EX-10.49 4 doc3.txt EXHIBIT 10.49 TO CURRENT REPORT ON FORM 8-K DATED AS OF JUNE 30, 2003 --------------------------------------------------------------------- ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT THIS ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), dated as of June 30, 2003, is made by and among HEALTH NET LIFE INSURANCE COMPANY, a California domiciled life and disability insurance company (the "Company"), and SAFEHEALTH LIFE INSURANCE COMPANY, a California domiciled ------- life and disability insurance company (the "Reinsurer"). The Company and the --------- Reinsurer are referred to herein collectively as the "Parties". ------- WHEREAS, the Company desires to transfer and assign to the Reinsurer all of the Company's right, title and interest in and to the Novated Vision Policies; WHEREAS, the Reinsurer desires to assume all of the Company's duties and obligations in connection with, relating to, or arising at any time out of such Novated Vision Policies upon the terms and conditions set forth herein; WHEREAS, the Company desires to cede, on an indemnity reinsurance basis, to the Reinsurer, the Company's Policy Liabilities in connection with, relating to and arising out of the Non-Novated Vision Policies, upon the terms and conditions set forth herein; WHEREAS, the Reinsurer desires to reinsure on an indemnity reinsurance basis the Company's Policy Liabilities arising under or in connection with the Non-Novated Vision Policies, upon the terms and conditions set forth herein; and WHEREAS, in connection with the foregoing, the Health Net, Inc. and SafeGuard Health Enterprises, Inc. have entered into the Purchase and Sale Agreement dated as of June 30, 2003 (the "Purchase and Sale Agreement") which --------------------------- calls for the execution and delivery of this Agreement as of the Closing of the transactions contemplated thereunder; NOW, THEREFORE, in consideration of the mutual covenants and promises, and upon the terms and conditions hereinafter set forth, the Parties hereto agree as follows. ARTICLE I DEFINITIONS ----------- Capitalized terms used in this Agreement and not otherwise defined shall have the meanings given such terms in the Purchase and Sale Agreement. For purposes of this Agreement, the following terms shall have the meanings specified below. "Claims" shall have the meaning set forth in Section 7.03. ------ "Dispute" shall have the meaning set forth in Section 11.02. ------- "Disputed Claim" shall have the meaning set forth in Section 7.03. --------------- "Disputed Complaint" shall have the meaning set forth in Section 7.05. ------------------- "Effective Time" means 11:59 p.m. Pacific Time, on the Closing Date. --------------- "Extra-Contractual Liabilities" means any and all liabilities and ------------------------------ obligations of any nature, kind or description (i) for consequential, extra-contractual, tort, bad faith, exemplary, punitive, special or similar damages and (ii) for statutory or regulatory damages, fines, penalties, forfeitures, and similar charges of a penal or disciplinary nature. "GAAP" means generally accepted accounting principles consistently applied ---- throughout the specified period and in a comparable period in the immediately preceding year. "JAMS" shall have the meaning set forth in Section 11.03. ---- "Member Materials" shall have the meaning set forth in Section 3.01. ----------------- "Members" means the individuals (including their covered spouses and ------- covered dependents) entitled to Vision Services pursuant to Vision Policies. "Non-Novated Vision Policies" shall have the meaning set forth in Section ----------------------------- 2.04. "Novated Vision Policies" means those Vision Policies transferred to the ------------------------- Reinsurer by novation as of the Novation Date and under which Vision Policies the Reinsurer shall have become the successor to the Company under the Vision Policies as described in Section 2.03. "Novation Date" shall have the meaning set forth in Section 3.02 hereof. -------------- "Obligations" shall have the meaning set forth in Section 2.01 hereof. ----------- "Policy Liabilities" means the Company's gross liabilities and obligations ------------------- arising under or in connection with the Vision Policies to the extent the same are unpaid or unperformed on or after the Effective Time, before deduction for all other applicable cessions, if any, under the Company's reinsurance programs. In addition, the term "Policy Liabilities" shall include: (a) all Extra-Contractual Liabilities that arise from any act, error or omission after the Effective Time, whether or not intentional, in bad faith or otherwise, by the Reinsurer or any of its affiliates, or any of their respective officers, employees, agents or representatives relating to the Vision Policies, and any attorneys' fees incurred by the Reinsurer or the Company related to such Extra-Contractual Liabilities; (b) all liabilities and obligations for premium taxes arising on account of any premiums with respect to the Vision Policies allocable to coverage after the Effective Time; (c) all liabilities and obligations for returns or refunds of premiums (irrespective of when due) under the Vision Policies; -2- (d) any assessment required by any insurance guaranty, insolvency, comprehensive health association or other similar fund maintained by any jurisdiction relating to the Vision Policies assessed or imposed on the basis of premium for coverage after the Effective Time; (e) all liabilities and obligations for commission payments and other compensation, if any, due and payable with respect to the Vision Policies to or for the benefit of agents and brokers to the extent that such amount accrues after the Effective Time; (f) all liabilities and obligations for payment of any compensation to providers relating to Vision Services provided to Members under the Vision Policies regardless of the "date of service"; and (g) any obligation arising as a result of the Reinsurer 's failure to perform its obligations pursuant to Section 7.07. "SAP" means statutory accounting practices prescribed or permitted by --- applicable insurance regulatory authorities consistently applied throughout the specified period and in the comparable period in the immediately preceding year. "Services" shall have the meaning set forth in Section 7.02. -------- "Vision Policies" means all policies or other agreements (including all ---------------- supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors resident or with their principal place of business in California that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies as specified therein, which policies or other agreements (i) are in effect as of the Effective Time or (ii) become effective after the Effective Time, including through (A) the reinstatement of lapsed policies pursuant to provisions therein or of applicable Law, or (B) the issuance or renewal thereof by the Company after the Effective Time to honor quotes outstanding as of the Effective Time, or to satisfy renewal rights of individuals, employers or other group sponsors under contractual provisions or applicable Law, or (C) modifications agreed to by the Reinsurer on behalf of the Company pursuant to the authority granted to the Reinsurer under Section 7.01 of this Agreement, provided, however, Vision Policies shall not include any policy -------- ------- or other agreements (including all supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies pursuant to any Government Sponsored Contracts, or any policy or other agreements (including all supplements, endorsements, riders and ancillary agreements in connection therewith) with individuals, employers or other group sponsors that obligate the Company to provide, arrange for the provision of, or indemnify for the cost of vision care services and vision supplies to employees of the Company or any Affiliate of the Company. "Vision Services" shall have the meaning set forth in Section 7.07. ---------------- -3- ARTICLE II BUSINESS TRANSFERRED AND REINSURED ---------------------------------- Section 2.01. Assignment of Vision Policies. As of the Effective ----------------------------- Time (i) except as is otherwise provided in Section 5.01 below, the Company hereby transfers and assigns to the Reinsurer all of the Company's right, title and interest in the Vision Policies identified in Schedule 2.01 attached hereto ------------- and made a part hereof and delegates to the Reinsurer all of the Company's duties and obligations of performance and payment under the Vision Policies arising after the Effective Time, and (ii) the Reinsurer hereby accepts, assumes and agrees to perform all of the Company's duties and obligations, whether direct, indirect, contingent, unliquidated, unmatured or otherwise arising after the Effective Time (collectively, "Obligations"), in connection with, relating ----------- to, or arising out of the Vision Policies. Section 2.02. Novation. As soon as practicable after the -------- Effective Time, the Reinsurer shall use all commercially reasonable