<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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CERULEAN COMPANIES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A convertible preferred stock
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
409,602 shares
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$700,000,000.00
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$700,000,000.00
------------------------------------------------------------------------
(5) Total fee paid:
$140,000.00
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$100,000.00
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
------------------------------------------------------------------------
(3) Filing Party:
Cerulean Companies, Inc.
------------------------------------------------------------------------
(4) Date Filed:
August 28, 1998
------------------------------------------------------------------------
<PAGE> 2
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580
December , 2000
Dear shareholder of Class A convertible common stock:
The boards of directors of Cerulean Companies, Inc. and WellPoint Health
Networks Inc. have agreed on a merger that will combine the businesses of
Cerulean and WellPoint. On October 10, 2000, Class A shareholders holding 89% of
the outstanding Class A shares voted to approve the merger of Cerulean with
WellPoint for a consideration of $500 million, which was to be paid in cash and
WellPoint common stock. On November 29, 2000, however, Cerulean and WellPoint
entered into a revised merger agreement that provides for consideration of $700
million, all of which is to be paid in cash. Therefore, the revised merger
agreement must be approved by holders of at least a majority of the outstanding
Class A shares.
If we complete the proposed merger, each Cerulean Class A shareholder who
does not perfect his or her dissenters' rights pursuant to Georgia law will have
the right to receive, in exchange for each share of Class A stock and each share
of Cerulean Series A preferred stock, approximately $1,195 in cash.
If we complete the proposed merger, each Cerulean Class B shareholder who
does not perfect his or her dissenters' rights pursuant to Georgia law will have
the right to receive approximately $3,100 in cash in exchange for each share of
Class B convertible preferred stock.
In order to complete the merger, we need the approval of the holders of a
majority of the shares of Class A stock entitled to vote at the meeting and the
holders of a majority of the shares of Class B stock entitled to vote at a
meeting of the Class B stock. The holder of a majority of the shares of Class B
stock has indicated that it intends to vote in favor of the merger agreement and
the merger. Accordingly, approval by the holders of Class B stock of the merger
agreement and the merger is reasonably assured.
Enclosed are the (i) notice of meeting, (ii) proxy statement and (iii) proxy
and election form. Please carefully read the proxy statement, which describes
the merger agreement and the merger in more detail, including a description of
the conditions to completion of the merger and the effects of the merger on the
rights of Cerulean shareholders.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND DETERMINED
THAT THE TERMS OF THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO YOU, ADVISABLE
AND IN YOUR BEST INTERESTS. THEREFORE, YOUR BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE MERGER
DESCRIBED IN THE ATTACHED PROXY STATEMENT.
The merger agreement provides that the completion of the merger is subject
to a number of conditions, including approval of each class of shareholders of
Cerulean. Your vote is important, and we urge you to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed envelope, whether or
not you plan to attend the meeting. If you attend the meeting, you may vote in
person, even if you previously returned your proxy card.
The proxy card also indicates the information you must provide to us to
receive your cash consideration in the merger. This request for information is
contained in the space marked W-9 and requires you to fill in your social
security number. As soon as possible after the merger is completed, WellPoint's
exchange agent will begin forwarding merger consideration to those Cerulean
shareholders from whom Cerulean has received a proxy card with W-9 information
properly completed or who have otherwise provided the appropriate W-9
information. EVEN IF YOU COMPLETED AN ELECTION FORM IN CONNECTION WITH THE
OCTOBER 2000 MEETING, YOU MUST COMPLETE A NEW PROXY CARD WITH W-9 INFORMATION TO
RECEIVE YOUR CASH CONSIDERATION.
Even if you plan to attend the meeting, please fill in, date and sign the
enclosed proxy card with your vote. To ensure that your shares will be
represented at the meeting, promptly return the card in the enclosed return
envelope, which requires no postage if mailed in the United States. If you
attend the meeting, the proxy can be disregarded, if you wish, and you may vote
your shares in person.
Sincerely,
/s/ Richard D. Shirk
Richard D. Shirk
President and Chief Executive Officer
<PAGE> 3
CERULEAN COMPANIES, INC.
3350 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
1-800-314-2580
---------------------
NOTICE OF MEETING OF SHAREHOLDERS
TO BE HELD AT THE SWISSOTEL ON TUESDAY, JANUARY 30, 2001
---------------------
To the shareholders of Class A convertible common stock:
We have agreed to merge with a subsidiary of WellPoint Health Networks Inc.
Cerulean Companies, Inc. will be the surviving company in the merger. We have
scheduled a special meeting of shareholders for the holders of shares of Class A
convertible common stock of Cerulean at the Swissotel, 3391 Peachtree Road,
N.E., Atlanta, Georgia, at 9:00 a.m., local time, on Tuesday, January 30, 2001.
The purposes of the special meeting are as follows:
1. The merger. To consider and vote upon a proposal to approve and
adopt the Amended and Restated Agreement and Plan of Merger, dated as of
November 29, 2000, among Cerulean, WellPoint and Water Polo Acquisition
Corp., a subsidiary of WellPoint, and the transactions contemplated by the
merger agreement.
2. Other business. To transact such other business as may properly
come before the meeting or any adjournments or postponements of the
meeting.
We have provided information describing these items of business in the
attached proxy statement, which provides you with detailed information about
Cerulean, WellPoint and the merger. We have also attached a copy of the merger
agreement as Appendix A to the proxy statement.
You are entitled to notice of and to vote at the special meeting only if
you were a shareholder of record of Cerulean at the close of business on
December 15, 2000, the date that your board of directors fixed as the record
date.
We cannot complete the merger unless the holders of a majority of the
shares of Class A stock entitled to vote at the meeting vote to approve the
merger agreement and the merger.
THE CERULEAN BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND COMPLETION OF THE TRANSACTIONS CONTEMPLATED
BY THE MERGER AGREEMENT.
Even if you plan to attend the meeting, please fill in, date and sign the
enclosed proxy card with your vote. To ensure that your shares will be
represented at the meeting, promptly return the card in the enclosed return
envelope, which requires no postage if mailed in the United States. If you
attend the meeting, you may still vote your shares in person even if you sent in
a proxy card.
You should also complete the W-9 information on the proxy card now. You are
not required to complete the W-9 information to vote at the meeting. Cerulean
must, however, receive this information, as certified by you, before you can
receive your merger consideration. Soon after the completion of the merger, we
expect to begin to distribute cash to those Cerulean shareholders from whom we
have received W-9 information. EVEN IF YOU COMPLETED AN ELECTION FORM IN
CONNECTION WITH THE OCTOBER 2000 MEETING, YOU MUST COMPLETE A NEW PROXY CARD
WITH W-9 INFORMATION TO RECEIVE YOUR CASH CONSIDERATION.
By Order of the Board of Directors
/s/ RICHARD D. SHIRK
Richard D. Shirk
President and Chief Executive Officer
Atlanta, Georgia
December , 2000
<PAGE> 4
PROXY STATEMENT
OF
CERULEAN COMPANIES, INC.
---------------------
The boards of directors of Cerulean Companies, Inc. and WellPoint Health
Networks Inc. have approved a merger agreement among Cerulean, WellPoint and
Water Polo Acquisition Corp., a subsidiary of WellPoint. The merger agreement
provides that Cerulean will merge with WellPoint's subsidiary, and that Cerulean
will be the surviving corporation. At the completion of the merger, each
Cerulean Class A shareholder who does not perfect his or her dissenters' rights
pursuant to Georgia law will have the right to receive, in exchange for each
share of Class A convertible common stock and each share of Cerulean Series A
preferred stock, approximately $1,195 in cash.
At the completion of the merger, each Cerulean Class B shareholder who does
not perfect his or her dissenters' rights pursuant to Georgia law will have the
right to receive approximately $3,100 in cash in exchange for each share of
Cerulean Class B convertible preferred stock. Cerulean is also providing a copy
of this proxy statement to the holders of Class B stock in connection with a
meeting of the Class B stockholders to approve the merger.
We have scheduled a special meeting of shareholders for the holders of
shares of Cerulean Class A stock at the Swissotel, 3391 Peachtree Road, N.E.,
Atlanta, Georgia, at 9:00 a.m., local time, on Tuesday, January 30, 2001. The
Cerulean board of directors recommends that you vote by proxy or in person at
the meeting in favor of the merger.
Cerulean cannot complete the merger without the approval of its
shareholders. Cerulean has scheduled the special meeting to vote on the merger.
This proxy statement provides detailed information about the special meeting and
the merger. In addition, you may obtain information about Cerulean from
documents it has filed with the Securities and Exchange Commission.
This proxy statement is dated December , 2000 and we are mailing it to
shareholders of Cerulean on or about December , 2000.
<PAGE> 5
TABLE OF CONTENTS
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SUMMARY..................................................... 1
Questions and Answers About the Merger.................... 1
The Companies............................................. 5
The Merger................................................ 5
Opinion of Cerulean's Financial Advisor................ 6
Approvals of Regulatory Authorities and the Blue Cross
and Blue Shield Association........................... 6
Conditions to the Merger............................... 6
Termination of the Merger Agreement.................... 7
Termination Fees....................................... 7
Interests of Certain Persons in the Merger............. 7
Federal Income Tax Consequences of the Merger.......... 8
FORWARD-LOOKING STATEMENTS.................................. 9
INFORMATION REGARDING THE CERULEAN MEETING.................. 10
Date, Time and Place of the Cerulean Meeting........... 10
Purpose of the Meeting................................. 10
Record Date............................................ 10
Quorum................................................. 10
Recommendations of the Board of Directors.............. 10
Vote Required.......................................... 11
Solicitation and Revocability of Proxies............... 11
Regulatory and Other Approvals......................... 11
Receipt of Cash Consideration.......................... 12
PROPOSAL 1 -- APPROVAL OF THE MERGER........................ 14
Business of Cerulean................................... 14
Business of Wellpoint.................................. 15
Background of the Merger............................... 16
Recommendation of the Cerulean Board of Directors...... 21
Reasons for the Merger................................. 21
Opinion of Cerulean's Financial Advisor Regarding the
Merger................................................ 23
Completion of the Merger............................... 27
Consideration to be Received in the Merger............. 27
Procedures for Receipt of Merger Consideration......... 27
Lost, Stolen or Destroyed Certificates................. 28
Regulatory Approvals; Approval of Blue Cross and Blue
Shield Association.................................... 28
Interests of Certain Persons in the Merger............. 30
Settlement of Cerulean Conversion Litigation and
Creation of the Foundation............................ 37
Material Federal Income Tax Consequences of the
Merger................................................ 38
THE MERGER AGREEMENT........................................ 40
Structure of the Merger................................ 40
Closing of the Merger.................................. 40
Surviving Corporation.................................. 40
Representations and Warranties......................... 40
Covenants of the Parties............................... 41
Conditions to the Completion of the Merger............. 44
Termination and Termination Fees....................... 46
Costs and Expenses..................................... 47
Amendment and Waiver................................... 47
Dissenters' Rights..................................... 47
SECURITY OWNERSHIP OF CERULEAN MANAGEMENT AND PRINCIPAL
SHAREHOLDERS.............................................. 49
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING............... 49
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OTHER MATTERS............................................... 49
WHERE YOU CAN FIND MORE INFORMATION......................... 50
APPENDICES:
Appendix A -- Amended and Restated Agreement and Plan of
Merger dated as of November 29, 2000, by and
among Cerulean, WellPoint and Water Polo
Acquisition Corp.
Appendix B -- Opinion of Morgan Stanley & Co. Incorporated
as to the fairness of the merger to the
Cerulean shareholders
Appendix C -- Article 13 of the Georgia Business Corporation
Code Relating to Rights of Dissenting
Shareholders
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ii
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SUMMARY
This summary highlights selected information from this document. To
understand the proposed merger fully and for a more complete description of the
terms of the merger, you should carefully read the entire proxy statement,
including the appendices.
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHY SHOULD CERULEAN MERGE WITH WELLPOINT?
Cerulean believes the merger gives it the opportunity to continue the
execution of its strategic plan:
- to expand its services in Georgia through the greater resources of the
combined entity that will result from the merger; and
- to deliver value to its shareholders in the form of cash in the amount of
$700 million.
WHAT DOES CERULEAN'S BOARD OF DIRECTORS RECOMMEND?
Cerulean's board of directors has approved and adopted the merger agreement
and approved the completion of the transactions contemplated by the merger
agreement, and recommends that the Cerulean shareholders vote "for" the proposal
to approve the merger agreement and the merger.
WHY IS CERULEAN HOLDING ANOTHER SHAREHOLDERS' MEETING TO APPROVE THE MERGER?
On October 10, 2000, Class A shareholders holding 89% of the outstanding
Class A shares voted to approve the merger of Cerulean with WellPoint for a
consideration of $500 million, which was to be paid in cash and WellPoint common
stock. On November 29, 2000, however, Cerulean and WellPoint entered into a
revised merger agreement that provides for consideration of $700 million, all of
which is to be paid in cash. Therefore, the revised merger agreement must be
approved by holders of at least a majority of the outstanding Class A shares.
WOULD CERULEAN BE ABLE TO EXECUTE ITS BUSINESS PLAN AS AN INDEPENDENT COMPANY?
In considering the various strategic alternatives available to Cerulean,
including remaining an independent company and pursuing its existing business
plan or entering into a strategic transaction with a potential partner, the
board of directors of Cerulean sought to realize Cerulean's goals as a
corporation. Cerulean wanted access to a broader capital base to meet
competitive pressures, and to develop and deliver new products to residents of
Georgia. Cerulean's board, after consultation with its financial advisor,
determined that Cerulean could not obtain the capital required to support
continuing growth of Cerulean's managed care products and otherwise execute its
strategic plan from operational results alone. The board also determined that
the capital available through the private or the public financial markets would
be more expensive and available in smaller amounts than the capital that could
be acquired by entering into a strategic transaction such as the merger. The
board of directors further determined that a strategic transaction could give
Cerulean significantly greater competitive advantage and deliver greater value
to shareholders within a three- to five-year period than maintaining Cerulean's
position as a stand-alone entity. Though the viability of Cerulean as an
independent company was not in question, the board determined that the merger
was a better alternative to enable Cerulean to achieve its objectives.
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HOW WAS THE ALLOCATION OF THE MERGER CONSIDERATION DETERMINED?
The allocation of the merger consideration was based upon the provision
contained in the Cerulean articles of incorporation that specifies the relative
participation of Class A stock and Class B stock in any conversion of both
classes to common stock. WellPoint will allocate the total merger consideration
among two groups:
- the holders of Cerulean Class B stock, and
- the holders of Cerulean Class A stock, Cerulean Series A stock and any
Cerulean Class A common stock participation rights into which shares of
Series A stock are converted.
The Series A stock and any Cerulean participation rights are securities
held by a Georgia charitable foundation and the foundation's lawyers. The
foundation was formed in connection with the settlement of litigation relating
to the conversion of Blue Cross and Blue Shield of Georgia from a not-for-profit
business to a for-profit business. In the settlement, Cerulean issued shares of
Class A stock and warrants to purchase shares of Series A stock to the
foundation and its lawyers. We refer to the foundation and its lawyers
throughout this document as the foundation shareholders. Whenever there is a
statutory voting right for any class or series of stock, each share of Series A
stock automatically converts into one Cerulean participation right. Please read
the description of the conversion litigation settlement on page .
The amount of the merger consideration received by the holders of the Class
B stock will be approximately 22.1876% of the total merger consideration. Class
B stock is held by investors who invested a total of $49.9 million, or $1,000
per share, in Cerulean at the time of the conversion.
The terms of the settlement agreement relating to the settlement of the
conversion litigation provided that the foundation shareholders were to receive
20% of the total equity of Cerulean. However, because the exercise price of $21
million on the warrants is to be paid by the surrender of shares of Series A
stock underlying a portion of the warrants and not by cash, the total percentage
of equity of Cerulean that the foundation shareholders will receive in the
merger is reduced to approximately 17.7%. We will distribute the remaining
approximately 60.1124% of the merger consideration to the other holders of Class
A stock.
WHAT WILL I RECEIVE FOR MY CLASS A STOCK?
The total amount of merger consideration is cash in the amount of $700
million. For each share of Class A stock, you are entitled to approximately
$1,195, or approximately $5,975 for each five shares of Class A stock.
IF I PREVIOUSLY RETURNED A PROXY CARD FOR THE JUNE 1999 MEETING OR OCTOBER 2000
MEETING WITH THE CASH ELECTION BOX CHECKED, DO I NEED TO SEND IN A NEW PROXY
CARD TO RECEIVE CASH IN THE MERGER?
Yes. In order to receive cash in the merger, you must return the enclosed
proxy card with the W-9 information completed, even if you made a cash election
at the time of the earlier meetings. You will not receive any merger
consideration until the exchange agent appointed by WellPoint has received your
new proxy card, with the W-9 information properly completed, or you have
otherwise provided a signed Form W-9 to the exchange agent.
WHEN WILL WE COMPLETE THE MERGER?
We will complete the merger as soon as possible after we receive the
shareholder approvals and obtain all other regulatory approvals and all other
conditions to completion have been satisfied or waived by Cerulean or WellPoint.
As a result of these regulatory approval requirements, WellPoint and Cerulean
anticipate that the completion of the merger will occur within approximately 90
days after the date of the meeting.
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WHAT SHOULD I DO NOW?
Holders of Class A Stock
Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the meeting. You must mark
the proxy card appropriately, complete the W-9 information and return it so
Cerulean receives it before or at the meeting, even if you did so for the
October 2000 meeting. It is important that Cerulean receive the proxy card as
soon as possible, and Cerulean must receive it before the meeting for your
shares to be represented at the meeting. Additionally, you must provide your W-9
information before you can receive your merger consideration.
Holders of Class B Stock
Holders of Class B stock should sign and mail the attached proxy card in
the enclosed return envelope as soon as possible in order to have their shares
of Class B stock represented at the meeting of holders of Class B stock.
CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
Yes. You can change your vote at any time before your proxy is voted at the
meeting. You can do this in one of three ways:
- send a written notice stating that you would like to revoke your proxy;
- complete and submit a new proxy card; or
- attend the meeting and vote in person. Simply attending the meeting,
however, will not revoke your proxy. To revoke a prior proxy, you must
sign a new proxy at the meeting.
If you choose either of the first or second methods, you must submit your
notice of revocation or your new proxy card to Cerulean before the meeting.
DO CERULEAN'S OFFICERS OR DIRECTORS HAVE ANY OTHER INTERESTS IN THE MERGER?
Some members of Cerulean management will receive payments under a long-term
incentive plan, because the merger is a triggering event which results in a
right to payment under that plan. Richard D. Shirk, the Chief Executive Officer
and a director of Cerulean, is the only director who has this agreement. Messrs.
Joe M. Young and Frank J. Hanna, III are directors of Cerulean and affiliates of
holders of Class B stock. Mr. Hanna is an affiliate of Georgia Strategic
Healthcare, LLC, which is a substantial holder of Class B stock. Mr. John W.
Robinson, Jr., a Class A designated director, is also a Class A shareholder,
holding five shares of Class A stock. In addition, one Cerulean director, who
has not yet been identified, will become a director of WellPoint at the time of
the merger.
WILL CERULEAN SHAREHOLDERS HAVE DISSENTERS' RIGHTS OF APPRAISAL?
Holders of Class A stock and Class B stock who do not vote in favor of the
merger and who follow the procedures set forth under Georgia law will be
entitled to dissenters' rights under Georgia law. We describe these rights in
more detail on page 47.
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HOW WILL I RECEIVE CASH?
Holders of Class A Stock
To receive your cash in exchange for your shares of Class A stock, you must
fill in your social security number in the space marked "W-9" on the proxy card,
sign the proxy card and return it to Cerulean.
No holder of Class A stock will receive any merger consideration until the
exchange agent appointed by WellPoint has received the holder's proxy card, with
the W-9 information properly completed, or the shareholder has otherwise
provided a signed Form W-9 to the exchange agent.
Holders of Class B Stock
Holders of Class B stock should sign and mail the attached proxy card in
the enclosed return envelope as soon as possible to have their shares of Class B
stock represented at the meeting of holders of Class B stock. As soon as
practicable following the completion of the merger, we will mail to each holder
of Class B stock a letter of transmittal to accompany certificates for shares of
Class B stock. The transmittal letter will set forth instructions for delivering
Class B stock certificates to the exchange agent appointed by WellPoint. No
holder of Class B stock will receive any merger consideration until the exchange
agent has received that holder's properly completed transmittal letter.
