**Exhibit10.04**

 

**BLUECROSS**

**CONTROLLED AFFILIATE LICENSEAGREEMENT**

(**Includesrevisions adopted by Member Plans through their June 12, 2003 meeting**)

 

This Agreement by andamong Blue Cross and Blue Shield Association (“BCBSA”) and United GovernmentServices, LLC (“Controlled Affiliate”), a Controlled Affiliate of the BlueCross Plan(s), known as WellPoint Health Networks Inc. (“Plan”), which is alsoa Party signatory hereto.

 

WHEREAS, BCBSA is theowner of the BLUE CROSS and BLUE CROSS Design service marks;

 

WHEREAS, Plan andControlled Affiliate desire that the latter be entitled to use the BLUE CROSSand BLUE CROSS Design service marks (collectively the “Licensed Marks”) asservice marks and be entitled to use the term BLUE CROSS in a trade name(“Licensed Name”);

 

NOW THEREFORE, inconsideration of the foregoing and the mutual agreements hereinafter set forthand for other good and valuable consideration, the receipt and sufficiency ofwhich are hereby acknowledged, the parties hereby agree as follows:

 

**1.****                                      GRANTOF LICENSE**

 

Subject to the terms andconditions of this Agreement, BCBSA hereby grants to Controlled Affiliate theright to use the Licensed Marks and Name in connection with, and only inconnection with:  (i) health care plansand related services, as defined in BCBSA’s License Agreement with Plan, andadministering the non-health portion of workers’ compensation insurance, and(ii) underwriting the indemnity portion of workers’ compensation insurance,provided that Controlled Affiliate’s total premium revenue comprises less than15 percent of the sponsoring Plan’s net subscription revenue.

 

This grant of rights isnon-exclusive and is limited to the Service Area served by the Plan.  Controlled Affiliate may use the LicensedMarks and Name in its legal name on the following conditions: (i) the legalname must be approved in advance, in writing, by BCBSA; (ii) ControlledAffiliate shall not do business outside the Service Area under any name ormark; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name,or any derivative thereof, as part of any name or symbol used to identifyitself in any securities market. Controlled Affiliate may use the LicensedMarks and Name in its Trade Name only with the prior, written, consent ofBCBSA.

 

**2.****                                      QUALITYCONTROL**

 

A.                                   ControlledAffiliate agrees to use the Licensed Marks and Name only in connection with thelicensed services and further agrees to be bound by the conditions regardingquality control shown in attached Exhibit A as they may be amended by BCBSAfrom time-to-time.

 

**Amendedas of  November 16, 2000**

 

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B.                                     ControlledAffiliate agrees to comply with all applicable federal, state and local laws.

 

C.                                     ControlledAffiliate agrees that it will provide on an annual basis (or more often ifreasonably required by Plan or by BCBSA) a report or reports to Plan and BCBSAdemonstrating Controlled Affiliate’s compliance with the requirements of thisAgreement including but not limited to the quality control provisions of thisparagraph and the attached Exhibit A.

 

D.                                    ControlledAffiliate agrees that Plan and/or BCBSA may, from time-to-time, upon reasonablenotice, review and inspect the manner and method of Controlled Affiliate’srendering of service and use of the Licensed Marks and Name.

 

E.                                      Asused herein, a Controlled Affiliate is defined as an entity organized andoperated in such a manner, that it meets the following requirements:

 

(1)                                  APlan or Plans authorized to use the Licensed Marks in the Service Area of theControlled Affiliate pursuant to separate License Agreement(s) with BCBSA,other than such Controlled Affiliate’s License Agreement(s),  (the “Controlling Plan(s)”), must have thelegal authority directly or indirectly through wholly-owned subsidiaries toselect members of the Controlled Affiliate’s governing body having not lessthan 50% voting control thereof and to:

 

(a)                                  preventany change in the articles of incorporation, bylaws or other establishing orgoverning documents of the Controlled Affiliate with which the ControllingPlan(s) do(es) not concur;

 

(b)                                 exercisecontrol over the policy and operations of the Controlled Affiliate at leastequal to that exercised by persons or entities (jointly or individually) otherthan the Controlling Plan(s); and

 

Notwithstanding anythingto the contrary in (a) through (b) hereof, the Controlled Affiliate’sestablishing or governing documents must also require written approval by theControlling Plan(s) before the Controlled Affiliate can:

 

(i)                                     changeits legal and/or trade names;

 

(ii)                                  changethe geographic area in which it operates;

 

(iii)                               changeany of the type(s) of businesses in which it engages;

 

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(iv)                              create,or become liable for by way of guarantee, any indebtedness, other thanindebtedness arising in the ordinary course of business;

 

(v)                                 sellany assets, except for sales in the ordinary course of business or sales ofequipment no longer useful or being replaced;

 

(vi)                              makeany loans or advances except in the ordinary course of business;

 

(vii)                           enterinto any arrangement or agreement with any party directly or indirectlyaffiliated with any of the owners or persons or entities with the authority toselect or appoint members or board members of the Controlled Affiliate, otherthan the Plan or Plans (excluding owners of stock holdings of under 5% in apublicly traded Controlled Affiliate);

 

(viii)                        conductany business other than under the Licensed Marks and Name;

 

(ix)                                takeany action that any Controlling Plan or BCBSA reasonably believes will adverselyaffect the Licensed Marks and Name.

 

In addition, a Plan orPlans directly or indirectly through wholly owned subsidiaries shall own atleast 50% of any for-profit Controlled Affiliate.

 

Or

 

(2)                                  APlan or Plans authorized to use the Licensed Marks in the Service Area of theControlled Affiliate pursuant to separate License Agreement(s) with BCBSA,other than such Controlled Affiliate’s License Agreement(s), (the “ControllingPlan(s)”), have the legal authority directly or indirectly through wholly-ownedsubsidiaries to select members of the Controlled Affiliate’s governing bodyhaving more than 50% voting control thereof and to:

 

(a)                                  preventany change in the articles of incorporation, bylaws or other establishing orgoverning documents of the Controlled Affiliate with which the ControllingPlan(s) do(es) not concur;

 

(b)                                 exercisecontrol over the policy and operations of the Controlled Affiliate.

 

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In addition, a Plan orPlans directly or indirectly through wholly-owned subsidiaries shall own morethan 50% of any for-profit Controlled Affiliate.

 

 

**3.****                                      SERVICEMARK USE**

 

A.                                   ControlledAffiliate recognizes the importance of a comprehensive national network ofindependent BCBSA licensees which are committed to strengthening the LicensedMarks and Name.  The ControlledAffiliate further recognizes that its actions within its Service Area mayaffect the value of the Licensed Marks and Name nationwide.