efforts to effect the assumption by novation by the Reinsurer of the Vision Policies (each such Vision Policy being referred to herein as a "Novated Vision Policy" and --------------------- Novated Vision Policies shall include any such subsequently novated Vision Policies). If the Reinsurer does not for any reason assume by novation any Vision Policy, then the Reinsurer shall accept and reinsure, on an indemnity reinsurance basis, 100% of the Policy Liabilities related to such Non-Novated Vision Policies in accordance with the terms and conditions of this Agreement. Section 2.03. Direct Obligations. To the extent that the ------------------- Reinsurer assumes by novation any Vision Policies under applicable Law, as of the Novation Date (i) the Reinsurer shall be the successor to the Company under such Novated Vision Policies as if such Novated Vision Policies were direct obligations originally issued by the Reinsurer and the Reinsurer shall be responsible for the performance of all obligations and the payment of all benefits and amounts due under the Novated Vision Policies in accordance with their terms, (ii) the Reinsurer shall be substituted in the place and stead of the Company, and each Member under any such Novated Vision Policy shall disregard the Company as a party thereto and treat the Reinsurer as if it had been originally obligated thereunder except as otherwise provided herein, (iii) the Company shall be released of all liability with respect to such Novated Vision Policies, (iv) the Members under such Novated Vision Policies shall have the right to file claims arising under such Novated Vision Policies directly with the Reinsurer and shall have a direct right of action for indemnification, benefits and services under such Novated Vision Policies against the Reinsurer, and the Reinsurer hereby consents to be subject to any such direct action taken by any such Member, (v) the Reinsurer shall be responsible for all matters relating to administration of the Novated Vision Policies, including but not limited to policy changes, reinstatement standards, premium rate changes, policy renewals, agent commissions and administrative methods and procedures, and (vi) any indemnity reinsurance of such Novated Vision Policies and related liabilities thereunder by the Reinsurer shall cease and instead be replaced by such assumption by novation. Section 2.04. Indemnity Reinsurance. Effective as of the ---------------------- Effective Time, the Company shall cede to the Reinsurer, and the Reinsurer shall assume from the Company on an indemnity reinsurance basis, 100% of the Policy Liabilities under all Vision Policies (including those Vision Policies that are identified in Schedule 2.01 attached hereto and made a part hereof) -------------- -4- which the Reinsurer has not for any reason (including the lack of any required approval or consent of a party to a Vision Policy) as of the Effective Time assumed by novation (each such Vision Policy being referred to herein as a "Non-Novated Vision Policy"). Notwithstanding the foregoing, the term --------------------------- "Non-Novated Vision Policy" shall not include any Vision Policy from and after the date of its assumption by novation at any time by the Reinsurer. Section 2.05. Policy Liabilities. The Reinsurer accepts, ------------------- reinsures, and assumes the Policy Liabilities subject to any and all defenses, setoffs, and counterclaims to which the Company would be entitled with respect to the Policy Liabilities, it being expressly understood and agreed by the Parties hereto that no such defenses, setoffs, or counterclaims are or shall be waived by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, and that the Reinsurer is and shall be fully subrogated in and to all such defenses, setoffs, and counterclaims. From and after the Effective Time, as among the Parties, the Reinsurer shall bear and shall have responsibility for paying or performing all Policy Liabilities. The Policy Liabilities ceded under this Agreement shall be subject to any changes required by Law or regulation and the same rates, terms, conditions, waivers, interpretations, modifications and alterations as the Non-Novated Vision Policies. ARTICLE III ASSUMPTION CERTIFICATES; OPTION LETTERS --------------------------------------- Section 3.01. Member Materials. The Reinsurer shall prepare and ----------------- deliver to every party to a Vision Policy a Notice of Transfer, Certificate of Assumption, and Notice of Rejection of Assumption substantially in the appropriate forms set forth in Exhibit A attached hereto (collectively, the --------- "Member Materials") and otherwise acceptable to both the Reinsurer and Company, ----------------- which shall inform each party to a Vision Policy of the proposed transfer and enable such party to accept or reject the assumption and novation. Section 3.02. Mailing. The Member Materials shall be mailed on a date ------- agreed upon by the Reinsurer and the Company, and, to the extent required by applicable Law, shall be reviewed by and found acceptable to applicable regulatory authorities prior to mailing. The Reinsurer shall deliver only Member Materials that are in compliance with applicable Law, regulation or regulatory authority. No assumption by novation of a Vision Policy shall take effect until the earlier of the acceptance of the assumption by the party to a Vision Policy or 90 days (or such other period, if any, as may be required by applicable Law) (the "Novation Date") after Member Materials have been mailed to ------------- the party to such Vision Policy. Section 3.03. Expenses. All expenses incurred by the Parties hereto -------- pursuant to this Article shall be shared equally by the Parties. ARTICLE IV TERM ---- Section 4.01. Term. This Agreement shall remain in force and ---- effect until all Policy Liabilities reinsured and assumed by Reinsurer have been discharged in full, or all Vision Policies are transferred and assumed by the Reinsurer by novation and all obligations of the Reinsurer hereunder have been discharged in full. -5- ARTICLE V CONSIDERATION ------------- Section 5.01. Consideration to the Reinsurer. The Reinsurer shall ------------------------------ be entitled to all premium, premium adjustments and other consideration allocable to coverage after the Effective Time (irrespective of when due) received by the Company or the Reinsurer with respect to the Vision Policies. In the event that the Company receives any premium or other consideration with respect to a Vision Policy allocable to coverage after the Effective Time, the Company shall promptly remit such premiums and other consideration to the Reinsurer along with all pertinent information pertaining thereto including the nature of the payment, source of funds, policy number and period to which it relates. In the event that the Reinsurer receives any premium or other consideration with respect to a contractual liability or contractual obligation arising under a Vision Policy paid or performed by the Company prior to the Effective Time, the Reinsurer shall promptly remit such premiums and other consideration to the Company along with all pertinent information pertaining thereto including the nature of the payment, source of funds, policy number and period to which it relates. Section 5.02. Application of Future Consideration. Any premium, -------------------------------------- premium adjustments and other consideration received and retained by the Reinsurer pursuant to Section 5.01 shall be applied by the Reinsurer to the oldest unpaid obligations or outstanding invoices relating to the period after the Effective Time. Section 5.03. Additional Consideration for Indemnity Reinsurance of -------------------------------------------------------- Non-Novated Vision Policies. As additional consideration for the assumption by ------------------------- Reinsurer on an indemnity reinsurance basis of 100% of the Policy Liabilities under the Non-Novated Vision Policies, the Company shall (i) transfer to Reinsurer at the Effective Time admitted assets having a net admitted asset value determined in accordance with SAP as prescribed or permitted by the California Department of Insurance equal to the Company's net unearned premium reserve, loss, and loss adjustment expense (including losses that have been incurred but not reported) reserve, if any, attributable to claims arising under the Non-Novated Vision Policies prior to the Effective Time; and (ii) assign to Reinsurer any amounts due to Company under any reinsurance agreements in effect on the Effective Time between the Company and any reinsurer (other than the Reinsurer) relating to the Policy Liabilities assumed by the Reinsurer under this Agreement. Section 5.04. Additional Consideration for Assumption of Novated Vision --------------------------------------------------------- Policies. As additional consideration for the assumption by novation by -------- Reinsurer of the Novated Vision Policies, the Company shall (i) transfer to Reinsurer within five (5) Business Days after the end of the calendar month