WILL THE SETTLEMENT OF THE RICHMOND COUNTY LITIGATION HAVE AN EFFECT ON THE
COMPLETION OF THE MERGER?
On September 18, 1998, various plaintiffs filed a lawsuit in the Superior
Court of Richmond County, Georgia against Cerulean and others. In this class
action lawsuit, the plaintiffs alleged, among other things, that Cerulean should
have distributed shares of Class A stock to eligible policyholders of Blue Cross
and Blue Shield of Georgia, rather than requiring policyholders to affirmatively
elect to receive the shares. On October 2, 2000, the parties entered into a
settlement agreement, which provides generally that WellPoint will make a
payment of $5 million to the members of the plaintiffs' class by no later than
two business days following the later of the closing of the merger or the date
that the order approving the settlement becomes final. On November 2, 2000, the
Superior Court of Richmond County approved the settlement after a fairness
hearing.
The revised merger agreement with WellPoint provides that as a condition to
WellPoint's obligation to complete the merger, the judgment of the Richmond
County Superior Court entered on November 2, 2000 must have become final and no
more than 1,000 members of the settlement class must have opted out of the
settlement. No appeals were filed within the 30-day appeal period from the
November 2, 2000 order which approved the settlement. Two hundred thirty-five
(235) members of the plaintiffs' class opted out of the settlement and therefore
are not bound by the settlement.
WHO SHOULD SHAREHOLDERS CALL WITH QUESTIONS?
If you have more questions about the merger, you should contact:
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Shareholder Communications Investor Relations
Cerulean Companies, Inc WellPoint Health Networks Inc.
P.O. Box 4445 1 WellPoint Way
Atlanta, Georgia 30302 Thousand Oaks, California 91362
Telephone: (800) 314-2580 Telephone: (805) 557-6789
</TABLE>
4
<PAGE> 11
THE COMPANIES
WellPoint Health Networks
Inc
1 WellPoint Way
Thousand Oaks,
California,
91362
(818) 703-4000 WellPoint is one of the nation's largest publicly
traded managed health care companies. As of
September 30, 2000, WellPoint had approximately
7.7 million medical members and approximately
38.0 million specialty members. WellPoint offers
a broad spectrum of quality network-based managed
care plans. WellPoint provides these plans to the
large and small employer, individual and senior
markets. WellPoint's managed care plans include
preferred provider organizations, health
maintenance organizations and point-of-service
and other hybrid plans and traditional indemnity
plans. In addition, WellPoint offers managed care
services, including underwriting, actuarial
services, network access, medical cost management
and claims processing. WellPoint also provides a
broad array of specialty and other products and
services, including pharmacy, dental, utilization
management, life, preventive care, disability,
behavioral health, health care coverage pursuant
to the Consolidated Omnibus Budget Reconciliation
Act of 1985 and flexible benefits account
administration. WellPoint conducts business in
California under the trademark "Blue Cross of
California" and in other states under the
trademark "UNICARE."
Cerulean Companies, Inc
3350 Peachtree Road, N.E.
Atlanta,
Georgia 30326 (800)
314-2580 Cerulean, through its subsidiaries, has the largest
health insurance company market share in Georgia
with 971,000 insurance and administrative service
contracts covering or administering benefits for
approximately 1.8 million members as of September
30, 2000. This represents over 22% of the total
Georgia population. It is a full service provider
of health benefit programs in the Georgia
marketplace. Cerulean markets life, health and
disability insurance products to employer groups
and individuals. Cerulean's overall product
portfolio includes standard indemnity insurance,
preferred provider organizations, health
maintenance organizations and point-of-service
health benefits plans, life insurance products
and ancillary products including dental
insurance, a vision affinity product, vision
insurance and specialty products for mental
health and pharmacy benefits. Cerulean conducts
business in Georgia under the trademark "Blue
Cross and Blue Shield of Georgia."
THE MERGER
In the merger, a subsidiary of WellPoint will merge into Cerulean. Cerulean
and WellPoint entered into the original merger agreement on July 9, 1998. On
July 9, 1999, Cerulean and WellPoint agreed to extend the merger agreement until
October 15, 1999 and, under certain circumstances, until December 31, 1999.
Effective December 31, 1999, Cerulean and WellPoint agreed to further extend the
merger agreement through December 31, 2000. Effective November 29, 2000,
Cerulean and WellPoint entered into an amended and restated merger agreement.
You can find a more detailed description of the terms of the amended and
restated merger agreement on page 40 of this proxy statement.
Cerulean believes the merger will provide several potential benefits,
including:
- allowing Cerulean to expand its services in Georgia; and
- providing Cerulean shareholders with cash in the amount of $700 million.
5
<PAGE> 12
There are risks to the merger, including:
- the potential for incurring a $18.5 million termination fee under the
merger agreement; and
- the potential for a change in the product mix offered to subscribers.
OPINION OF CERULEAN'S FINANCIAL ADVISOR (SEE PAGE 23)
Morgan Stanley & Co. Incorporated has given the Cerulean board of directors
its written opinion, as of November 29, 2000, which states that, as of the date
of the opinion, subject to the limitations and qualifications in its opinion,
the merger consideration that the holders of Class A stock, Series A stock and
Class B stock will receive in the merger agreement is fair to those holders from
a financial point of view. The opinion, which is attached to this proxy
statement as Appendix B and is described in more detail on page of this
proxy statement, is only applicable as of the date of the opinion and is subject
to the limits and qualifications in the text of the opinion. We urge you to read
the opinion carefully and in its entirety.
APPROVALS OF REGULATORY AUTHORITIES AND THE BLUE CROSS AND BLUE SHIELD
ASSOCIATION (SEE PAGE 28)
The Georgia Insurance Commissioner must approve the merger. The Blue Cross
and Blue Shield Association also must approve the merger as required under the
license agreement of Blue Cross and Blue Shield of Georgia. The Blue Cross and
Blue Shield Association has already approved the merger.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits
WellPoint and Cerulean from completing the merger until:
- each of WellPoint and Cerulean has furnished certain information and
materials to the United States Department of Justice and the Federal
Trade Commission; and
- the required waiting period under the Hart-Scott-Rodino Act has expired
or been terminated.
WellPoint and Cerulean furnished required information and materials to the
Justice Department and the Federal Trade Commission on July 24, 2000. The
Justice Department granted early termination of the waiting period on August 4,
2000. Entering into the revised merger agreement will not start a new waiting
period.
CONDITIONS TO THE MERGER (SEE PAGE 44)
Before we can complete the merger, a number of conditions must be met,
including the following:
- the holders of a majority of the outstanding shares of Class A stock
entitled to vote at the special meeting and the holders of a majority of
the outstanding shares of Class B stock must approve the merger;
- we must obtain the consent of the Georgia Insurance Commissioner and
other state regulatory consents; and
- no court or governmental authority can have passed a law or entered an
injunction that prohibits the merger.
Additional conditions must be met for Cerulean to complete the merger,
including the following:
- Morgan Stanley must not have withdrawn or amended its opinion that the
value of the consideration to be paid to the shareholders of Cerulean in
the merger is fair;
- WellPoint must nominate one Cerulean director for the election to the
board of directors of WellPoint; and
- WellPoint must not have a material adverse change in its business since
the date of the merger agreement which was caused by the action or
inaction of WellPoint.
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Additional conditions must be met for WellPoint to complete the merger,
including the following:
- there must not be any litigation or similar proceeding that has a
significant likelihood of material liability to either WellPoint or
Cerulean relating to the conversion of Blue Cross and Blue Shield of
Georgia from a not-for-profit business to a for-profit business, or
relating to the distribution of consideration to be paid in connection
with the merger;
- Cerulean must not have a material adverse change in its business since
the date of the merger agreement which was caused by the action or
inaction of Cerulean; and
- all holders of existing warrants to purchase Cerulean Series A stock must
have exercised those warrants.
Any of the closing conditions can be waived by the party that is not
obligated to complete the merger if the condition is not satisfied. If either
WellPoint or Cerulean waives any conditions, Cerulean will consider the facts
and circumstances at that time and determine whether a resolicitation of proxies
from shareholders is appropriate. The Cerulean board of directors will resolicit
shareholder approval of the merger if either company waives a closing condition
that the board believes a reasonable investor would consider important in a
decision on whether to approve the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 46)
WellPoint and Cerulean can terminate the merger agreement in the following
ways:
- by the written agreement of Cerulean and WellPoint;
- by either of Cerulean or WellPoint if the merger is not completed on or
before November 29, 2001, unless the party seeking to terminate caused
the delay;
- by Cerulean if WellPoint materially breaches any of its covenants or
breaches any of its representations or warranties, and this breach
results in a material adverse effect to WellPoint;
- by WellPoint if Cerulean materially breaches any of its covenants or
breaches any of its representations or warranties, and this breach
results in a material adverse effect to Cerulean;
- by Cerulean or WellPoint if any court or governmental authority prohibits
the merger;
- by Cerulean if Cerulean decides to enter into a written agreement with a
third party that is a superior proposal to that offered by WellPoint; or
- by Cerulean or WellPoint if any of the following do not approve the
merger: Cerulean's shareholders, the Georgia Insurance Commissioner, or
the Blue Cross and Blue Shield Association.
TERMINATION FEES (SEE PAGE 46)
The merger agreement requires Cerulean to pay a termination fee of $18.5
million to WellPoint if Cerulean chooses to terminate the merger agreement to
accept a superior transaction proposal from a third party or if the holders of
Class B stock do not approve the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 30)
As a consequence of the merger, approximately 247 key employees will become
entitled under Cerulean plans and arrangements to receive payments and/or have
obligations funded under these plans. The costs of these obligations may total
approximately $62.4 million, prior to payments by Cerulean of certain applicable
taxes and related gross-up obligations relating to those payments. The total
amount of taxes and related gross-up obligations which may be payable with
respect to some of these amounts may range from zero to as much as $18.3
million.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 30)
The receipt of cash in exchange for shares of Class A stock or Class B
stock will generally be a taxable transaction for federal income tax purposes.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO EACH
CERULEAN SHAREHOLDER WILL DEPEND ON THE SHAREHOLDER'S PARTICULAR FACTS AND
CIRCUMSTANCES. WE URGE YOU TO CONSULT YOUR TAX ADVISOR TO FULLY UNDERSTAND THE
TAX CONSEQUENCES OF THE MERGER TO YOU.
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FORWARD-LOOKING STATEMENTS
Cerulean has made "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 in this proxy statement.
These statements are subject to risks and uncertainties. Cerulean has based
these statements on the current beliefs and assumptions of its management and on
information currently available to management. Forward-looking statements
include the information in this proxy statement concerning possible or assumed
future results of operations of Cerulean, including information regarding cost
savings and operational efficiencies expected to be realized from the merger.
You can identify these statements by our use of the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. By their
nature, they involve risks, uncertainties and assumptions. The future results
and shareholder values of Cerulean may differ materially from those expressed in
these forward-looking statements. Many of the factors that will determine these
results and values are beyond Cerulean's ability to control or predict. Cerulean
cautions shareholders not to put undue reliance on any forward-looking
statements, which speak only as of the date they were made. For those
statements, Cerulean claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
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<PAGE> 16
INFORMATION REGARDING THE CERULEAN MEETING
DATE, TIME AND PLACE OF THE CERULEAN MEETING
JANUARY 30, 2001
9:00 A.M., LOCAL TIME
SWISSOTEL
3391 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA
PURPOSE OF THE MEETING
The purpose of the meeting is:
- to consider and vote upon a proposal to approve and authorize the merger
agreement and completion of the transactions contemplated by the merger
agreement; and
- to transact any other business that may properly come before the meeting
or any adjournments or postponements of the meeting.
The board of directors of Cerulean knows of no business that will be
presented for consideration at the meeting other than the proposals described in
this proxy statement.
RECORD DATE
Pursuant to its bylaws, Cerulean has fixed the close of business on
December 15, 2000, as the record date for determining the holders of Class A
stock entitled to receive notice of and to vote at the meeting. Only holders of
record of Class A stock as of the record date are entitled to notice of and to
vote at the meeting. As of the record date, there were 409,602 shares of Class A
stock issued and outstanding and held by 70,230 record holders. Holders of Class
A stock are entitled to one vote on each matter voted on at the meeting for each
share of Class A stock held of record at the close of business on the record
date.
QUORUM
In order to have a quorum, the holders of record of a majority of the
outstanding shares of the Class A stock entitled to vote at the meeting must be
represented in person or by proxy at the special meeting. Cerulean will count
abstentions as shares present for purposes of determining the presence of a
quorum. Pursuant to the Cerulean bylaws, if there is no quorum at the meeting,
the Chairman of the board of directors of Cerulean or the President of Cerulean
may adjourn the meeting to solicit additional votes. Once a share of Class A
stock or Class B stock is represented at the special meeting or the meeting of
the holders of Class B stock, either in person or by proxy, other than solely to
object to holding the respective meeting or transacting business at the meeting,
it is deemed present for the purpose of constituting a quorum for any
adjournment of the meeting unless a new record date is set for the adjourned
meeting. Consequently, shares of Class A stock or Class B stock that are voted
against the merger agreement and completion of the transactions contemplated in
the agreement will be counted for the purpose of constituting a quorum at an
adjournment of the special meeting or of the meeting of holders of Class B
stock.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The board of directors of Cerulean has approved the merger and believes the
merger is fair to and in the best interests of Cerulean and its shareholders.
Accordingly, the board of directors of Cerulean recommends that shareholders of
Cerulean vote "for" approval of the merger proposal.
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VOTE REQUIRED
Approval of the merger requires the affirmative vote of a majority of the
outstanding shares of Class A stock entitled to vote at the meeting. The merger
proposal does not require the approval of the shareholders of WellPoint.
In addition to the approval of the holders of the Class A stock, approval
of the merger proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of Class B stock. Georgia Strategic
Healthcare owns 80.16% of the outstanding Class B stock and has indicated its
intention to vote all shares of Class B stock owned by it in favor of the
merger. Accordingly, approval by the holders of Class B stock of the merger is
reasonably assured.
SOLICITATION AND REVOCABILITY OF PROXIES
Shares of Class A stock and Class B stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
at the appropriate meeting, in accordance with the instructions indicated on the
proxies. ANY HOLDER OF CLASS A STOCK OR CLASS B STOCK WHO RETURNS A SIGNED PROXY
BUT FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH THE HOLDER'S SHARES
ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL OF THE PROPOSALS
LISTED ON THE PROXY CARD. If any other matters properly come before the Class A
meeting or Class B meeting, the persons named as proxies will vote upon such
matters according to their judgment.
Shareholders may revoke their proxies at any time before the vote at the
meeting by:
- giving written notice to the secretary of Cerulean;
- delivering a later dated proxy card; or
- voting in person at the meeting.
Shareholders should address all written notices of revocation and other
communications with respect to revocations of proxies to: Cerulean Companies,
Inc., 3350 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Hugh J.
Stedman, Corporate Secretary. If you attend the meeting, your proxy will not
automatically be revoked.
HOLDERS OF CLASS A STOCK AND CLASS B STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CERULEAN IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE.
Cerulean will bear the cost of soliciting proxies for the meeting, although
WellPoint and Cerulean have agreed to share the cost of preparing and mailing
this proxy statement. Cerulean will initially solicit proxies by mail, but
directors, officers and selected employees or agents of Cerulean may solicit
proxies from shareholders personally or by telephone, telecopy or other forms of
communication. Such directors, officers and employees will not receive any
additional compensation for such solicitation. Cerulean also will request
nominees, fiduciaries and other custodians to forward soliciting materials to
beneficial owners, and Cerulean will reimburse such persons for their reasonable
expenses incurred in doing so. In addition, Cerulean may use the services of
Georgeson & Company Inc. to solicit proxies from Cerulean shareholders
personally or by telephone, telecopy or other forms of communication at a cost
of approximately $350,000, plus the reimbursement of reasonable out-of-pocket
costs and expenses.
REGULATORY AND OTHER APPROVALS
Cerulean and WellPoint may not complete the merger until the Georgia
Insurance Commissioner approves it. The approval procedure requires WellPoint to
file a statement regarding change of control with respect to Blue Cross and Blue
Shield of Georgia, Blue Cross Blue Shield Healthcare Plan of Georgia and Greater
Georgia Life Insurance Company, Inc., called a "Form A." The Georgia Insurance
Commissioner must hold a hearing on the Form A and issue an order permitting the
merger. WellPoint originally filed the Form A with the Georgia Insurance
Commissioner on November 4, 1998 and filed amendments to the Form A on July 28,
2000 and on December 8, 2000. The review of the Form A by the Georgia Insurance
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Commissioner's staff has been delayed because of the Richmond County litigation
and other private litigation and by the recent negotiations with WellPoint that
resulted in the November 29, 2000 amendments to the merger agreement. WellPoint
and Cerulean expect that the Georgia Insurance Commissioner will hold a public
hearing as soon after the shareholders' meeting as possible. Ultimately, the
conduct of the public hearing is contingent upon the completion of several other
matters, most notably an affirmative vote of the Cerulean shareholders at the
meeting and the receipt by the Georgia Insurance Commissioner of an opinion from
an independent financial advisor that the merger is fair and reasonable to
Cerulean's shareholders. The hearing could also be delayed by other unexpected
circumstances.
Additionally, Cerulean must make several state regulatory filings due to
the change in control of Blue Cross and Blue Shield of Georgia's subsidiary,
Greater Georgia Life Insurance Company, that will occur upon completion of the
merger. In addition, the Health Care Financing Administration must approve the
transfer of control of the Blue Cross and Blue Shield of Georgia programs that
will occur because of the merger. Neither WellPoint nor Cerulean is aware of any
approval of any other state or federal regulatory body, other than the SEC,
necessary for the merger to be consummated and the merger consideration to be
delivered.
In addition, the Blue Cross and Blue Shield Association must approve the
change in control of Cerulean prior to completion of the merger. Cerulean has
obtained this approval.
On July 24, 2000, Cerulean and WellPoint each filed a Pre-Merger
Notification and Report Form pursuant to the Hart-Scott-Rodino Act, with the
Justice Department and the Federal Trade Commission. Under the Hart-Scott-Rodino
Act, WellPoint and Cerulean cannot complete the merger until at least 30 days
after such filing unless either the Justice Department or the Federal Trade
Commission grant earlier termination of that waiting period. The Federal Trade
Commission granted an early termination of the waiting period, effective August
4, 2000. Cerulean and WellPoint do not have to take any further action under the
Hart-Scott-Rodino Act as long as we complete the merger before August 4, 2001.
The early termination of the Hart-Scott-Rodino Act waiting period does not
prevent the Justice Department, the Federal Trade Commission or other parties
from seeking actions challenging the merger based on federal antitrust statutes.
WellPoint and Cerulean do not anticipate any such challenge.
RECEIPT OF CASH CONSIDERATION
Holders of Class A stock
On the proxy card included with this proxy statement, we are asking each
holder of Class A stock to provide certain information and to return the proxy
card in its return envelope so that it is received before or at the meeting. To
receive cash consideration, a holder of Class A stock should:
- fill in his or her social security number in the space marked "W-9";
- sign the proxy card; and
- return it to Cerulean.
Because shares of Class A stock are not represented by a physical stock
certificate (other than shares held by the foundation shareholders), holders of
Class A stock do not need to furnish a physical stock certificate in exchange
for the consideration to be received in the merger. If you no longer have the
registration notification you received upon receipt of your Class A stock, this
will not impede your ability to receive your cash in the merger.
You must complete the W-9 information on the proxy card, or otherwise
provide a signed Form W-9 to the exchange agent appointed by WellPoint, before
you can receive your merger consideration. You do not need to vote "for" the
merger in order to receive merger consideration, although if you wish to vote
"against" the merger, you must mark your proxy card accordingly. Signed proxy
cards without a choice indicated will be voted "for" the merger.