 

B.                                     ControlledAffiliate shall at all times make proper service mark use of the Licensed Marksand Name, including but not limited to use of such symbols or words as BCBSAshall specify to protect the Licensed Marks and Name and shall comply with suchrules (generally applicable to Controlled Affiliates licensed to use theLicensed Marks and Name) relative to service mark use, as are issued fromtime-to-time by BCBSA.  ControlledAffiliate recognizes and agrees that all use of the Licensed Marks and Name byControlled Affiliate shall inure to the benefit of BCBSA.

 

C.                                     ControlledAffiliate may not directly or indirectly use the Licensed Marks and Name in amanner that transfers or is intended to transfer in the Service Area thegoodwill associated therewith to another mark or name, nor may ControlledAffiliate engage in activity that may dilute or tarnish the unique value of theLicensed Marks and Name.

 

D.                                    IfControlled Affiliate meets the standards of 2E(1) but not 2E(2) above and anyof  Controlled Affiliate’s advertisingor promotional material is reasonably determined by BCBSA and/or the Plan to bein contravention of rules and regulations governing the use of the LicensedMarks and Name,  Controlled Affiliateshall for ninety (90) days thereafter obtain prior approval from BCBSA ofadvertising and promotional efforts using the Licensed Marks and Name, approvalor disapproval thereof to be forthcoming within five (5) business days ofreceipt of same by BCBSA or its designee. In all advertising and promotional efforts, Controlled Affiliate shallobserve the Service Area limitations applicable to Plan.

 

E.                                      ControlledAffiliate shall use its best efforts in the Service Area to promote and buildthe value of the Licensed Marks and Name.

 

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**4.****                                      SUBLICENSINGAND ASSIGNMENT**

 

Controlled Affiliate shall not, directly orindirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, byoperation of law or otherwise, the rights granted hereunder and any such actshall be voidable at the sole option of Plan or BCBSA.  This Agreement and all rights and dutieshereunder are personal to Controlled Affiliate.

 

**5.****                                      INFRINGEMENT**

 

Controlled Affiliateshall promptly notify Plan and Plan shall promptly notify BCBSA of anysuspected acts of infringement, unfair competition or passing off that mayoccur in relation to the Licensed Marks and Name.  Controlled Affiliate shall not be entitled to require Plan orBCBSA to take any actions or institute any proceedings to prevent infringement,unfair competition or passing off by third parties.  Controlled Affiliate agrees to render to Plan and BCBSA, withoutcharge, all reasonable assistance in connection with any matter pertaining tothe protection of the Licensed Marks and Name by BCBSA.

 

**6.****                                      LIABILITYINDEMNIFICATION**

 

Controlled Affiliate andPlan hereby agree to save, defend, indemnify and hold BCBSA harmless from andagainst all claims, damages, liabilities and costs of every kind, nature anddescription (except those arising solely as a result of BCBSA’s negligence)that may arise as a result of or related to Controlled Affiliate’s rendering ofservices under the Licensed Marks and Name.

 

**7.****                                      LICENSETERM**

 

A.                                   Exceptas otherwise provided herein, the license granted by this Agreement shallremain in effect for a period of one (1) year and shall be automaticallyextended for additional one (1) year periods unless terminated pursuant to theprovisions herein.

 

B.                                     ThisAgreement and all of Controlled Affiliate’s rights hereunder shall immediatelyterminate without any further action by any party or entity in the event thatPlan ceases to be authorized to use the Licensed Marks and Name.

 

C.                                     Notwithstandingany other provision of this Agreement, this license to use the Licensed Marksand Name may be forthwith terminated by the Plan or the affirmative vote of themajority of the Board of Directors of BCBSA present and voting at a specialmeeting expressly called by BCBSA for the purpose on ten (10) days writtennotice to the Plan advising of the specific matters at issue and granting thePlan an opportunity to be heard and to present its response to

 

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the Board for:  (1) failure to comply with any applicableminimum capital or liquidity requirement under the quality control standards ofthis Agreement; or (2) failure to comply with the “Organization and Governance”quality control standard of this Agreement; or (3) impending financialinsolvency; or (4) for a Smaller Controlled Affiliate (as defined in ExhibitA), failure to comply with any of the applicable requirements of Standards 2,3, 4, 5 or 7 of attached Exhibit A; or (5) the pendency of any actioninstituted against the Controlled Affiliate seeking its dissolution orliquidation of its assets or seeking appointment of a trustee, interim trustee,receiver or other custodian for any of its property or business or seeking thedeclaration or establishment of a trust for any of its property or business,unless this Controlled Affiliate License Agreement has been earlier terminatedunder paragraph 7(e); or (6) failure by a Controlled Affiliate that meets thestandards of 2E(1) but not 2E(2) above to obtain BCBSA’s written consent to achange in the identity of any owner, in the extent of ownership, or in theidentity of any person or entity with the authority to select or appointmembers or board members, provided that as to publicly traded ControlledAffiliates this provision shall apply only if the change affects a person orentity that owns at least 5% of the Controlled Affiliate’s stock before or afterthe change; or (7) such other reason as is determined in good faith immediatelyand irreparably to threaten the integrity and reputation of BCBSA, the Plans,any other licensee including Controlled Affiliate and/or the Licensed Marks andName.

 

D.                                    Exceptas otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, shouldControlled Affiliate fail to comply with the provisions of this Agreement andnot cure such failure within thirty (30) days of receiving written noticethereof (or commence a cure within such thirty day period and continue diligentefforts to complete the cure if such curing cannot reasonably be completedwithin such thirty day period) BCBSA or the Plan shall have the right to issuea notice that the Controlled Affiliate is in a state of noncompliance.   If a state of noncompliance as aforesaid isundisputed by the Controlled Affiliate or is found to exist by a mandatorydispute resolution panel and is uncured as provided above, BCBSA shall have theright to seek judicial enforcement of the Agreement or to issue a notice oftermination thereof.   Notwithstandingany other provisions of this Agreement, any disputes as to the termination ofthis License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shallnot be subject to mediation and mandatory dispute resolution.  All other disputes between BCBSA, the Planand/or Controlled Affiliate shall be submitted promptly to mediation andmandatory dispute resolution.  Themandatory dispute resolution panel shall have authority to issue orders forspecific performance and assess monetary penalties.  Except, however, as provided in Paragraphs 7(B) and 7(E) of thisAgreement, this license to use the Licensed Marks and Name may not be finallyterminated for any reason without the affirmative vote of a majority of thepresent and voting members of the Board of Directors of BCBSA.

