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EXHIBIT 10.6
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MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
AND
COVENTRY HEALTH CARE, INC.
Dated as of _________, 1998
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................................................. 1
ARTICLE II APPOINTMENT; STANDARDS; NOTIFICATION; COMMUNICATION
WITH POLICYHOLDERS....................................................................................... 2
Section 2.01. Appointment and Acceptance of Appointment................................................. 2
Section 2.02. Standards................................................................................. 2
ARTICLE III COMPENSATION................................................................................. 2
Section 3.01 Compensation for Manager............................................................... 2
ARTICLE IV INABILITY TO PERFORM SERVICES; ERRORS........................................................ 3
Section 4.01 Inability to Perform Services.............................................................. 3
Section 4.02 Errors..................................................................................... 3
ARTICLE V INDEMNIFICATION.............................................................................. 3
Section 5.01. Indemnification........................................................................... 3
ARTICLE VI DURATION; TERMINATION........................................................................ 3
Section 6.01. Duration.................................................................................. 3
Section 6.02. Termination............................................................................... 3
ARTICLE VII ARBITRATION.................................................................................. 4
ARTICLE VIII MISCELLANEOUS................................................................................ 5
Section 8.01. Headings, Schedules and Exhibits........................................................... 5
Section 8.02. Notices................................................................................... 5
Section 8.03. Amendments................................................................................ 5
Section 8.04. Execution in Counterpart.................................................................. 6
Section 8.05. Limited Authority......................................................................... 6
Section 8.06. Assignment................................................................................ 6
Section 8.07. No Third Party Beneficiaries.............................................................. 6
Section 8.08. Change in Status.......................................................................... 6
Section 8.09. Survival.................................................................................. 6
Section 8.10. Governing Law............................................................................. 6
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MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT (this "Agreement"), dated
as of ________, 1998, is made and entered into by and between Principal Mutual
Life Insurance Company, a corporation organized, under the laws of the State of
Iowa ("Mutual") and Coventry Health Care, Inc., a corporation organized under
the laws of the State of Delaware ("Manager").
WHEREAS, Mutual wishes to appoint Manager to provide
management services to Mutual commencing on the date hereof and Manager desires
to provide such management services for the consideration set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and
promises contained herein and upon the terms and conditions set forth herein,
the parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meaning set
forth below throughout this Agreement:
"AGREEMENT" shall have the meaning set forth in the
introductory paragraph.
"BUSINESS DAY" shall have the meaning set forth in the Merger
Agreement.
"GAAP" shall have the meaning set forth in the Merger
Agreement.
"MANAGEMENT SERVICES" shall have the meaning set forth in
Section 2.01 hereof.
"MANAGER" shall have the meaning set forth in the introductory
paragraph hereof.
"MERGER AGREEMENT" means the Capital Contribution and Merger
Agreement (amending and restating the Capital Contribution and Share Exchange
Agreement dated November 3, 1997) dated December __, 1997, entered into by and
between Mutual, the Manager, Coventry Health Care, Inc. (a Maryland
corporation), Principal Health Care, Inc., Principal Holding Company and
Coventry Corporation.
"MUTUAL" shall have the meaning set forth in the introductory
paragraph hereof.
"MUTUAL INDEMNITY AGREEMENTS" shall have the meaning set forth
in the Merger Agreement.
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"NET PREMIUMS" means (i) gross premiums with respect to the
Mutual Indemnity Agreements less (ii) return premiums with respect to the Mutual
Indemnity Agreements.
"PERSON" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, governmental, judicial or regulatory body, business unit, division
or other entity.
"UMPIRE" shall have the meaning set forth in Article VII.
ARTICLE II
APPOINTMENT; STANDARDS; NOTIFICATION;
COMMUNICATION WITH POLICYHOLDERS
SECTION 2.01. APPOINTMENT AND ACCEPTANCE OF APPOINTMENT.
Mutual hereby appoints Manager to provide the management services specified in
Schedule 2.01 hereto (collectively, the "Management Services") commencing on the
date hereof and continuing for the period specified in Section 6.01 of this
Agreement, and Manager hereby accepts such appointment and agrees to provide
such services on behalf hereof of Mutual. Manager acknowledges that the
performance of Manager under this Agreement with respect to the business and
operations of Mutual shall at all times be subject to the direction, control and
ultimate authority of Mutual. Manager agrees to obtain and maintain any and all
licenses required to perform its obligations under this Agreement.