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Holders of Class B Stock
Holders of Class B stock should sign and mail the attached proxy card in
the enclosed return envelope as soon as possible in order to have their shares
of Class B stock represented at the meeting of holders of Class B stock. As soon
as practicable following the effective time of the merger, Mellon Investor
Services, which is serving as exchange agent, will mail a letter of transmittal
to each holder of Class B stock to accompany certificates for shares of Class B
stock. The letter of transmittal will set forth instructions for delivering
Class B stock certificates to the exchange agent and require the submission of a
Form W-9. No holder of Class B stock will receive any merger consideration until
the exchange agent has received a properly completed letter of transmittal and
Form W-9.
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PROPOSAL 1
APPROVAL OF THE MERGER
BUSINESS OF CERULEAN
Cerulean was incorporated under the laws of the State of Georgia on
February 2, 1996 to act as the holding company for Blue Cross and Blue Shield of
Georgia, Inc. and its subsidiaries. Blue Cross and Blue Shield of Georgia was
established in 1937 and through a series of business combinations and subsidiary
operations had, by 1985, and has currently, the largest health insurance company
market share in Georgia. Cerulean, through its subsidiaries, has 971,000
insurance and administrative service contracts covering or administering
benefits for approximately 1.8 million members as of September 30, 2000,
including health maintenance organization, preferred provider organization and
point-of-service members. This represents over 22% of the total Georgia
population. Blue Cross and Blue Shield of Georgia has one of Georgia's largest
preferred provider organization memberships, serving approximately 536,000
members as of September 30, 2000. Blue Cross Blue Shield Healthcare Plan of
Georgia, Inc., formerly named HMO Georgia, Inc., a health maintenance
organization which also offers point-of-service products, serves an additional
589,000 members. Greater Georgia Life Insurance Company, Inc., a subsidiary of
Blue Cross and Blue Shield of Georgia, and Group Benefits of Georgia, Inc., an
inactive subsidiary of Cerulean, are also part of the consolidated group.
Greater Georgia Life Insurance Company offers group life, accident and
disability insurance products that are sold in conjunction with Cerulean's
health products. Greater Georgia Life Insurance Company has an "A" rating from
A. M. Best and is licensed to offer its products in Alabama, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
Cerulean's core business products are its traditional indemnity products
and its health maintenance organization, point-of-service and preferred provider
organization products. Cerulean's current business strategy centers around the
belief that development of managed care products, with a strong health
maintenance organization at the core, represents the most prudent response to
current marketplace demands. In areas where there is no managed care, Cerulean's
strategy is to solidify market presence through preferred provider organization
network expansion, favorable changes in provider reimbursement and benefit
design alterations that meet employers' needs.
Cerulean offers its traditional indemnity products and its health
maintenance organization, point-of-service and preferred provider organization
products exclusively within the boundaries of the State of Georgia. Cerulean and
certain of its subsidiaries are licensed by the Blue Cross and Blue Shield
Association to use the Blue Cross and Blue Shield names and logos only in
Georgia. While there are only limited Blue Cross and Blue Shield Association
restrictions on the conduct of business by Cerulean or its subsidiaries outside
Georgia under a different name, substantially all of Cerulean's revenue is
currently associated with Georgia business.
Blue Cross and Blue Shield of Georgia and Blue Cross Blue Shield Healthcare
Plan of Georgia have a comprehensive quality management program which focuses on
assessment, management and monitoring of inpatient and ancillary service costs.
The quality management program monitors, collects data on and evaluates
inpatient and outpatient medical care, inclusive of preventive and mental health
services, as well as the level of customer service provided to members by
physicians and other medical providers. Cerulean has a disciplined credentialing
function which monitors the recruitment and retention of its provider panels
throughout the state. Blue Cross and Blue Shield of Georgia's preferred provider
organization was the first preferred provider organization in Georgia to receive
full accreditation from the Utilization Review Accreditation Commission.
Additionally, in 2000, the National Committee for Quality Assurance awarded Blue
Cross Blue Shield Healthcare Plan of Georgia its second full, three year
accreditation. The National Committee for Quality Insurance is a nationwide
organization which evaluates quality assurance programs for health maintenance
organizations.
At present, Blue Cross Blue Shield Healthcare Plan of Georgia is licensed
and operational as a health maintenance organization in eight markets in Georgia
representing more than 6.0 million residents, including Atlanta. Networks of
primary care physicians, specialist physicians and hospitals service Blue
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<PAGE> 21
Cross Blue Shield Healthcare Plan of Georgia's health maintenance organization
and point-of-service products. Beginning in January 1995, Blue Cross Blue Shield
Healthcare Plan of Georgia also began supporting its products through community
health partnership networks which are currently operational in two of the eight
health maintenance organization market areas of the state.
BUSINESS OF WELLPOINT
WellPoint is one of the nation's largest publicly traded managed health
care companies. As of September 30, 2000, WellPoint had approximately 7.7
million medical members and approximately 38.0 million specialty members.
WellPoint offers a broad spectrum of quality network-based managed care plans.
WellPoint provides these plans to the large and small employer, individual and
senior markets. WellPoint's managed care plans include preferred provider
organizations, health maintenance organizations and point-of-service and other
hybrid plans and traditional indemnity plans. In addition, WellPoint offers
managed care services, including underwriting, actuarial services, network
access, medical cost management and claims processing. WellPoint offers a
continuum of managed health care plans while providing incentives to members and
employers to select more intensively managed plans. WellPoint also provides a
broad array of specialty and other products, including pharmacy, dental,
utilization management, life insurance, preventive care, disability insurance,
behavioral health, COBRA and flexible benefits account administration.
WellPoint markets its products in California primarily under the name Blue
Cross of California and outside of California primarily under the name UNICARE.
Historically, WellPoint's primary market for its managed care products has been
California. WellPoint holds the exclusive right in California to market its
products under the Blue Cross name and mark. WellPoint's California customer
base is diversified, with extensive membership among large and small employer
groups and individuals and a growing presence in the Medicare and Medicaid
markets.
In 1996, WellPoint began pursuing a nationwide expansion strategy through
selective acquisitions and start-up activities in key geographic areas. With the
acquisitions in March 1996 of the Life & Health Benefits Management division
("MMHD") of Massachusetts Mutual Life Insurance Company and in March 1997 of
certain portions of the health and related life group benefit operations (the
"GBO") of John Hancock Mutual Life Insurance Company, WellPoint has
significantly expanded its operations outside of California. WellPoint's
acquisition strategy has focused in part on large employer group plans that
offer indemnity and other health insurance products that are less intensively
managed than WellPoint's products in California. Since 1987, WellPoint has
transitioned substantially all of its California indemnity insurance customers
to managed care products. An element of WellPoint's geographic expansion
strategy is to replicate its experience in California in motivating traditional
indemnity members to transition to WellPoint's broad range of managed care
products.
In addition, WellPoint focuses on acquiring businesses that provide
significant concentrations of members in strategic locations outside of
California. In connection with this strategy, in March 2000 WellPoint acquired
Rush Prudential Health Plans, which offers health maintenance organization and
other products primarily in the greater Chicago area. WellPoint believes that
its current UNICARE medical membership provides its UNICARE operations with
sufficient scale to begin development of proprietary provider network systems in
key geographic areas, which will enable WellPoint over time to begin offering a
broader range of managed care products. WellPoint has used and intends to
continue to use these new networks to introduce individual, small group and
senior products in these markets. WellPoint has developed or is actively
developing proprietary networks in Texas, Georgia, Illinois, Indiana, Maryland,
Ohio and Virginia and has introduced new managed care products in, among other
states, Texas, Georgia, Illinois, Indiana and Virginia.
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BACKGROUND OF THE MERGER
The July 9, 1998 Merger Agreement
Since the conversion of Blue Cross and Blue Shield of Georgia to a
for-profit corporation, several Blue Cross Blue Shield licensees have expressed
interest in considering strategic transactions with Cerulean. On or about
September 20, 1997, Cerulean received a letter of inquiry from one such Blue
Cross Blue Shield licensee regarding a possible combination or alliance of the
two companies. At a meeting held on October 1, 1997, the board of directors of
Cerulean discussed the continued interest expressed by other parties and
Cerulean's initiative to grow by select business combinations. The board of
directors considered the various strategic alternatives available to Cerulean to
realize its goals as a corporation most effectively. Cerulean's stated objective
was to be able to access a broader capital base in order to meet competitive
pressures and to develop and deliver new products to residents of Georgia. The
board of directors reaffirmed its belief that this remained a principal
corporate objective. In view of its duty to maximize shareholder value, the
board appointed a special committee to examine, on behalf of the full board of
directors, the strategic alternatives available to Cerulean to realize its
objectives. Among its alternatives, the board specifically identified:
- Cerulean remaining an independent company and pursuing its existing
business plan; or
- Cerulean entering into a joint venture, alliance or other strategic
transaction with a potential partner.
The special committee consisted of James L. LaBoon, Jr., Chairman,
Elizabeth W. Camp and Frank J. Hanna, III. The board of directors authorized the
special committee to retain a financial advisor and to work with legal counsel
in connection with fulfilling its charge. The organizational meeting of the
special committee was held on October 6, 1997, and the committee retained Morgan
Stanley as its financial advisor and Long Aldridge & Norman LLP as its legal
counsel. At this meeting, the special committee requested that Morgan Stanley
preliminarily:
- review the environment within the health care benefit and managed care
industry segment, including analyzing comparative profitability within
the industry;
- analyze the probable range of values of Cerulean;
- review the comparative managed care company values, including the current
and historical value ranges; and
- analyze the potential for increased value associated with:
- remaining an independent company and continued execution of Cerulean's
business plan; and
- entering into various strategic transactions with potential partners.
There is no market for the securities of Cerulean. Consequently, the
special committee was able to consider, with its advisors, all avenues of
advancing Cerulean's strategic plans without the constraints imposed by the need
to consider the short-term market impact of any strategy.
From its inception, the special committee regularly consulted with members
of Cerulean management, particularly Richard D. Shirk, Chief Executive Officer;
John A. Harris, Executive Vice President; Hugh J. Stedman, General Counsel; and
Joseph M. Feuer, Deputy General Counsel. From its appointment on October 1, 1997
until WellPoint and Cerulean signed the merger agreement on July 9, 1998, the
special committee met in person or by telephonic meeting on 29 occasions, and,
in addition, consulted informally on numerous other occasions.
At the October 11, 1997 meeting of the Cerulean board of directors, Morgan
Stanley reviewed several topics with the board, including:
- the strategic market environment;
- the Georgia managed care market;
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- then current and historical marketing and financial results of Blue Cross
and Blue Shield of Georgia;
- certain strategic alternatives; and
- potential valuation methodologies for Cerulean.
At its November 10, 1997 meeting, the special committee authorized Morgan
Stanley to contact a designated group of potential strategic partners to further
the special committee's effort to establish and explore all of the various
strategic alternatives available to Cerulean. After due consideration, the
special committee chose to include in the designated group only companies that,
like Cerulean, were licensees of the Blue Cross and Blue Shield Association. The
special committee based this decision on Cerulean's concern about providing
information to competitors in the negotiation process. Furthermore, after
discussions with Morgan Stanley, the special committee believed that a potential
transaction or alliance with another Blue Cross and Blue Shield Association
licensee would achieve greater value than a transaction with an entity that was
not a licensee. The special committee also identified a group of non-Blue Cross
Blue Shield entities whom it might consider for contact if other strategic
alternatives were not available. The special committee instructed Morgan Stanley
to obtain indications of interest from the designated group on or before
November 14, 1997 and to encourage the parties contacted to submit to Morgan
Stanley initial proposals by December 8, 1997. At its November 17, 1997 meeting,
Morgan Stanley reported to the special committee that six entities meeting its
criteria had expressed an interest in making a strategic proposal within the
time constraints the special committee had established.
By the special committee's December 9, 1997 meeting, four of the six Blue
Cross Blue Shield licensees expressing interest had submitted initial proposals
for consideration by the committee. The licensees based their proposals on
limited due diligence information contained in a confidential information
memorandum distributed to interested parties who entered into a confidentiality
agreement with Cerulean. Two of the submitted proposals proposed a joint
venture, through the creation of a new third entity, and two proposed a merger.
The proposals submitted placed a value on Cerulean ranging from $225 million to
$425 million. Each indicated an approximate value or range of values, contingent
on reviewing more information. The nature of the consideration for Cerulean
ranged from all cash to equity in a new third entity. The operating structures
and suggested combinations of management varied as well. At its December 9, 1997
and December 11, 1997 meetings, in order to obtain more certain prospects as to
structures, operations, products and services under the proposals and more
definite valuations of Cerulean, the special committee established a process for
a more complete diligence review of Cerulean to be undertaken by all parties
considering making a detailed strategic transaction proposal. At that time, the
special committee established a due diligence calendar which provided for the
completion of due diligence by January 7, 1998. To facilitate the diligence
review, Cerulean collected materials and made them available to the four parties
at the offices of Long Aldridge & Norman in Atlanta, Georgia. At its December
22, 1997 meeting, the special committee established January 14, 1998 as the date
for receiving revised proposals from the parties based on the additional
materials that Cerulean had provided to them.
During the course of diligence review, the special committee became aware
of each party's concern regarding the litigation surrounding the conversion of
Blue Cross and Blue Shield of Georgia to a for-profit business and their desire
that Cerulean reach a settlement in that litigation prior to completing any
strategic transaction with Cerulean. Thereafter, the special committee sought to
combine the schedule for its work concerning strategic transactions with that of
the court calendar concerning the conversion litigation. At its January 12, 1998
meeting, the special committee concluded that it should extend the deadline for
the submission of proposals to allow adequate time for Cerulean to:
- conduct due diligence with respect to potential strategic partners;
- receive a definitive ruling on Cerulean's motion for summary judgment in
the conversion litigation or, in the absence of such a ruling, assess the
court's treatment of the motion and the effect of such treatment on the
entire case; and
- assess the regulatory approval process which a strategic transaction
would require.
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The special committee extended the deadline for submission of revised
proposals to January 23, 1998. At the special committee's January 27, 1998
meeting, Morgan Stanley advised the committee that four parties had submitted
revised proposals and presented a summary of those proposals. These proposals
again contemplated various structures, including forming a joint venture,
forming a new combined entity and merging outright. Consideration proposed
included:
- all stock in a new entity;
- cash and stock in a new entity; and
- outright merger entirely for cash, entirely for stock of the merger
partner and a combination of cash and stock of the merger partner.
The values of the revised proposals ranged from $270 million to $425
million. The operating structure, use of management and employees, and mix of
products and services also varied as before. At its February 2, 1998 meeting,
the special committee considered each of the proposed strategic transactions in
depth and considered the various advantages and disadvantages of each proposal.
As a result of this analysis, the special committee concluded that one of the
potential joint venture transactions was not feasible and should be eliminated,
and that another, also a joint venture, required further diligence review by the
committee in order to fully analyze the potential of the transaction. The
special committee agreed to complete this review and to notify the other two
parties with viable proposals, both for mergers, that their proposals were being
actively considered. The special committee also agreed to inform these parties
that its response was being postponed in order to complete full consideration of
another proposal.
After completion of the diligence review, and pursuant to the special
committee's instructions, Morgan Stanley indicated to each of the three
remaining parties, one of which was WellPoint, that best and final proposals
should be submitted to the special committee by February 23, 1998. These final
proposals ranged in value from $363 million to $460 million and were structured
similarly to the prior proposals. The special committee rejected one of the
proposals and held a meeting on March 3, 1998 in preparation for its
presentation of a report reviewing its actions since its appointment to the full
board of directors on March 6, 1998. The special committee continued to
carefully manage the process that it had put in place for evaluating the
strategies available to Cerulean for best realizing its overall business plan
and for realizing value to its shareholders. Through consultation with Morgan
Stanley, the special committee and the Cerulean board of directors continued to
evaluate Cerulean on a stand-alone basis and to evaluate the strategic
proposals, including the implications to operations and value, that had been
elicited over the preceding four months. At the meeting on March 3, 1998, the
special committee reviewed further each of the remaining proposals. It concluded
that the joint venture proposal should be eliminated for a number of reasons
which, in the special committee's judgment, indicated it was of questionable
viability and, in any event, was of substantially less value to shareholders. In
addition, the rejected proposal, in the special committee's opinion:
- would have provided less potential for new future products for customers;
- would not have provided liquidity for shareholders; and
- would have entailed a difficult regulatory approval process.
In formulating its report for the board, the special committee also
reviewed the possible effects on customers, management and employees of each of
the proposals and reviewed the value to shareholders of remaining independent
and of entering into a proposed transaction.
Prior to the special committee's report to the full board of directors on
March 6, 1998, the Chairman of the special committee reported to the committee
that he had received a revised proposal from one of the parties that previously
had submitted a merger proposal. The special committee, after considering the
revised proposal at a meeting on March 5, 1998, concluded that it should
recommend that the board of directors consider the two merger proposals. The
special committee also concluded that it should provide the proposing parties
with further access to materials concerning Cerulean and a further opportunity
to conduct due diligence and submit improved proposals.
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At Cerulean's board meeting on March 6-7, 1998, the special committee
presented its report to the full board of directors of Cerulean. The board of
directors received the special committee's report and a presentation from Morgan
Stanley on the proposals submitted to the committee, as well as an analysis of
Cerulean's stand-alone value and the financial strategies available to Cerulean
to achieve its business plan operating as an independent entity. The directors
reviewed in this context their fiduciary duties to shareholders and their
ability to consider other constituencies, and considered the proposals
recommended by the special committee. The directors considered the proposals of
the several parties, explored the possibility of a joint venture and reviewed
the limitations of that strategy. Ultimately, the board of directors adopted the
special committee's recommendation that Cerulean proceed with negotiations with
each of two proposing parties, one of which was WellPoint. At this time, the
board authorized the special committee to set a deadline for the completion of
negotiations with the two parties and to select the proposal that the committee
decided was superior considering all factors, including the best interests of
the shareholders. The board of directors further authorized the special
committee to proceed with negotiations to finalize the terms of a proposed
transaction, as long as the special committee obtained final approval of the
terms of the proposed transaction from the full board of directors.
After the Cerulean board meeting, the special committee gave the two
remaining parties the opportunity to conduct an in-depth diligence review on
Cerulean in Atlanta, Georgia during the weeks of March 16 and March 23, 1998. In
connection with further discussions with each party, each party emphasized to
the special committee the importance of Cerulean negotiating a settlement of the
conversion litigation prior to the final negotiation and execution of a
strategic transaction. In the ensuing period, the special committee met on
numerous occasions to monitor progress in the settlement negotiations of the
conversion litigation and to review its status with management representatives
and legal counsel conducting the negotiations. During this period, two parties
whose proposals had previously been rejected by the special committee presented
a combined proposal pursuant to which the parties would join with Cerulean in
forming a third entity. The special committee considered this proposal at length
at its meetings on May 19, May 21, May 25, May 29, June 1 and June 4, but
ultimately rejected it. The special committee decided to reject the proposal
because of:
- the uncertainty of obtaining required regulatory approvals;
- the unwillingness of the parties proposing the transaction to guarantee
financial ability to consummate a transaction; and
- the limited ability of Cerulean shareholders to participate in future
appreciation in value of the proposed combined entity.
As the settlement discussions conducted by Cerulean's management and
counsel in the conversion litigation appeared to be reaching a satisfactory
result, the special committee set a deadline of June 3, 1998 for submission of
"best and final" strategic transaction proposals by the two parties. The two
remaining parties submitted these proposals to the special committee on June 3,
1998. The proposals were based on access to additional diligence materials and
were valued at $460 million and $500 million, net of amounts payable under
applicable change of control agreements. At its June 5, 1998 meeting, the
special committee again reviewed its course of action since its formation on
October 2, 1997, specifically its directions received from the board of
directors on that date and at the board of directors meeting on March 6-7, 1998.
In addition, Morgan Stanley made a presentation to the special committee
comparing the two final proposals. Based on this presentation, and after due
consideration, the special committee unanimously voted to recommend to the board
of directors that the special committee proceed to final negotiations with
WellPoint only. At a meeting of the full board of directors held on June 5,
1998, the board of directors authorized the special committee to seek to
conclude a strategic transaction with WellPoint. The board further authorized
Cerulean management to proceed to a settlement of the conversion litigation in
the manner presented to the board of directors.
