) of the Agreement, the MP
Premium may include any adjustments authorized in Exhibit E of the MP
Administrative Services Agreement in respect of previous Arrangement
Months including any additions, terminations or changes in coverage
not known at the beginning of the Arrangement Month to which such MP
Premium applies.
(b) Additional Quarterly Premium. For each Arrangement Quarter, the
Employer shall pay an Additional Quarterly Premium to the Company in
an amount equal to ***, before the *** of the Agreement for the
Arrangement Months in such Arrangement Quarter less the Health
Benefits Paid by the Company from the Claims Account in such
Arrangement Quarter. Such invoice shall be sent by the Company no
later than *** months following the close of the Policy Year which
includes the Arrangement Quarter to which such invoice relates. An
Additional Quarterly Premium shall not be due with respect to any
Arrangement Quarter in a Policy Year if a written invoice for such
Additional Quarterly Premium is not sent by the Company to the
Employer within *** months of the close of the Policy Year; provided
that the Company shall not have been prevented by the Employer from
exercising its right to audit the Employer as provided in section 5(c)
of the MP Administrative Services Agreement. The Additional Quarterly
Premium shall be paid by the Employer within *** calendar days of the
date of the Company's invoice and *** provided in any Policy shall be
applicable to the payment of the Additional Quarterly Premium.
4. TERM AND TERMINATION OF THE AGREEMENT
(a) The Agreement shall be effective as of January 1, 2002 ("Effective
Date") for an initial period of twelve (12) months ("Agreement
Period") and shall continue automatically for
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successive Agreement Periods of twelve (12) months each unless it is
terminated earlier in accordance with this section 4.
(b) The Agreement may be terminated as follows:
i. Either party may elect to terminate the Agreement upon the
insolvency of the other, or the filing of a petition in
bankruptcy by or against the other, the appointment of a receiver
for the other or its property, execution of an assignment by the
other for the benefit of creditors, or conviction of the other or
any principal officer or manager of the other for any crime
tending to adversely affect the ownership or operation of the
business.
ii. Either party may elect to terminate the Agreement as of the last
day of an Arrangement Quarter by giving written notice to the
other party at least 180 calendar days prior to the date of
termination.
iii. The Agreement shall automatically terminate upon the date as of
which all Policies are terminated.
iv. Either party may elect to terminate the Agreement due to a
material breach of the Agreement (other than non-payment) by the
other party, if notice of the breach is provided by the
non-breaching party and the breach is not cured within 90
calendar days of such notice. In such event, the termination
shall be effective on the date designated by the non-breaching
party, which date is no earlier than the date that the
non-breaching party provided notice of the breach to the
breaching party.
v. Except as provided in subparagraph vii, the Company may elect to
terminate the Agreement effective on or after the first day of an
Arrangement Month in which the Employer fails to (A) pay any fee,
tax, premium or other amount owed under the Agreement or the MP
Administrative Services Agreement, (B) pay any amounts due under
the Policies (as modified by the Agreement) or under any Non-MP
Policy, (C) fund the Claims Account described in section 2(d) of
the Agreement, or (D) deposit any portion of the Security Deposit
required by the Security Deposit Agreement.
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vi. The Company may elect to terminate the Agreement as of the
date of the Employer's failure to comply with any duty
described in section 6 of the MP Administrative Services
Agreement, if the Company provides notice of the failure and
the Employer does not cure it within *** calendar days of the
notice.
vii. Any grace period otherwise applicable under a Policy shall not
apply to the MP Premium. However, the Company shall not
terminate the Agreement for the Employer's failure to pay the
MP Premium on the first day of the Arrangement Month if the
Employer pays (a) an amount equal to *** of the total MP
Premium for the previous Arrangement Month on or before the
*** calendar day of the applicable Arrangement Month; and (b)
the remaining balance of the MP Premium for the Arrangement
Month on or before the *** calendar day of such Arrangement
Month.
viii. The Company may elect to terminate the Agreement upon written
notice to the Employer immediately upon the closing of a sale
to a single buyer ("Buyer") of more than 50% of voting equity
securities of the Employer or of the ultimate publicly traded
corporation of the Employer or a sale of all or substantially
all of the assets of the Employer if:
(A) the Buyer is (I) CIGNA, AETNA, PacificCare, Anthem,
Coventry, First Health, HealthNet, Humana, Oxford,
Wellpoint, or any other Blue Cross or Blue Shield plan,
(II) any affiliate (as defined in clause E below) of or
successor of an entity identified in (I), or (III) any
other entity that has, at the time of the sale, a
competitive position relative to the Company as a health
insurer substantially similar to that of any of the
entities named in clause (I) above as of the date the
Agreement is executed;
(B) the debt rating on Buyer's public debt, if any, is below
Investment Grade as of the day preceding the closing of
the sale;
(C) the ultimate parent of the Buyer, if any, has not, at
the time of the closing of the sale, executed a guaranty
of the Employer's obligations under the Agreement
substantially in the same form as section 7 of the
Agreement;
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(D) the amount deposited in the Security Deposit as of the
date of closing of the sale is less than the amount then
required under the Security Deposit Agreement; or
(E) As used in clause (A) above, an "affiliate" of an entity
is an organization or entity which controls, is
controlled by or is under common control with the entity
to which it is an affiliate. "Control" for this purpose
refers to the ownership of more than 50% of the voting
power of an entity.
ix. Except as provided in paragraph (B) below, the Employer may
terminate this Agreement by giving the Company notice thereof
not more than *** business days following receipt from the
Company of notice of an *** of more than *** percentage points
in the percentage of the *** used to calculate the MP Premium.
