Document 183 : Docket No. 99-14 : Hearing Decision : Bureau of Insurance

R o b e r t S. F r a n k

January 7, 2000

Alessandro A. Iuppa, Superintendent of Insurance

c/o Lyndy Morgan

Docket No. INS-99-14

Maine Department of Professional and Financial Regulation

Bureau of Insurance

124 Northern Avenue

Gardiner, Maine 04345

Re: INS 99-14

Application of Associated Health Plans Inc. under 24 M.R.S.A. § 2301-9D

Dear Mr. Superintendent:

Enclosed is BCBSME’s Second Supplemental Response to the Superintendent’s Second Information Request. The enclosed information is "non-confidential" and responds to requests 1, 8, 11, and 13.

Very truly yours,

cc: Service List

STATE OF MAINE

DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION

BUREAU OF INSURANCE

In Re:

Application of Associated Hospital Service of Maine d/b/a Blue Cross and Blue Shield of Maine to convert to a Stock Insurer and Voluntarily Liquidate and Dissolve

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And

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BCBSME’s Second Supplemental Response to Superintendent’s Second Information Request
(Requests 1, 8, 11, 13)

In Re:

Application of Anthem Health Plan of Maine, Inc. to Acquire the Assets of Associated Hospital Service of Maine d/b/a
Blue Cross and Blue Shield of Maine and Related Transactions

Docket No. INS-99-14
(Consolidated)

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Associated Hospital Services of Maine d/b/a/ Blue Cross Blue Shield of Maine supplements its responses to Requests 1, 8, 11 and 13 of the Superintendent’s Second Information Request. The responses below are subject to the objections and clarifications previously filed by BCBSME on December 10& 13, 1999.

Asset Purchase Agreement

1. Please provide a detailed Schedule of included and excluded liabilities and assets as of the transaction date. To the extent the value of any liability, asset, or anticipated liability cannot be definitively quantified at this time, please provide a good faith estimate.

Original Response:

As a result of changes requested by the Department of Attorney General to the charitable trust plan, BCBSME and Anthem will need to amend the Asset Purchase Agreement terms regarding provision for excluded assets and liabilities. Understanding that the Superintendent is requesting a schedule of such assets and liabilities under the Asset Purchase Agreement as amended, the parties cannot provide a full response to this information request until the Asset Purchase Agreement amendment is negotiated and finalized. Insofar as this question refers to the tax reserve, BCBSME will provide or cause to be provided a response to this question by January 7, 2000. Insofar as this request refers to non-tax-related assets and liabilities, BCBSME will provide or cause to be provided the remainder of the requested schedule within two weeks of the BCBSME Board’s approval of any amendment to the Asset Purchase Agreement. BCBSME Board deliberation and approval of any amendment is expected in mid-January 2000.

Supplemental Response:

As specified in the Asset Purchase Agreement, the "excluded assets represent the Seller's rights retained under that Agreement and its ancillary agreements (as defined) and tax refunds allocable to Seller under Article 7. As of the date of the Asset Purchase Agreement, Blue Cross and Blue Shield of Maine had filed claims for Federal Income Tax refunds,
Totaling $3,259,910, as follows:

1992 $ 1,240,837
1993 $ 1,667,087
1994 $ 351,986

The above refunds are under administrative appeal as part of an Internal Revenue Service audit currently in process, the outcome of which is Uncertain. In addition, the Company has an unfiled refund claim of Approximately $436,000 to carry back 1997 net operating losses to offset Federal income taxes paid for 1994. The potential maximum refund available to be claimed for 1994, if the refunds above are accepted by the IRS, is approximately $84,000. Such filing is pending disposition of the current IRS audit.

All other assets of the seller are considered to be assets to be sold.

"Excluded liabilities" are specified in Section 2.02(b). A detailed schedule of the estimated seller's "aggregate tax liability" is included in response to Question #11..

Please provide a list, by general ledger account, of the amounts of the liabilities relating to or arising out of the Excluded Assets, as referred to in Section 2.01(b)(i) [Note: The subsection should be "(c)", because the previous subsection is also "(b)"] of the Asset Purchase Agreement, and amounts as of July 13, 1999, the date of the Asset Purchase Agreement. To the extent an amount can not be directly quantified, a good faith estimate should be attempted, and identified as such. To the extent such amounts cannot be definitively quantified, please make a good faith estimate.

Original Response:

BCBSME understands this request as intending to refer to in Section 2.02(b)(i) , not in Section 2.01(b)(i).

As a result of changes requested by the Department of Attorney General to the charitable trust plan, BCBSME and Anthem will need to amend the Asset Purchase Agreement terms regarding provision for excluded assets and liabilities. Understanding that the Superintendent is requesting a list of asset- and liability-related accounts under the Asset Purchase Agreement as amended, the parties cannot provide a full response to this information request until the Asset Purchase Agreement amendment is negotiated and finalized. Insofar as this question refers to accounts related to the tax reserve, BCBSME will provide or cause to be provided a response to this question by January 7, 2000. Insofar as this request refers to non-tax-related assets and liabilities, BCBSME will provide or cause to be provided the requested list within two weeks of the BCBSME Board’s approval of any amendment to the Asset Purchase Agreement. BCBSME Board deliberation and approval of any amendment is expected in mid-January 2000.

Supplemental Response:

There are presently no known liabilities expected to relate to or arise out of the "excluded assets".

Please provide a good faith estimate with supporting references and calculations of Seller’s Aggregate Tax Liability as referred to in Section 2.01(b)(iv) of the Asset Purchase Agreement.

Original Response:

BCBSME understands this request as intending to refer to in Section 2.02(b)(i), not in Section 2.01(b)(i).

Insofar as this question refers to accounts related to the tax reserve, BCBSME will provide or cause to be provided a response to this question by January 7, 2000, as noted in a previous response.

Supplemental Response:

The attached exhibit and related schedules reflect BCBSME's current best Estimate of the seller's Aggregate Tax Liability assuming a transaction closing date of June 30, 2000. The amounts reflected are based on current estimates. Such estimates are subject to change based upon actual results which will differ from these estimates as well as other future tax-related developments such as audits by taxing authorities.

Please provide a good faith estimate of the Closing Tax Reserve and a reasonably detailed description of the calculation assuming a closing date no later than July 31, 2000.

Original Response:	As set forth in BCBSME’s supplemental clarifications and objections, BCBSME will provide or cause to be provided a response to this question by January 7, 2000.
Supplemental Response:	BCBSME management currently expects that the Closing Tax Reserve (assuming a transaction closing at June 30, 2000) to be sufficient to cover the seller's Aggregate Tax Liability as reflected in the response to Question #11.

Dated: January 7, 2000

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Robert S. Frank

HARVEY & FRANK

Two City Center

Suite 402

Portland, Maine 04112-0126

(207) 775-1300

Attorneys for Blue Cross & Blue Shield of Maine