Thereafter, the special committee, members of Cerulean management, the
special committee's financial advisors and legal counsel proceeded to the
negotiation of a final agreement with representatives of WellPoint. The special
committee met on July 1, July 6, July 7 and July 8, 1998 to address specific
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issues as they emerged in the negotiations. The special committee also
considered a further indication of interest in a merger transaction from one of
the other previously proposing parties and analyzed and compared that indication
of interest to the transaction under negotiation with WellPoint.
The process of approving the transaction also included:
- a presentation to the full board of directors by the Chairman and Chief
Executive Officer of WellPoint on June 15, 1998;
- a telephonic meeting of the full board of directors on July 5, 1998 to
authorize and approve the settlement of the conversion litigation; and
- a telephonic meeting of the full board of directors on July 8, 1998 at
which the board reviewed the transaction negotiated with WellPoint,
including a review of a draft merger agreement, as well as the further
indication of interest received from another party and the special
committee's reasons for rejecting such indication of interest.
Following this presentation, the board of directors voted to approve the
merger and the merger agreement and to authorize the execution and delivery of
the merger agreement and the related documents embodying the merger. On July 9,
1999, Cerulean and WellPoint entered into an amendment to the merger agreement
to extend the time by which the merger could be completed until October 15,
1999, or until December 31, 1999 at the election of either Cerulean or
WellPoint. On October 14, 1999, WellPoint notified Cerulean that it elected to
extend the merger agreement until December 31, 1999. Effective December 31,
1999, Cerulean and WellPoint entered into a second amendment to the merger
agreement to extend the time by which the merger could be completed until
December 31, 2000.
The November 29, 2000 Merger Agreement
The November 29, 2000 merger agreement resulted from a process contemplated
by the July 9, 1998 merger agreement and began with an unsolicited merger
proposal from Trigon Healthcare, Inc., based in Richmond, Virginia. After
consideration of the proposal, as contemplated by the merger agreement, the
board of directors of Cerulean determined, in accordance with the terms of the
merger agreement and after consultation with Cerulean's outside legal counsel
and financial advisors, that the Trigon proposal, if accepted on substantially
the terms presented, was likely to be consummated and would, if consummated,
result in a transaction superior to the one contemplated by the merger agreement
after taking into account all relevant factors, including consideration. The
board directed management to proceed with disclosure to and negotiations with
Trigon as permitted and in a manner provided under the merger agreement and
directed the Cerulean finance committee to monitor the progress of negotiations.
During the period of negotiations culminating with the acceptance of the
merger agreement on November 29, 2000, the finance committee met 11 times and
the board of directors met nine times. As a result of the negotiations, on
November 15, 2000 Cerulean received an offer from Trigon for a merger for cash
consideration of $675 million. On November 15, 2000, Cerulean informally
notified WellPoint that it had received this offer from Trigon. On November 21,
2000, WellPoint informally provided Cerulean with a revised merger proposal for
cash consideration of $680 million. Because the WellPoint proposal, among other
things, contained a provision requiring Cerulean to keep its terms confidential,
the Cerulean board of directors determined that it was in the best interests of
Cerulean and necessary in the exercise of the directors' fiduciary obligations
to trigger the process under the merger agreement for formally notifying
WellPoint of the Trigon proposal, before fully evaluating or negotiating the
WellPoint $680 million proposal. Therefore, on November 24, 2000 the board of
directors determined, after consultation with its legal counsel, that
contemplation of the Trigon proposal and terminating the merger agreement were
necessary for the board to comply with its fiduciary duties under applicable
law. Acting in accordance with the merger agreement, the board directed
Cerulean's Chief Executive Officer to notify WellPoint in writing that Cerulean
intended to enter into such an agreement with Trigon and, as required under the
merger agreement, furnished WellPoint a copy of the proposed agreement with
Trigon.
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Within the requisite response period provided by the agreement (and
shortened by the parties for this purpose), WellPoint formally responded on
November 28, 2000 with the amended merger agreement in substantially the form
attached to this proxy statement providing for the merger transaction and for
cash consideration of $700 million. By the time of the board of directors'
meeting on November 29, 2000, Trigon had revised its proposal to include cash
consideration of $700 million, with, among other terms, a substantially
increased termination fee. The directors considered all the terms and conditions
of both proposals and in accordance with the provisions of the merger agreement
determined that the WellPoint proposal was at least as favorable as the Trigon
proposal and voted unanimously to accept the WellPoint proposal reflected in the
agreement attached as Appendix A to this proxy statement.
RECOMMENDATION OF THE CERULEAN BOARD OF DIRECTORS
The board of directors of Cerulean has approved the revised merger
agreement and the related transactions and believes the merger is fair to and in
the best interests of Cerulean and its shareholders. In considering the various
strategic alternatives available to Cerulean, Cerulean's board of directors
compared the alternative of remaining an independent company and pursuing its
existing business plan with the alternative of entering into a strategic
transaction with a potential partner. The board weighed the advantages of
entering into a strategic transaction, including:
- the effect that the various structures proposed could have on Cerulean's
operations and the services it could provide to Georgia subscribers;
- the potentially higher value to shareholders that a strategic transaction
could provide;
- the potential for an increase in the quality and number of products
offered to subscribers;
- the uncertainties associated with predicting future business results; and
- Cerulean's access to capital as an independent company.
The Cerulean board of directors also considered the potential
disadvantages, including:
- the possibility of not obtaining required regulatory approvals; and
- the potential for a decrease in the product mix offered to subscribers.
Although the viability of Cerulean as an independent company was not in
question, the board of directors of Cerulean determined that entering into a
strategic transaction was in the best interests of Cerulean and its shareholders
because this would allow Cerulean to access a broader capital base in order to
meet competitive pressures and to develop and deliver new products to residents
of Georgia. The Cerulean board of directors further determined that entering
into the merger with WellPoint is the best strategic alternative because of,
among other things:
- the attractive financial condition of WellPoint and the resulting access
to capital;
- the superior terms of the merger;
- WellPoint's interest in increasing the quality and number of products
offered to subscribers;
- WellPoint's interest in expanding services in Georgia; and
- WellPoint's interest in taking advantage of similar organizational
structures, thereby minimizing staffing dislocations and reductions.
Accordingly, the board of directors of Cerulean recommends that
shareholders of Cerulean vote "for" approval of the merger agreement and the
completion of the merger.
REASONS FOR THE MERGER
After consideration of relevant business, financial, legal and market
factors, the board of directors, on July 8, 1998, approved the merger agreement
and the related transactions by a vote of 16 for and one
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against. The board of directors voted by the same vote to recommend that
Cerulean shareholders vote for the approval of the merger agreement and the
related transactions. On September 1, 2000, the Cerulean board of directors
affirmed its prior vote for the merger and voted unanimously to recommend that
the shareholders reaffirm the merger. Following the recent negotiations with
WellPoint and Trigon, and after careful consideration of relevant business,
financial, legal and market factors, the board of directors on November 29, 2000
unanimously approved the amended and restated merger agreement and the related
transactions. The board of directors also unanimously voted to recommend that
the Cerulean shareholders vote for the approval of the amended and restated
merger agreement and the related transactions.
In deciding to approve the amended and restated merger agreement and to
recommend that Cerulean shareholders approve the merger, the Cerulean board of
directors considered a number of factors, including particularly the factors
listed below. In view of the number and wide variety of factors that the board
of directors considered in connection with its evaluation of the merger, the
Cerulean board of directors did not consider it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. The Cerulean board of
directors viewed its position and recommendations as being based on all of the
information and factors that it received and considered. In addition, individual
directors may have given different weight to different information and factors.
The Financial Terms of the Merger. The board of directors of Cerulean
believes that the consideration that WellPoint will deliver to shareholders of
Cerulean is fair to the shareholders based upon:
- Cerulean's current financial condition and future prospects; and
- the current financial condition and future prospects of WellPoint.
In coming to this conclusion, the Cerulean board of directors relied upon the
recommendations of the Cerulean finance committee and the reports of its
financial advisors and legal counsel evaluating the strategic alternatives
available to Cerulean.
Comparing Cerulean's Value as a Continuing Independent Entity with its
Value in Combination with WellPoint. Based upon the information and analysis
the Cerulean finance committee received and provided to the board of directors,
the Cerulean board of directors considered that the value that Cerulean
shareholders would receive in the merger is substantially greater than that
available in Cerulean as a continuing independent entity currently and for the
foreseeable future.
Liquidity for Cerulean Shareholders. The merger provides liquidity to
Cerulean shareholders, which they do not currently have, in the form of cash.
Availability of Additional Resources. The Cerulean board of directors
considered the need for additional capital resources in order to achieve
Cerulean's own business plan and the fact that these resources were more readily
available to Cerulean in combination with WellPoint than as a continuing
independent entity. These resources were more readily available to Cerulean in a
transaction with WellPoint than in a transaction with any of the other potential
parties.
Changes and Consolidations in the Health Care Industry. The board of
directors of Cerulean considered the current environment of the health care
industry, especially:
- the continuing shift from traditional indemnity products to managed care
products, such as health maintenance organizations and preferred provider
organizations; and
- the trend toward consolidation in the industry in order to obtain the
advantage of scale in developing and delivering products in a
cost-effective manner.
The Cerulean board of directors considered that the merger afforded Cerulean and
its customers a stronger vehicle with which to address these changes in the
industry.
Opinion of Morgan Stanley. The Cerulean board of directors considered the
fact that Morgan Stanley has rendered its opinion that, subject to the
limitations and qualifications in its opinion, the
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consideration WellPoint will provide to the holders of Class A stock, Series A
stock and Class B stock in the merger agreement is fair from a financial point
of view to those holders. The analysis undertaken by Morgan Stanley is
summarized on page 23.
In addition to the positive factors set forth above, the board of directors
of Cerulean considered several factors that it believed were potential negative
aspects of Cerulean's entering into a merger transaction. With respect to the
Cerulean board's consideration of the merger agreement and the merger, the
specific factors considered include:
- the potential for incurring a termination fee in the event of a
termination of the merger agreement because:
- Cerulean chooses to enter into a binding written agreement for a
superior transaction; or
- the holders of Class B stock fail to approve the merger; and
- the potential negative effects of a change in the product mix offered to
subscribers.
The terms of the termination fee, particularly the amount, were the subject
of negotiations between the parties. The board ultimately accepted the size and
terms of the termination fee contained in the merger agreement as necessary to
limit subsequent competing offers to those that should be seriously considered.
On balance, the Cerulean board of directors concluded that the positive factors
outweighed the negative factors and supported its recommendation to the Cerulean
shareholders to approve the merger agreement and the merger.
OPINION OF CERULEAN'S FINANCIAL ADVISOR REGARDING THE MERGER
Cerulean retained Morgan Stanley to act as Cerulean's financial advisor in
connection with the merger and related matters based upon Morgan Stanley's
qualifications, expertise and reputation. On November 29, 2000, Morgan Stanley
rendered an opinion to the Cerulean board of directors that, as of that date,
and based upon and subject to the considerations set forth in the opinion, the
consideration to be received by the holders of shares of Class A stock, Series A
stock and Class B stock pursuant to the merger agreement was fair from a
financial point of view to those holders.
THE FULL TEXT OF MORGAN STANLEY'S OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT. WE URGE YOU TO READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY.
MORGAN STANLEY'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION
TO BE RECEIVED BY THE HOLDERS OF CLASS A STOCK, SERIES A STOCK AND CLASS B STOCK
FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION. THE OPINION DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY
CERULEAN SHAREHOLDER AS TO HOW A SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. THE MORGAN STANLEY OPINION IS DATED NOVEMBER 29, 2000.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Cerulean;
- reviewed certain internal financial statements and other financial
and operating data concerning Cerulean prepared by its management;
- analyzed certain financial projections prepared by the management of
Cerulean;
- discussed the past and current operations and financial condition
and the prospects of Cerulean with senior executives of Cerulean;
- compared the financial performance of Cerulean with that of certain
comparable publicly-traded companies and their securities;
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- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives
of Cerulean and WellPoint and Cerulean and a certain other potential
purchaser and each of their financial and legal advisors;
- reviewed the merger agreement and certain related documents; and
- performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by Morgan Stanley for
the purposes of its opinion. With respect to the financial projections, Morgan
Stanley assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Cerulean. In addition, Morgan Stanley assumed that the merger would be
consummated in accordance with the terms set forth in the merger agreement.
Morgan Stanley assumed that in connection with the receipt of all necessary
regulatory approvals for the proposed merger, no restrictions would be imposed
that would have a material adverse effect upon the contemplated benefits
expected to be derived from the proposed merger. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of Cerulean, nor
was Morgan Stanley furnished with any such appraisals. Morgan Stanley noted
that, at the time of the consummation of the merger, the capital structure of
Cerulean is comprised of three classes of stock, the Class A stock, the Series A
stock and the Class B stock, and Morgan Stanley expressed no opinion as to the
relative fairness of the consideration to be received among the various classes
or series of stock. The opinion of Morgan Stanley is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of the date of Morgan Stanley's
opinion.
The following is a summary of some of the financial analyses performed by
Morgan Stanley in rendering its opinion to the Cerulean board of directors on
November 29, 2000. In order to fully understand the financial analyses used by
Morgan Stanley, you should read this summary together with the opinion. The
summary alone does not constitute a complete description of the financial
analyses.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of Cerulean with the corresponding
publicly available financial information of a selected group of 15 other managed
care companies similar to Cerulean. The group of selected managed care companies
included Aetna Inc., Cigna Corp, First Health Group Corp., Humana, United
Healthcare Corp., Foundation Health Systems, PacifiCare Holding, WellPoint
Health Networks, American Medical Security Group, Coventry Corporation, Mid
Atlantic Medical Services, Inc., Oxford Health Plans, RightCHOICE Managed Care,
Sierra Health Services Inc., and Trigon Healthcare, Inc.
For the regional managed care companies listed above, Morgan Stanley
calculated price to estimated 2000 calendar year earnings ratio and price to
estimated calendar year 2001 earnings ratio. Morgan Stanley based these
calculations on market information as of November 29, 2000, the latest publicly
available information, and estimates of earnings per share and five-year
projected growth rates based on I/B/E/S estimates as of November 29, 2000, among
other things. Morgan Stanley then applied a discount to these multiples since
Cerulean's shares of common stock are not publicly traded. The resulting
multiples were then applied to corresponding financial data for Cerulean, which
were based on certain financial projections prepared by the management of
Cerulean. This exercise resulted in a range of possible equity values of
$706,000,000 to $858,000,000 in the aggregate for Cerulean.
In addition, Morgan Stanley compared, as of November 29, 2000, among other
things, Cerulean's latest 12 months and estimated fiscal 2000 margins, based on
the latest publicly available 10-Ks and 10-Qs and the Cerulean financial
projections, to similar statistics for the selected managed care companies
listed above. A comparison of margins included, among other things, margins for
latest 12 months medical loss ratio, latest 12 months earnings before interest,
taxes, depreciation and amortization, and latest 12 months
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net income. Morgan Stanley observed that the margins for Cerulean were
comparable to or slightly lower than the median of similar statistics for the
selected managed care companies.
No company used in the analysis of selected managed care companies is
identical to Cerulean. In evaluating the selected managed care companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters.
Many of these matters are beyond the control of Cerulean, such as the impact of
competition on the business of Cerulean and the health care industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of Cerulean or the industry, or in the financial markets
in general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using selected companies' transaction data.
Precedent Transactions Analysis. As part of its analysis, Morgan Stanley
applied a premium to the multiples used in the comparable company analysis
described above to reflect a premium a strategic buyer may consider paying in a
transaction of this type. The premium applied was based on market information as
of November 29, 2000 and the latest publicly available information regarding
selected change of control business combinations in the managed care industry,
among other things. Morgan Stanley then applied these multiples to corresponding
financial data for Cerulean, which were based on certain financial projections
prepared by the management of Cerulean. This exercise resulted in a range of
possible equity values of $882,000,000 to $1,071,000,000 in the aggregate for
Cerulean.
In addition, Morgan Stanley reviewed certain publicly available information
regarding 21 selected change of control business combinations in the managed
care industry during the period from 1993 to 1998. These precedent transactions
included the acquisition of HMO America by United Healthcare; the acquisition of
Ramsay by United Healthcare; the acquisition of TakeCare by FHP International
Corp.; the acquisition of CareFlorida by Foundation Health; the acquisition of
Intergroup by Foundation Health; the acquisition of GenCare by United
Healthcare; the acquisition of Provident's health care lines by Healthsource;
the acquisition of MetraHealth by United Healthcare; the acquisition of Emphesys
Financial by Humana; the acquisition of the group life and health subsidiary of
Massachusetts Mutual Life Insurance Company by WellPoint; the acquisition of
HealthWise by United Healthcare; the acquisition of U.S. Healthcare by Aetna;
the acquisition of FHP International Corp. by PacifiCare; the acquisition of
Foundation Health by Health Systems International; the acquisition of the group
benefits operations of John Hancock Mutual Life Insurance Company by WellPoint;
the acquisition of Healthsource by CIGNA; the acquisition of Physicians Health
Services by Foundation Health Systems; the acquisition of Physician Corporation
of America by Humana; the acquisition of ChoiceCare by Humana; the acquisition
of NYLCare by Aetna; and the formerly pending acquisition of Humana by United
Healthcare.
For each of these precedent transactions, Morgan Stanley calculated equity
value paid for the acquired company as a multiple of, among other things:
- next 12 months earnings;
- next fiscal year earnings, based on either I/B/E/S or First Call
estimates; and
- the premium paid above market price of each acquired company's stock
price one day prior to the announcement of the transaction.
These multiples are consistent with the comparable company multiples plus
the strategic buyer premium discussed above.
No transaction used in the precedent transactions analysis is identical to
the merger. In evaluating precedent transactions, Morgan Stanley made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters. Many of these matters are
beyond the control of Cerulean, such as the impact of competition on the
business of Cerulean and the industry generally, industry growth and the absence
of any adverse material change in the financial condition and prospects of
Cerulean or the industry, or in the financial markets in general.
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Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed discounted cash
flow analyses of Cerulean to determine a range of present values for Cerulean
based on the Cerulean management's financial projections. Unlevered free cash
flow was calculated as the after-tax operating earnings of Cerulean, excluding
any interest income and interest expense, plus depreciation and amortization,
plus or minus net changes in non-cash working capital, minus projected capital
expenditures. Morgan Stanley calculated terminal values by applying a range of
multiples to net income in fiscal 2003 from 14.0x to 16.0x. The unlevered free
cash flows and terminal values were then discounted to present values using a
range of discount rates from 11.0% to 12.0%. Based on this analysis and the
assumptions set forth above, Morgan Stanley calculated a range of possible
equity values of $597,000,000 to $702,000,000 in the aggregate for Cerulean.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the opinion of Morgan
Stanley. In addition, Morgan Stanley may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Cerulean.
In performing its analysis, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Cerulean. The analyses
performed by Morgan Stanley are not necessarily indicative of actual values,
which may be significantly more or less favorable than suggested by these
analyses. Morgan Stanley prepared these analyses solely as a part of Morgan
Stanley's analysis of the fairness of the consideration to be received by the
holders of shares of Class A stock, Series A stock and Class B stock pursuant to
the merger agreement from a financial point of view to those holders, and were
provided to the Cerulean board of directors in connection with the delivery by
Morgan Stanley of its opinion. The analyses do not purport to be appraisals or
to reflect the prices at which Cerulean might actually be sold. In addition, as
described above, the opinion of Morgan Stanley was one of many factors taken
into consideration by the Cerulean board of directors in making its
determination to approve the merger. The consideration that WellPoint will pay
pursuant to the merger agreement was determined through arm's-length
negotiations between Cerulean and WellPoint and was approved by the Cerulean
board of directors. Morgan Stanley did not recommend any specific consideration
amount to Cerulean or that any consideration amount constituted the only
appropriate consideration amount for the merger. Consequently, you should not
view the Morgan Stanley analysis described above as determinative of whether the
Cerulean board of directors would have agreed to a different consideration
amount.
Cerulean retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and advisory
firm. Morgan Stanley, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. Morgan Stanley makes a
market in WellPoint common stock and may continue to provide investment banking
services to the combined companies in the future. In the course of its
market-making and other trading activities, Morgan Stanley may, from time to
time, have a long or short position in, and buy and sell the debt or equity
securities and senior loans of WellPoint. Morgan Stanley has also acted as the
co-lead underwriter and as a member of the lead group of underwriters in public
offerings of WellPoint common stock, for which it received fees. Morgan Stanley
and its affiliates have, in the past, provided financial advisory services to
Cerulean and WellPoint and their affiliates and have received fees for the
rendering of such services.