following the Novation Date admitted assets having a net admitted asset value determined in accordance with SAP as prescribed or permitted by the California Department of Insurance equal to the Company's net unearned premium reserve, loss, and loss adjustment expense (including losses that have been incurred but not reported) reserve, if any, attributable to claims arising under the Novated Vision Policies prior to the Effective Time; and (ii) assign to Reinsurer any amounts due to Company under any reinsurance agreements in effect on the Effective Time between the Company and any reinsurer (other than the Reinsurer) relating to the Novated Vision Policies assumed by the Reinsurer under this Agreement. -6- ARTICLE VI ACCOUNTING AND SETTLEMENT ------------------------- Section 6.01. Accounting Reports. On or before the last Business Day ------------------- of each month, the Reinsurer shall provide the Company with reports of activities under this Agreement with respect to the Non-Novated Vision Policies for the preceding month showing any amounts due the Company or the Reinsurer, as the case may be, as reimbursement for paid claims, premiums or other amounts due with respect to the Non-Novated Vision Policies and any information required by the Statement of Statutory Accounting Principles, as amended, of the National Association of Insurance Commissioners. On or before the last Business Day of January, April, July and October, the Reinsurer shall provide the Company with quarterly reports or an annual report of such activities as appropriate. Section 6.02. Financial Statement Information. The Reinsurer and the -------------------------------- Company shall each provide the other with the financial, accounting and actuarial information necessary to prepare SAP regulatory, tax and GAAP monthly, quarterly and annual financial statements and returns and satisfy other requirements including reserve and related calculations regarding the Non-Novated Vision Policies in the form reasonably required by the Reinsurer and the Company. The Company and the Reinsurer shall agree to mutually acceptable procedures and time schedules for the transmission and receipt of such information. Section 6.03. Settlements. Within ten (10) Business Days after ----------- delivery of each monthly report, the Reinsurer and the Company shall settle on an estimated basis, all amounts then due under this Agreement for that month. The Reinsurer and the Company shall make a final settlement of all amounts due for each calendar year within twenty (20) Business Days after the delivery of the annual report referred to in Section 6.01 hereof. Section 6.04. Net Payment Basis. Amounts payable under this Agreement ----------------- by the Parties hereto shall be settled against each other, dollar for dollar, and only a net payment shall be due; provided, however, that no balance or -------- ------- amount due by the Parties under any other agreement shall be offset against any obligation arising under this Agreement. Section 6.05. Late Payments. Should any payment due any party be -------------- received by such party more than sixty (60) days after the due date for such payment under this Agreement, interest shall accrue from the date on which such payment was due (taking into account the provisions of 6.06 hereof) until payment is received by the party entitled thereto, at an annual rate equal to the Bank of America Reference Rate quoted for six month periods as reported in The Wall Street Journal on the first Business Day of the month in which such payment first becomes due. Section 6.06. Federal Funds. All settlements in accordance with this -------------- Agreement shall be made by wire transfer of immediately available funds on the due date, or if such day is not a Business Day, on the next day which is a Business Day. Payment may be made by check payable in immediately available funds in the event the party entitled to receive payment has failed to provide wire transfer instructions. -7- Section 6.07. Reports to Regulatory Authorities. During the term of ----------------------------------- this Agreement, the Reinsurer and the Company shall promptly furnish the other copies of any and all filings with, and reports or communications received from, any regulatory authority which relates directly and materially to the Non-Novated Vision Policies, including, without limitation, each annual statement, each quarterly financial report to the regulatory authority of the party's domicile having principal jurisdiction over the party and each report on periodic examination issued by such regulatory authority to the extent it relates to the Non-Novated Vision Policies. ARTICLE VII VISION POLICY ADMINISTRATION; REPORTING --------------------------------------- Section 7.01. Administration of Non-Novated Vision Policies. The ------------------------------------------------- Company hereby grants the Reinsurer authority in all matters relating to administration of the Non-Novated Vision Policies to the fullest extent such authority may be granted pursuant to applicable Law. In furtherance of the foregoing, the Company hereby nominates, constitutes and appoints the Reinsurer as its attorney-in-fact with respect to the rights, duties, privileges and obligations of the Company in and to the Non-Novated Vision Policies, with full power and authority to act in the name, place and stead of the Company with respect to the Non-Novated Vision Policies. Without limiting the foregoing, the Reinsurer shall provide reasonable advance notice to the Company of its intent to cancel specific Non-Novated Vision Policies for non-payment of premium. Unless the Company objects to the proposed cancellations within five calendar days of receipt of the notice from the Reinsurer, the Reinsurer shall have the right to cancel the referenced Non-Novated Vision Policies on behalf of the Company for non-payment of premium in a manner consistent with applicable Law. If the Company objects to the proposed cancellation of any Non-Novated Vision Policy for non-payment of premium, the Company shall indemnify the Reinsurer for any unpaid premium with respect to any such policy until such policy is cancelled. Section 7.02. Administration. The Reinsurer shall, at its expense, -------------- provide the technical and administrative service, assistance and support functions described in Schedule 7.02 attached hereto (the "Services") reasonably ------------- -------- necessary or appropriate for the proper management and administration of the Non-Novated Vision Policies, which shall include, but not be limited to, Services required for the proper administration of the Non-Novated Vision Policies prior to the Effective Time and not performed as of the Effective Time. The Services at all times shall be consistent with the Company's prevailing practices and procedures as of the Effective Time with respect to similar types of policies actually communicated by the Company to Reinsurer and all applicable Law, regulations, and regulatory actions and pronouncements. (As used elsewhere in this Agreement, the terms "prevailing practices and procedures" will refer to the Company's prevailing practices and procedures as of the Effective Time communicated by the Company to the Reinsurer). Section 7.03. Claims Payment Instructions. The Reinsurer at its own ----------------------------- cost shall administer and process all payments to reimburse providers and Members for covered Vision Services under the Non-Novated Vision Policies (the "Claims") in conformance with the Company's prevailing practices and procedures ------ with respect to similar types of policies, including review, investigation, adjustment, settlement, defense and payment of Claims, special investigation and anti-fraud compliance, and preparation of any report required concerning the -8- foregoing Vision Services and will, in connection with such Claims administration, retain, at its sole discretion and cost, any outside investigation firms, adjusters, attorneys or other professionals that the Reinsurer deems necessary in the adjustment of such Claims. If a Claim arising prior to the Effective Time under a Non-Novated Vision Policy is presented that the Reinsurer in good faith disputes, the Reinsurer shall consult with the Company. If, after such consultation, the Reinsurer and the Company disagree as to how to resolve a Claim, the Company shall be entitled to assume, at its own expense, the control of the handling or the defense of such a disputed Claim (a "Disputed Claim"), including employment of counsel. The Company shall apprise --------------- the Reinsurer of and consult with the Reinsurer with respect to the progress of a Disputed Claim. In exercising such control, the Company shall act in good faith in accordance with generally accepted claims practices of similar insurance companies under similar circumstances. Any payment of any portion of a Disputed Claim made by the Company shall be added to the Policy Liabilities and shall be unconditionally binding on the Reinsurer; provided, however, that -------- ------- if the