 

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E.                                      ThisAgreement and all of Controlled Affiliate’s rights hereunder shall immediatelyterminate without any further action by any party or entity in the event that:

 

(1)                                  ControlledAffiliate shall no longer comply with item 2(E) above;

 

(2)                                  Appropriatedues, royalties and other payments for Controlled Affiliate pursuant toparagraph 9 hereof, which are the royalties for this License Agreement, aremore than sixty (60) days in arrears to BCBSA; or

 

(3)                                  Anyof the following events occur:  (i) avoluntary petition shall be filed by Controlled Affiliate seeking bankruptcy,reorganization, arrangement with creditors or other relief under the bankruptcylaws of the United States or any other law governing insolvency or debtorrelief, or (ii) an involuntary petition or proceeding shall be filed againstControlled Affiliate seeking bankruptcy, reorganization, arrangement withcreditors or other relief under the bankruptcy laws of the United States or anyother law governing insolvency or debtor relief and such petition or proceedingis consented to or acquiesced in by Controlled Affiliate or is not dismissedwithin sixty (60) days of the date upon which the petition or other documentcommencing the proceeding is served upon the Controlled Affiliate, or (iii) anorder for relief is entered against Controlled Affiliate in any case under thebankruptcy laws of the United States, or Controlled Affiliate is adjudgedbankrupt or insolvent as those terms are defined in the Uniform Commercial Codeas enacted in the State of Illinois by any court of competent jurisdiction, or(iv) Controlled Affiliate makes a general assignment of its assets for thebenefit of creditors, or (v) the Department of Insurance or other regulatoryagency assumes control of Controlled Affiliate or delinquency proceedings(voluntary or involuntary) are instituted, or (vi) an action is brought byControlled Affiliate seeking its dissolution or liquidation of its assets orseeking the appointment of a trustee, interim trustee, receiver or othercustodian for any of its property or business, or (vii) an action is institutedby any governmental entity or officer against Controlled Affiliate seeking itsdissolution or liquidation of its assets or seeking the appointment of atrustee, interim trustee, receiver or other custodian for any of its propertyor business and such action is consented to or acquiesced in by ControlledAffiliate or is not dismissed within one hundred thirty (130) days of the dateupon which the pleading or other document commencing the action is served uponthe Controlled Affiliate, provided that if the action is stayed or itsprosecution is enjoined, the one hundred thirty (130) day period is tolled forthe duration of the stay or injunction, and provided further, that theAssociation’s Board of Directors may toll or extend the 130 day period at anytime prior to its expiration, or (viii) a trustee, interim trustee, receiver orother custodian for any of Controlled Affiliate’s property or business isappointed or the Controlled Affiliate is ordered dissolved or liquidated.  Notwithstanding any other provision of thisAgreement,

 

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a declaration or arequest for declaration of the existence of a trust over any of the ControlledAffiliate’s property or business shall not in itself be deemed to constitute orseek appointment of a trustee, interim trustee, receiver or other custodian forpurposes of subparagraphs 7(e)(3)(vii) and (viii) of this Agreement.

 

F.                                      Upontermination of this Agreement for cause or otherwise, Controlled Affiliateagrees that it shall immediately discontinue all use of the Licensed Marks andName, including any use in its trade name.

 

G.                                     Upontermination of this Agreement, Controlled Affiliate shall immediately notifyall of its customers that it is no longer a licensee of BCBSA and, if directedby the Association’s Board of Directors, shall provide instruction on how thecustomer can contact BCBSA or a designated licensee to obtain furtherinformation on securing coverage.  Thenotification required by this paragraph shall be in writing and in a formapproved by BCBSA.  The BCBSA shall havethe right to audit the terminated entity’s books and records to verifycompliance with this paragraph.

 

H.                                    Inthe event this Agreement terminates pursuant to 7(b) hereof, or in the eventthe Controlled Affiliate is a Larger Controlled Affiliate (as defined inExhibit A), upon termination of this Agreement, the provisions of Paragraph7.G. shall not apply and the following provisions shall apply:

 

(1)                                  TheControlled Affiliate shall send a notice through the U.S. mails, with firstclass postage affixed, to all individual and group customers, providers,brokers and agents of products or services sold, marketed, underwritten oradministered by the Controlled Affiliate under the Licensed Marks andName.  The form and content of thenotice shall be specified by BCBSA and shall, at a minimum, notify therecipient of the termination of the license, the consequences thereof, andinstructions for obtaining alternate products or services licensed byBCBSA.  This notice shall be mailedwithin 15 days after termination.

 

(2)                                  TheControlled Affiliate shall deliver to BCBSA within five days of a request byBCBSA a listing of national accounts in which the Controlled Affiliate isinvolved (in a control, participating or servicing capacity), identifying thenational account and the Controlled Affiliate’s role therein.

 

(3)                                  Unlessthe cause of termination is an event respecting BCBSA stated in paragraph 15(a)or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks andName, the Controlled Affiliate, the Plan, and any other Licensed ControlledAffiliates of the Plan shall be jointly liable for payment to BCBSA of anamount equal to $25 multiplied by the number of Licensed Enrollees of theControlled Affiliate; provided that if any other Plan is permitted by BCBSA touse marks or names licensed by BCBSA in the Service Area

 

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established by thisAgreement, the payment shall be multiplied by a fraction, the numerator ofwhich is the number of Licensed Enrollees of the Controlled Affiliate, thePlan, and any other Licensed Controlled Affiliates and the denominator of whichis the total number of Licensed Enrollees in the Service Area.  Licensed Enrollee means each and everyperson and covered dependent who is enrolled as an individual or member of agroup receiving products or services sold, marketed or administered under marksor names licensed by BCBSA as determined at the earlier of (i) the end of thelast fiscal year of the terminated entity which ended prior to termination or(ii) the fiscal year which ended before any transactions causing thetermination began.  Notwithstanding theforegoing, the amount payable pursuant to this subparagraph H. (3) shall be dueonly to the extent that, in BCBSA’s opinion, it does not cause the net worth ofthe Controlled Affiliate, the Plan or any other Licensed Controlled Affiliatesof the Plan to fall below 100% of the capital benchmark formula, or itsequivalent under any successor formula, as set forth in the applicablefinancial responsibility standards established by BCBSA (provided suchequivalent is approved for purposes of this sub paragraph by the affirmativevote of three-fourths of the Plans and three-fourths of the total then currentweighted vote of all the Plans); measured as of the date of termination, andadjusted for the value of any transactions not made in the ordinary course ofbusiness.  This payment shall not be duein connection with transactions exclusively by or among Plans or theiraffiliates, including reorganizations, combinations or mergers, where the BCBSABoard of Directors determines that the license termination does not result in amaterial diminution in the number of Licensed Enrollees or the extent of theircoverage.