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Pursuant to a letter agreement dated October 31, 1997 between Cerulean and
Morgan Stanley, Cerulean has agreed to pay Morgan Stanley a fee for its
financial advisory services in connection with the business combination.
Cerulean has agreed to pay Morgan Stanley a transaction fee of $8.4 million if
the merger is successfully completed and quarterly advisory fees throughout the
engagement.
Morgan Stanley will give Cerulean a credit against the transaction fee
equal to the advisory fees paid for the last two quarters prior to completion of
the merger. In addition, Cerulean has agreed to reimburse Morgan Stanley for its
expenses related to the engagement. Cerulean has also agreed to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws, and expenses, related to or arising out of Morgan Stanley's
engagement and the transactions in connection with that engagement.
COMPLETION OF THE MERGER
The completion of the merger will occur no later than 30 days after the
satisfaction or waiver of the closing conditions set forth in the merger
agreement, unless WellPoint and Cerulean agree to another date. On the date of
completion of the merger, WellPoint and Cerulean will file a certificate of
merger with the Secretary of State of Georgia. The merger will be effective at
the time of filing of the certificate of merger, or at any subsequent date or
time that WellPoint and Cerulean agree to and specify in the certificate of
merger. We anticipate that, assuming all conditions are met, the merger will
occur within approximately 90 days after the date of the special meeting.
CONSIDERATION TO BE RECEIVED IN THE MERGER
The merger agreement provides for a total amount of merger consideration of
$700 million. Under the merger agreement, holders of each of the Class A stock
and the Class B stock will receive a portion of the total merger consideration
according to exchange ratios which, according to their formulas, make a total
allocation of merger consideration among:
- the holders of Class B stock; and
- the holders of Class A stock, Series A stock and any Class A common stock
participation rights into which the shares of Series A stock are
converted.
The Series A stock and any Class A participation rights are securities of
Cerulean held by the foundation shareholders under the terms of the settlement
relating to the litigation involving the conversion of Blue Cross and Blue
Shield of Georgia from a not-for-profit business to a for-profit business. The
exchange ratios are based upon the conversion provisions of Article IV of the
articles of incorporation of Cerulean. Under the Class A stock exchange ratio,
holders of Class A stock, Series A stock and Class A participation rights will
receive a total amount of approximately $544.7 million in cash in the merger.
Other than the foundation shareholders, all holders of Class A stock were
subscribers of Blue Cross and Blue Shield of Georgia during the conversion
period who received their Class A stock as a part of the conversion. Assuming a
cashless exercise of the warrants held by the foundation shareholders, the
foundation shareholders will receive approximately $123.7 million in cash. The
remaining $421.0 million will be distributed to all other holders of Class A
stock. This results in a value for each share of Class A stock in the merger of
approximately $1,195 per share, or $5,975 for each five shares of Class A stock.
Under the exchange ratios, the holders of Class B stock will receive cash
in the amount of $155.3 million, or approximately $3,100 for each share of Class
B stock.
PROCEDURES FOR RECEIPT OF MERGER CONSIDERATION
Holders of Class A Stock
Each holder of Class A stock has received a proxy card with this proxy
statement. IN ORDER TO RECEIVE THE MERGER CONSIDERATION, EACH HOLDER OF CLASS A
STOCK MUST COMPLETE THE W-9 PORTION OF THE PROXY CARD
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AND RETURN THE COMPLETED PROXY CARD TO CERULEAN, OR OTHERWISE PROVIDE A SIGNED
FORM W-9 TO THE EXCHANGE AGENT APPOINTED BY WELLPOINT. After completion of the
merger, the exchange agent appointed by WellPoint will deliver the appropriate
amount of cash consideration to each Class A shareholder.
Holders of Class B stock
After the completion of the merger, the exchange agent appointed by
WellPoint will mail a letter of transmittal to each holder of outstanding shares
of Class B stock. The letter of transmittal will inform those holders of the
procedures to follow in forwarding stock certificates representing their shares
of Class B stock to the exchange agent. Once the exchange agent receives a
certificate representing Class B stock, the exchange agent will deliver the
appropriate amount of cash consideration to each Class B shareholder. No holder
of any certificate representing Class B stock will receive a cash payment until
the holder surrenders its stock certificates to the exchange agent appointed by
WellPoint.
LOST, STOLEN OR DESTROYED CERTIFICATES
Holders of Class B stock of Cerulean who are unable to furnish certificates
for their shares must furnish an affidavit of loss in place of the lost, stolen
or destroyed Cerulean certificate. WellPoint will use the affidavit of loss as
the basis upon which it will deliver the cash consideration to be received by
that shareholder.
WellPoint will not require Class A shareholders to furnish the registration
notifications which Cerulean previously provided to its Class A shareholders in
connection with the conversion of Blue Cross Blue Shield of Georgia as evidence
of ownership. Therefore, no Class A shareholder will need to provide an
affidavit of loss. Instead, WellPoint will require holders of the Class A stock
to certify on the proxy card their ownership to the exchange agent appointed by
WellPoint.
At the time of completion of the merger, Cerulean will close its stock
transfer books and will not make any further transfers of shares of Class A
stock, Class B stock, or Series A stock or units of Class A participation
rights.
REGULATORY APPROVALS; APPROVAL OF BLUE CROSS AND BLUE SHIELD ASSOCIATION
The merger agreement provides that we must obtain the following approvals
as a condition to our obligations to complete the merger:
- any waiting period applicable to the merger under the Hart-Scott-Rodino
Act must have expired, or the Federal Trade Commission must have granted
earlier termination of the waiting period;
- we must obtain the consent of the Georgia Insurance Commissioner to the
merger, together with any other state regulatory consents; and
- the Blue Cross and Blue Shield Association must approve the merger.
U.S. Antitrust Filing
Under the Hart-Scott-Rodino Act and the rules and regulations under the
act, specified waiting period requirements must expire or terminate before
certain transactions, including the merger, may be completed. On August 25,
1998, WellPoint filed a Pre-Merger Notification and Report Form, as required by
the Hart-Scott-Rodino Act, with the Justice Department and the Federal Trade
Commission. Cerulean made a similar filing on August 26, 1998. Under the
Hart-Scott-Rodino Act, WellPoint and Cerulean cannot complete the merger until
30 days after the initial filing, unless the Federal Trade Commission grants
early termination of this waiting period. In addition, if the Justice Department
or the Federal Trade Commission issues a Request for Documents and Other
Additional Information, WellPoint and Cerulean cannot complete the merger until
20 days after they comply with that request, unless the Federal Trade Commission
grants an early termination that shortens this period. The Federal Trade
Commission granted an early termination of the waiting period, effective
September 4, 1998. The Hart-Scott-Rodino Act would
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not have required any further action if the merger had been consummated prior to
the one year anniversary of the effective date of the early termination.
On July 28, 1999, WellPoint and Cerulean filed a second Pre-Merger
Notification and Report Form because they had not yet completed the merger. The
Federal Trade Commission granted an early termination of the second waiting
period, effective August 16, 1999. Due to the continued delay in the completion
of the merger, WellPoint and Cerulean filed a third Pre-Merger Notification and
Report Form on July 24, 2000. The Federal Trade Commission granted an early
termination of the third waiting period, effective August 4, 2000. Despite the
grant of early termination, however, the Federal Trade Commission, the Justice
Department or others could still take action under the antitrust laws with
respect to the merger, including seeking to enjoin the completion of the merger,
to rescind the merger, or to require the divestiture of certain assets of
WellPoint or Cerulean.
Georgia Insurance Commissioner
Under the Georgia Insurance Code, in order to complete the merger, the
Georgia Insurance Commissioner must approve the change of control of Cerulean.
To accomplish this, WellPoint filed a Form A, as required by the Georgia
Insurance Code, with the Georgia Insurance Commissioner on November 4, 1998.
WellPoint subsequently filed amendments to the Form A on July 28, 2000 and
December 8, 2000. Under the Georgia Insurance Code and regulations under the
code, Cerulean must forward a copy of the Form A filing to all of its
shareholders. As permitted by the Georgia Insurance Code, Cerulean will use this
proxy statement to satisfy many of the informational requirements of the Form A
filing. The Georgia Insurance Code requires that a public hearing be held within
30 days after the Georgia Insurance Commissioner deems the Form A filing
complete. Cerulean must give notice of the hearing to its shareholders.
WellPoint and Cerulean expect that the Georgia Insurance Commissioner will hold
a public hearing as soon after the shareholders' meeting as possible. Ultimately
the conduct of the public hearing is contingent upon the completion of several
other matters, most notably an affirmative vote of the Cerulean shareholders at
the meeting and the receipt by the Georgia Insurance Commissioner of an opinion
from an independent financial advisor that the merger is fair and reasonable to
Cerulean's shareholders. The hearing could also be delayed by other unexpected
circumstances.
The Georgia Insurance Commissioner is obligated to make a determination
with respect to the proposed change of control within 30 days after the closing
of the record of the public hearing. Cerulean expects the consumer advocate
created by legislation adopted in the 1999 Georgia legislative session to
participate in the proceeding.
The Georgia Insurance Code provides that the Georgia Insurance Commissioner
must approve the change of control unless the commissioner finds that:
- following the transaction, Cerulean's regulated subsidiaries would be
unable to satisfy requirements for the issuance of insurance licenses;
- the merger would substantially lessen competition or create a monopoly;
- the financial condition of WellPoint might jeopardize the financial
condition of Cerulean or its subsidiaries or prejudice the interests of
policyholders or remaining security holders who are unaffiliated with
WellPoint;
- the merger is unfair and unreasonable to security holders of Cerulean;
- plans of WellPoint regarding the business, assets, structure or
management of Cerulean are unfair and unreasonable to policyholders of
insurance subsidiaries of Cerulean, including Blue Cross and Blue Shield
of Georgia, and not in the public interest; or
- permitting the merger would not be in the interest of policyholders of
insurance subsidiaries of Cerulean, including Blue Cross and Blue Shield
of Georgia, and the public because of the competence, experience and
integrity of the persons who would control the operations of Cerulean
after the merger.
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Other State and Federal Approvals and Notices
Several of the states in which Greater Georgia Life Insurance Company
conducts business have statutes that require regulatory filings that allow the
various state departments of insurance to assess the effects, if any, that
certain transactions would have on competition in their respective states.
Concentration of the market above certain thresholds triggers these filings.
Cerulean does not believe that the merger triggers any of these filing
requirements, but will file courtesy notifications with the insurance
departments of Alabama, Mississippi, North Carolina, South Carolina and
Tennessee confirming that the merger does not trigger applicable market
concentration thresholds. These filings do not require either hearings or
approvals.
In addition, the Health Care Financing Administration must approve the
transfer of control of certain Blue Cross and Blue Shield of Georgia programs
that will occur because of the merger.
Blue Cross Blue Shield Association
Pursuant to the bylaws of the Blue Cross and Blue Shield Association, the
Blue Cross and Blue Shield Association must approve any change of control of any
Blue Cross Blue Shield licensee, such as the change of control of Cerulean, Blue
Cross and Blue Shield of Georgia, Blue Cross Blue Shield Healthcare Plan of
Georgia and Greater Georgia Life Insurance Company, Inc. The entity seeking the
license initiates the process for obtaining approval. The Blue Cross and Blue
Shield Association then considers the application and its board of directors
takes action within 90 days of the filing of the application. In October 1998,
WellPoint and Cerulean jointly submitted an application to the Blue Cross and
Blue Shield Association seeking its approval. In November 1998, the Blue Cross
and Blue Shield Association approved the application.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Cerulean board of directors,
Cerulean shareholders should be aware that some of the members of Cerulean's
management and the Cerulean board of directors may have interests in the merger
that are different from, or in addition to, the interests of Cerulean
shareholders generally.
Payments to Management Resulting from the Merger
Completion of the merger triggers certain obligations of Cerulean to make
payments to some members of its management or to make contributions to a trust
on behalf of some members of management. These payments and contributions are
attributable to plans and individual agreements that Cerulean has adopted for
these members of management. All of the obligations and payments under these
plans and arrangements are ultimately obligations and payments provided by
WellPoint under the revised merger agreement and will not reduce the merger
consideration to be received by Cerulean shareholders.
Cerulean and WellPoint estimate that, assuming a completion date of March
31, 2001, upon completion of the merger:
- the total amount payable to participants of Cerulean's Performance Unit
Plan will be approximately $47,890,000;
- the amount necessary to fund Blue Cross and Blue Shield of Georgia's
Supplemental Executive Retirement Plan and an agreement with Richard D.
Shirk to provide him a nonqualified retirement benefit to supplement the
benefit provided to him under the Non-Contributory Retirement Program for
Certain Employees of Blue Cross and Blue Shield of Georgia will be
approximately $14,536,583; and
- the excise tax on these amounts, including amounts paid to benefit
recipients for the payment of their taxes on benefits received, may be as
much as $18,301,091.
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Accordingly, Cerulean estimates that the total cost of the obligations
under these arrangements payable as a result of the completion of the merger to
some 247 key employees of Cerulean and Blue Cross and Blue Shield of Georgia who
are participants, including excise taxes and amounts paid to benefit recipients
for the payment of their taxes due on benefits received, may be as much as
$80,727,674. Cerulean has used the following assumptions in order to provide a
conservative estimate of the total cost of these obligations:
- an interest rate of 5.25%, for calculating present values for purposes of
the funding obligation under the general Supplemental Executive
Retirement Plan and 6.15% for the Supplemental Executive Retirement Plan
for Mr. Shirk;
- a net per unit value of $47.89 for calculating the obligation under the
Performance Unit Plan; and
- an individual tax rate of 44.67%.
This amount does not include certain annual bonuses which, if certain
corporate goals are being met, may be accelerated as a result of the completion
of the merger. Specifically, if the completion of the merger occurs on a date
prior to December 31, Cerulean has an obligation to pay immediately a pro rata
portion of the annual incentive bonuses for key employees who have
change-in-control severance agreements with Cerulean. If the bonuses become
payable before they would normally be earned, they may be subject to excise
taxes. No director other than Mr. Shirk, the Chief Executive Officer of
Cerulean, is a participant in these plans.
A description of the plans and agreements and the payments resulting from
the merger follows.
Performance Unit Plan. On July 30, 1997, the compensation committee of the
board of directors of Cerulean adopted the Performance Unit Plan, effective
February 2, 1996, to replace the Cerulean Long-Term Incentive Plan. The
objective of the Performance Unit Plan was to provide a reward to management for
the growth in value of Cerulean. The compensation committee of the Cerulean
board of directors administers the Performance Unit Plan, which provides that
the compensation committee may award up to an aggregate of one million units to
designated key employees. The terms of the Performance Unit Plan established a
beginning value of Cerulean of $221,100,000, as determined as of February 2,
1996, with a beginning unit value of $22.11. Under the Performance Unit Plan,
participants become vested in their units upon the occurrence of the earliest of
a "change in control" of Cerulean, the participant's death, disability or
retirement under the Cerulean tax-qualified retirement plan, the end of a
measurement period or December 31, 1999. The Performance Unit Plan defines the
term "measurement period" as the period beginning on February 2, 1996 and ending
on the date when Cerulean's value is first determinable. This would occur upon a
market event that creates a definite value for Cerulean and results in liquidity
for Cerulean's shareholders. The Cerulean board of directors has the authority
to determine when such a market event has occurred, until the time when
Cerulean's common stock is listed or traded on a recognized United States stock
exchange. Cerulean must make payments at the end of the measurement period.
However, if a change in control of Cerulean occurs first, Cerulean must make
payment as soon as practicable after that change in control. The compensation
committee of Cerulean's board of directors, consistent with Georgia law (which
does not permit the change of control of an insurance holding company such as
Cerulean without the written approval of the Georgia Insurance Commissioner) has
interpreted the definition of "change of control" for the purposes of the
Performance Unit Plan to mean a liquidity event for Cerulean's shareholders.
Under this definition, the completion of the merger with WellPoint will
constitute a change in control for purposes of the Performance Unit Plan.
For any amount to be payable under the Performance Unit Plan, the value of
Cerulean must have increased sufficiently from the beginning unit value to meet
the performance hurdle established under the Performance Unit Plan, which is the
average yield of One-Year Treasury Bills, as specified in The Wall Street
Journal on the published date nearest to the end of each quarter for the
preceding year, compounded over the measurement period. Assuming that the value
exceeds the performance hurdle, Cerulean must make a payment to eligible
participants equal to the amount of the difference between the beginning unit
value and the unit value at the end of the measurement period multiplied by the
number of
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units awarded. Cerulean must make the payment in cash, Cerulean stock or any
combination of the two, subject to withholding for taxes. It must make the
payment as soon as practicable after the end of the later of when vesting occurs
or the end of a measurement period. The merger with WellPoint establishes a
value that satisfies the performance hurdle.
As of December 1, 2000 Cerulean has granted 944,695 unit awards to 247 key
employees. Assuming a purchase price of $700 million, the per unit value under
the Performance Unit Plan will be $47.89, which represents a final unit value of
$70.00 less the beginning unit value of $22.11. Awards to the following
executive officers of Cerulean and the amounts that become payable to them under
the Performance Unit Plan due to the merger are as follows:
- Richard D. Shirk: 138,000 units, $6,608,820;
- Richard F. Rivers: 30,000 units, $1,436,700;
- John A. Harris: 67,000 units, $3,208,630;
- Mark Kishel: 55,000 units, $2,633,950;
- Richard Steinhausen: 58,000 units, $2,777,620; and
- Stuart G. Wright: 25,000 units, $1,197,250.
The total of all payments for the 1,000,000 units under the Performance
Unit Plan is $47,890,000. The total of all payments under the Performance Unit
Plan to key employees other than the executive officers named above is
$30,027,030. These employees hold 571,695 units. Cerulean anticipates that it
will award the remaining units prior to the completion of the merger.
Blue Cross and Blue Shield of Georgia, Inc. Supplemental Executive
Retirement Plan. Effective as of July 1, 1996, Blue Cross and Blue Shield of
Georgia adopted the Supplemental Executive Retirement Plan to provide
additional, nonqualified retirement benefits to a designated group of management
employees. The Chief Executive Officer of Blue Cross and Blue Shield of Georgia
recommends participants and the compensation committee designates those
employees who participate. In general, each participant in the Supplemental
Executive Retirement Plan becomes entitled to receive a retirement benefit equal
to the difference between:
- the benefit that the participant would be entitled to under the
Non-Contributory Retirement Program calculated as if the participant were
credited with two years of service for each year of actual service up to
a maximum of 30 years, and without application of the compensation or
annual additions limitations imposed under Sections 401(a)(17) and 415 of
the Internal Revenue Code; and
- the sum of the participant's vested accrued benefit under the
Non-Contributory Retirement Program and his vested accrued benefit under
the Blue Cross and Blue Shield of Georgia, Inc. Executive Benefit
Restoration Plan and any other nonqualified defined benefit plan
sponsored by Blue Cross and Blue Shield of Georgia or any affiliate which
pertains to the same periods of service.
Benefits under the Supplemental Executive Retirement Plan generally become
payable upon the participant's termination of employment due to disability or
retirement after reaching age 55 and completion of five years of service.
Cerulean may make payments in a lump sum or any form offered under the
Non-Contributory Retirement Program. If payment commences before the participant
reaches age 65, the benefit amount is reduced by 0.25% for each month by which
payment precedes the first day of the month coinciding with or next following
the participant's attainment of age 62.
The Supplemental Executive Retirement Plan provides that if Cerulean
terminates the employment of a participant within one year following a change in
control for reasons other than death or disability, the participant becomes
vested and entitled to receive all benefits accrued under the Supplemental
Executive Retirement Plan as of the date of that termination if the termination
arose from voluntary termination for
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"good reason" or dismissal without "just cause." In this instance, Cerulean must
pay the participant as of the later of the first day of the month following the
termination of employment or the first day of the month following the
participant's 55th birthday.
The Supplemental Executive Retirement Plan contains a definition of "change
in control" that is similar to that contained in the Performance Unit Plan, and
the completion of the merger will meet the definition of a change in control.