SECTION 2.02. STANDARDS. Manager acknowledges that the
performance of the Management Services in an accurate and timely manner is of
paramount importance to Mutual. Manager agrees to perform the Management
Services with the skill, diligence and expertise commonly expected from
experienced and qualified personnel performing such duties and in accordance
with such additional standards as may be reasonably adopted by Mutual and
communicated to Manager, including industry standards and applicable law.
ARTICLE III
COMPENSATION
SECTION 3.01. COMPENSATION FOR MANAGER. Mutual shall pay to
Manager, as compensation for the Management Services, a monthly management fee
equal to three and three-tenths percent (3.3%) of Net Premiums earned by Mutual
during such month in accordance with GAAP. Mutual shall pay such management fee
on or before the 30th day of each month with respect to Net Premium received
during the previous month with the initial payment due on or before [(month
following closing)] 30, 1998 and the final payment due on or before January 30,
2000.
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ARTICLE IV
INABILITY TO PERFORM SERVICES; ERRORS
SECTION 4.01 INABILITY TO PERFORM SERVICES. In the event that Manager
shall be unable to perform Management Services as required by this Agreement for
any reason for a period that can reasonably be expected to exceed three Business
Days, Manager shall cooperate with Mutual in obtaining an alternative means of
providing such services. Manager will be responsible for all costs incurred in
either restoring services or obtaining an alternative source of services.
SECTION 4.02 ERRORS. Manager shall, at its own expense, correct any
errors in Management Services caused by it within a reasonable time after
receiving notice thereof from Mutual or otherwise.
ARTICLE V
INDEMNIFICATION
SECTION 5.01. INDEMNIFICATION. Manager agrees to indemnify and hold
harmless Mutual and any of its directors, officers, employees, agents or
Affiliates from any and all losses, costs, claims, demands, compensatory, extra
contractual and/or punitive damages, fines and penalties (collectively, "Mutual
Losses") arising out of or caused by: (i) fraud, theft or embezzlement by
officers, employees or agents of Manager during the term of this Agreement; (ii)
the failure, either intentional or unintentional, of Manager to properly perform
the services or take the actions required by this Agreement; (iii) any other act
of negligence or willful misconduct committed by officers, agents or employees
of Manager during the term of this Agreement; or (iv) any failure of Manager to
comply with applicable laws, rules and regulations during the term of this
Agreement.
ARTICLE VI
DURATION; TERMINATION
SECTION 6.01. DURATION. This Agreement shall commence on the date
hereof and shall continue until December 31, 1999 unless it is terminated under
Section 6.02.
SECTION 6.02. TERMINATION. (a) This Agreement is subject to immediate
termination at the option of Mutual, upon written notice to Manager, on the
occurrence of any of the following events:
(i) A voluntary or involuntary proceeding is commenced in any
state by or against Manager for the purpose of conserving, rehabilitating or
liquidating Manager, or Manager shall lose its authority to perform services
hereunder;
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(ii) There is a material breach by Manager of any term or
condition of this Agreement, that is not cured by Manager within 90 days of
receipt of written notice from Mutual of such breach or act; or
(iii) Manager is unable to perform the services required under
this Agreement for a period of 90 consecutive days for any reason.
(b) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto, which writing shall state the Effective
Date of termination.
ARTICLE VII
ARBITRATION
Any dispute arising out of or relating to the interpretation,
performance or breach of this Agreement, including the formation or validity
thereof, shall be submitted for decision to a panel of three arbitrators. Notice
requesting arbitration must be in writing and sent certified or registered mail,
return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators
shall, before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within 30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of its intention to
do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the selection of the
Umpire within 30 days of their appointment, then each arbitrator shall submit to
the other a list of three Umpire candidates. Each arbitrator shall strike the
names of two candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing procedure
determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall be
disinterested active or former officers of insurance or reinsurance companies.
Within 30 days after notice of appointment of all arbitrators, the
panel shall meet and determine a schedule for the conduct of the arbitration,
including hearings. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and evidence. The panel
shall determine where the arbitration shall take place. To the extent and only
to the extent that the provisions of this Agreement are ambiguous or unclear,
the panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business. Insofar as the arbitration panel
looks to substantive law, the law of Connecticut shall govern. The decision of
any two arbitrators when rendered in writing shall be final and binding. The
panel is empowered to grant interim relief as it may deem appropriate.