 

(4)                                  BCBSAshall have the right to audit the books and records of the ControlledAffiliate, the Plan, and any other Licensed Controlled Affiliates of the Planto verify compliance with this paragraph 7.H.

 

(5)                                  Asto a breach of 7.H.(1), (2), (3) or (4), the parties agree that the obligationsare immediately enforceable in a court of competent jurisdiction.  As to a breach of 7.H.(1), (2) or (4) by theControlled Affiliate, the parties agree there is no adequate remedy at law andBCBSA is entitled to obtain specific performance.

 

I.                                         Inthe event the Controlled Affiliate is a Smaller Controlled Affiliate (asdefined in Exhibit A), the Controlled Affiliate agrees to be jointly liable forthe amount described in H.3. hereof upon termination of the BCBSA licenseagreement of any Larger Controlled Affiliate of the Plan.

 

J.                                        BCBSAshall be entitled to enjoin the Controlled Affiliate or any related party in acourt of competent jurisdiction from entry into any transaction which wouldresult in a termination of this Agreement unless the Plan’s license from BCBSAto use the Licensed Marks and Names has been terminated

 

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pursuant to 10(d) of thePlan’s license agreement upon the required 6 month written notice.

 

K.                                    BCBSAacknowledges that it is not the owner of assets of the Controlled Affiliate.

 

L.                                      Inthe event that the Plan has more than 50 percent voting control of theControlled Affiliate under Paragraph 2(E)(2) above and is a Larger ControlledAffiliate (as defined in Exhibit A), then the vote called for in Paragraphs7(C) and 7(D) above shall require the affirmative vote of three-fourths of thePlans and three-fourths of the total then current weighted vote of all thePlans.

 

**8.****                                      DISPUTERESOLUTION**

 

The parties agree thatany disputes between them or between or among either of them and one or morePlans or Controlled Affiliates of Plans that use in any manner the Blue Crossand Blue Cross Marks and Name are subject to the Mediation and MandatoryDispute Resolution process attached to and made a part of Plan’s License fromBCBSA to use the Licensed Marks and Name as Exhibits 5, 5A and 5B as amendedfrom time-to-time, which documents are incorporated herein by reference asthough fully set forth herein.

 

**9.****                                      LICENSEFEE**

 

Controlled Affiliate willpay to BCBSA a fee for this License determined pursuant to the formula(s) setforth in Exhibit B.

 

**10.****                               JOINTVENTURE**

 

Nothing contained in theAgreement shall be construed as creating a joint venture, partnership, agencyor employment relationship between Plan and Controlled Affiliate or betweeneither and BCBSA.

 

**Amendedas of March 11, 1999**

 

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**11.****                               NOTICESAND CORRESPONDENCE**

 

Notices regarding thesubject matter of this Agreement or breach or termination thereof shall be inwriting and shall be addressed in duplicate to the last known address of eachother party, marked respectively to the attention of its President and, if any,its General Counsel.

 

**12.****                               COMPLETEAGREEMENT**

 

This Agreement containsthe complete understandings of the parties in relation to the subject matterhereof.  This Agreement may only beamended by the affirmative vote of three-fourths of the Plans and three-fourthsof the total then current weighted vote of all the Plans as officially recordedby the BCBSA Corporate Secretary.

 

**13.****                               SEVERABILITY**

 

If any term of thisAgreement is held to be unlawful by a court of competent jurisdiction, suchfindings shall in no way affect the remaining obligations of the partieshereunder and the court may substitute a lawful term or condition for anyunlawful term or condition so long as the effect of such substitution is toprovide the parties with the benefits of this Agreement.

 

**14.****                               NONWAIVER**

 

No waiver by BCBSA of anybreach or default in performance on the part of Controlled Affiliate or anyother licensee of any of the terms, covenants or conditions of this Agreementshall constitute a waiver of any subsequent breach or default in performance ofsaid terms, covenants or conditions.

 

**14A.****                      VOTING**

 

For all provisions ofthis Agreement referring to voting, the term ‘Plans’ shall mean all entitieslicensed under the Blue Cross License Agreement and/or the Blue Shield LicenseAgreement, and in all votes of the Plans under this Agreement the Plans shallvote together.  For weighted votes ofthe Plans, the Plan shall have a number of votes equal to the number ofweighted votes (if any) that it holds as a Blue Cross Plan plus the number ofweighted votes (if any) that it holds as a Blue Shield Plan.  For all other votes of the Plans, the Planshall have one vote.  For all questionsrequiring an affirmative three-fourths weighted vote of the Plans, therequirement shall be deemed satisfied with a lesser weighted vote unless six(6) or more Plans fail to cast weighted votes in favor of the question.

 

**Amendedas of  June 16, 2000**

 

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THIS PAGE ISINTENTIONALLY BLANK.

 

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**15.****                               GOVERNINGLAW**

 

This Agreement shall begoverned by, and construed and interpreted in accordance with, the laws of theState of Illinois.

 

**16.****                               HEADINGS**

 

The headings inserted inthis agreement are for convenience only and shall have no bearing on theinterpretation hereof.

 

IN WITNESS WHEREOF, theparties have caused this License Agreement to be executed and effective as ofthe date of last signature written below.

 

 
| **United Government Services, LLC:**       |                   |
|--------------------------------------------|------------------------|
|                                       |
| By:                                        | /s/  Timothy F. Cullen |   |
|                                       |
| Date:                                      | 9/24/03                |   |
|                                       |
|                                       |
| **WellPoint Health Networks, Inc.:**       |                   |
|                                       |
| By:                                        | /s/  Leonard Schaeffer |   |
|                                       |
| Date:                                      | 9/24/03                |   |
|                                       |
|                                       |
| **BLUE CROSS AND BLUE SHIELD ASSOCIATION** |                   |
|                                       |
| By:                                        | /s/  Roger G. Wilson   |   |
|                                       |
| Date:                                      | 9/24/03                |   |
|                                            |                        |  |  |  |  |  |  |  |  |

 

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#### **EXHIBIT A**

#### ** **

 

**CONTROLLED AFFILIATE LICENSE STANDARDS**

June 2003

**PREAMBLE**

 

 

The standards forlicensing Controlled Affiliates are established by BCBSA and are subject tochange from time-to-time upon the affirmative vote of three-fourths (3/4) ofthe Plans and three-fourths (3/4) of the total weighted vote.  Each licensed Plan is required to use astandard Controlled Affiliate license form provided by BCBSA and to cooperatefully in assuring that the licensed Controlled Affiliate maintains compliancewith the license standards.