The plan defines the term "good reason" as the occurrence after a change in
control of either a reduction in the nature or status of the participant's
responsibilities or a reduction of the participant's base salary. The plan
defines the term "just cause" as:
- an act of fraud, embezzlement, theft or other felonious criminal act;
- willful and continued failure to substantially perform his duties; or
- willful engagement in conduct that is demonstrably and materially
injurious to Blue Cross and Blue Shield of Georgia and its affiliated
companies.
The Supplemental Executive Retirement Plan is generally an unfunded
obligation of Blue Cross and Blue Shield of Georgia. As of January 1, 1997, Blue
Cross and Blue Shield of Georgia entered into a trust agreement with Wachovia
Bank of North Carolina, N.A., as Trustee, to establish the Blue Cross and Blue
Shield of Georgia, Inc. Nonqualified Retirement Trust. Blue Cross and Blue
Shield of Georgia contributes assets to the trust for the purpose of payment of
the benefits under the Supplemental Executive Retirement Plan, the Supplemental
Executive Retirement Plan for Richard D. Shirk and other nonqualified plans,
subject to the claims of Blue Cross and Blue Shield of Georgia's creditors in
the event of its insolvency or bankruptcy. The terms of the trust provide that
no later than 30 days following a change in control, Blue Cross and Blue Shield
of Georgia will make an irrevocable contribution to the trust in an amount
sufficient to fund more than 100% of the benefits accrued under the various
nonqualified plans of Blue Cross and Blue Shield of Georgia. For these purposes,
the definition of "change in control" is similar to that contained in the
Performance Unit Plan and the Supplemental Executive Retirement Plan documents.
The Blue Cross and Blue Shield of Georgia board of directors has the
responsibility of informing the trustee that a change in control has occurred. A
change of control does not accelerate the timing of payment under the
nonqualified plans.
Eight individual key management employees participate in the Supplemental
Executive Retirement Plan. The funding obligation of the trust will require Blue
Cross and Blue Shield of Georgia to make a contribution to the trust within 30
days following a liquidity event. The following five executive officers
participate in the Supplemental Executive Retirement Plan, and the contributions
attributable to their accrued benefits as of March 31, 2001 are estimated as
follows:
- Richard F. Rivers -- $373,903;
- John A. Harris -- $939,009;
- Mark Kishel -- $986,650;
- Richard Steinhausen -- $625,560; and
- Stuart G. Wright -- $990,524.
The trust requires contributions for the remaining key employees estimated at
$2,670,339.
Agreement for Supplemental Executive Retirement Plan between Blue Cross and
Blue Shield of Georgia, Inc. and Richard D. Shirk. On December 1, 1996, Blue
Cross and Blue Shield of Georgia entered into the Supplemental Executive
Retirement Plan for Mr. Shirk, which was amended on March 7, 1998 with an
effective date of January 1, 1998. Mr. Shirk becomes eligible for benefits under
the plan upon the termination of his employment for any reason other than his
voluntary termination without good reason. Mr. Shirk's employment agreement with
Cerulean defines the term "good reason" as:
- any assignment of duties significantly different from those contemplated
by the employment agreement or any material limitation in his authority,
powers or responsibilities;
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- failure to be elected or removal as a member of the board of directors of
either Cerulean or Blue Cross and Blue Shield of Georgia unless a change
in Georgia law requires the removal or non-election;
- receipt of any notice limiting the term of the employment agreement to
two years;
- a material breach by either Cerulean or Blue Cross and Blue Shield of
Georgia of any of the material provisions of the employment agreement
which is not cured within 30 days after notice; and
- a change in control.
For purposes of the employment agreement and Mr. Shirk's supplemental plan,
the term "change in control" is defined as:
- the acquisition of ownership of stock or securities of either Cerulean or
Blue Cross and Blue Shield of Georgia representing 5% or more of the
voting power of any class of stock or securities of either Cerulean or
Blue Cross and Blue Shield of Georgia, except as may be acquired by
institutional investors if the stock or securities are traded on a
recognized exchange or through the Nasdaq Stock Market;
- the date on which a majority of the members of the board of either
Cerulean or Blue Cross and Blue Shield of Georgia are no longer
continuing directors, as defined in the license agreement between
Cerulean and the Blue Cross and Blue Shield Association, originally dated
February 2, 1996;
- approval by the shareholders of Cerulean or Blue Cross and Blue Shield of
Georgia of any merger, consolidation or share exchange as a result of
which the securities of Cerulean or Blue Cross and Blue Shield of Georgia
will be changed, converted or exchanged into the shares of another
corporation, the liquidation of Cerulean or Blue Cross and Blue Shield of
Georgia or the sale or disposition of 50% or more of the assets or
earning power of either Cerulean or Blue Cross and Blue Shield of
Georgia; or
- approval by the shareholders of any plan of consolidation, merger or
share exchange which would result in the persons who were shareholders
immediately prior to such transaction retaining less than 50% of the
voting power to elect directors of the surviving corporation.
The completion of the merger with WellPoint would constitute a change in control
under this definition.
The benefits payable under Mr. Shirk's supplemental plan vary, depending on
his age at the time of his termination of employment. If he is less than age 55
at the time of his termination, his monthly benefit equals 2% of his final
average earnings times his years of credited service, minus 21%, which
represents a reduction of 3% per year for each year that the benefit begins
before age 62, minus the monthly annuity amount he would receive from the
Non-Contributory Retirement Program, and minus the actuarial equivalent value of
the monthly benefit he would receive from Social Security at age 62. If
termination occurs after age 55 but before age 60, his monthly benefit would
equal 2% of his final average earnings for each of his first 25 years of
credited service, minus 0.25% for each month that his termination precedes his
62nd birthday, plus 3% of his final average earnings for each of his next five
years of credited service, minus the monthly annuity amount he would receive
from the Non-Contributory Retirement Program, and minus the actuarial equivalent
of the monthly benefit he would receive from Social Security at age 62. If his
employment is terminated after age 60, his monthly benefit would equal 65% of
his final average earnings, minus the monthly annuity amount he would receive
from the Non-Contributory Retirement Program, minus the actuarial equivalent
value of the monthly benefit he would receive from Social Security at age 62.
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Mr. Shirk's supplemental plan deems him to have completed 25 years of
credited service at age 55. For each year after age 55, he will earn an
additional year of service, up to a maximum of 30 years. The first amendment to
the plan, dated December 1, 1996, defines the term "final average earnings" to
equal one-twelfth of the final average earnings amount determined under the
Non-Contributory Retirement Program, with the following modifications:
- the plan would not limit final average earnings to the compensation
limits imposed by Section 401(a)(17) of the Internal Revenue Code;
- the plan would include cash incentive payments, regardless of whether Mr.
Shirk received or deferred them;
- if his market target rate for any given calendar year exceeds his base
salary rate, the plan uses the market target rate in the calculation, and
market target rate is to equal the 50th percentile market rate as
determined by the compensation committee on an annual basis.
Mr. Shirk's supplemental plan provides that Blue Cross and Blue Shield of
Georgia should continuously fund the benefits through a grantor trust. Blue
Cross and Blue Shield of Georgia has made contributions to the previously
mentioned trust for this purpose.
If Mr. Shirk terminates employment following a change in control for any
reason other than voluntarily without good reason, the amount of his monthly
benefit is the greater of the normal calculation described above, depending on
his age at that time, or 60% of his final average earnings. This amount would
not include any reduction for early commencement, but would include reductions
for benefits payable under the Non-Contributory Retirement Program and Social
Security. Cerulean may pay benefits in a lump sum payment or any optional form
of payment permitted under the Non-Contributory Retirement Program.
Because Mr. Shirk's employment agreement defines "good reason" to include a
change in control, he may voluntarily terminate his employment at any time
following a change in control of Cerulean or Blue Cross and Blue Shield of
Georgia, at which point he would be entitled to immediate payment of the
benefits under his supplemental plan. In addition, due to the continuous funding
requirement of Mr. Shirk's supplemental plan and the change in control funding
requirement of the trust, Cerulean anticipates that the trust will require
contributions within 30 days of a change in control to prefund Mr. Shirks'
entire benefit. As of March 31, 2001, Cerulean estimates that the amount of Mr.
Shirk's benefit under his supplemental plan will be $7,950,598. The trust held
assets valued at $3,678,134 as of June 30, 2000, and Cerulean estimates that the
trust will hold assets valued at approximately $7,950,598 as of March 31, 2001.
In addition, as of January 1, 1997, Cerulean amended Mr. Shirk's employment
agreement to state that Cerulean will provide Mr. Shirk an additional cash
payment sufficient to cover any excise tax imposed on him under Sections 280G or
4999 of the Internal Revenue Code on the total payments he receives under any
plan or arrangement as a result of a change in control. The employment agreement
also requires an additional payment to cover the state and federal income taxes
and employment taxes on the excise tax payment.
Change in Control Severance Agreements. In January 1998, Cerulean entered
into individual change in control severance agreements with 38 key employees.
Ten executives entered into Tier I agreements, and 28 key employees entered into
Tier II agreements. These agreements each have an initial term that ends on
December 31, 2001, which automatically extends for an additional year absent
notice from either party or upon a public announcement of an intended change in
control of Cerulean.
The agreements provide that if, during the term of the agreement, Cerulean
terminates the employment of the employee without "cause," the employee
terminates his or her employment for "good reason" or due to disability
following a public announcement of an intended change in control of Cerulean, or
if Cerulean fails to renew the agreement within 90 days prior to the public
announcement of an
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intended change in control, then Cerulean must pay the employee severance
benefits in a lump sum no later than 30 days following termination of
employment.
The severance benefits for employees under the agreements include:
- all earned but unpaid base salary, earned and accrued vacation pay,
universal leave pay, unreimbursed business expenses and other amounts
that Cerulean owes;
- an amount equal to two times the sum of (a) and (b) where (a) equals the
greater of annual base salary at the time of termination or annual base
salary prior to public announcement of intended change in control, and
(b) equals the average of any bonuses that the employee receives under
the Cerulean Annual Incentive Plan during the two-year period that ended
immediately before the year in which the public announcement of the
intended change in control occurs, or, for Tier II agreements, an amount
equal to one times that sum;
- if the employee is at least age 50 or has completed ten years of service
as of the date of termination, for purposes of calculating his benefits
under the Non-Contributory Retirement Program, the Supplemental Executive
Retirement Plan, the Executive Benefit Restoration Plan or any other
tax-qualified or nonqualified defined benefit pension plan, he is
considered to be 100% vested as of the date of his termination and he is
considered to have either three additional years of service or three
additional years of age, whichever produces the greater benefit payable
to the employee, except that the additional three years of service will
not be eligible for the double counting under the Supplemental Executive
Retirement Plan;
- an amount sufficient for the employee to purchase health and dental
insurance, life insurance and long-term disability insurance coverage for
himself and his dependents for 24 months, at the same cost and level of
coverage as the employee had at his date of termination, with the
continuation period required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 beginning on date of termination; and
- up to $20,000 of outplacement services from a nationally recognized
outplacement firm chosen by the employee, or, for Tier II agreements, up
to $10,000 of these services.
The change in control severance agreements also provide that if a change in
control occurs during the term of the agreement, or if Cerulean publicly
announces an intended change in control within 90 days after the term of the
agreement has ended, certain benefits become payable regardless of whether
Cerulean terminates the employee. These benefits include any bonus which the
employee would have earned under the Cerulean Annual Incentive Plan adjusted on
a pro rata basis for the number of days that Cerulean actually employed the
employee during the year and any amount payable to the employee under the
Performance Unit Plan. Cerulean must pay these amounts no later than 30 days
following the change in control. In addition, all stock options, restricted
stock or performance shares that Cerulean has granted to the employee during the
term of the agreement become fully vested upon a change in control. The
definition of "change in control" in these agreements is similar to that
contained in the Performance Unit Plan. Completion of the merger with WellPoint
will be a change in control.
Each of the change in control severance agreements contains provisions
requiring Cerulean to provide the employee an additional cash payment sufficient
to cover any excise tax payment and an additional gross up payment to cover the
state and federal income taxes and employment taxes on the excise tax payment.
Each of Richard F. Rivers, John A. Harris, Mark Kishel, Richard Steinhausen
and Stuart G. Wright have entered into Tier I change in control severance
agreements.
Interests of Cerulean Directors
The merger agreement provides that, from and after the time of completion
of the merger, WellPoint and Cerulean will not take any action which would have
the effect of eliminating or impairing the rights of current or former officers
and directors of Cerulean to be indemnified in accordance with the Cerulean
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articles of incorporation and bylaws and applicable law. The merger agreement
also requires WellPoint to purchase so-called "tail" coverage under Cerulean's
existing director and officer liability insurance policies for a period of six
years after completion of the merger, up to a maximum premium amount of
$500,000.
The merger agreement also provides that, as of the completion of the
merger, one person who was a member of the board of directors of Cerulean on the
date of the merger agreement will be nominated for election to the board of
directors of WellPoint. As of the date of this proxy statement, WellPoint and
Cerulean have not designated this director.
Mr. Shirk is also a director of Cerulean. Joe M. Young is a director of
Cerulean and an affiliate of a holder of Class B stock. Frank J. Hanna, III, a
director of Cerulean, is an affiliate of Georgia Strategic Healthcare, which
holds 80.16% of the Class B stock. John W. Robinson, Jr. is a director of
Cerulean and holds five shares of Class A stock.
SETTLEMENT OF CERULEAN CONVERSION LITIGATION AND CREATION OF THE FOUNDATION
On September 3, 1997, plaintiff Let's Get Together, Inc and other
non-profit charitable organizations under Section 501(c)(3) of the Internal
Revenue Code filed a Complaint for Declaratory Judgment and Other Relief against
defendants the Georgia Insurance Commissioner, Blue Cross and Blue Shield of
Georgia and Cerulean in the Superior Court of Fulton County, Georgia. In the
class action complaint, the plaintiffs sought a declaratory judgment that:
- the statute pursuant to which Blue Cross and Blue Shield of Georgia
converted from a non-profit corporation to a for-profit business
corporation is unconstitutional under the Constitution of the State of
Georgia and the Constitution of the United States of America;
- the conversion order issued by the Georgia Insurance Commissioner on
December 27, 1995 was null and void because it was based on
unconstitutional statutory provisions; and
- the fair market value of the assets of Blue Cross and Blue Shield of
Georgia as of December 27, 1995 is subject to a charitable trust of which
the plaintiffs and their class members are designated beneficiaries.
On October 31, 1997, Blue Cross and Blue Shield of Georgia and Cerulean
filed a Motion to Dismiss or, In the Alternative, Motion for Summary Judgment
which sought an order from the Superior Court dismissing all of the plaintiffs'
claims against Blue Cross and Blue Shield of Georgia and Cerulean in their
entirety. On July 8, 1998, Cerulean and Blue Cross and Blue Shield of Georgia
entered into a settlement of the conversion litigation which was approved by the
Superior Court on August 21, 1998. The motion to dismiss was pending at the time
this settlement was reached.
Pursuant to the terms of the settlement, the parties formed a Georgia
non-profit corporation named "Healthcare Georgia, Inc. Endowed by Blue Cross and
Blue Shield of Georgia," a charitable foundation whose purpose is the
advancement of health care for all Georgians. Pursuant to the bylaws of the
foundation, Cerulean has the right to appoint three directors of the foundation.
Two of these three directors are Joseph D. Greene and Richard D. Shirk, who are
also directors of Cerulean.
Cerulean issued to the foundation and its lawyers shares of Class A stock
amounting to approximately 9.5% of the total equity of Cerulean outstanding
after issuance of the securities issued in the settlement. Cerulean also issued
the foundation and its lawyers warrants for the acquisition of Series A stock
amounting to approximately 10.5% of the total equity of Cerulean, for an
aggregate warrant exercise price of $21 million. Together, the Class A stock and
Series A stock represented by the warrants will equal 20% of the total equity of
Cerulean after the issuance of the Series A stock upon the exercise of the
warrants. Pursuant to the terms of the settlement, six months after the
effective date of the settlement and before the one year anniversary of that
effective date, the foundation shareholders may tender a number of shares of the
Class A stock issued in the settlement aggregating one-half of one percent of
the total equity of Cerulean to Cerulean, and Cerulean is obliged to purchase
these shares for an aggregate purchase price of $1 million. The foundation
shareholders did not, however, tender these shares within the specified time
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period and this redemption right has expired. In addition, Blue Cross and Blue
Shield of Georgia paid $1 million to the foundation and its lawyers on the
effective date of the settlement. The effective date of the settlement was
September 21, 1998, the date on which all appeal periods expired after the entry
of the final order. Pursuant to the settlement, the Georgia Insurance
Commissioner was dismissed with prejudice in the judgment.
With the expiration of the redemption right as described above, the shares
of Class A stock issued to the foundation shareholders have all of the same
terms and provisions as the other shares of Class A stock as provided in the
Cerulean articles of incorporation.
The warrants are exercisable for shares of Series A stock. The Series A
stock is a new series of preferred stock created specifically for the
settlement. Series A stock has all of the economic attributes of Class A stock,
and each share of Series A stock is the economic equivalent of one share of
Class A stock. The Series A stock, however, has no voting rights. If an event
occurs in which Georgia law grants the right to vote to any class or series of
capital stock, each share of Series A stock automatically converts into one
Class A common stock participation right. Each of these participation rights is
the economic equivalent of one share of Class A stock but has no voting rights.
Consequently, the effect of the issuance of the warrants and the Series A stock
is that there are no circumstances under which the equity interest represented
by the warrants has any voting rights.
The warrants also provide that upon the occasion of so-called "major
events," the foundation shareholders must exercise the warrants in a cashless
exercise. The merger is a major event. The effect of this provision is that the
warrants will be automatically converted into shares of Series A stock according
to a formula provided in the warrants. This provision of the warrants pays the
exercise price of the warrants from the appreciated value represented by the
underlying Series A Stock and therefore reduces the overall percentage
participation by the Series A stock in the merger consideration. Based upon the
purchase price reflected in the merger agreement, the number of shares of Series
A stock issuable upon exercise of the warrants will represent approximately 7.8%
of the total merger consideration. The Cerulean board of directors and holders
of a majority of the outstanding shares of Series B stock have authorized the
Series A stock, and Cerulean filed an amendment to its articles of incorporation
creating and authorizing the Series A stock with the Georgia Secretary of State,
effective September 22, 1998.
Pursuant to the shareholders agreement, dated September 22, 1998, between
Cerulean and the foundation in connection with the settlement of the conversion
litigation, the foundation is not entitled to vote any shares in excess of 5% of
the total outstanding Class A stock, or 20,480 shares of Class A stock as of
August 30, 2000. Cerulean has waived this provision with respect to the merger.
Therefore, the foundation will be entitled to vote all 53,150 shares of Class A
stock it holds with respect to the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes certain material federal income tax
consequences applicable to Cerulean shareholders upon receipt of their cash
consideration pursuant to the merger. This summary is based on the provisions of
the Internal Revenue Code of 1986, as amended, final, temporary and proposed
United States Treasury regulations promulgated thereunder, and the
administrative and judicial interpretations thereof, all as in effect as of the
date of this proxy statement. Such laws or interpretations may differ at the
date of closing of the merger or thereafter, possibly with retroactive effect.
The effectiveness of the merger is not conditioned upon the receipt of any
ruling from the Internal Revenue Service or any opinion of counsel as to tax
matters.
This summary is for general information only. The tax treatment applicable
to each Cerulean shareholder will depend in part upon each holder's particular
situation. Special tax consequences not described below may be applicable to
particular classes of taxpayers, including financial institutions, insurance
companies, those who received shares of Cerulean stock as compensation,
tax-exempt entities, broker-dealers, persons who are not citizens or residents
of the United States, and shareholders who perfect their appraisal rights. The
following discussion relates only to shares of Cerulean stock that are held as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.