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The panel shall render its decision, which shall be in writing and
state the reasons therefor, within 60 days following the termination of
hearings. Judgment upon the award may be entered in any court having
jurisdiction thereof. Each party shall bear the expense of its own arbitrator
and shall jointly and equally bear with the other party the cost of the Umpire.
The remaining costs of the arbitration shall be allocated by the panel. The
panel may, at its discretion, award such further costs and expenses as it
considers appropriate, including but not limited to interest (determined at the
Panel's discretion) and attorneys' fees, to the extent permitted by law.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. HEADINGS, SCHEDULES AND EXHIBITS. Headings used herein
are not a part of this Agreement and shall not affect the terms hereof. The
attached Schedules and Exhibits are a part of this Agreement.
SECTION 8.02. NOTICES. Any notice required or permitted hereunder shall
be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
If to Mutual:
▇▇▇▇ ▇▇▇▇▇
Principal Mutual Life Insurance Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Green, P.C.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇-▇▇▇▇
and
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▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Principal Mutual Life Insurance Company
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
If to Manager:
▇▇▇▇ ▇▇▇▇
Coventry Health Care, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, by notice given in accordance with this
Agreement to the other parties, designate another address or person for receipt
of notices hereunder.
SECTION 8.03. AMENDMENTS. This Agreement cannot be modified,
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
SECTION 8.04. EXECUTION IN COUNTERPART. This Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist of
a number of copies hereof each signed by less than all, but together signed by
all of the parties hereto.
SECTION 8.05. LIMITED AUTHORITY. Mutual and Manager are not
partners or joint venturers, and no employee or agent of either party shall be
considered an employee or agent of the other. Manager's authority shall be
limited to that which is expressly stated in this Agreement.
SECTION 8.06. ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
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SECTION 8.07. NO THIRD PARTY BENEFICIARIES. Except as
otherwise specifically provided for herein, nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, their successors and permitted assigns, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
SECTION 8.08. CHANGE IN STATUS. Manager shall notify Mutual
immediately of the adoption of any plan to liquidate, merge or dissolve Manager,
or of any proceeding or lawsuit which affects Manager's ability to perform this
Agreement, including, but not limited to, insolvency or rehabilitation
proceedings.
SECTION 8.09. SURVIVAL. The provisions of Articles V and VII
hereof shall survive the termination of this Agreement.
SECTION 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
[Remainder of page left intentionally blank. Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the date
first above written.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
BY:
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NAME:
----------------------------------------
TITLE:
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COVENTRY HEALTH CARE, INC.
BY:
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NAME:
----------------------------------------
TITLE:
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SCHEDULE 2.01
The following are Indemnity Management Services to be provided by Coventry
Health Care, Inc. or its affiliates to Principal Mutual Insurance Company
(Mutual):
- Financial Consulting
- Actuarial Pricing Oversight
- Provider Network Assessment
- Financial/Utilization Analysis
- State/Federal Government Relations
- Insurance Department Relations
- Legislative/Regulatory Monitoring
- Customer Relations
- Benefit Design Consulting
- Problem Premium Collection
- Employee Communications Consultation
- Sales Support/Sales Management
- Support Marketing Partner Sales
- Compensation System Development
- Claim Dispute Resolution
- Product Development
- Competitor Analysis
- Customer Satisfaction Surveys
- Product Design
- Pricing Design
- Marketing Strategy
- Systems Consultation
- Customer Representation
- Competitor Monitoring
- Customer Reporting Design
- Management Care Systems Integration Consulting
-Integration with Product Strategy
-Customer Need Representation
- Claim Product Oversight
- Quality Standards
- Turnaround Standards
- Service Standards
- Value Added Activity Monitoring
-Pre-ex condition
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-Recision
-COB
-Subrogation
- Customer Satisfaction Feedback
- Underwriting Oversight
- Competitor Monitoring
- Medical Underwriting Standards
- Close Ratio Monitoring
- Competitiveness Evaluation
- Additional Services:
In order to support the orderly administration and transition of Mutual
business, Coventry Health Care, Inc. or its affiliates may provide additional
services outside the scope of services described in this agreement which are in
lieu of similar services which would have been provided by Mutual. Mutual and
Coventry Health Care, Inc. will mutually agree in advance on the scope of these
additional services and the compensation or reimbursement to be provided for
such services.