 

The Controlled AffiliateLicense provides a flexible vehicle to accommodate the potential range ofhealth and workers’ compensation related products and services Plan ControlledAffiliates provide.  The ControlledAffiliate License collapses former health Controlled Affiliate licenses (HCC,HMO, PPO, TPA, and IDS) into a single license using the followingbusiness-based criteria to provide a framework for license standards:

 

•                  Percentof Controlled Affiliate controlled by parent: Greater than 50 percent or 50 percent?

 

•                  Riskassumption:  yes or no?

 

•                  Medicalcare delivery:  yes or no?

 

•                  Sizeof the Controlled Affiliate: If the Controlled Affiliate has health or workers’compensation administration business, does such business constitute 15 percentor more of the parent’s and other licensed health subsidiaries’ memberenrollment?

 

**AmendedSeptember 19, 2002**

 

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For purposes ofdefinition:

 

•                  A“smaller Controlled Affiliate:”  (1)comprises less than fifteen percent (15%) of Plan’s and its licensed ControlledAffiliates’ total member enrollment (as reported on the BCBSA QuarterlyEnrollment Report, excluding rider and freestanding coverage, and treating anentity seeking licensure as licensed);* or (2) underwrites the indemnityportion of workers’ compensation insurance and has total premium revenue lessthan 15 percent of the sponsoring Plan’s net subscription revenue.

 

•                  A“larger Controlled Affiliate” comprises fifteen percent (15%) or more of Plan’sand its licensed Controlled Affiliates’ total member enrollment (as reported onthe BCBSA Quarterly Enrollment Report, excluding rider and freestandingcoverage, and treating an entity seeking licensure as licensed.)*

 

Changes in ControlledAffiliate status:

 

If **any** Controlled Affiliate’sstatus changes regarding: its Plan ownership level, its risk acceptance ordirect delivery of medical care, the Controlled Affiliate shall notify BCBSAwithin thirty (30) days of such occurrence in writing and come into compliancewith the applicable standards within six (6) months.

 

If a smaller ControlledAffiliate’s health and workers’ compensation administration business reaches orsurpasses fifteen percent (15%) of the total member enrollment of the Plan andlicensed Controlled Affiliates, the Controlled Affiliate shall:

 

**AmendedSeptember 19, 2002**

 

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1.               Within thirty (30)days, notify BCBSA of this fact in writing, including evidence that theControlled Affiliate meets the minimum liquidity and capital (BCBSA “HealthRisk-Based Capital (HRBC)” as defined by the NAIC and state-established minimumreserve) requirements of the larger Controlled Affiliate FinancialResponsibility standard; and

 

2.               Within six (6)months after reaching or surpassing the fifteen percent (15%) threshold,demonstrate compliance with all license requirements for a larger ControlledAffiliate.

 

If a Controlled Affiliatethat underwrites the indemnity portion of workers’ compensation insurancereceives a change in rating or proposed change in rating, the ControlledAffiliate shall notify BCBSA within 30 days of notification by the externalrating agency.

 

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* For purposes of thiscalculation,

 

The numerator equals:

 

Applicant ControlledAffiliate’s member enrollment, as defined in BCBSA’s Quarterly EnrollmentReport (excluding rider and freestanding coverage).

 

The denominator equals:

 

Numerator PLUS Plan andall other licensed Controlled Affiliates’ member enrollment, as reported inBCBSA’s Quarterly Enrollment Report (excluding rider and freestanding coverage).

 

**AmendedSeptember 19, 2002**

 

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**STANDARDSFOR LICENSED CONTROLLED AFFILIATES**

 

As described in Preamble section of Exhibit A to the AffiliateLicense Agreement, each controlled affiliate seeking licensure must answer fourquestions.  Depending on the controlledaffiliate’s answers, certain standards apply:

 

1.                     Whatpercent of the controlled affiliate is controlled by the parent Plan?

 
| **More than 50%** |   | **50%**        |   | **100% and Primary Business is  Government Non-Risk** |
|-------------------|--------|----------------|--------|-------------------------------------------------------|
|              |   |           |   |                                                  |
|                   |   |                |   |                                                       |
|              |   |           |   |                                                  |
| Standard 1A, 4    |   | Standard 1B, 4 |   | Standard 4*,10A                                       |

 

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* Applicable only if using the names and marks.

 

**IN ADDITION,**

 

2.                     Isrisk being assumed?

 
| **Yes**                                                                                                              |   | **No**                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                      |   |                                                                                                                                                                                                          |   |  |   |  |   |  |   |  |
|                                                                                                                 |   |                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
| Controlled Affiliate  underwrites any indemnity portion of workers’ compensation insurance

Standards 7A-7E, 12 |   | Controlled Affiliate  comprises < 15% of total member enrollment of Plan and its licensed  affiliates, and does not underwrite the indemnity portion of workers’  compensation insurance

  |   | Controlled Affiliate  comprises > 15% of total member enrollment of Plan and its licensed  affiliates, and does not underwrite the indemnity portion of workers’  compensation insurance

  |   | Controlled Affiliate  comprises < 15% of total member enrollment of Plan and its licensed  affiliates

  |   | Controlled Affiliate  comprises > 15% of total member enrollment of Plan and its licensed  affiliates

 

 

Standard 6H |   | Controlled Affiliate’s  Primary Business is Government Non-Risk

 

 

 

Standard 10B |
|                                                                                                                 |   |                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                 |   | Standard 2 (Guidelines  1.1,1.2) and Standard 11                                                                                                                                                         |   | Standard 6H |   | Standard 2  (Guidelines 1.1,1.3) and Standard 11 |   |   |   |   |

 

**IN ADDITION,**

 

3.                     Ismedical care being directly provided?

 
| **Yes**     |   | **No**      |
|-------------|--------|-------------|
|        |   |        |
|             |   |             |
|        |   |        |
| Standard 3A |   | Standard 3B |

 

**IN ADDITION,**

 

4.                     Ifthe controlled affiliate has health or workers’ compensation administrationbusiness, does such business comprise 15% or more of the total memberenrollment of Plan and its licensed controlled affiliates?