EACH SHAREHOLDER
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SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
The merger will be a taxable transaction to our shareholders for federal
income tax purposes. Each shareholder will recognize gain or loss equal to the
difference between the amount of aggregate cash received pursuant to the merger
agreement and the shareholder's tax basis in shares of Cerulean stock. The gain
or loss will be capital gain or loss if the shares are capital assets in the
hands of the holder. This capital gain or loss will be long term if the holding
period for such shares is more than one year at the time of the merger, and
short-term capital gain or loss if the holding period for such shares is not
more than one year. The maximum federal income tax rate on long-term capital
gain applicable to a non-corporate shareholder is 20%, and the maximum federal
income tax rate on short-term capital gain applicable to a non-corporate
shareholder is 39.6%. Capital gain realized by a corporate shareholder will be
subject to a maximum federal income tax rate of 35%. The current year
deductibility of capital losses recognized by a non-corporate shareholder is
limited to such shareholder's capital gains plus $3,000, and the current year
deductibility of capital losses recognized by a corporate shareholder is limited
to such shareholder's capital gains.
Under the Internal Revenue Code, a shareholder may be subject, under
certain circumstances, to "backup withholding" at a 31% rate on cash payments
made in exchange for Cerulean stock unless the shareholder (a) completes the
Substitute Form W-9 that is included with the proxy card or the letter of
transmittal by providing, among other requisite information, his or her correct
taxpayer identification number or (b) is eligible for an exemption from this
requirement. Exempt persons (including, among others, corporations) are not
subject to backup withholding, provided that they indicate their exempt status
on a Substitute Form W-9. The amount of any backup withholding from a payment to
a shareholder will be allowed as a credit against such shareholder's federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
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THE MERGER AGREEMENT
This section is a summary of the material provisions of the merger
agreement. We encourage you to read carefully the entire copy of the merger
agreement, which is attached as Appendix A to this proxy statement, before you
decide how to vote.
STRUCTURE OF THE MERGER
The merger agreement provides that Water Polo Acquisition Corp., a
subsidiary of WellPoint formed for purposes of the merger, will merge into
Cerulean. Cerulean will continue as the surviving corporation. As a result of
the merger, WellPoint will operate Cerulean's business as a subsidiary of
WellPoint.
CLOSING OF THE MERGER
The merger agreement provides that the closing of the merger will take
place 30 days after all pre-closing conditions have been satisfied or waived,
unless WellPoint and Cerulean agree upon another time. If the Cerulean
shareholders approve the merger at the special meeting on January 30, 2001, we
anticipate that the closing will take place within approximately 90 days of the
date of the meeting. On the closing date of the merger, Water Polo Acquisition
Corp. and Cerulean will file a certificate of merger with the Secretary of State
of Georgia. The merger will be completed and effective when the Secretary of
State has accepted and filed the certificate of merger. If the merger does not
occur by November 29, 2001, Cerulean or WellPoint may terminate the merger
agreement, unless the party seeking to terminate the merger agreement has
prevented the completion of the merger by failing to perform its obligations
under the agreement.
SURVIVING CORPORATION
After the merger, the articles of incorporation and bylaws of Water Polo
Acquisition Corp., as in effect immediately prior to the merger, will be the
articles of incorporation and bylaws of the surviving corporation, until amended
in accordance with applicable law. The directors and officers of Water Polo
Acquisition Corp. immediately prior to the merger will be the directors and
officers of the surviving corporation after the merger until their successors
are elected and qualified.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary mutual representations and
warranties by WellPoint and Cerulean relating, among other things, to the
following matters:
- corporate organization, standing, qualification and similar corporate
matters;
- financial statements;
- the absence of any material untrue statements in the information provided
by Cerulean and WellPoint for this proxy statement;
- absence of conflict of the merger agreement with charter documents, laws
or agreements;
- required filings, consents and approvals for the execution of the merger
agreement and the completion of the transactions contemplated by the
merger agreement;
- absence of changes or events with respect to each of WellPoint and
Cerulean since September 30, 2000 that would have a material adverse
effect on the collective business, assets, or financial condition of
WellPoint and its material subsidiaries or Cerulean and its material
subsidiaries; and
- the absence of material untrue statements in the merger agreement or any
certificates or other writings delivered pursuant to the merger
agreement.
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In addition, the merger agreement contains certain additional
representations and warranties by Cerulean relating to:
- capitalization;
- absence of claims against capital stock or any other equity security;
- absence of undisclosed liabilities;
- compliance with applicable laws;
- title to real and personal property;
- indebtedness;
- documents filed by Cerulean with the SEC and the accuracy of the
information contained in those documents;
- intellectual property matters;
- employee benefits matters;
- absence of litigation that could reasonably be expected to have a
material adverse effect on the collective business, assets, or financial
condition of Cerulean and its material subsidiaries;
- absence of collective bargaining agreements;
- absence of labor disputes that would have a material adverse effect on
the collective business, assets, or financial condition of Cerulean and
its material subsidiaries;
- environmental matters;
- required licenses and permits;
- maintenance of insurance;
- contracts and commitments;
- tax matters;
- absence of any broker or finder;
- Year 2000 compliance matters;
- computation of reserves; and
- financial statements filed with the Georgia Department of Insurance and
the fair presentation of the financial condition and results of
operations of Cerulean contained in those financial statements.
Under the merger agreement, each of Cerulean and WellPoint have agreed to
disclose promptly in writing to the other any new information which would cause
any of their representations and warranties to become untrue.
COVENANTS OF THE PARTIES
Conduct of Business of Cerulean Pending the Merger
The merger agreement contains restrictions on Cerulean's conduct of
business pending the completion of the merger. These restrictions are designed
to prevent major changes in Cerulean until the merger takes place, except to the
extent that WellPoint consents to the changes in writing. In general, Cerulean,
on behalf of itself and its material subsidiaries, has agreed to operate and
conduct its business only in the ordinary course of business in accordance with
past practices, including the following:
- maintaining its assets in their present state of repair;
- using its reasonable best efforts to keep available the services of its
employees; and
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- preserving the goodwill of its business and relationships with the
customers, licensors, suppliers, distributors and brokers.
Cerulean has also agreed that neither it, nor its material subsidiaries
will, without the prior written consent of WellPoint:
- sell, transfer or dispose of its assets;
- enter into new contracts or commitments with liabilities exceeding $5
million individually or $10 million in the aggregate;
- mortgage or pledge its assets;
- purchase capital assets exceeding $5 million individually or $25 million
in the aggregate;
- amend or terminate material agreements;
- amend its charter or bylaws;
- acquire any corporation, joint venture or other business, except for a
purchase price less than $5 million individually or $10 million in the
aggregate;
- split, combine or reclassify its outstanding capital stock,
- issue, sell or pledge any additional shares;
- incur indebtedness outside of the ordinary course of business;
- adopt or amend any employment or other benefit plan or arrangement;
- modify its current investment policies; or
- increase salaries or bonuses of certain key employees in 2000 or by more
than 10% in the aggregate in 2001.
Conduct of Business of WellPoint Pending the Merger
Without the written consent of Cerulean, pending the completion of the
merger, WellPoint will refrain from amending its charter or bylaws in any manner
which would adversely affect the ability of WellPoint to consummate the
transactions contemplated by the merger agreement.
Transition Team
Each of WellPoint and Cerulean has appointed an equal number of members to
a transition team who will be the principal parties interacting with each other
for purposes of preparing for the merger. Cerulean and WellPoint anticipate that
the limitations provided in the merger agreement will not unduly interfere with
Cerulean's management of its own operations during the period prior to the
merger.
In addition, under the merger agreement, the transition team will be
responsible for developing an action plan for the combination of the businesses,
including an information systems action plan. The transition team will meet
monthly to review the financial performance of Cerulean and its affiliates. At
such meetings Cerulean will advise the transition team of the status of
Cerulean's then-current operating plan, as previously presented to WellPoint,
including all of the operating plan's material components, such as sales,
enrollment, revenues, investment income, quarterly claim trends, medical loss
ratio, administrative expenses, net income, reserves and statutory capital.
Cerulean will inform the transition team at each quarterly meeting of the
applicable trends and retention experience arising from Cerulean's business
planning and underwriting process.
Access to Information
From and after the date of the merger agreement, WellPoint will have
access, during regular business hours, to Cerulean's and any Cerulean
subsidiary's books, records, offices, personnel, counsel, accountants
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and actuaries as WellPoint may reasonably request. WellPoint's use of this
information is governed by a confidentiality agreement between WellPoint and
Cerulean.
Transfer Taxes
WellPoint has agreed to pay all sales or transfer taxes, including stock
transfer taxes, document recording fees, real property transfer taxes and excise
taxes, in connection with the merger.
Consents and Further Assurances
Under the merger agreement, Cerulean and WellPoint have agreed to use their
best efforts to take all actions and do all things necessary under applicable
law to complete the merger, including:
- cooperating to make all fillings;
- obtaining consents of all third parties and governmental authorities
necessary to complete the merger;
- contesting any legal proceedings relating to the merger; and
- executing any additional instruments.
WellPoint and Cerulean have agreed to not take any action which could
reasonably be anticipated to have the effect of delaying or impairing the
receipt of any required consents or approvals.
Public Announcements
Cerulean and WellPoint have each agreed not to issue a press release or any
other announcement regarding the merger without the prior written consent of the
other. In the case of any announcement required by law or securities
regulations, Cerulean and WellPoint will permit the other party to review any
announcement prior to its release or filing.
Dividend on Class B Stock
Immediately before the merger, Cerulean will pay the accrued, but unpaid
dividend on each share of Class B stock, as provided in Cerulean's articles of
incorporation.
Obligations with Respect to Blue Cross and Blue Shield of Georgia
Cerulean and WellPoint currently anticipate that WellPoint will maintain
Blue Cross and Blue Shield of Georgia as a Georgia corporation or other Georgia
legal entity separate from WellPoint and will fill a majority of the seats of
the board of directors of Blue Cross and Blue Shield of Georgia with residents
of the State of Georgia.
Appointment of Director of WellPoint
At the time of the merger, the nominating committee of the board of
directors of WellPoint will nominate one of Cerulean's directors to the
WellPoint board of directors.
Non-solicitation
The merger agreement prohibits Cerulean and its material subsidiaries from
soliciting any proposal for the acquisition of Cerulean or any other similar
material transaction with Cerulean from any third party other than WellPoint.
However, Cerulean is allowed to:
- make any disclosure of information required by law;
- communicate any information to its shareholders to the extent necessary
to comply with the fiduciary duties of Cerulean's board of directors; or
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- provide non-public information to, or negotiate with, any third party who
makes an unsolicited proposal to acquire or otherwise complete a similar
material transaction with Cerulean, so long as Cerulean's board of
directors has determined in good faith and after consulting with its
outside legal counsel and financial advisors that the third party's
proposal is likely to be superior to the WellPoint offer.
If Cerulean terminates the merger agreement in connection with the receipt
of a superior proposal from a third party, Cerulean must pay WellPoint a
termination fee of $18.5 million.
Employee Benefits
WellPoint agrees to provide to the retained employees of Cerulean and its
material subsidiaries employee benefits comparable to the employee benefits
offered by WellPoint to its employees.
CONDITIONS TO THE COMPLETION OF THE MERGER
Conditions to Each Party's Obligations
The obligations of Cerulean and WellPoint to complete the merger are
conditioned on the following conditions being fulfilled:
- Shareholder Approval; Completion of Merger. Cerulean's shareholders will
have properly approved the merger, and the merger will have been
completed at the same time as the closing;
- No Injunction. No court or governmental authority will have enacted or
enforced any law or order preventing the merger, and each party has
agreed to use its best efforts to remove any such impediment to the
completion of the merger;
- Hart-Scott-Rodino Act. Any waiting period applicable to the merger under
the Hart-Scott-Rodino Act will have expired, or have been subject to
earlier termination;
- Consent of Georgia Insurance Commissioner and Other State
Regulators. Cerulean and WellPoint will have obtained the consent of the
Georgia Insurance Commissioner and any other necessary state regulatory
authority, other than those consents that would not have a material
adverse effect on WellPoint's business if they are not obtained. If any
of these governmental authorities conditions its consent on WellPoint's
or Cerulean's compliance with unusual and materially burdensome orders,
then the parties would not be required to complete the merger;
- Approval of the Blue Cross Blue Shield Association. The parties will
have obtained the approval of the Blue Cross Blue Shield Association; and
- Superior Proposal. If Cerulean has provided WellPoint with written
notice of its intent to terminate the merger agreement as a result of
Cerulean's acceptance of a superior proposal from a third party, the
seven-day period within which WellPoint may block termination by
submitting an equivalent or superior offer will have expired.
Conditions to Obligations of Cerulean
Cerulean's obligation to complete the merger also depends on the following
conditions being fulfilled. Cerulean may waive any of these conditions in
writing.
- Representations and Warranties True at Closing Date. Other than minor
exceptions, the representations and warranties of WellPoint in the merger
agreement must be true and correct in all material respects at the time
of the merger. Those representations and warranties not qualified by a
material adverse effect must be true and correct in all material respects
unless the failure of those representations and warranties to be true and
correct, whether individually or in the aggregate, would not result in a
material adverse effect on WellPoint.
- Certificate Delivered. WellPoint will have delivered to Cerulean a
certificate executed by an authorized executive officer stating that
WellPoint has performed its obligations under the merger
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agreement and that all of its representations and warranties are true at
the date of completion of the merger.
- Fairness Opinion. Morgan Stanley will not have withdrawn or materially
amended its opinion, attached as Appendix B to this proxy statement,
stating that the value of the consideration that Cerulean shareholders
will receive pursuant to the merger is fair to those shareholders from a
financial point of view.
- Certificate of Merger. Water Polo Acquisition Corp. will have executed
and delivered the certificate of merger as required by the merger
agreement.
- Appointment of Cerulean Director. WellPoint will have taken all action
necessary to appoint a current Cerulean director to the WellPoint board
of directors, as required by the merger agreement.
- Required Consents. WellPoint will have obtained any required material
consents or approvals that it is required to obtain prior to the
completion of the merger. Those consents and approvals will be in full
force and effect at the time of the completion of the merger.
- No Material Adverse Change. There will not have been any material
adverse effect in WellPoint's business resulting from an action or
inaction of WellPoint since the date of the merger agreement.
Conditions to Obligations of WellPoint and Water Polo Acquisition Corp.
WellPoint and Water Polo Acquisition Corp. will not be obligated to
complete the merger unless the following conditions are fulfilled. WellPoint may
waive any of these conditions in writing.
- Representations and Warranties True at Date of Completion of the
Merger. Other than minor exceptions, Cerulean's representations and
warranties must be true and correct in all material respects on the date
of completion of the merger. Those representations and warranties not
qualified by a material adverse effect must be true and correct in all
material respects unless the failure of those representations and
warranties to be true and correct, whether individually or in the
aggregate, would not result in a material adverse effect on Cerulean. In
addition, no representation or warranty may become untrue because of the
expiration of any of Cerulean's material contracts.
- Certificate Delivered. Cerulean will have delivered to WellPoint a
certificate executed by an authorized executive officer stating that
Cerulean has performed its obligations under the merger agreement and
that all of its representations and warranties are true at the date of
completion of the merger.
- Certificate of Merger. Cerulean will have executed and delivered the
certificate of merger in accordance with the terms of the merger
agreement.
- Required Consents. Cerulean will have obtained any required material
consents or approvals that it is required to obtain prior to the
completion of the merger. Those consents and approvals will be in full
force and effect at the time of the merger.
- No Other Litigation. No other litigation or other similar proceeding
relating to the conversion of Blue Cross and Blue Shield of Georgia to a
for-profit company, or to the distribution of consideration contemplated
by the merger agreement, will be pending that has a significant
likelihood of material liability to either WellPoint, Cerulean or any of
their affiliates. This litigation or similar proceeding is referred to in
the merger agreement as a "material case." If WellPoint notifies Cerulean
that it considers a matter to be a material case, Cerulean has the right
under the merger agreement to refer the matter to an arbitrator for a
determination as to whether the matter is a material case.
- No Material Adverse Effect. There will not have been any material
adverse effect in Cerulean's business resulting from any action or
inaction of Cerulean since the date of the merger agreement.
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- Conversion of Warrants. Prior to the merger, all outstanding warrants to
purchase Series A stock will have been exercised pursuant to cashless
exercise.
- Settlement of Certain Litigation. The judgment of the Superior Court of
Richmond County entered with respect to the settlement agreement dated
October 2, 2000 between Cerulean and the plaintiffs in Tiller et al. v.
Cerulean Companies, Inc. et al., Civil Action No. 98-RCCV-806, must have
become final and no more than 1,000 members of the settlement class must
have opted out of the settlement. No appeals were filed within the 30-day
appeal period from the November 2, 2000 order which approved the
settlement, and 235 members of the plaintiffs' class have opted out of
the settlement.
TERMINATION AND TERMINATION FEES
Termination
The merger agreement may be terminated at any time before the merger's
completion, whether before or after approval by the shareholders of Cerulean,
under the following circumstances:
- By the mutual written agreement of Cerulean and WellPoint, without
liability;
- By either Cerulean or WellPoint, without liability, if the merger has not
been completed by November 29, 2001, unless the party seeking to
terminate caused the delay;
- By Cerulean, if WellPoint has materially breached any covenants or any
representations or warranties in the merger agreement resulting in a
material adverse effect on WellPoint, if WellPoint has not cured that
breach within 30 days after notice from Cerulean;
- By WellPoint in writing, if Cerulean has materially breached any
covenants or any representations or warranties in the merger agreement
resulting in a material adverse effect on Cerulean, if Cerulean has not
cured that breach within 30 days after notice from WellPoint;
- By either Cerulean or WellPoint, without liability, if any court or other
governmental authority has issued an order prohibiting the merger that
WellPoint and Cerulean, after using their best efforts, have not been
able to have vacated within 30 days after entry;
- By Cerulean, subject to a termination fee, if the board of directors
receives a superior proposal from a third party and authorizes Cerulean
to execute a binding written agreement with respect to that transaction;
but only if:
- Cerulean's board of directors determines in good faith that the
board's fiduciary duty requires it to accept the superior proposal and
terminate the merger agreement;
- Cerulean notifies WellPoint in writing that it intends to enter into
an agreement with a third party and provides WellPoint with the most
current proposed documentation for the transaction; and
- WellPoint has not, within seven days after receiving the written
notice, provided a written offer that the board of directors of
Cerulean determines in good faith, after application of the analysis
set forth in the merger agreement, to be at least as favorable as the
superior proposal from the third party; or
- By either of Cerulean or WellPoint in writing, generally without
liability, if any of:
- Cerulean's shareholders,
- the Georgia Insurance Commissioner,
- the Federal Trade Commission or the Justice Department under the
Hart-Scott-Rodino Act, or
- the Blue Cross Blue Shield Association declines to approve the merger.
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Termination Fees
Cerulean has agreed to pay WellPoint a termination fee of $18.5 million as
liquidated damages and reimbursement of expenses incurred by WellPoint up to the
date of termination if Cerulean's board accepts a superior proposal from a third
party and complies with the requirements of the merger agreement to give
WellPoint prompt notice and an opportunity to match the third party offer.
Cerulean will also pay WellPoint this $18.5 million termination fee if the
holders of Cerulean's Class B stock fail to approve the merger. Under the
circumstances just described, WellPoint and Cerulean have agreed that the
termination fee will constitute WellPoint's total damages and sole remedy upon
the termination of the merger agreement.
COSTS AND EXPENSES
Except for the termination fees described above, each party will bear its
own costs and expenses incurred in connection with the merger agreement, subject
to the rights of such party contemplated under the termination provisions of the
merger agreement with respect to a willful breach, violation or default by the
other party.
AMENDMENT AND WAIVER
The merger agreement may be amended only by a written, signed agreement of
the parties. Cerulean and WellPoint may amend the merger agreement, pursuant to
action taken by their boards of directors, at any time before or after the
Cerulean shareholders approve the merger agreement. If an amendment made after
shareholder approval requires further approval under Georgia law, however,
Cerulean must obtain additional shareholder approval. At any time before the
merger, either party may waive the other party's compliance with any of the
terms or conditions of the merger agreement in writing. Waiver of one provision
of the merger agreement will not constitute a waiver of any other provision of
the merger agreement.