Company receives an offer of settlement or compromise from the other parties to a Disputed Claim for a particular amount or obtains a commitment from such other parties that they would accept a compromise or settlement requiring only the payment of a specific amount, the granting of an appropriate release or similar accommodation, and the Company, after mandatory consultation with and over the objection of the Reinsurer, refuses to consent thereto and elects to continue to dispute or otherwise pursue such Disputed Claim, then the liability of the Reinsurer with respect of such Disputed Claim shall be deemed limited to that amount including expenses which the Company would have been liable if such compromise or settlement had been accepted by the Company. Section 7.04. Communications Relating to Non-Novated Vision Policies. ------------------------------------------------------- On and after the Effective Time, the Company shall forward promptly to the Reinsurer all notices and other written communications it receives relating to the Non-Novated Vision Policies (including all inquiries or complaints from state insurance regulators, agents, brokers and Members and all notices of claims, suits and actions for which it receives service of process). The Company shall be entitled to retain copies of all such materials. Section 7.05. Complaint Handling Procedure. The Parties shall ------------------------------ cooperate with each other in providing information necessary to respond to any inquiries and complaints concerning the Non-Novated Vision Policies. All inquiries and complaints concerning the Non-Novated Vision Policies received by the Company shall be forwarded immediately by facsimile or overnight mail to a contact person designated by the Reinsurer for reply. After consultation with the Company, except as provided below, the Reinsurer shall answer all inquiries and complaints received by it concerning the Non-Novated Vision Policies. If the Reinsurer and the Company disagree as to the appropriate response to an inquiry or complaint, the Company shall be entitled to assume, at its own expense, the control of the handling of the response to such inquiry or complaint (a "Disputed Complaint"), including employment of counsel. The ------------------- Company shall apprise the Reinsurer of and consult with the Reinsurer with respect to the progress of a Disputed Complaint. In exercising such control, the Company shall act in good faith consistent with the Company's prevailing practices and procedures as of the Effective Time with respect to similar inquiries or complaints. Any payment arising out of a Disputed Complaint controlled by the Company, to the extent such payment constitutes an Extra Contractual Liability, shall be added to the Policy Liabilities and shall be unconditionally binding on the Reinsurer; provided, however, that if the Company -------- ------- receives an offer of settlement or compromise from the other -9- parties to a Disputed Complaint for a particular amount or obtains a commitment from such other parties that they would accept a compromise or settlement requiring only the payment of a specific amount, the granting of an appropriate release or similar accommodation, and the Company, after mandatory consultation with and over the objection of the Reinsurer, refuses to consent thereto and elects to continue to dispute or otherwise pursue such Disputed Complaint, then the liability of the Reinsurer with respect of such Disputed Complaint shall be deemed limited to that amount including expenses for which the Company would have been liable if such compromise and settlement had been accepted by the Company. Upon answering such inquiries or complaints, the Reinsurer shall furnish the Company with a copy of the complaint file. The Reinsurer shall be solely responsible for maintaining any complaint files, complaint registers or other reports of any kind, which are required to be maintained under applicable Law. Section 7.06. Filings. The Reinsurer shall handle all compliance and ------- regulatory matters relating to the administration of the Non-Novated Vision Policies, including monitoring changes in applicable Law, filing and refiling forms and rates, and preparing and filing all reports and other filings required by applicable Law. The Reinsurer shall provide to the Company copies of all reports and filings with respect to the Non-Novated Vision Policies required to be made with any Governmental Authority. Section 7.07. Provider Services. In fulfilling its Obligations ------------------ pursuant to Section 2.01, the Reinsurer shall provide, arrange for the provision of, or indemnify for the cost of vision care services and supplies ("Vision ------ Services") required to satisfy all obligations with respect to the provision of -------- Vision Services to Members and their dependents under the Non-Novated Vision Policies. The Reinsurer shall be responsible for the recruitment, credentialing and management of, and for contracting with, or gaining access to vision care and service providers adequate for the delivery of all Vision Services to Members required by or incidental to the Non-Novated Vision Policies. Section 7.08. Administration of Novated Vision Policies. Except for ------------------------------------------- those services to be provided to the Reinsurer by the Company pursuant to the Transition Services Agreement, administration and servicing of the Novated Vision Policies shall be the sole responsibility of the Reinsurer. Section 7.09. Communications Relating to Novated Vision Policies. On --------------------------------------------------- and after the Effective Time, the Company shall forward promptly to the Reinsurer all notices and other written communications received by it relating to the Novated Vision Policies (including all inquiries or complaints from state insurance regulators, agents, brokers and insureds and all notices of claims, suits and actions for which it receives service of process). The Company shall be entitled to retain copies of all such materials. Section 7.10. Novation Reports. Within ten (10) Business Days after ----------------- the end of each month after the Effective Time, beginning with the month in which the first novation of an Vision Policy occurs, the Reinsurer shall provide to the Company a report indicating all Vision Policies that have been the subject of a novation by the Reinsurer during the prior month. Section 7.11. Inspection. Each party hereto and its respective ---------- authorized representatives shall have the right, upon prior written notice, at reasonable times during normal business hours, -10- to inspect and review all books, records, accounts, reports, tax returns, files and information of the other party hereto reasonably relating to this Agreement. The Parties shall keep all non-public information received from the other party strictly confidential, and unless otherwise required by applicable Law or Governmental Authority, shall not disclose any of the same without obtaining the prior approval of the party providing the information. The rights of the Parties under this Section 7.11 shall survive termination of this Agreement. ARTICLE VIII REGULATORY APPROVALS; STATEMENT CREDIT -------------------------------------- Section 8.01. Regulatory Approvals. The consummation of this Agreement -------------------- and the transactions contemplated hereby are expressly contingent upon and subject to obtaining any and all such approvals and consents as may be required by applicable Law, regulation, or Governmental Authority. No provision in this Agreement shall be deemed to require any party hereto to take any action prohibited by applicable Law, regulation, or regulatory authority. The form of any application for any such approvals or consents as may be required by applicable Law, regulation, or Governmental Authority shall be approved by the Company and the Reinsurer prior to the filing of any such application. Section 8.02. Statement Credit. The Reinsurer shall at its own expense ---------------- take all actions reasonably necessary to permit the Company to obtain full financial statement credit in all applicable jurisdictions for the reinsurance provided to it by the Reinsurer and the assumptions by novation pursuant to this Agreement, including, if necessary, posting acceptable security. ARTICLE IX INDEMNIFICATION --------------- Section 9.01. Indemnification by the Reinsurer. The Reinsurer shall ---------------------------------- indemnify, defend and hold the Company harmless from and against all Policy Liabilities and all losses, liabilities, claims, damages and expenses (including reasonable attorneys' fees and expenses) that are based upon or arise out of the breach of any obligation of the Reinsurer provided for in this Agreement. Section 9.02. Indemnification by the Company. The Company shall --------------------------------- indemnify the Reinsurer against, and hold them harmless from, all losses, liabilities, claims, damages and expenses (including reasonable attorneys' fees and expenses) that are based