 
| **Yes**         |   | **No**                                                                                                       |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------|
|                 |   |                                                                                                              |   |  |   |  |   |  |
| Standards 6A-6J |   | Controlled Affiliate is  not a former primary licensee and elects to participate in BCBSA national  programs |   | Controlled Affiliate is  a former primary licensee |   | Controlled Affiliate is  not a former primary licensee and does not elect to participate in BCBSA  national programs |   | Controlled Affiliate’s  Primary Business is Government Non-Risk |
|                 |        |                                                                                                              |
|            |   |                                                                                                              |   |   |   |   |   |   |
|            |   | Standards 5,8,9B,12s                                                                                         |   | Standards 5,8,9A,11,12 |   | Standards 5,8,12 |   | Standards 8, 10(C),12 |

 

 

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**Standard 1 - Organization and Governance**

 

1A.)  The Standard for more than 50% Plan controlis:

 

A Controlled Affiliateshall be organized and operated in such a manner that a licensed Plan or Plansauthorized to use the Licensed Marks in the Service Area of the ControlledAffiliate pursuant to separate License Agreement(s) with BCBSA, other than suchControlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), havethe legal authority, directly or indirectly through wholly-owned subsidiaries:1) to select members of the Controlled Affiliate’s governing body having morethan 50% voting control thereof; and 2) to prevent any change in the articlesof incorporation, bylaws or other establishing or governing documents of theControlled Affiliate with which the Controlling Plan(s) do(es) not concur; and3) to exercise control over the policy and operations of the ControlledAffiliate. In addition, a Plan or Plans directly or indirectly throughwholly-owned subsidiaries shall own more than 50% of any for-profit ControlledAffiliate.

 

1B.)                           TheStandard for 50% Plan control is:

 

A Controlled Affiliateshall be organized and operated in such a manner that a licensed Plan or Plansauthorized to use the Licensed Marks in the Service Area of the ControlledAffiliate pursuant to separate License Agreement(s) with BCBSA, other than suchControlled Affiliate’s License Agreement(s), (the “Controlling Plan(s)”), havethe legal authority, directly or indirectly through wholly-owned subsidiaries:

 

1)                                      toselect members of the Controlled Affiliate’s governing body having not lessthan 50%  voting control thereof ; and

 

2)                                      toprevent any change in the articles of incorporation, bylaws or otherestablishing or governing documents of the Controlled Affiliate with which theControlling Plan(s) do(es)  not concur; and

 

3)                                      toexercise control over the policy and operations of the Controlled Affiliate atleast equal to that exercised by persons or entities (jointly or individually)other than the Controlling Plan(s).

 

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Notwithstanding anythingto the contrary in 1) through 3) hereof, the Controlled Affiliate’sestablishing or governing documents must also require written approval by theControlling Plan(s) before the Controlled Affiliate can:

 

•                                          changethe geographic area in which it operates

 

•                                          changeits legal and/or trade names

 

•                                          changeany of the types of businesses in which it engages

 

•                                          create,or become liable for by way of guarantee, any indebtedness, other thanindebtedness arising in the ordinary course of business

 

•                                          sellany assets, except for sales in the ordinary course of business or sales ofequipment no longer useful or being replaced

 

•                                          makeany loans or advances except in the ordinary course of business

 

•                                          enterinto any arrangement or agreement with any party directly or indirectlyaffiliated with any of the owners or persons or entities with the authority toselect or appoint members or board members of the Controlled Affiliate, otherthan the Plan or Plans (excluding owners of stock holdings of under 5% in apublicly traded Controlled Affiliate)

 

•                                          conductany business other than under the Licensed Marks and Name

 

•                                          takeany action that any Controlling Plan or BCBSA reasonably believes willadversely affect the Licensed Marks and Name.

 

In addition, a Plan orPlans directly or indirectly through wholly-owned subsidiaries shall own atleast 50% of any for-profit Controlled Affiliate.

 

19

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**Standard 2 - Financial Responsibility**

 

A Controlled Affiliateshall be operated in a manner that provides reasonable financial assurance thatit can fulfill all of its contractual obligations to its customers.  If a risk-assuming Controlled Affiliateceases operations for any reason, Blue Cross and/or Blue Cross Plan coveragewill be offered to all Controlled Affiliate subscribers without exclusions,limitations or conditions based on health status.  If a nonrisk-assuming Controlled Affiliate ceases operations forany reason, sponsoring Plan(s) will provide for services to its (their)customers.

 

**Standard 3 - State Licensure/Certification**

 

3A.)                         TheStandard for a Controlled Affiliate that employs, owns or contracts on asubstantially exclusive basis for medical services is:

 

A Controlled Affiliateshall maintain unimpaired licensure or certification for its medical careproviders to operate under applicable state laws.

 

3B.)                           TheStandard for a Controlled Affiliate that does not employ, own or contract on asubstantially exclusive basis for medical services is:

 

A Controlled Affiliateshall maintain unimpaired licensure or certification to operate underapplicable state laws.

 

**Standard 4 - Certain Disclosures**

 

A Controlled Affiliateshall make adequate disclosure in contracting with third parties and indisseminating public statements of 1) the structure of the Blue Cross and BlueShield System; and 2) the independent nature of every licensee; and 3) theControlled Affiliate’s financial condition.

 

**Standard 5 - Reports and Records for Certain SmallerControlled Affiliates**

 

For a smaller ControlledAffiliate that does not underwrite the indemnity portion of workers’compensation insurance, the Standard is:

 

20

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A Controlled Affiliateand/or its licensed Plan(s) shall furnish, on a timely and accurate basis,reports and records relating to these Standards and the License Agreementsbetween BCBSA and Controlled Affiliate.

 

**Standard 6 - Other Standards for Larger Controlled Affiliates**

 

Standards 6(A) - (I) thatfollow apply to larger Controlled Affiliates.

 

Standard 6(A):  Board of Directors

 

A Controlled AffiliateGoverning Board shall act in the interest of its Corporation in providingcost-effective health care services to its customers.  A Controlled Affiliate shall maintain a governing Board, whichshall control the Controlled Affiliate, composed of a majority of persons otherthan providers of health care services, who shall be known as publicmembers.  A public member shall not bean employee of or have a financial interest in a health care provider, nor be amember of a profession which provides health care services.

 

Standard 6(B):  Responsiveness to Customers

 

A Controlled Affiliateshall be operated in a manner responsive to customer needs and requirements.

 

Standard 6(C):  Participation in National Programs

 

A Controlled Affiliateshall effectively and efficiently participate in each national program as fromtime to time may be adopted by the Member Plans for the purposes of providingportability of membership between the licensees and ease of claims processingfor customers receiving benefits outside of the Controlled Affiliate’s ServiceArea.