(For example, if the percentage of the *** used to calculate
the MP Premium equals ***, the Company may *** such percentage
by *** percentage points to *** without triggering the
Employer's termination right under this clause ix.)
(A) Any such termination shall be effective on the date set
forth in the Employer's notice to the Company, but in
any event not sooner than the date the applicable ***
would otherwise be effective.
(B) The Employer shall not have the right to terminate the
Agreement pursuant to this section 4(b)(ix) if the
increase in the percentage of the Quoted Premium used to
calculate the MP Premium is pursuant to section 4(c) or
due to the imposition of any premium tax not included in
the Quoted Premium at the time that the imposition was
effected.
(c) The Policies shall terminate upon termination of the Agreement. If
one or more of the Policies may not, by its terms, be terminated as
of the date that the Agreement would otherwise terminate, the
Agreement shall be terminated notwithstanding the inability to
terminate a Policy as of the
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same date, and the terms of the Policy shall remain in force,
unmodified by the Agreement, until such Policy can be terminated.
However, effective as of the date of the termination of the
Agreement, the monthly premium due under each such Policy and Non-MP
Policy shall automatically be increased ("Increased Premium") such
that the sum of (i) the aggregate Increased Premiums due under such
Policies and Non-MP Policies through their termination dates and
(ii) the balance in the Security Deposit following the withdrawal
described in section 4(a) of the Security Deposit Agreement, equals
*** of the aggregate monthly premiums that would be payable under
such policies through their termination dates in the absence of an
increase.
(d) In the event of termination of the Agreement, the Employer shall pay
an Additional Quarterly Premium attributable to the Arrangement
Quarter in which the Agreement terminates but only for the portion
of the Arrangement Quarter during which the Agreement was in effect.
Such Additional Quarterly Premium generally shall be determined and
due in the manner set forth in section 3(b) of the Agreement;
provided however, that the Additional Quarterly Premium attributable
to any partial Arrangement Month shall be calculated based on the
proration formula set forth in section 4(e) below.
(e) If the Agreement is terminated other than at the end of an
Arrangement Month, unless the Quoted Premium is itself prorated
under the terms of the Policy, the Maximum Monthly Employer Benefit
Obligation and the MP Premium for the month in which termination
occurs shall be prorated based upon the ratio of the number of
calendar days in the Arrangement Month before termination to the
total number of calendar days in the Arrangement Month.
(f) If the Agreement is terminated retroactively and any Policy remains
in effect after such retroactive termination date, amounts due and
paid by the parties under the Agreement after the effective date of
termination shall be credited against their respective obligations
under the Policy after such date.
(g) If the Agreement is terminated, the MP Premium and the Maximum
Monthly Employer Benefit Obligation for the last Arrangement Month
prior to the termination date shall be adjusted as authorized in
Exhibit E of the MP Administrative
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Services Agreement to include the effect of any additions,
terminations or changes in coverage not reflected at the time of
termination in respect of Arrangement Months prior to termination.
(h) In the event that either party reasonably believes that any state or
other jurisdiction may impose a penalty on it for proceeding with
its performance under the Agreement, such party will promptly advise
the other party of such belief and the basis therefor. In such event
the parties agree to cooperate in good faith to resolve such matter
to the satisfaction of both parties. After a good faith effort by
the parties to eliminate the risk of a material penalty being
imposed, if the matter is not resolved to the satisfaction of both
parties, the party upon which such penalty may be imposed may
immediately discontinue the Agreement's application in such state or
jurisdiction by providing notice to that effect to the other party.
In that event, the Agreement will continue to apply in all other
states or jurisdictions.
5. CHANGES IN MAXIMUM MONTHLY EMPLOYER BENEFIT OBLIGATION AND PREMIUM.
(a) The Company may change the percentage of the *** used to calculate
the Maximum Monthly Employer Benefit Obligation described in section
1(m) of the Agreement and/or the MP Premium described in section
3(a) of the Agreement:
(i) effective on January 1, 2003, provided that the Company
provides *** calendar days notice of the change; and
(ii) effective on January 1, 2004 or on any subsequent January 1st,
provided that the Company provides *** calendar days notice of
the change.
(b) Upon the notice provided in section 5(c), the Company also may
change one or more of the following rates as provided below:
(i) the percentage of the *** used to calculate the Maximum
Monthly Employer Benefit Obligation, as described in section
1(m) of the Agreement,
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(ii) the percentage of the *** used to calculate the MP Premium, as
described in section 3(a) of the Agreement,
(iii) the Quoted Premium rate under a Policy, or
(iv) the monthly premium rate under a Non-MP Policy.
