exv10w1



 




Exhibit 10.1


*** INDICATES MATERIAL HAS BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. A COMPLETE COPY OF THIS AGREEMENT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.


United Healthcare

A UnitedHealth Group Company



Simeon A. Schindelman, President

UnitedHealthcare Small Business Group

MN012-N123 5901 Lincoln Drive Edina MN 55436

Tel 952 992 4394 Fax 952 992 5112

simeon_schindelman@uhc.com

Cell 612 6692559



March 11, 2005




Mr. Richard Rawson

President

Administaff of Texas, Inc.

19001 Crescent Springs Drive

Kingwood, TX 77339



Via: UPS Next Day Air, email and facsimile




Dear Richard:



Attached are what we believe to be the relevant terms and conditions of proposed modifications to
the existing contracts between UnitedHealthcare Insurance Company (“UnitedHealthcare”) and
Administaff of Texas, Inc. (“Administaff”). Upon execution, this letter and the attached term
sheet (Exhibit A) will constitute an agreement as to the principal terms of an amendment to the
Minimum Premium Financial Agreement, the Minimum Premium Administrative Services Agreement and the
Security Deposit Agreement (collectively referred to herein as the “definitive agreements”) between
UnitedHealthcare and Administaff to be prepared and executed by the parties. Except as otherwise
set forth herein, the terms and conditions of any eventual modifications to the definitive
agreements would be only as set forth in any subsequent amendment(s) signed by the parties.



Administaff and UnitedHealthcare acknowledge and agree that the terms and conditions of this letter
and the attached Exhibit A, including the existence thereof, are subject to the provisions of
Section 5(e) of the Minimum Premium Administrative Services Agreement by and between Administaff
and UnitedHealthcare, as amended (relating to publicity of the arrangement). As such, Administaff
and UnitedHealthcare each agree not to make any unauthorized disclosure or public announcement
concerning the subject matter hereof without the written consent of the other.



If this letter and the terms set forth in Exhibit A are in accordance with your understanding of
the proposed modifications to our existing contracts, please sign below and return an executed copy
to me via facsimile at (952) 992-5112. Should you have any questions, please contact me at
952-992-4394.




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Sincerely,




	 	 	 	 	 
	/s/ Simeon A. Schindelman



	 	  	 	 
	Simeon A. Schindelman

	 	 	 	 
	President, Small Business,

	 	 	 	 
	UnitedHealthcare

	 	 	 	 
	 
	 	 	 	 
	 
	 	Agreed to and accepted this 11th day of
March, 2005.
	 
	 	 	 	 
	 
	 	Administaff of Texas, Inc.
	 
	 	 	 	 
	

	 	By
	 	/s/ Richard A. Rawson
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Its
	 	President
	

	 	 	 	 






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EXHIBIT A




UnitedHealthcare/Administaff

Proposed Term Sheet

March 11, 2005



For consistency, clarity and ease of communication, this term sheet uses defined terms from both
the Minimum Premium Financial Agreement and the Minimum Premium Administrative Services Agreement
(including any subsequent amendment to each agreement) between Administaff and UnitedHealthcare.





A. Profit/Risk Charge




UnitedHealthcare has agreed to reduce its profit/risk charge from *** to ***. To accomplish
this objective, the MP Financial Agreement will be amended effective January 1, 2005 such
that the Maximum Monthly Employer Benefit Obligation will be *** of the Quoted Premium for
each Medical Policy and the MP Premium will be *** of the Quoted Premium for each Medical
Policy. The percentages contained in the immediately preceding sentence assume an estimated
premium tax expense of *** and, in order to maintain a profit/risk charge of ***, such
percentages may require future modification consistent with changes to the actual incurred
premium tax expense.




B. Security Deposit




Effective as of the date of execution of an amendment to the definitive agreements
incorporating the terms of this letter agreement, the Security Deposit Agreement will be
terminated, including any related obligation of either Administaff or UnitedHealthcare under
the Security Deposit Agreement or any other agreement between the parties; provided,
however, that UnitedHealthcare shall retain the right to draw upon the Accumulated Surplus
for the purposes currently set forth in Section 3.a. of the Security Deposit Agreement and
that the right to draw against the Accumulated Surplus shall be in addition to, and not in
lieu of, any other remedy available at law or in equity to UnitedHealthcare, and any such
draw by UnitedHealthcare shall not cure Administaff’s failure to pay amounts due, without
UnitedHealthcare’s express written consent; provided further, any such amounts drawn by
UnitedHealthcare shall reduce any damages recoverable from Administaff under such other
remedies to the extent that such damages do not take into consideration the amounts
previously drawn by UnitedHealthcare. Beginning 30 days after the execution of this
agreement, the balance of the Security Deposit will be reduced by applying $5.5 million of
such balance towards the premium and daily claim funding obligations of Administaff. In
addition, upon termination of the Security Deposit Agreement, UnitedHealthcare will
immediately begin applying the balance of funds maintained by Administaff under the terms of
the Security Deposit Agreement



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(including all applicable interest credits thereon) towards
all premium and daily claim funding obligations of Administaff until such balance is
exhausted.