upon or arise out of the breach of any obligation of the Company provided for in this Agreement. ARTICLE X INSOLVENCY ---------- Section 10.01. Payments by the Reinsurer. With respect to any ---------------------------- Non-Novated Vision Policy, the Reinsurer hereby agrees that all amounts due under this Agreement with respect to the Non-Novated Vision Policies shall be payable by the Reinsurer to any conservator, liquidator, or statutory successor of the Company on the basis of the claims allowed against the Company by any court of competent jurisdiction or by any conservator, liquidator, or statutory successor of the Company having authority to allow such claims, without diminution because of that insolvency, or because the conservator, liquidator, or statutory successor has failed to pay all or a portion of any claims. Payments by the Reinsurer as set forth in this Section 10.01 shall be -11- made directly to the Company or to its conservator, liquidator, or statutory successor, except where the Non-Novated Vision Policy specifically provides another payee of such reinsurance in the event of the insolvency of the Company. Section 10.02. Claims. It is agreed that in the event of the ------ insolvency of the Company, the liquidator, receiver or other statutory successor of the Company shall give prompt written notice to the Reinsurer of the pendency or submission of a Claim under the Non-Novated Vision Policies reinsured hereunder. During the pendency of such claim, the Reinsurer may investigate such Claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense available to the Company or its receiver. The expense thus incurred by the Reinsurer is chargeable against the Company, subject to any court approval, as a part of the expense of insolvency, liquidation, or rehabilitation to the extent of a proportionate share of the benefit which accrues to the Company solely as a result of the defense undertaken by the Reinsurer. Section 10.03. Novated Vision Policies. All amounts due a Member under ----------------------- the Novated Vision Policies shall be payable by the Reinsurer on the basis of the liability of the Reinsurer under the Novated Vision Policies, without diminution because of the insolvency of the Company. Any benefits or amounts due to Members with respect to a Novated Vision Policy shall be paid or performed by the Reinsurer in accordance with the Novated Vision Policy. ARTICLE XI ARBITRATION ----------- Section 11.01. Conciliation. If a dispute between any of the Parties ------------ relating to this Agreement is not resolved within ten (10) Business Days from the date that any party has notified another party that such dispute exists, then such dispute shall be submitted on the next Business Day for conciliation to a senior executive officer or his or her designee of each party. If such senior executive officers are unable to resolve the dispute within fifteen (15) Business Days from the date that it is first presented to them, then such dispute shall be referred to binding arbitration. Section 11.02. Arbitration. In the event of any dispute between the ----------- Parties hereto relating to, arising out of, or in connection with any provision of this Agreement (hereinafter a "Dispute"), the Parties to this Agreement and their representatives, designees, successors and assigns agree that any such Dispute shall be settled by binding arbitration to take place in Orange County, California. Section 11.03. Appointment of Arbitrator. Any arbitration hereunder --------------------------- shall be conducted by a single arbitrator chosen from the panel of arbitrators of the Judicial Arbitration & Mediation Services ("JAMS") with experience and expertise in the vision HMO or vision indemnity insurance business. If a JAMS arbitrator with specific experience in the vision HMO or vision indemnity insurance business is not available, the arbitrator must have general experience in the health insurance industry. Within ten (10) days of notice of a Dispute from Company to Reinsurer or notice from Reinsurer to Company, the Company and Reinsurer shall use their best efforts to choose a mutually agreeable arbitrator. If the Company and the Reinsurer cannot agree on an arbitrator, the arbitrator shall promptly be selected by JAMS. -12- Section 11.04. Procedures. The party submitting a Dispute to ---------- arbitration hereunder shall present its case to the arbitrator and the other party hereto in written form within twenty (20) days after the appointment of the arbitrator. The other party hereto shall then have twenty (20) days to submit a written response to the arbitrator and the original party who submitted the Dispute to arbitration. After timely receipt of each party's case, the arbitrator shall have twenty (20) days to render his or her decision. Section 11.05. Applicable Law. The arbitrator is relieved from --------------- judicial formalities and, in addition to considering the rules of law, the limitations contained in this Agreement and the customs and practices of the health care industry, shall make his or her award with a view to effectuating the intent of this Agreement. Section 11.06. Decisions Final. The decision of the arbitrator shall ---------------- be final and binding upon the Parties, and judgment may be entered thereon in a court of competent jurisdiction. Section 11.07. Costs. Each party shall bear its own cost of ----- arbitration, and the costs of the arbitrator shall be shared equally by the Parties. Section 11.08. Equitable Relief. Sections 11.01 and 11.02 shall not ----------------- apply to any claim for equitable relief, including, without limitation, claims for specific performance, a preliminary injunction, or a temporary restraining order. Such claims shall be submitted to a court of competent jurisdiction, and neither party shall be required to post any bond or other security. If a party chooses to pursue equitable relief, such conduct shall not constitute a waiver of, or be deemed inconsistent with, the arbitration provisions set forth in this Article XI. Once the claims for equitable relief are finally decided, any and all remaining claims shall be submitted to arbitration pursuant to Section 11.02 and the arbitrator shall be bound by the findings and rulings of the court on the claims for equitable relief. Section 11.09. Survival of Article. This Article XI shall survive --------------------- termination of this Agreement. ARTICLE XII MISCELLANEOUS ------------- Section 12.01. Notices. Any notice or other communication required or ------- permitted hereunder shall be in writing and shall be delivered by hand by certified process server, certified or registered mail (postage prepaid and return receipt requested), by a nationally recognized overnight courier service (appropriately marked for overnight delivery) or by facsimile (with request for immediate confirmation of receipt in a manner customary for communications of such respective type). Notices shall be effective upon receipt and shall be addressed as follows: If to the Reinsurer: SafeGuard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, California 92656 Attn.: James E. Buncher President and Chief Executive Officer Tel: (949) 425-4100 Fax: (949) 425-4101 -13- with a copy to: Ronald I. Brendzel Senior Vice President and General Counsel SafeGuard Health Enterprises, Inc. 95 Enterprise, Suite 100 Aliso Viejo, California 92656 Tel: (949) 425-4110 Fax: (949) 425-4586 and David K. Meyercord Strasburger and Price, LLP 901 Main Street, Ste. 4300 Dallas, Texas 75202-3794 Tel: (214) 651-4525 Fax: (214) 659-4023 If to the Company: Health Net, Inc. 21650 Oxnard Street Woodland Hills, California 91367 Attention: General Counsel Facsimile: (818) 676-7503 with a copy to: Sonnenschein Nath & Rosenthal 685 Market Street, 6th Floor San Francisco, California 94105 Attention: Kenneth B. Schnoll Facsimile: (415) 543-5472 All notices and other communications required or permitted under the terms of this Agreement that are addressed as provided in this Section shall (i) if delivered personally or by overnight express, be deemed given upon delivery; (ii) if delivered by facsimile transmission, be deemed given when electronically confirmed; and (iii) if sent by registered or certified mail, be deemed given when received. Any party from time to time may change its address for notice purposes by giving a similar notice specifying a new address, but no such notice shall be deemed to have been given until it is actually received by the party sought to be charged with the contents thereof. Section 12.02. Entire Agreement. This Agreement (including the ----------------- Exhibits and Schedules hereto) and the Transaction Agreements contain the entire agreement and understanding among -14- the Parties with respect to the transactions contemplated hereby, and supersedes all prior agreements and understandings, written or oral, with respect thereto. the Parties with respect to the transactions contemplated hereby, and supersedes all prior agreements and understandings, written or oral, with respect thereto. Section 12.03. Expenses. Except as otherwise expressly provided in -------- this Agreement, whether or not the transactions contemplated hereby are consummated, each of the Parties hereto shall pay its own costs and expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby. Section 12.04. Counterparts. This Agreement may be executed in one or ------------ more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. Section 12.05. No Third Party Beneficiary. Except as otherwise ----------------------------- specifically provided in this Agreement, 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 provisions contained herein, and Reinsurer shall not be directly liable hereunder to any Member under any Non-Novated Vision Policy. Section 12.06. Amendment. This Agreement may only be amended or --------- modified by a written instrument executed on behalf of the Parties hereto and any such amendment shall be subject to receipt of any and all consents, approvals, permits and authorizations required to be obtained from Governmental Authorities. Section 12.07. Assignment; Binding Effect. Neither this Agreement nor -------------------------- any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by either of the Parties hereto without the prior written consent of the other party, and any such assignment that is attempted without such consent shall be null and void. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective successors and permitted assigns. Section 12.08. Invalid Provisions. If any provision of this Agreement ------------------ is held to be illegal, invalid, or unenforceable under any present or future Law, and if the rights or obligations of the Parties under this Agreement will not be materially and adversely affected thereby, (a) such provision shall be fully severable; (b) this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Section 12.09. Duty of Cooperation. Each party hereto shall cooperate ------------------- fully with the other party hereto in all reasonable respects in order to accomplish the objectives of this Agreement. Section 12.10. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the Law of the State of California. -15- Section 12.11. Waiver. Any term or condition of this Agreement may be ------ waived in writing at any time by the party that is entitled to the benefit thereof. A waiver on one occasion shall not be deemed to be a waiver of the same or any other breach or nonfulfillment on a future occasion. All remedies, either under the terms of this Agreement, or by Law or otherwise afforded, shall be cumulative and not alternative, except as otherwise provided by Law. Section 12.12. Errors and Omissions. Inadvertent delays, errors or ---------------------- omissions that occur or are made in connection with the transactions contemplated by this Agreement shall not relieve any party from any liability that would have attached had such delay, error or omission not occurred, provided that such error or omission is rectified by the party making such error or omission as soon as possible after discovery thereof and such error or omission does not prejudice any other party. Section 12.13. Interpretation. For purposes of this Agreement, the -------------- terms "hereof", "herein", "hereto", "hereunder", and derivative or similar words ------ ------ ------ --------- refer to this Agreement (including the exhibits hereto) as a whole unless otherwise indicated. Whenever the words "include", "includes" or "including" ------- -------- --------- are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Whenever the singular is used herein, the same shall ------------------- include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate. The headings used in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Section 12.14. Business Associate. In performing functions, ------------------- activities, or services for, or on behalf of, the Company involving the use or disclosure of Protected Health Information, as that term is defined in 45 CFR 164.501, the Reinsurer shall comply with the Business Associate Addendum set forth in Schedule 12.14 hereto. --------------- IN WITNESS WHEREOF, the Company and the Reinsurer have each executed this Agreement as of the date first written above. SAFEHEALTH LIFE INSURANCE COMPANY By: /s/ James E. Buncher ----------------------------------------- James E. Buncher President and Chief Executive Officer HEALTH NET LIFE INSURANCE COMPANY By: /s/ Douglas King ----------------------------------------- Douglas King President -16- SCHEDULE 2.01 HEALTH NET LIFE INSURANCE COMPANY VISION POLICIES The Vision Policies identified by group and individual contract number and name: To be determined as of the Effective Time -17- SCHEDULE 7.02 SERVICES SCHEDULE 7.02 SERVICES The Reinsurer agrees to perform, consistent with the Company's prevailing practices and procedures and the terms of the Non-Novated Vision Policies, all services reasonably necessary for, and incident to the proper management and administration of, the Non-Novated Vision Policies, including but not limited to the following services: A. All Member services relating to the Non-Novated Vision Policies including the following: 1. Billing and collection of premiums for Non-Novated Vision Policies that are not issued to an individual, employer or other group sponsor together with a medical product of the Company or any Affiliate of the Company; 2. Setting renewal rates in a manner consistent with the rates and rating plans filed by the Company with applicable Governmental Authorities; 3. Process and payment of claims; 4. Handle Member service requests (including adding new Members to group Vision Policies, deleting Members from group Vision Policies), administration of COBRA responsibilities, inquiries and complaints relating to the Non-Novated Vision Policies; 5. Preparation and mailing of premium notices on a timely basis to Members and parties to the Non-Novated Vision Policies; transmission of additional premium notices, lapse notices, reinstatement offers and other notices to Members and parties to Vision Policies; 6. Underwriting and processing of any and all policy changes and reinstatements; 7. Member mailings of any necessary endorsements or other contract documents; 8. Preparation of quarterly financial statement data (within ten Business Days after the end of a calendar quarter) and annual financial statement data (within 35 calendar days after the end of the calendar year), for inclusion in the Company's applicable financial statements; 9. Administration of any agreement providing for the payment of commissions relating to any Non-Novated Vision Policy; 10. Development, as necessary, and maintenance of computer systems required to provide the Services. -18- B. All services performed by the Reinsurer's employees providing legal, compliance, actuarial, accounting, treasury, human resources and data processing, including the preparation of financial and other relevant reports. -19- SCHEDULE 12.14 BUSINESS ASSOCIATE ADDENDUM This Business Associate Addendum (the "Addendum") supplements and is made a part of the Assumption and Indemnity Reinsurance Agreement (the "Agreement") by and between Health Net Life Insurance Company (the "Company") and SafeHealth Life Insurance Company (the "Reinsurer"), and is effective as of the effective date of the Agreement. Recitals A. The Company may disclose certain information to the Reinsurer pursuant to the terms of the Agreement, some of which may constitute Protected Health Information, as defined below. B. The parties intend to protect the privacy and provide for the security of Protected Health Information in compliance with the Health Insurance Portability and Accountability Act of 1996, Public law No. 104-191 ("HIPAA") and the regulations promulgated thereunder by the U.S. Department of Health and Human Services (the "HIPAA Regulations") and other applicable laws. C. The purpose of this Addendum is to satisfy certain standards and requirements of HIPAA and the HIPAA Regulations, including, but not limited to, 45 CFR 164.502(e) and 45 CFR 164.504(e). In consideration of the mutual promises below and the exchange of information pursuant to the Agreement and this Addendum, the parties agree as follows: 1. Definitions (a) Business Associate means the Reinsurer to the extent it performs functions, activities, or services for, or on behalf of, the Company pursuant to the Agreement involving the use or disclosure of Protected Health Information. (b) Covered Entity means the Company. (c) "Privacy Rule" means the Standards for Privacy of Individually Identifiable Health Information at 45 CFR part 160 and part 164, subparts A and E. (d) "Protected Health Information" has the same meaning as the term "protected health information" in 45 CFR 164.501, limited to the information created or received by Business Associate from or on behalf of Covered Entity. (e) Capitalized terms used but not otherwise defined in this Addendum have the same meaning as those terms in the Privacy Rule. -20- 2. Obligations and Activities of Business Associate (a) Business Associate shall not use or