Each rate described in items (i) through (iv) above is referred to
in this section as "Rate" (or collectively as "Rates").
If the total number of Employees covered by all of the Policies and
Non-MP Policies changes by *** or more compared to the total number
of Employees covered by all of the Policies and Non-MP Policies on
the later of (x) the Effective Date of the Agreement or (y) ***,
then that Rate may be changed by the Company.
(c) The change in Rate described in subsection (b) shall be effective
upon the first of the month following *** calendar days notice to
the Employer in the case of a *** increase in the number of
Employees covered. In the case of a *** decrease in such coverage,
the change in Rate shall be effective on the date established by the
Company in a notice to the Employer, but no earlier than the *** day
of the next Arrangement Month following the date of the notice.
6. REPRESENTATIONS OF THE PARTIES
(a) The Employer represents and warrants to Company as follows:
(i) The Employer has full authority to execute and deliver the
Agreement, the Security Deposit Agreement and the MP
Administrative Services Agreement and to perform its
obligations hereunder and thereunder.
(ii) The Employer is subject to no restriction, agreement, law,
judgment or decree which would prohibit or be violated by the
execution and delivery hereof or the consummation of the
transactions contemplated hereby. The Agreement has been duly
executed and delivered by the Employer and constitutes its
legal, valid and binding obligation, enforceable in accordance
with its terms.
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(iii) No consent, approval or other action by, or notice to, or
registration or filing with, any governmental or
administrative agency or authority, or any other person (other
than any registration or filing made in the ordinary course of
business), is required or necessary in connection with the
execution, delivery and performance of the Agreement by the
Employer, or the consummation by the Employer of the
transactions contemplated hereby.
(b) The Company hereby represents and warrants to the Employer as
follows:
(i) The Company has full authority to execute and deliver the
Agreement, the Security Deposit Agreement and the MP
Administrative Services Agreement and to perform its
obligations hereunder and thereunder.
(ii) The Company is subject to no restriction, agreement, law,
judgment or decree which would prohibit or be violated by the
execution and delivery hereof or the consummation of the
transactions contemplated hereby. The Agreement has been duly
executed and delivered by the Company and constitutes its
legal, valid and binding obligation, enforceable in accordance
with its terms.
(iii) No consent, approval or other action by, or notice to, or
registration or filing with, any governmental or
administrative agency or authority, or any other person (other
than any registration or filing made in the ordinary course of
business), is required or necessary in connection with the
execution, delivery and performance of the Agreement by the
Company, or the consummation by the Company of the
transactions contemplated hereby.
7. GUARANTY OF ADMINISTAFF INC.
To induce the Company to enter into the Agreement, the Policies, the Non-MP
Policies and the MP Administrative Services Agreement, Administaff, Inc.
guarantees that the Employer's obligations under the Agreement, the Policies,
the MP Administrative Services Agreement and the Security Deposit Agreement will
be punctually paid and performed. Upon default by the Employer and notice from
the
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Company, Administaff, Inc. will immediately make each payment or perform or
cause the Employer to perform, each unpaid or unperformed obligation under the
Agreement, the Policies, the Non-MP Policies, the MP Administrative Services
Agreement or the Security Deposit Agreement.
8. NOTICES
(a) Any notice required to be given under the Agreement shall be given
in writing by sending or delivering such notice to the receiving
party (i) by prepaid registered or certified first class U.S. mail,
return receipt requested, (ii) by overnight express courier with
recipient's signature required, (iii) by hand delivery with
recipient's signature required, (iv) by facsimile, provided that the
other party has specifically requested that a specifically
designated notice be made by facsimile, or (v) or by any other
method by which the date of receipt by the party entitled to such
notice may be determined. Notice shall be effective when sent.
(b) Notices to a party shall be sent or delivered:
To the Company at:
United Healthcare
Small Business Group
5901 Lincoln Drive
Edina, MN 55436
Fax: (952) 992-7155
Attention: President, Small Business Group
With a Copy to:
United Healthcare
Legal Department
5901 Lincoln Drive
Edina, MN 55436
Fax: (952) 992-5180
Attention: General Counsel
And:
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UnitedHealthcare
Small Business Group
5901 Lincoln Drive
Edina, MN 55436
Fax: (952) 992-7155
Attention: Vice President, Underwriting
And to the Employer at:
Administaff of Texas, Inc.
19001 Crescent Springs Drive
Kingwood, Texas 77339-3802
Fax: (281)312-3350
Attention: Vice President of Benefits
With a Copy to:
Administaff of Texas, Inc.
19001 Crescent Springs Drive
Kingwood, Texas 77339-3802
Fax: (281)358-6492
Attention: General Counsel
(c) Each party may change the person(s) designated to receive notice on
behalf of such party, or the address or facsimile to which the
notice shall be sent, upon written notice to the other party.