C. Accumulated Surplus





Contemporaneous with the termination of the Security Deposit Agreement, the parties will act
in good faith to operate under the terms of the existing financial agreements with an
Accumulated Surplus of no more or less than $11,000,000. Effective as of the date of
execution of an amendment to the definitive agreements incorporating the terms of this
letter agreement, the Accumulated Surplus will be credited with interest by UnitedHealthcare
at a rate and in a manner which is substantially similar to the interest crediting
provisions contained in the Security Deposit Agreement as such agreement was in effect on
March 1, 2005.




If pursuant to a Quarterly Review or Annual Review, as applicable, the Accumulated Surplus
is determined to be in excess of $11,000,000, commencing 15 days after such determination
has been made, UnitedHealthcare will waive Administaff’s Claims Account funding obligations,
if any, for a period and in an amount sufficient to cause the Accumulated Surplus to be no
more than $11,000,000. If pursuant to a Quarterly Review or Annual Review, as applicable,
the Accumulated Surplus is determined to be less than $11,000,000, within 15 days after such
determination has been communicated in writing to Administaff, Administaff will pay an
additional amount of premium to UnitedHealthcare in an amount sufficient to cause the
Accumulated Surplus to be $11,000,000. The determination of the amount of the Accumulated
Surplus for this purpose will be based on the revised Accumulated Surplus calculations for
the calendar quarter immediately preceding the most recently completed calendar quarter that
is the subject of such Quarterly Review or Annual Review, as applicable. The Accumulated
Surplus calculation will not take into account any amount(s) reserved for *** coverage (and
therefore the amount of the Accumulated Surplus will not be reduced by any amount(s)
reserved for *** liability). Notwithstanding anything herein to the contrary, unless
otherwise set forth in any subsequent amendment relating to this item C, the obligations for
each party set forth in this paragraph will not commence until the Accumulated Surplus
amount for the first Arrangement Quarter of 2005 has been determined (which determination is
expected to occur on or about ***).




The total amount of Administaff’s Claims Account funding obligations waived by
UnitedHealthcare with respect to any Arrangement Quarter will be included as “claims paid”
for purposes of section 2.a. of Exhibit A, Appendix II (Methodology for Establishing Monthly
Payable Rates) of the Minimum Premium Financial Agreement when determining the Monthly
Payable Rate for any subsequent Arrangement Quarter for which the Monthly Payable Rate has
not yet


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been established and communicated to Administaff. However, the Accumulated
Surplus/Deficit amount will no longer be taken into consideration when determining Monthly
Payable Rates.




The parties agree to amend Exhibit A of the Minimum Premium Financial Agreement to revise
the quarterly and annual accountings. Pursuant to the amended Exhibit A, required premium
for all historic and future accounting periods will be determined by dividing *** factor
applicable to that accounting period. Actual premiums paid by Administaff for the
applicable accounting period will be added to Administaff’s MP claim obligations for that
period and compared to the required premium (calculated in accordance with the
 preceding sentence) to determine the surplus or deficit results for each such accounting
period. As such, no further adjustments to any administrative fee, profit and/or premium
tax charge will be necessary in connection with the return of surplus (if any) to
Administaff, provided there are no subsequent changes to incurred claims for that accounting
period.




In addition, Administaff hereby acknowledges and agrees that UnitedHealthcare waived
$1,954,028.35 of fourth quarter 2004 Additional Quarterly Premium that was payable in the
First Arrangement Quarter of 2005. The 2004 accounting will reflect the waiver of fourth
quarter 2004 Additional Quarterly Premium in the manner set forth above.




D. Three Year Commitment




UnitedHealthcare and Administaff have a mutual interest in committing to certain material
financial terms for at least three years. Thus, any amendment to the definitive agreements
between the parties relating to items A and C above will include a commitment that these
financial terms will remain in effect for at least three years beginning January 1, 2005.
To clarify, absent extraordinary and unforeseen circumstances, the parties intend that, with
respect to the 2005, 2006 and 2007 Arrangement Years, neither party will attempt to
negotiate a further amendment to or modification of (i) the profit/risk charge, (ii)
management of the Accumulated Surplus (including the amount of any Accumulated Surplus
consistently maintained by UnitedHealthcare) or (iii) any other material financial term of
the then current agreement(s) between UnitedHealthcare and Administaff.