disclose Protected Health Information other than as permitted or required by this Addendum or as Required By Law. (b) Business Associate shall use appropriate safeguards to prevent use or disclosure of the Protected Health Information other than as provided for by the Agreement and this Addendum. (c) Business Associate agrees to mitigate, to the extent practicable, any harmful effect that is known to Business Associate of a use or disclosure of Protected Health Information by Business Associate in violation of the requirements of this Addendum. (d) Business Associate shall report to Covered Entity any use or disclosure of the Protected Health Information not provided for by this Addendum of which it becomes aware. (e) Business Associate shall ensure that any agent, including a subcontractor, to whom it provides Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity agrees to the same restrictions and conditions that apply through this Addendum to Business Associate with respect to such information. (f) Business Associate shall provide access, at the request of Covered Entity, and in the time and manner designated by Covered Entity, to Protected Health Information in a Designated Record Set, to Covered Entity or, as directed by Covered Entity, to an Individual in order to meet the requirements under 45 CFR 164.524 (g) Business Associate agrees to make any amendment(s) to Protected Health Information in a Designated Record Set that the Covered Entity directs or agrees to pursuant to 45 CFR 164.526 at the request of Covered Entity or an Individual, and in the time and manner designated by Covered Entity. (h) Business Associate agrees to make its internal practices, books, and records, including policies and procedures, relating to the use and disclosure of Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity available to the Secretary, in a time and manner designated by the Secretary, for purposes of the Secretary determining Covered Entity's compliance with the Privacy Rule. (i) Business Associate agrees to document such disclosures of Protected Health Information and information related to such disclosures as would be required for Covered Entity to respond to a request by an Individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR 164.528. (j) Business Associate agrees to provide to Covered Entity, in the time and manner designated by Covered Entity, information collected in accordance with Section (2)(i) of this Addendum, to permit Covered Entity to respond to a request by an Individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR 164.528. -21- 3. Permitted Uses and Disclosures by Business Associate General Use and Disclosure Provisions Except as otherwise limited in this Addendum, Business Associate may use or disclose Protected Health Information to perform functions, activities, or services for, or on behalf of, Covered Entity as specified in the Agreement, provided that such use or disclosure would not violate the Privacy Rule if done by Covered Entity. 4. Specific Use and Disclosure Provisions (a) Except as otherwise limited in this Addendum, Business Associate may use Protected Health Information for the proper management and administration of Business Associate or to carry out the legal responsibilities of Business Associate. (b) Except as otherwise limited in this Addendum, Business Associate may disclose Protected Health Information for the proper management and administration of Business Associate, provided that disclosures are Required By Law, or Business Associate obtains reasonable assurances from the person to whom the information is disclosed that it will remain confidential and used or further disclosed only as Required By Law or for the purpose for which it was disclosed to the person (which purpose shall be consistent with the limitations imposed by this Addendum) and the person notifies the Business Associate of any instances of which it is aware in which the confidentiality of the information has been breached. (c) Except as otherwise limited in this Addendum, Business Associate may use Protected Health Information to provide Data Aggregation services to Covered Entity as permitted by 42 CFR 164.504(e)(2)(i)(B). (d) Business Associate may use Protected Health Information to report violations of law to appropriate Federal and State authorities, consistent with 45 CFR 164.502(j)(1). 5. Obligations of Covered Entity Provisions for Covered Entity To Inform Business Associate of Privacy Practices and Restrictions (a) Covered Entity shall notify Business Associate of any limitation in its notice of privacy practices in accordance with 45 CFR 164.520, to the extent that such limitation may affect Business Associate's use or disclosure of Protected Health Information. (b) Covered Entity shall notify Business Associate of any changes in, or revocation of, permission by an Individual to use or disclose Protected Health Information, to the extent that such changes may affect Business Associate's use or disclosure of Protected Health Information. (c) Covered Entity shall notify Business Associate of any restriction on the use or disclosure of Protected Health Information that Covered Entity has agreed to in accordance with 45 CFR 164.522, to the extent that such restriction may affect Business Associate's use or disclosure of Protected Health Information. -22- (d) Covered Entity shall not request Business Associate to use or disclose Protected Health Information in any manner that would not be permissible under the Privacy Rule if done by Covered Entity, except as permitted by Sections 4(b) and 4(c) of this Addendum. 6. Term and Termination (a) This Addendum shall be effective as of the effective date of the Agreement, and shall terminate when all of the Protected Health Information provided by Covered Entity to Business Associate, or created or received by Business Associate on behalf of Covered Entity, is destroyed or returned to Covered Entity, or, if it is infeasible to return or destroy Protected Health Information, protections are extended to such information, in accordance with the termination provisions in this Section. (b) Upon Covered Entity's knowledge of a material breach of this Addendum by Business Associate, Covered Entity shall either: (i) provide an opportunity for Business Associate to cure the breach or end the violation and terminate this Addendum, and the provision for performance of functions, activities, or services for, or on behalf of Covered Entity under the Agreement, if Business Associate does not cure the breach or end the violation within the time specified by Covered Entity; (ii) immediately terminate this Addendum, and the provision for performance of functions, activities, or services for, or on behalf of Covered Entity under the Agreement, if Business Associate has breached a material term of this Addendum and cure is not possible; or (iii) if neither termination nor cure is feasible, report the violation to the Secretary. (c) Effect of Termination. (i) Except as provided in paragraph (ii) of this section, upon termination of this Addendum, for any reason, Business Associate shall return or destroy all Protected Health Information received from Covered Entity, or created or received by Business Associate on behalf of Covered Entity, and shall retain no copies of the Protected Health Information. This provision shall apply to Protected Health Information that is in the possession of subcontractors or agents of Business Associate. (ii) In the event that Business Associate determines that returning or destroying the Protected Health Information is infeasible, Business Associate shall provide to Covered Entity notification of the conditions that make return or destruction infeasible. Upon mutual agreement that return or destruction of Protected Health Information is infeasible, Business Associate shall extend the protections of this Addendum to such Protected Health Information and limit further uses and disclosures of such Protected Health Information to those purposes that make the return or destruction infeasible, for so long as Business Associate maintains such Protected Health Information. 