9. CHOICE OF LAW
The Agreement shall be governed by applicable federal law and, to the extent not
governed by federal law, the laws of the State of Texas.
10. ENTIRE AGREEMENT, AMENDMENT AND WAIVER
(a) Upon execution of the Agreement, all prior or contemporaneous
letters of understanding, agreements, requests for proposal,
proposals, representations, statements, negotiations and
understanding, whether oral or written, are hereby terminated and
superseded by the Agreement, the MP Administrative Services
Agreement, the Security Deposit Agreement, the Policies and Non-MP
Policies and all riders thereto.
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(b) Any amendments or modifications to the Agreement must be in writing,
and must be signed by the duly authorized representatives of each
party. Each party shall provide to the other a written certification
of the names of those person(s) duly authorized to execute
amendments or modifications on behalf of the party. Each party shall
be entitled to rely on the other's certification of authority unless
and until it is modified.
(c) No term or provision of the Agreement shall be deemed waived and no
breach excused unless the party claimed to have waived the term or
provision or to have excused the breach does so in a signed writing.
(d) In the event of any conflict between the terms and conditions of the
Agreement, the MP Administrative Services Agreement, the Security
Deposit Agreement or the Policies or Non-MP Policies, the following
order of precedence shall be followed in resolving the conflict. The
terms of the Security Deposit Agreement shall first control, then
the Agreement, then the MP Administrative Services Agreement and
lastly the Policies or Non-MP Policies, as applicable.
(e) Termination of the Agreement shall not extinguish the rights or
liabilities of either party arising prior to termination. The
parties' respective rights and obligations under sections
2(d)(ii)-(iii), 4(c) through (g), 7 and Exhibit A of the Agreement
shall survive termination of the Agreement.
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In witness whereof, the undersigned have executed the Agreement.
ADMINISTAFF OF TEXAS, INC. UNITED HEALTHCARE
INSURANCE COMPANY
By /s/ Howard G. Buff By /s/ William A. Munsell
--------------------------------------- -----------------------------
Authorized Signature Authorized Signature
Name Howard G. Buff Name William A. Munsell
------------------------------------- ---------------------------
Title Vice President - Benefits & Corp. HR Title Senior Vice President
------------------------------------ --------------------------
Date 6/25/02 Date 6/25/02
------------------------------------- ----------------------------
ADMINISTAFF, INC.
By /s/ Howard G. Buff
--------------------------------------
Authorized Signature
Name Howard G. Buff
------------------------------------
Title Vice President - Benefits & Corp.
-----------------------------------
Date 6/25/02
------------------------------------
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EXHIBIT A - REVIEWS AND ESTABLISHMENT OF MONTHLY PAYABLE RATES AND PREMIUMS
1. The Policies. The Employer has entered into a Minimum Premium Arrangement
covering each of the Company's insurance policies or HMOs that is
permitted to have such an arrangement. The Arrangement covers those
Policies identified in section 1(s) of the Agreement. The Company has also
issued Non-MP Policies to the Employer which policies are not subject to
the Minimum Premium Arrangement.
2. Procedure for Establishing Premiums
a. A monthly *** rate for the Policies and the Non-MP Policies
collectively ("Monthly Payable Rate") is established for each
Arrangement Quarter as provided in this Exhibit A. Each Arrangement
Quarter, the Company sets the monthly premium for Employees covered
under each Policy and Non-MP Policy based on the *** of Employees
among the Policies and the Non- MP Policies in order to produce a
*** rate that *** the Monthly Payable Rate for the Arrangement
Quarter. (The monthly premium for each Policy corresponds to the
"Quoted Premium" referenced in the Agreement.)
b. The Monthly Payable Rate per covered Employee for the first and
second quarters of 2002 shall be fixed at the rates provided below.
<Table>
<Caption>
Period Med. Dental
------ ---- ------
1Q 2002 $*** $***
2Q 2002 $*** $***
</Table>
Beginning with the third quarter of 2002, the Monthly Payable Rate
shall be established as provided in section 4 of this Exhibit.
3. Reviews of Experience under Policies and Non-MP Policies
a. Within 90 calendar days following the end of each Arrangement Year,
the Company shall review the
21
Employer's aggregate experience under the Policies and the Non-MP
Policies for that Arrangement Year ("Annual Review"). As part of the
Annual Review, the Company shall determine whether an aggregate
Deficit or Surplus exists with respect to the Policies and the
Non-MP Policies based on an analysis of the Incurred Claims,
Expenses and Policy Revenue for the Arrangement Year, which analysis
shall be provided in a written report to the Employer within 90
calendar days of the close of such Arrangement Year. That report
shall be in a form substantially similar to and contain the
information described in Appendix 1 attached to this Exhibit A.
b. Within 45 calendar days following the end of each Arrangement
Quarter, the Company shall provide to the Employer a report
summarizing Paid Health Benefits under the Policies by incurral
month and paid health benefits under the Non-MP Policies by incurral
month, Expenses and Policy Revenue for the Arrangement Quarter
("Quarterly Review").
c. As part of the Quarterly Review, the Company shall provide to the
Employer a written list of Policies and Non-MP Policies that were
effective at any time during the Arrangement Quarter under review
("Current Policy List").