 

Such programs areapplicable to licensees, and include:

 

1.               TransferProgram;

 

2.               BlueCardProgram;

 

21

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3.               Inter-PlanTeleprocessing System (ITS)

 

4.               ElectronicClaims Routing Process;

 

5.               NationalAccount Programs, effective January 1, 2002; and

 

6.               BusinessAssociate Agreement for Blue Cross and Blue Shield Licensees, effectiveApril 14, 2003.

 

Standard 6(D):   Financial Performance Requirements

 

In addition torequirements under the national programs listed in Standard 6C:  Participation in National Programs, aControlled Affiliate shall take such action as required to ensure its financialperformance in programs and contracts of an inter-licensee nature or whereBCBSA is a party.

 

Standard 6(E):  Cooperation with Plan Performance ResponseProcess

 

A Controlled Affiliateshall cooperate with BCBSA’s Board of Directors and its Plan Performance andFinancial Standards Committee in the administration of the Plan PerformanceResponse Process and in addressing Controlled Affiliate performance problemsidentified thereunder.

 

Standard 6(F):  Independent Financial Rating

 

A Controlled Affiliateshall obtain a rating of its financial strength from an independent ratingagency approved by BCBSA’s Board of Directors for such purpose.

 

Standard 6(G):  Best Efforts

 

During each year, aControlled Affiliate shall use its best efforts in the designated Service Areato promote and build the value of the Blue Cross Mark.

 

Standard 6(H):  Financial Responsibility

 

A Controlled Affiliateshall be operated in a manner that provides reasonable financial assurance thatit can fulfill all of its contractual obligations to its customers.

 

**AmendedSeptember 19, 2002**

 

22

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Standard 6(I):  Reports and Records

 

A Controlled Affiliateshall furnish to BCBSA on a timely and accurate basis reports and recordsrelating to compliance with these Standards and the License Agreements betweenBCBSA and Controlled Affiliate.  Suchreports and records are the following:

 

A)                                  BCBSAControlled Affiliate Licensure Information Request; and

 

B)                                    Biennialtrade name and service mark usage material, including disclosure material; and

 

C)                                    Changesin the ownership and governance of the Controlled Affiliate, including changesin its charter, articles of incorporation, or bylaws, changes in a ControlledAffiliate’s Board composition, or changes in the identity of the ControlledAffiliate’s Principal Officers, and changes in risk acceptance, contractgrowth, or direct delivery of medical care; and

 

D)                                   QuarterlyFinancial Report, Semi-annual “Health Risk-Based Capital (HRBC) Report”asdefined by the NAIC, Annual Financial Forecast, Annual Certified Audit Report,Insurance Department Examination Report, Annual Statement filed with StateInsurance Department (with all attachments), and

 

E)                                     QuarterlyEnrollment Report.

 

**Amended March 14, 2002**

 

23

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Standard 6(J):  Control by Unlicensed Entities Prohibited

 

No Controlled Affiliateshall cause or permit an entity other than a Plan or a Licensed ControlledAffiliate thereof to obtain control of the Controlled Affiliate or to acquire asubstantial portion of its assets related to licensable services.

 

**Standard 7 - Other Standards for Risk-Assuming Workers’Compensation Controlled Affiliates**

 

Standards 7(A) - (E) thatfollow apply to Controlled Affiliates that underwrite the indemnity portion ofworkers’ compensation insurance.

 

Standard 7 (A):  Financial Responsibility

 

A Controlled Affiliateshall be operated in a manner that provides reasonable financial assurance thatit can fulfill all of its contractual obligations to its customers.

 

Standard 7(B):  Reports and Records

 

A Controlled Affiliateshall furnish, on a timely and accurate basis, reports and records relating tocompliance with these Standards and the License Agreements between BCBSA andthe Controlled Affiliate.  Such reportsand records are the following:

 

A.           BCBSA ControlledAffiliate Licensure Information Request; and

 

B.             Biennial trade nameand service mark usage materials, including disclosure materials; and

 

C.             Annual CertifiedAudit Report, Annual Statement as filed with the State Insurance Department(with all attachments), Annual NAIC’s Risk-Based Capital Worksheets forProperty and Casualty Insurers,  AnnualFinancial Forecast; and

 

D.            Quarterly FinancialReport, Quarterly Estimated Risk-Based Capital for Property and CasualtyInsurers, Insurance Department Examination Report, Quarterly Enrollment Report;and

 

**Amended September 19, 2002**

 

24

----

 

E.              Notification of allchanges and proposed changes to independent ratings within 30 days of receiptand submission of  a copy of all ratingreports; and

 

F.              Changesin the ownership and governance of the Controlled Affiliate including changesin its charter, articles of incorporation, or bylaws, changes in a ControlledAffiliate’s Board composition, Plan control, state license status, operatingarea, the Controlled Affiliate’s Principal Officers or direct delivery ofmedical care.

 

Standard 7(C):  Loss Prevention

 

A Controlled Affiliateshall apply loss prevention protocol to both new and existing business.

 

Standard 7(D):  Claims Administration

 

A Controlled Affiliateshall maintain an effective claims administration process that includes all thenecessary functions to assure prompt and proper resolution of medical andindemnity claims.

 

Standard 7(E):  Disability and Provider Management

 

A Controlled Affiliateshall arrange for the provision of appropriate and necessary medical andrehabilitative services to facilitate early intervention by medical professionalsand timely and appropriate return to work.

 

**Amended November 16, 2000**

 

25

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**Standard 8 - Cooperation with Controlled Affiliate LicensePerformance Response Process Protocol**

 

A Controlled Affiliateand its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of Directors andits Plan Performance and Financial Standards Committee in the administration of the Controlled Affiliate LicensePerformance Response Process Protocol (ALPRPP) and in addressing ControlledAffiliate compliance problems identified thereunder.

 

**Standard 9(A) - Participation in National Programs by SmallerControlled Affiliates that were former Primary Licensees**

 

A smaller controlledaffiliate that formerly was a Primary Licensee shall effectively andefficiently participate in certain national programs from time to time as maybe adopted by Member Plans for the purposes of providing ease of claimsprocessing for customers receiving benefits outside of the ControlledAffiliate’s service area and be subject to certain relevant financial andreporting requirements.

 

A.                                   Nationalprogram requirements include:

 

•                                          BlueCardProgram;

 

•                                          Inter-PlanTeleprocessing System (ITS);

 

•                                          TransferProgram;

 

•                                          ElectronicClaims Routing Process, effective until October 16, 2003; and

 

•                                          NationalAccount Programs, effective January 1, 2002.