7. Miscellaneous (a) Regulatory References. A reference in this Addendum to a section in the ---------------------- Privacy Rule means the section as in effect or as amended. -23- (b) Amendment. The Parties agree to take such action as is necessary to --------- amend this Addendum from time to time as is necessary for Covered Entity to comply with the requirements of the Privacy Rule and the HIPAA. (c) Survival. The respective rights and obligations of Business Associate -------- under Section 6(c) of this Addendum shall survive the termination of this Addendum. (d) Interpretation. The provisions of this Addendum shall prevail over any -------------- provisions in the Agreement that may conflict with or appear inconsistent with any provision of this Addendum. Any ambiguity in this Addendum shall be resolved to permit Covered Entity to comply with the Privacy Rule. -24- EXHIBIT A --------- TO ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT MEMBER MATERIALS NOTICE OF TRANSFER (California) Dear Policyholder: This notifies you of an agreement reached between Health Net Life Insurance Company ("Health Net") and SafeHealth Life Insurance Company ("SafeHealth") for the transfer of your vision policy from Health Net to SafeHealth. This assumption will be effective as of 12:01 a.m. Pacific Time, on _______________, 2003. SafeHealth Life Insurance Company is licensed to provide vision insurance products in California. To introduce you to SafeHealth, attached is a summary of essential information about SafeHealth. Your rights as a policyholder and the terms of your policy will not change as a result of the transfer. Your benefits will not change as a result of the transfer [although Health Net's provider network will be replaced with the provider network of SafeHealth and certain providers in the Health Net provider network may not be available in the SafeHealth provider network]. If you accept the transfer, SafeHealth will provide your coverage. It will have direct responsibility for the payment of all claims and benefits and for all other policy obligations. Health Net will no longer have any obligations to you. You have the following options with regard to the assumption of your policy: Option 1. Accept the transfer of your policy from Health Net to SafeHealth. Option 2. Reject the proposed transfer of your policy from Health Net to SafeHealth. If you choose this option, Health Net will remain your insurer and you will have no rights to claim any payments from SafeHealth[, although SafeHealth will be administering your Health Net vision policy until your insurance terminates, as indicated below]. Health Net and SafeHealth recommend that you choose Option 1. If you wish to choose Option 1, simply do not return the Rejection Form and you will automatically be deemed to have accepted this option upon _________ [date]. You should then attach the [enclosed] Certificate of Assumption [that you will be receiving under separate cover] to your policy. -25- If you wish to choose Option 2, you must complete the enclosed Rejection Form, sign it and return it within _____ days of this Notice. If you do not return the Rejection Form within that time, you will be deemed to have accepted the transfer of your policy. [You should also return the [enclosed] Certificate of Assumption.] In considering whether to accept the assumption, please note that Health Net intends to cease offering vision insurance as promptly as practicable after the transfer of its vision business to SafeHealth. Rejection of the assumption may ultimately result in termination of your coverage. [Please also note that Health Net has contracted with SafeHealth to administer its vision insurance policies until Health Net is able to withdraw completely from the market. As a result, if you reject the assumption, although Health Net would remain legally responsible for its policy obligations to you, SafeHealth will be administering your Health Net vision policy until your insurance terminates.] The enclosed Certificate of Assumption should be attached to your policy unless you choose to reject the assumption of your policy. Your current and future premiums should be paid as indicated by your premium notices. If you have any questions about the assumption of your policy or about SafeHealth, please feel fee to call SafeHealth at (800) 962-9633. Written inquiries may be mailed to: SafeHealth at 95 Enterprise, Suite 100, Aliso Viejo, California 92656-2605. Sincerely, _________________________________ _________________________________ SAFEHEALTH LIFE INSURANCE HEALTH NET LIFE INSURANCE COMPANY COMPANY -26- NOTICE TO GROUP MEMBERS Health Net Life Insurance Company ("Health Net") is presently implementing a plan that is intended to ensure uninterrupted coverage for our customers. As part of the plan, we have entered into an agreement with SafeHealth Life Insurance Company ("SafeHealth"), that will assume Health Net's vision insurance business. SafeHealth will replace Health Net under your vision insurance coverage with Health Net effective ________________, 2003. Your rights as an insured and the terms of your certificate of coverage will not change as a result of the transfer, except as set forth in the enclosed Certificate of Assumption. Your benefits will not change as a result of the transfer. The enclosed Certificate of Assumption should be attached to your certificate of coverage. Assumption of your vision insurance coverage will be effective as of ____________, 2003, at 12:01 a.m. Pacific Time. If you have any questions about the assumption of your contract or about SafeHealth, please feel fee to call SafeHealth at (800) 962-9633. Written inquiries may be mailed to: SafeHealth at 95 Enterprise, Suite 100, Aliso Viejo, California 92656-2605. Sincerely, _________________________________ _________________________________ SAFEHEALTH LIFE INSURANCE HEALTH NET LIFE INSURANCE COMPANY COMPANY -27- CERTIFICATE OF ASSUMPTION [Individual] You are hereby notified that SafeHealth Life Insurance Company has, effective as of _________, 2003 (the "Effective Time"), assumed all rights, liabilities, and obligations of Health Net Life Insurance Company under your vision insurance policy with Health Net Life Insurance Company. From and after the Effective Time, all references in your policy or certificate to "Health Net Life Insurance Company" are hereby changed to "SafeHealth Life Insurance Company." Except for the substitution of SafeHealth for Health Net as your insurer, your rights as a insured will not be affected by the change in companies, and the terms and conditions of your policy or certificate will not be changed by reason of the assumption. All correspondence and inquiries concerning your policy or certificate, including premium payments, policy or certificate changes, and notices of claims, should be submitted to: SafeHealth Life Insurance Company 95 Enterprise, Suite 100 Aliso Viejo, California 92656-2605 This Certificate of Assumption, as of the Effective Time, forms a part of and should be attached to the policy or certificate issued to you by Health Net Life Insurance Company. IN WITNESS WHEREOF, SafeHealth Life Insurance Company has caused this Certificate of Assumption to be duly signed and issued. ____________________________________ SafeHealth Life Insurance Company -28- NOTICE OF REJECTION OF ASSUMPTION [California] To: HEALTH NET LIFE INSURANCE COMPANY REJECTION --------- I have reviewed the Certificate of Assumption whereby SafeHealth Life Insurance Company would assume all of the rights, liabilities, and obligations of Health Net Life Insurance Company under my vision insurance policy or certificate previously issued by Health Net Life Insurance Company. I have also reviewed the Notice of Transfer describing the transaction. I hereby notify you that I REJECT the proposed assumption of my policy or -------- certificate and substitution of SafeHealth Life Insurance Company thereunder, and I wish to retain my policy or certificate with Health Net Life Insurance Company. I UNDERSTAND THAT HEALTH NET LIFE INSURANCE COMPANY INTENDS TO DISCONTINUE ITS VISION INSURANCE BUSINESS AND THAT REJECTION OF THE ASSUMPTION MAY ULTIMATELY RESULT IN TERMINATION OF MY COVERAGE. DATE: ______________________________________ Policyholder Signature ______________________________________ Print or Type Name ______________________________________ ID # from the Health Net Life Insurance Company Identification Card Issued to Policy Holder -29- CERTIFICATE OF ASSUMPTION [Group] You are hereby notified that SafeHealth Life Insurance Company has, effective as of _____________, 2003 (the "Effective Time"), assumed all rights, liabilities, and obligations of Health Net Life Insurance Company under your vision insurance policy with Health Net Life Insurance Company. From and after the Effective Time, all references in your policy to "Health Net Life Insurance Company" are hereby changed to "SafeHealth Life Insurance Company." All correspondence and inquiries concerning your policy, including premium payments, policy changes, and notices of claims, should be submitted to: SafeHealth Life Insurance Company 95 Enterprise, Suite 100 Aliso Viejo, California 92656-2605 Except as described in this Certificate of Assumption, your rights as a policy holder will not be affected by the change in companies, and the terms and conditions of your policy will not be changed by reason of the assumption. This Certificate of Assumption, as of the Effective Time, forms a part of and should be attached to the vision insurance policy issued to you by Health Net Life Insurance Company. Copies of this Certificate of Assumption must be distributed to covered group members under the policy for attachment to their certificates of coverage. IN WITNESS WHEREOF, Health Net Life Insurance Company and SafeHealth Life Insurance Company have caused this Certificate of Assumption to be duly signed and issued. ______________________________________ Health Net Life Insurance Company ______________________________________ SafeHealth Life Insurance Company -30-