4. Prospective Adjustment of Monthly Payable Rate and Premiums
a. Beginning with the third Arrangement Quarter of 2002, the Company
shall, ***, establish in advance the Monthly Payable Rate for each
Arrangement Quarter. In establishing the Monthly Payable Rate for an
Arrangement Quarter, the Company shall take into account any
Accumulated Deficit or Accumulated Surplus, but shall not be
required to *** of any Accumulated Deficit or Accumulated Surplus in
the Monthly Payable Rate of a single Arrangement Quarter. The
Company shall notify the Employer of the Monthly Payable Rate for
the third Arrangement Quarter of 2002 by May 31, 2002, for the
fourth Arrangement Quarter of 2002 by August 31, 2002, and for the
first Arrangement Quarter of 2003 by October 31, 2002. For all
subsequent Arrangement Quarters, the Company shall notify the
Employer of the applicable Monthly Payable Rate at least 90 calendar
days in advance of the start of the Arrangement Quarter.
22
b. The Company is authorized, ***, to revise the premium of any Policy
or Non-MP Policy for each Arrangement Quarter so as to result in a
*** rate for all Policies and Non-MP Policies that *** the revised
Monthly Payable Rate for that Arrangement Quarter.
5. Termination Review
a. Upon termination of the Agreement, the Company shall provide a
two-step termination review, substantially in the form of the Annual
Review ("Termination Review"). The two steps in the Termination
Review shall be:
i. Within 10 calendar days after the termination of the
Agreement, the Company shall determine the Accumulated Deficit
or Accumulated Surplus as of the date of the termination of
the Agreement ("Initial Termination Review").
ii. Within 195 calendar days after the termination of the
Agreement and all Policies and Non-MP Policies (except those
issued to a Client as well as, or instead of, to the
Employer), the Company shall determine the Accumulated Deficit
or Accumulated Surplus as of the end of the last Arrangement
Quarter (or Partial Arrangement Quarter) ("Final Termination
Review").
b. In calculating the Accumulated Deficit or Accumulated Surplus for
purposes of the Termination Review, "Non-MP Policies" shall include
those policies or group contracts issued by the Company that were
but are no longer covered by the Minimum Premium Arrangement.
c. If the Final Termination Review demonstrates an Accumulated Surplus,
the Company shall pay to the Employer an amount equal to the
Accumulated Surplus within 10 calendar days after the completion of
the Final Termination Review.
23
d. If the Initial Termination Review and/or Final Termination Review
demonstrates an Accumulated Deficit, the Company shall have such
rights to the balance in the Security Deposit as described in the
Security Deposit Agreement.
6. Definitions
For the purpose of this Exhibit A and the Security Deposit Agreement,
terms with initial capitals have the meanings set forth in the Agreement, except
as set forth in this section as follows:
a. "Accumulated Deficit" means, as of the last day of an Arrangement Period
(i) the sum of the Deficits, if any, for such Arrangement Period and all
preceding Arrangement Periods, reduced by (ii) the sum of the Surpluses
for all preceding Arrangement Periods, provided, however, that a Deficit
or Surplus shall not be counted twice in the case of overlapping
Arrangement Periods.
b. "Accumulated Surplus" means, as of the last day of an Arrangement period
(i) the sum of the Surpluses, if any, for such Arrangement Period and all
preceding Arrangement Periods, reduced by (ii) the sum of the Deficits for
all preceding Arrangement Periods, provided, however, that a Deficit or
Surplus shall not be counted twice in the case of overlapping Arrangement
Periods.
c. "Annual Review" has the meaning set forth in section 3(a) of this Exhibit
A.
d. "Arrangement Period" means, as the context indicates, either an
Arrangement Year or Arrangement Quarter, or Partial Arrangement Quarter.
e. "Arrangement Year" means each calendar year during the period that both a
Policy and the Agreement are in effect.
f. "Claims Recognition Date" means the 180th day following the end of the
last Arrangement Quarter (or Partial Arrangement Quarter).
g. "Deficit" means, with respect to an Arrangement Period, the excess of (i)
Incurred Claims plus Expenses for such Arrangement Period, over (ii) the
Policy Revenue for such Arrangement Period.