 

B.                                     FinancialRequirements include:

 

•                                          Standard6(D): Financial Performance Requirements and Standard 6(H): FinancialResponsibility; or

 

•                                          Afinancial guarantee covering the Controlled Affiliate’s BlueCard Programobligations in a form, and from a guarantor, acceptable to BCBSA.

 

26

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C.                                     Reportingrequirements include:

 

•                                          TheSemi-annual Health Risk-Based Captial (HRBC) Report.

 

**Amended June 13, 2002**

 

27

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**Standard 9(B) - Participation in National Programs by SmallerControlled Affiliates**

 

A smaller controlledaffiliate that voluntarily elects to participate in national programs in accordancewith BlueCard and other relevant Policies and Provisions shall effectively andefficiently participate in national programs from time to time as may beadopted by Member Plans for the purposes of providing ease of claims processingfor customers receiving benefits outside of the controlled affiliate’s servicearea and be subject to certain relevant financial and reporting requirements.

 

A.                           Nationalprogram requirements include:

 

•                  BlueCardProgram;

 

•                  Inter-PlanTeleprocessing System (ITS);

 

•                  ElectronicClaims Routing Process, effective until October 16, 2003; and

 

•                  NationalAccount Programs, effective January 1, 2002.

 

B.                             FinancialRequirements include:

 

•                  Standard6(D): Financial Performance Requirements and Standard 6(H): FinancialResponsibility; or

 

•                  Afinancial guarantee covering the Controlled Affiliate’s BlueCard Programobligations in a form, and from a guarantor, acceptable to BCBSA.

 

**AmendedJune 13, 2002**

 

28

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**Standard 10 - Other Standards for Controlled Affiliates WhosePrimary Business is Government Non-Risk**

 

Standards 10(A) - (C)that follow apply to Controlled Affiliates whose primary business is governmentnon-risk.

 

Standard 10(A) -Organization and Governance

 

A Controlled Affiliateshall be organized and operated in such a manner that it is 1) wholly owned bya licensed Plan or Plans and 2) the sponsoring licensed Plan or Plans have thelegal ability to prevent any change in the articles of incorporation, bylaws orother establishing or governing documents of the Controlled Affiliate withwhich it does not concur.

 

29

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Standard 10(B) -Financial Responsibility

 

A Controlled Affiliateshall be operated in a manner that provides reasonable financial assurance thatit can fulfill all of its contractual obligations to its customers.

 

Standard 10(C):- Reportsand Records

 

A Controlled Affiliateshall furnish, on a timely and accurate basis, reports and records relating tocompliance with these Standards and the License Agreements between BCBSA andthe Controlled Affiliate.  Such reportsand records are the following:

 

A.                                   BCBSAAffiliate Licensure Information Request; and

 

B.                                     Biennialtrade name and service mark usage materials, including disclosure material; and

 

C.                                     AnnualCertified Audit Report, Annual Statement (if required) as filed with the StateInsurance Department (with all attachments), Annual NAIC Risk-Based CapitalWorksheets (if required) as filed with the State Insurance Department (with allattachments), and Insurance Department Examination Report (if applicable)*; and

 

D.                                    Changesin the ownership and governance of the Controlled Affiliate, including changesin its charter, articles of incorporation, or bylaws, changes in the ControlledAffiliate’s Board composition, Plan control, state license status, operatingarea, the Controlled Affiliate’s Principal Officers or direct delivery ofmedical care.

 

30

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**Standard 11- Participation in Electronic Claims RoutingProcess**

 

A smaller controlledaffiliate for which this standard applies pursuant to the Preamblesection of Exihibit A of the Controlled Affiliate License Agreement shalleffectively and efficiently participate in certain national programs from timeto time as may be adopted by Member Plans for the purposes of providing ease ofclaims processing for customers receiving benefits outside of the controlledaffiliate’s service area.

 

National programrequirements include:

 

A.           Electronic ClaimsRouting Process effective upon October 16, 2003.

 

**Amended June 13, 2002**

 

31

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**Standard 12: Participation in Master Business AssociateAgreement by Smaller Controlled Affiliate Licensees**

 

Effective April 14,2003, all smaller controlled affiliates shall comply with the terms of theBusiness Associate Agreement for Blue Cross and Blue Shield Licensees to theextent they perform the functions of a business associate or subcontractor to abusiness associate, as defined by the Business Associate Agreement.

 

**Amended September 19, 2002**

 

32

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**EXHIBIT B**

 

ROYALTY FORMULA FORSECTION 9 OF THECONTROLLED AFFILIATE LICENSE AGREEMENT

 

Controlled Affiliate willpay BCBSA a fee for this license in accordance with the following formula:

 

**FOR RISK AND GOVERNMENT NON-RISK PRODUCTS:**

 

For Controlled Affiliatesnot underwriting the indemnity portion of workers’ compensation insurance:

 

An amount equal to itspro rata share of each sponsoring Plan’s dues payable to BCBSA computed withthe addition of the Controlled Affiliate’s subscription revenue and contractsarising from products using the marks. The payment by each sponsoring Plan of its dues to BCBSA, including thatportion described in this paragraph, will satisfy the requirement of thisparagraph, and no separate payment will be necessary.

 

For Controlled Affiliatesunderwriting the indemnity portion of workers’ compensation insurance:

 

An amount equal to 0.35percent of the gross revenue per annum of Controlled Affiliate arising fromproducts using the marks; plus, an annual fee of $5,000 per license for aControlled Affiliate subject to Standard 7.

 

For Controlled Affiliateswhose primary business is government non-risk:

 

An amount equal to itspro-rata share of each sponsoring Plan’s dues payable to BCBSA computed withthe addition of the Controlled Affiliate’s government non-risk beneficiaries.

 

33

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**FOR NONRISK PRODUCTS:**

 

An amount equal to 0.24percent of the gross revenue per annum of Controlled Affiliate arising fromproducts using the marks; plus:

 

1)              An annual fee of$5,000 per license for a Controlled Affiliate subject to Standard 6 D.

 

2)              An annual fee of$2,000 per license for all other Controlled Affiliates.

 

The foregoing shall bereduced by one-half where both a BLUE CROSS® and BLUE SHIELD® License areissued to the same Controlled Affiliate. In the event that any license period is greater or less than one (1) year,any amounts due shall be prorated. Royalties under this formula will be calculated, billed and paid inarrears.

 

34

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