E. Large Claim Pooling




UnitedHealthcare will provide Administaff with a pooling option for Arrangement Years 2005,
2006 and/or 2007 under which claims per individual covered employee or dependent in excess
of $1,000,000 that are incurred within a


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12-month calendar year period and paid within ***
months (e.g. claims incurred between 1-1-05 and 12-31-05 and paid by ***) will be excluded
from Administaff’s claims experience. If this pooling option is elected with respect to any
such Arrangement Year, the Accumulated Deficit or Accumulated Surplus, as determined by the
Quarterly Reviews and the Annual Review of that Arrangement Year, will exclude individual
claimant medical claims in excess of $1,000,000. The premium (Pool Charge) for this pooling
option, if elected, in the 2005 Arrangement Year is *** per covered employee per month. For
example, assuming that the number of covered Worksite Employees for each month of 2005
remains constant at 46,871, the annual Pool Charge for the 2005 Arrangement Year would be
the product of (i) 46,871 multiplied by *** and (ii) 12 months, which would equal
approximately ***. Actual 2005 Arrangement Year charges will be based on actual number of
covered Worksite Employees for each month of 2005. The Pool Charge rates for Arrangement
Years 2006 and 2007 will not exceed *** and *** per employee per month, respectively. To
elect the pooling option, Administaff must notify UnitedHealthcare in writing of its
election on or before February 1st of the Arrangement Year to which such option relates;
provided, however, that with respect to the 2005 Arrangement Year, UnitedHealthcare will
provide additional terms and conditions of the pooling option, if any, within 15 days
of the date this term sheet is executed, and Administaff will then have 30 days to provide
written notification of its acceptance or rejection of the pooling option for the 2005
Arrangement Year. Should UnitedHealthcare determine to provide a pooling option for any
Arrangement Year subsequent to 2007, the Pool Charge rates and terms relating to any such
subsequent year are subject to modification by UnitedHealthcare.




F. Eligibility Reporting and Review




To better align eligibility policies applicable to Administaff membership with policies
applicable to other UnitedHealthcare customers, the MP Services Agreement will be amended to
indicate that, effective December 31, 2005, reporting of retroactive Participant
terminations (excluding COBRA Participants) to UnitedHealthcare will be limited to no more
than 31 days. However, Administaff will continue to have up to 60 days to report any other
retroactive Participant eligibility changes to UnitedHealthcare.




In recognition of the additional risk UnitedHealthcare is assuming, commencing with the
second quarter of 2005 Quarterly Review meeting (which is expected to occur on or about
***), Administaff will supply the following medical risk management activity reports to
UnitedHealthcare on a quarterly basis at the applicable Quarterly and Annual Review
meetings:






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Reports for *** During the Review Quarter




1) ***




2) ***




3) ***




In addition, the parties will work together in good faith to establish by August 15, 2005 an
appropriate mechanism to ensure Administaff’s compliance with Section 6(b)(ii) of the
Minimum Premium Administrative Services Agreement regarding the Employer Medical Insurance
Contribution Rate for each New Client.




Reports for *** as of the End of the Review Quarter




1) ***




2) ***




3) ***




In addition to the reports noted above, representatives from Administaff and
UnitedHealthcare will meet no more than one time in any twelve-month period to allow
UnitedHealthcare the opportunity to review and comment on Administaff’s *** subject to
applicable confidentiality provisions of the existing agreements. Further, Administaff and
UnitedHealthcare will work together to provide additional information to help



UnitedHealthcare better understand Administaff’s management of new customer accounts.




G. Conversion to *** Products




As soon as commercially practicable, Administaff will begin the process of transitioning
Participants currently enrolled in UnitedHealthcare *** products to the ***
products, subject to Administaff’s determination of the adequacy of the proposed provider
networks in each geographic area; provided, however, that substantially all existing
UnitedHealthcare *** business shall be converted to the *** products by ***, and
no additional UnitedHealthcare *** products (other than the *** products remaining after
January 1, 2006, if any) will be offered to Participants under the Administaff Group Health
Plan thereafter, and in any event, all Administaff *** business will be converted to a ***
product by ***.





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H. Exclusivity and Additional Markets




The parties have agreed to possible modifications to the exclusivity and related market
provisions of the definitive agreements as described below. In that regard, through the
course of detailed market discussions, Administaff and UnitedHealthcare will determine the
circumstances under which a modified carrier offering will be a viable alternative to the
current approach in any or all of the following *** markets beginning in ***:




***




Item *** above is subject to the provisions of the definitive agreements regarding the
offering of additional carriers in a market exclusive to UnitedHealthcare. In addition, in
no event will Administaff be expected to expand its inclusion of UnitedHealthcare products
in any market or manner that would reasonably be expected to *** in
that market or adversely impact its *** in that market.




I. Reporting Obligations




Section 4(e) of the Minimum Premium Administrative Services Agreement shall be amended such
that UnitedHealthcare will notify Administaff if the prescription drug payments attributable
to Administaff business are, on average, more than *** per member per month *** prescription
drug payments for all of UnitedHealthcare’s fully insured commercial business.




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