24
h. "Expenses" means, for an Arrangement Period, the sum of (i) the applicable
Expense Percentage multiplied by the *** paid under the Policies and the
monthly premiums paid under the Non-MP Policies for that Arrangement
Period, and (ii) actual premium taxes and assessments paid with respect to
the Policies and the Non-MP Policies during the Arrangement Period. The
Expense Percentage for the Dental Policies and the Non-MP Policies
providing dental benefits is ***. The Expense Percentage for the Medical
Policies and the Non-MP Policies providing medical benefits is ***. The
Company shall adjust the Expense Percentage for any Arrangement Quarter
for which the percentage of the *** used to calculate the MP Premium has
been changed pursuant to section 5 of the Agreement. The Company shall
notify the Employer of an adjustment to the Expense Percentage at the same
time that it provides the notice required under section 5 of the
Agreement.
i. "IBNR Reserve" means the amount actuarially determined by the Company,
***, as a reserve for Incurred Health Benefits that are paid after the
date of termination of the Policies and incurred health benefits that are
paid after termination of the Non-MP Policies. For purposes of the Final
Termination Review, the IBNR Reserve shall be (A) reduced by ***
Overpayments (as defined in section 2(d) of the MP Administrative Services
Agreement) recoveries under the Policies and Non-MP Policies *** to be
received after the Claims Recognition Date and (B) calculated as of the
Claims Recognition Date and shall not include Health Benefits or Non-MP
Policy health benefits that are included in the calculation of Incurred
Claims as Paid Health Benefits under the Policies and paid health benefits
under the Non-MP Policies.
j. "Incurred Claims" means, with respect to an Arrangement Period (or Partial
Arrangement Quarter), the sum of (i) Paid Health Benefits under the
Policies and paid health benefits under the Non-MP Policies and (ii) any
actuarially appropriate adjustments made by the Company, ***, to the
25
IBNR Reserve for such Arrangement Period (including establishment of the
IBNR Reserve in the first Arrangement Quarter). For purposes of the Final
Termination Review, item (i) of the preceding sentence shall include
Health Benefits Paid under the Policies and health benefits paid under the
Non-MP Policies through the Claims Recognition Date. Unless Overpayments
recoveries have already been credited to Health Benefits, Incurred Claims
shall be reduced by Overpayments (as defined in section 2(d) of the MP
Administrative Services Agreement) recoveries under the Policies and
Non-MP Policies received during the applicable Arrangement Period (and
received prior to the Claims Recognition Date in the case of termination
of the Agreement).
k. "Partial Arrangement Quarter" means that period between the end of the
last complete Arrangement Quarter under the Agreement and the termination
of the last Policy or Non-MP Policy, whichever is later.
l. "Policy Revenue" means, with respect to an Arrangement Period, the sum of
(i) the MP Premiums paid with respect to such Arrangement Period for the
Policies, (ii) the monthly premiums paid under the Non-MP Policies, (iii)
*** Maximum Monthly Employer Benefit Obligation amounts for the
Arrangement Months in the Arrangement Period before the *** of the
Agreement) for an Arrangement Quarter therein, and (iv) the Additional
Quarterly Premium paid by the Employer with respect to the Policies for
the Arrangement Period. Any withdrawals made by the Company from the
Security Deposit during such Arrangement Period shall be credited as
Policy Revenue.
m. "Quarterly Review" has the meaning set forth in section 3(b) of this
Exhibit A.
n. "Surplus" means, with respect to an Arrangement Period, the excess of (i)
Policy Revenue for such Arrangement Period, over (ii) the sum of Incurred
Claims and Expenses for such Arrangement Period.
o. "Termination Review" has the meaning set forth in section 5(a) of this
Exhibit A.
26
APPENDIX 1 TO EXHIBIT A: ADMINISTAFF ANNUAL MEDICAL ACCOUNTING
24-Jun-02
1ST QUARTER 2002 ESTIMATE
<Table>
<Caption>
HMO PPO Total
--- --- -----
(A) Quoted Premium $*** $*** $***
(B) Monthly Premium $*** $***
Employee Lives Jan *** *** ***
Feb *** *** ***
Mar *** *** ***
(C) 1st Quarter *** *** ***
Total
(D) Quarterly Total of Monthly Premium (BxC) $*** $*** $***
(E) Maximum Monthly Employer Benefit Obligation/Employee $***
(F) Maximum Quarterly Employer Benefit Obligation (ExC) $***
(G) Claims Presented Through Bank Account During Quarter $***
(H) Additional Quarterly Premium *** $***
(I) Total Quarterly Premiums (D+H) $*** $*** $***
(Note that all four quarters will be presented to arrive at)
(I.1) Total Annual Premiums
(J) Total Quarterly Administaff Costs (G+I) $*** $*** $***
(Note that all four quarters will be presented to arrive at)
(J.1) Total Annual Administaff Costs
(K) Total Quarterly Administaff Costs/Employee (J/C) $*** $*** $***
(Note that all four quarters will be presented to arrive at)
(K.1) Total Annual Administaff Costs/Employee
- ---------------------------------------------------------------------------------------------------------------------------------
(L) Claims Processed or Presented During Year $*** $*** $***
(M) Prior Year IBNR $*** $*** $***
(N) Current Year IBNR $*** $*** $***
(O) Change in IBNR (N-M) $*** $*** $***
(P) Total Annual Incurred Claims (L+O) $*** $*** $***
(Q) Administration @ *** of Annual Administaff Costs *** $*** $*** $***
(R) Premium Tax (Est. HMO=1.0%, PPO 1.75%) (I.1x1.0%
or 1.75%) $*** $*** $***
(S) Total Annual Medical Program Costs (P+Q+R) $*** $*** $***
(T) Annual Surplus or Deficit (S-J.1) $*** $*** $***
</Table>
Note: Reference to Quarterly is for illustrative purposes only as are the
amounts reflected. Annual Appendix will reflect 12 months/4 quarters
activity. *** The Additional Quarterly Premiums collected for PPO
enrollees are subject to premium tax. ***
1
EXHIBIT B - NON-MP POLICIES
The insurance policies, HMO contracts and similar arrangements on the following
list are considered "Non-MP Policies" for purposes of the Agreement. Such list
shall be deemed modified by the Current Policy List provided by the Company as
part of the Quarterly Review, unless the Employer objects within 30 calendar
days of receipt.
<Table>
<Caption>
UNET POLICY
NUMBER MARKET EFFECTIVE DATE TERMINATION DATE
- ----------- ------ -------------- ----------------
701648A Select HMO - Downstate New York 01/01/02
701648B Select HMO - New Jersey 01/01/02
701648C Select HMO - Illinois 01/01/02
701648D Select HMO - Texas 01/01/02
701648E Select HMO - Upstate New York 01/01/02
701648F Choice HMO - Florida 01/01/02
701648G Choice HMO - Arizona 01/01/02
701648H Choice HMO - Ohio 01/01/02
701648I Choice HMO - Georgia 01/01/02
701648J Choice HMO - Kentucky 01/01/02
701648K Choice HMO - Texas 01/01/02
701648L Choice HMO - Utah 01/01/02
701648M Choice HMO - Missouri 01/01/02
701648N Choice HMO - Arkansas 01/01/02
701648P Choice HMO - Mississippi 01/01/02
701648Q Choice HMO - District of Columbia 01/01/02
701648R Choice HMO - Virginia 01/01/02
701648S Choice HMO - Tennessee 01/01/02
701648T Choice HMO - Louisiana 01/01/02
701648U Choice HMO - Colorado 01/01/02
701648V Choice HMO - Alabama 01/01/02
701648Y EPO - Wisconsin 01/01/02
</Table>
1
<Table>
<Caption>
PRIME POLICY
NUMBER POLICYHOLDER EFFECTIVE DATE TERMINATION DATE
- ----------- ------------ -------------- ----------------
0247936 *** 01/01/02
0247974 *** 01/01/02
0247977 *** 01/01/02 03/01/02
0247989 *** 01/01/02
0247996 *** 01/01/02
0248003 *** 01/01/02
0248006 *** 01/01/02
0248026 *** 01/01/02
0248030 *** 01/01/02
0248035 *** 01/01/02
0248041 *** 01/01/02
0248056 *** 01/01/02
0248063 *** 01/01/02
0248110 *** 01/01/02
0248128 *** 01/01/02
0248131 *** 01/01/02
0248133 *** 01/01/02
0248135 *** 01/01/02
0248144 *** 01/01/02
0248151 *** 01/01/02
0248163 *** 01/01/02
0248165 *** 01/01/02
0248197 *** 01/01/02
0248208 *** 01/01/02
0248241 *** 01/01/02
0248263 *** 01/01/02
0248271 *** 01/01/02
0248291 *** 01/01/02
0248306 *** 01/01/02
0248314 *** 01/01/02
0248324 *** 01/01/02
</Table>
2
<Table>
<Caption>
PRIME POLICY
NUMBER POLICYHOLDER EFFECTIVE DATE TERMINATION DATE
- ----------- ------------ -------------- ----------------
0248325 *** 01/01/02
0248339 *** 01/01/02
0248346 *** 01/01/02
0248352 *** 01/01/02
0248370 *** 01/01/02
0248371 *** 01/01/02
0248372 *** 01/01/02
0248373 *** 01/01/02
0248374 *** 01/01/02
0248375 *** 01/01/02
0248376 *** 01/01/02
0248379 *** 01/01/02
0248382 *** 01/01/02
0248384 *** 01/01/02
0248388 *** 01/01/02
0248390 *** 01/01/02
0248396 *** 01/01/02
0248399 *** 01/01/02
0248404 *** 01/01/02
0248405 *** 01/01/02
0248407 *** 01/01/02
0248408 *** 01/01/02
0248409 *** 01/01/02
0248410 *** 01/01/02
0248411 *** 01/01/02
0248412 *** 01/01/02
0248413 *** 01/01/02
0248414 *** 01/01/02
0248415 *** 01/01/02
0248416 *** 01/01/02
0248417 *** 01/01/02
</Table>
3
<Table>
<Caption>
PRIME POLICY
NUMBER POLICYHOLDER EFFECTIVE DATE TERMINATION DATE
- ----------- ------------ -------------- ----------------
0248418 *** 01/01/02
0248421 *** 01/01/02
0248429 *** 01/01/02
0248433 *** 01/01/02 01/01/02
0248442 *** 01/01/02
0248457 *** 01/01/02
0248463 *** 01/01/02
0248466 *** 01/01/02
0248473 *** 01/01/02
0248474 *** 01/01/02
0248478 *** 01/01/02
0248480 *** 01/01/02
0248486 *** 01/01/02
0248494 *** 01/01/02
0248495 *** 01/01/02
0248497 *** 01/01/02
0248501 *** 01/01/02
0248516 *** 01/01/02
0248519 *** 01/01/02
0248521 *** 01/01/02
0248524 *** 01/01/02
0248528 *** 01/01/02
0248532 *** 01/01/02
0250136 *** 01/01/02
0250197 *** 07/01/02
0250201 *** 01/01/02
0250656 *** 01/01/02
0250657 *** 01/01/02
0250658 *** 02/01/02
0250659 *** 02/01/02
0250660 *** 01/01/02
</Table>
4
<Table>
<Caption>
PRIME POLICY
NUMBER POLICYHOLDER EFFECTIVE DATE TERMINATION DATE
- ----------- ------------ -------------- ----------------
0250669 *** 02/15/02
0252657 *** 03/01/02
0252926 *** 03/01/02
0253683 *** 03/01/02
0253774 *** 03/01/02
0253775 *** 03/01/02
0253778 *** 02/27/02
0254553 *** 04/01/02
0254678 *** 04/01/02
0254741 *** 04/01/02
0255675 *** 04/01/02
0255701 *** 04/01/02
0255709 *** 04/01/02 04//01/02
0256410 *** 02/04/02 02/04/02
0256498 *** 02/04/02
0256505 *** 04/01/02
0257668 *** 04/15/02
0261873 *** 06/01/02
0262606 *** 07/01/02
0262614 *** 06/01/02
0262666 *** 06/01/02
0250579 *** 01/16/02
0250671 *** 01/22/02 03/04/02
0251016 *** 01/13/02
0256129 *** 03/01/02
0256904 *** 01/01/02
0256960 *** 03/20/02 06/01/02
0257422 *** 03/26/02
0257424 *** 04/09/02 04/09/02
0259230 *** 04/02/02
0259740 *** 04/14/02
</Table>
5
<Table>
<Caption>
PRIME POLICY
NUMBER POLICYHOLDER EFFECTIVE DATE TERMINATION DATE
- ----------- ------------ -------------- ----------------
0260298 *** 04/02/02
0260303 *** 04/16/02
</Table>
6
EXHIBIT C - MINIMUM PREMIUM
FINANCIAL AGREEMENT BANKING ARRANGEMENT
December 11, 2001
UnitedHealth Group
Kevin Kerlejza, Director Treasury Operations
450 Columbus Boulevard
Hartford, CT 06115-0450
RE: Benefits Account Establishment
Dear Kevin Kerlejza:
UnitedHealthcare and Administaff of Texas, Inc. have entered into an Insured
Minimum Premium Arrangement whereby various affiliates of UnitedHealthcare will
administer benefits pursuant to the provisions of Administaff of Texas Inc.
benefits plan. In connection with that arrangement, UnitedHealthcare's standard
procedure is to have the customer establish a bank account from which
UnitedHealthcare affiliates draw to pay claims. We have requested that, as to
the Administaff of Texas, Inc.'s Benefit plan, UnitedHealthcare affiliates
instead make claims payments from a UnitedHealthcare account at J.P. Morgan
Chase Bank (Bank) into which Administaff of Texas, Inc. will deposit funds. This
is to advise you that UnitedHealthcare and its affiliates are indemnified and
held harmless by Administaff of Texas, Inc. for any and all federal, state,
local or other governmental demand, charge or tax (by whatever named called)
assessed against or imposed upon them arising out of UnitedHealthcare's
establishing a bank account as requested by Administaff of Texas, Inc. and or
making such payments as aforesaid. This account will be known as:
UnitedHealthcare Administered Plan for Administaff of Texas, Inc. -
Medical/Dental Benefits Account.
The benefits account will be used to pay benefits covered under the Administaff
of Texas, Inc.'s health plan. Drafts in payment of these benefits will be drawn
by UnitedHealthcare. The benefits account will maintain a standing balance
determined by UnitedHealthcare to cover the one day assignment lag due to next
day presentments.
We will be funding the benefits account at J. P. Morgan Chase Daily via a Wire
Transfer initiated by UnitedHealthcare.
1
UnitedHealth Group
Page 2
Funding for the account will be from the bank account shown below:
Bank Name: JPMorgan Chase
Bank Address: 717 Travis Street, Houston, TX 77002
Bank ABA Routing #: 113000609
Bank Account Name Administaff Companies, Inc.
Bank Account Number: ***
Bank Contact: Valerie Luecke
Bank Statements should by mailed to:
Holly Jackson
19001 Crescent Springs Drive
Kingwood, TX 77339
Notification of Amount of Request should be Faxed to:
Ellen Reason or Linda Trammel, Fax: 281-348-3747
Phone: 281-348-3986
Monthly Banking Reports should be mailed to:
Holly Jackson
19001 Crescent Springs Drive
Kingwood, TX 77339
Sincerely,
/s/ Douglas S. Sharp
Douglas S. Sharp
VP Finance/Controller
CC: UnitedHealthcare
JP Morgan Chase
2