DISSENTERS' RIGHTS
Cerulean shareholders have the right to dissent from the merger and receive
cash payment for their shares of Class A stock or Class B stock by following the
procedures set forth in Sections 14-2-1301 through 14-2-1332 of the Georgia
Business Corporation Code. The right to exercise dissenters' rights was granted
to the holders of Class A stock and holders of Class B stock by resolution of
the Cerulean board of directors and the provisions of the Georgia Business
Corporation Code, respectively. The following is only a summary of the
provisions of the Georgia Business Corporation Code and is qualified in its
entirety by reference to the full text of such provisions, a copy of which is
attached as Appendix C to this proxy statement.
The Georgia Business Corporation Code provides that any dissenting
shareholder who wants to object to the merger and receive payment in cash for
the fair value of his or her Class A stock or Class B stock must deliver written
notice of his or her intent to dissent and demand payment of the fair value of
his or her shares prior to the vote of the Class A or Class B stock, as may be
appropriate. The notice must be delivered to Cerulean Companies, Inc., 3350
Peachtree Road, N. E., Atlanta, Georgia 30326, Attention: Hugh J. Stedman,
Corporate Secretary. Voting in favor of the merger proposal will waive a
shareholder's dissenters' rights.
If the Cerulean shareholders approve the merger, Cerulean is required to
send by registered or certified mail a form of dissenters' notice to each of the
dissenting shareholders who filed a written notice of his or her intent to
dissent. This dissenters' notice must:
- state where the dissenting shareholders' first payment demand must be
sent;
- inform the holders of uncertificated shares to what extent transfer of
these shares will be restricted after payment demand is made;
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- state the date by which Cerulean must receive the first payment demand,
as fixed by Cerulean between 30 and 60 days after the date the
dissenter's notice is delivered; and
- contain a copy of Article 13 of the Georgia Business Corporation Code
relating to dissenters' rights.
Cerulean is required to send the dissenters' notice to each of the
dissenting shareholders no later than ten days after the date on which the
Cerulean shareholders vote to authorize the merger. The dissenters' notice will
be sent to each dissenting shareholder at his or her address as it appears in
the stock transfer books of Cerulean, unless the dissenting shareholder provides
Cerulean with a different address.
Each dissenting shareholder to whom Cerulean sends a dissenters' notice
must submit a first payment demand for his or her shares to Cerulean in
accordance with the terms of the dissenters' notice. The first payment demand
must contain the name and address of the dissenting shareholder, the number of
shares as to which the dissenting shareholder is demanding payment, which must
be all of the shares of capital stock of Cerulean which he or she owns, and a
demand for payment of the fair value of his or her shares. Any dissenting
shareholder who does not submit a first payment demand as set forth in the
dissenters' notice loses his or her rights to dissent and will not be entitled
to payment for his or her shares pursuant to the dissenters' rights provisions
of the Georgia Business Corporation Code.
Within ten days of the later of the date of completion of the merger or
Cerulean's receipt of the first payment demand, Cerulean shall offer to pay the
dissenting shareholders who have complied with the provisions of the Georgia
Business Corporation Code the amount Cerulean estimates to be the fair value of
the shares, plus any accrued interest. Cerulean's offer of payment shall be
accompanied by:
- Cerulean's balance sheet as of the fiscal year ended not more than 16
months before the date of payment;
- Cerulean's income statement for that year;
- a statement of changes in Cerulean's shareholders' equity for that year;
- Cerulean's latest available interim financial statements, if any;
- a statement of Cerulean's estimate of the fair value of the shares;
- an explanation of how Cerulean calculated the interest on the shares;
- a statement of the dissenting shareholder's right to demand payment of a
different amount if the dissenting shareholder is dissatisfied with the
offer; and
- a copy of Article 13 of the Georgia Business Corporation Code.
A dissenting shareholder may accept Cerulean's offer by providing written
notice to Cerulean within 30 days after the date that Cerulean made the offer. A
dissenting shareholder is deemed to have accepted Cerulean's offer by failure to
respond within the 30 days. If the offer is accepted or deemed accepted,
Cerulean will pay for the dissenting shareholder's Class A stock or Class B
stock within 60 days after the date Cerulean made the offer or the date of the
merger, whichever date is later. If a dissenting shareholder is dissatisfied
with Cerulean's offer, that dissenting shareholder may make a second payment
demand, notifying Cerulean in writing of, and demanding payment of, his or her
own estimate of the fair value of his or her shares and the amount of interest
due. A dissenting shareholder waives his or her right to demand payment of a
different amount than that offered by Cerulean unless that dissenting
shareholder makes a second payment demand within 30 days after the date Cerulean
makes its offer.
If a dissenting shareholder's second payment demand remains unsettled
within 60 days after Cerulean receives the dissenting shareholder's second
payment demand, Cerulean will submit the matter to the Superior Court of Fulton
County, Georgia to determine the fair value of the shares and accrued interest.
Cerulean will make all dissenting shareholders whose second payment demand
remains unsettled parties to the court proceeding. In the proceeding, the court
will fix a value of the shares and may appoint one or more appraisers to receive
evidence and recommend a decision on the question of fair value. If Cerulean
does not commence the proceeding within 60 days after receiving the dissenting
shareholder's second
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payment demand, Cerulean will pay each dissenting shareholder whose second
payment demand remains unsettled the amount demanded by that dissenting
shareholder in his or her second payment demand.
The determination of a "fair value" necessarily involves matters of
judgment upon which reasonable persons may disagree. The Georgia Business
Corporation Code provides that, for purposes of dissenters' rights, the value of
the Class A stock or Class B stock is determined immediately before the merger
and that the fair value excludes any appreciation or depreciation in
anticipation of the merger.
At the time of the Cerulean special meeting, Cerulean will calculate the
total number of shares of Class A stock and of Class B stock which are the
subject of appropriate notices from dissenting shareholders, and Cerulean and
WellPoint will determine the appropriate amount to be withheld from the cash
available to other shareholders who elect to receive cash in the merger.
SECURITY OWNERSHIP OF CERULEAN MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
Currently, no shares of common stock are outstanding or beneficially owned
by any person, and no shares of blank preferred stock are outstanding or
beneficially owned by any person.
As of December 1, 2000, a total of 70,230 holders held 409,602 shares of
Class A stock, all of which were outstanding. There is no established public
trading market for the Class A stock. Transfer of the Class A stock was
restricted until December 1, 1998; thereafter, during the period December 1,
1998 through December 2001, any sale of Class A stock is subject to Cerulean's
first right of refusal. Cerulean does not anticipate that any dividends will be
paid on Class A stock.
The charitable foundation formed in connection with the settlement of the
conversion litigation owns 53,150 shares, or approximately 13% of the Class A
stock. The address of the foundation is: Healthcare Georgia, Inc., Endowed by
Blue Cross & Blue Shield of Georgia c/o Long Aldridge & Norman LLP, 303
Peachtree Street, Suite 5300, Atlanta, Georgia 30308.
No directors, nominees for director or officers of Cerulean or of Blue
Cross and Blue Shield of Georgia beneficially own any shares of capital stock of
Cerulean except Frank J. Hanna, III and John W. Robinson, Jr. Mr. Robinson, a
Class A designated director, owns five shares, which is less than 1%, of the
Class A stock outstanding. Georgia Strategic Healthcare owns 40,000 shares, or
approximately 80%, of the Class B stock outstanding. Frank J. Hanna, III, Frank
J. Hanna, Jr. and David Hanna share voting and dispositive power with regard to
all of the shares of Class B stock owned by Georgia Strategic Healthcare. Frank
J. Hanna, III, is, therefore, deemed to be the indirect beneficial owner of the
40,000 shares held by Georgia Strategic Healthcare. The address of Georgia
Strategic Healthcare is: Suite 1750, Two Ravinia Drive, Atlanta, Georgia 30346.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Should there be an annual meeting in 2001, shareholders must submit
shareholder proposals and director nominations intended to be presented at the
2001 annual meeting of shareholders to Cerulean in accordance with the
procedures set forth in Article 1, Section 1.12 of the Cerulean bylaws. The
effect of these provisions is that shareholders must submit the proposals and
nominations in writing to Cerulean on or before May 4, 2001 in order for
Cerulean to include these matters in its proxy materials for the 2001 annual
meeting and for the shareholders to vote on them at that meeting. Shareholders
must submit all proposals and nominations on or before that date by certified
mail, return receipt requested, to Hugh J. Stedman, Secretary.
OTHER MATTERS
As of the date of this proxy statement, the board of directors of Cerulean
knows of no matters that will be presented for consideration at the meeting
other than as described in this proxy statement.
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However, if any other matter comes before the meeting or any adjournments or
postponements of the meeting and is voted upon, the proxy given by each
shareholder of Cerulean will be deemed to confer authority to the individuals
named as authorized in that proxy to vote the shares represented by the proxy as
to any matters that fall within the purposes set forth in the notice of meeting.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require Cerulean to file information with the
Securities and Exchange Commission concerning its business and operations.
Accordingly, Cerulean files annual, quarterly, and special reports, proxy
statements and other information with the SEC. You can read and copy this
information at the public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois.
You can get additional information about the operation of the SEC's public
reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site (http://www.sec.gov) that contains our filings and the
reports, proxy and information statements and other information regarding other
companies.
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
CERULEAN COMPANIES, INC.,
WELLPOINT HEALTH NETWORKS INC.
AND
WATER POLO ACQUISITION CORP.
NOVEMBER 29, 2000
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated as of November 29, 2000, by and among Cerulean Companies, Inc., a Georgia
corporation ("Cerulean"), WellPoint Health Networks Inc., a Delaware corporation
("WellPoint"), and Water Polo Acquisition Corp., a Georgia corporation ("WPAC").
WITNESSETH:
WHEREAS, WellPoint directly owns all of the issued and outstanding stock of
WPAC;
WHEREAS, the Boards of Directors of each of Cerulean, WellPoint and WPAC
(i) have approved the merger of WPAC with and into Cerulean upon the terms and
conditions set forth herein and (ii) deem such merger to be in the best
interests of their respective shareholders;
WHEREAS, Cerulean, WellPoint and WPAC desire to make certain
representations, warranties and agreements in connection with such merger; and
WHEREAS, Cerulean, WellPoint and a predecessor of WPAC have entered into
that certain Agreement and Plan of Merger, dated as of July 9, 1998, as amended
by the First Amendment to Agreement and Plan of Merger, dated as of July 9,
1999, and further amended by the Second Amendment to Agreement and Plan of
Merger, dated as of December 31, 1999 (as so amended, the "Original Merger
Agreement").
NOW, THEREFORE, in consideration of the mutual representations, warranties.
covenants and agreements contained herein, and upon and subject to the terms and
the conditions hereinafter set forth, the parties do hereby amend and restate
the Original Merger Agreement and agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.02), WPAC shall be merged with and
into Cerulean in accordance with this Agreement and the separate corporate
existence of WPAC shall thereupon cease (the "Merger"). Cerulean shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The Merger shall have the effects specified in Section
14-2-1106 of the Georgia Business Corporation Code (the "GBCC").
1.02 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article VII, the
consummation of the Merger (the "Closing") shall take place at the offices of
Long Aldridge & Norman LLP, One Peachtree Center, 303 Peachtree Street, Suite
5300, Atlanta, Georgia 30308 on the date which is 30 days after the last to
occur of the conditions to Closing which are to occur prior to, but not on, the
Closing Date, or on such other date as the parties shall agree (the "Closing
Date"). The parties hereto shall cause a Certificate of Merger substantially in
the form of Exhibit 1.02 hereto (the "Certificate of Merger") to be properly
executed and filed with the Secretary of State of Georgia on the Closing Date.
The Merger shall become effective at the time of filing of the Certificate of
Merger or at such later time which the parties hereto shall have agreed upon and
designated in such filing as the effective time of the Merger (the "Effective
Time").
1.03 Articles of Incorporation. The Articles of Incorporation of WPAC in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, until duly amended in accordance
with applicable law.
1.04 Bylaws. The Bylaws of WPAC in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
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1.05 Directors, Officers and Name. The directors and officers of WPAC
immediately prior to the Effective Time shall be the directors and officers of
the surviving corporation in the Merger, and the name of the Surviving
Corporation at the Effective Time shall remain "Cerulean Companies, Inc."
1.06 Proxy Statement. As soon as practicable, Cerulean shall file with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and shall use its best efforts to have
cleared by the SEC, a proxy statement with respect to the meeting of Cerulean's
shareholders referred to in Section 5.05 (the "Proxy Statement"). Each of the
parties hereto shall use its best efforts promptly to provide in writing all
information related to such party which is required for inclusion in the Proxy
Statement.
ARTICLE II
THE CONVERSION
2.01 Conversion of Shares.
(a) At the Effective Time, each issued and outstanding share of Cerulean
Class A Convertible Common Stock ("Cerulean Class A Stock"), Class B Convertible
Preferred Stock ("Cerulean Class B Stock") and Series A Preferred Stock
("Cerulean Series A Stock"), and each outstanding Class A Common Stock
Participation Right into which the shares of Cerulean Series A Stock have been
converted ("Cerulean Rights"), other than shares of Cerulean Class A Stock,
Cerulean Class B Stock, or Cerulean Series A Stock or units of Cerulean Rights
as to which a demand for fair value has been validly made and perfected under
the GBCC ("Cerulean Dissenting Shares") (collectively, the "Outstanding Cerulean
Shares") shall, by virtue of the Merger and without any action on the part of
the holder thereof (but subject to applicable provisions of this Agreement), be
converted into the right to receive (i) in the case of Cerulean Class A Stock,
Cerulean Series A Stock and Cerulean Rights, cash in an amount equal to the
Class A Cash Price (as hereinafter defined) and (ii) in the case of Cerulean
Class B Stock, cash in an amount equal to the Class B Cash Price (as hereinafter
defined). At the Effective Time, the stock transfer books of Cerulean shall be
closed, and no transfers of shares of Cerulean Class A Stock, Cerulean Class B
Stock, or Cerulean Series A Stock or units of Cerulean Rights shall thereafter
be made. At the Effective Time, each of the shares of common stock, par value
$0.01, of WPAC outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of WPAC or WellPoint, be
converted into one share of common stock of the Surviving Corporation.
(b) Determination of Cash Prices.
(i) Class A Cash Price. The Class A Cash Price shall equal the
solution to the following equation: Aggregate Merger Price (as hereinafter
defined) multiplied by the Class A Percentage (as hereinafter defined), and
further multiplied by a fraction, the numerator of which is the number 1
and the denominator of which is the total number of shares of Cerulean
Class A Stock, shares of Cerulean Series A Stock and units of Cerulean
Rights outstanding as of the Effective Time.
As used herein, the term "Aggregate Merger Price" shall mean Seven
Hundred Million Dollars ($700,000,000).
As used herein, the term "Class A Percentage" shall mean the number 1
minus the "Class B Percentage."
(ii) Class B Cash Price. The Class B Cash Price shall equal the
solution to the following equation: Aggregate Merger Price multiplied by
the Class B Percentage (as hereinafter defined), and further multiplied by
a fraction, the numerator of which is the number 1 and the denominator of
which is the total number of shares of Cerulean Class B Stock outstanding
as of the Effective Time.
As used herein, the term "Class B Percentage" shall mean
.221876389486.
(iii) Closing Certificate. The parties agree to prepare a certificate
calculating the cash prices set forth above which will be signed by a duly
authorized officer of such party at the Closing.
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2.02 Surrender of Certificates. After the Effective Time, each holder of a
certificate or certificates previously representing Outstanding Cerulean Shares
("Cerulean Certificates"), or in the case of Outstanding Cerulean Shares which
are not represented by Cerulean Certificates, each holder of Outstanding
Cerulean Shares as shown on the books and records of Cerulean, shall (except as
otherwise provided in this Agreement) receive a cash payment as provided for in
Section 2.01. Notwithstanding the foregoing, no holder of any Cerulean
Certificate(s) shall receive a cash payment until surrender of the holder's
Cerulean Certificate(s) (if any) to the exchange agent appointed by WellPoint
(the "Exchange Agent").
2.03 Dissenting Shares. Cerulean Dissenting Shares held by any holder
entitled to and seeking relief as a dissenting shareholder under Section
14-2-1302 of the GBCC shall not be converted into the right to receive cash as
provided in Section 2.01, but shall be converted into such consideration as may
be due with respect to such Cerulean Dissenting Shares pursuant to the
applicable provisions of the GBCC unless and until the right of such holder to
receive payment of fair value for such Cerulean Dissenting Shares terminates in
accordance with Section 14-2-1323 of the GBCC. If such right is terminated other
than by the purchase of such shares by WellPoint, then such shares shall cease
to be Cerulean Dissenting Shares and shall be converted into and represent the
right to receive cash as provided in Section 2.01.
2.04 Title to Assets and Responsibility for Liabilities. At the Effective
Time, the title to all real estate and other property owned by Cerulean and WPAC
shall be vested in the Surviving Corporation, without any further act or deed,
and the Surviving Corporation shall be responsible and liable for all the
liabilities of Cerulean and WPAC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CERULEAN
Cerulean hereby represents and warrants as of the date hereof to WPAC as
follows:
3.01 Organization and Authorization.
(a) Cerulean and each of the Cerulean Subsidiaries (as hereinafter
defined) is a corporation duly organized, validly existing and in good
standing under the laws of the state of Georgia, and has all requisite
power and authority, corporate or otherwise, to carry on and conduct its
business as it is now being conducted and to own or lease its properties
and assets. Cerulean and each Cerulean Subsidiary is duly qualified and in
good standing in every state of the United States in which the conduct of
its business or the ownership of its properties and assets requires it to
be so qualified, except where the failure to be so qualified and in good
standing would not have a "Cerulean Material Adverse Effect," as defined
below. As used in this Agreement, "Cerulean Material Adverse Effect" shall
mean a material adverse effect on the business, assets or financial
condition of Cerulean and the Cerulean Subsidiaries, taken as a whole.
Cerulean has heretofore delivered or made available to WPAC accurate and
complete copies of the Articles of Incorporation and Bylaws, or equivalent
governing instruments, as currently in effect, of Cerulean and each of the
Cerulean Subsidiaries.
(b) Schedule 3.01(b) sets forth every entity in which Cerulean owns,
or will own prior to the Closing, fifty percent (50%) or more of the
outstanding equity, directly or indirectly (the "Cerulean Subsidiaries"),
and the equity interest that is owned by Cerulean. Except as noted on
Schedule 3.01(b), Cerulean's ownership interest in the Cerulean
Subsidiaries (the "Cerulean Subsidiary Shares") are owned by Cerulean,
directly or indirectly, free and clear of all liens, restrictions, claims,
equities, charges, options, rights of first refusal, encumbrances or other
restrictions of any kind, with no defects of title whatsoever. Cerulean has
full power, right and authority to vote all of the Cerulean Subsidiary
Shares. Cerulean is not a party to or bound by any voting trust, proxy or
other agreement affecting or relating to its right to transfer or vote the
Cerulean Subsidiary Shares.
(c) Cerulean has the corporate right, power and capacity to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby, subject to the approval and
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adoption of this Agreement by the shareholders of Cerulean in accordance
with the GBCC and the Articles of Incorporation and Bylaws of Cerulean. The
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly and validly
authorized by Cerulean's Board of Directors. This Agreement has been duly
and validly executed and delivered by Cerulean and constitutes Cerulean's
legal, valid and binding obligation, enforceable in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) general
equitable principles.
3.02 Capitalization. The authorized capital stock of Cerulean consists of
50,000,000 shares of Cerulean Class A Stock, 49,901 shares of Cerulean Class B
Stock, 100,000,000 shares of Cerulean Common Stock, 64,000 shares of Cerulean
Series A Stock and 99,936,000 shares of Blank Preferred Stock ("Cerulean Blank
Preferred Stock"). As of the date hereof, 409,602 shares of Cerulean Class A
Stock and 49,900 shares of Cerulean Class B Stock were issued and outstanding,
and no shares of Cerulean Common Stock, Cerulean Series A Stock and Cerulean
Blank Preferred Stock are issued and outstanding. No other capital stock of
Cerulean is authorized or issued. All of such issued and outstanding shares of
capital stock of Cerulean are validly issued, fully paid and nonassessable.
There are no shares of capital stock held in the treasury of Cerulean. Except as
set forth on Schedule 3.02, there are no outstanding or authorized stock
appreciation rights, phantom stock, profit participation or similar rights with
respect to Cerulean or any Cerulean Subsidiary.
3.03 Absence of Other Claims. Except as set forth on Schedule 3.03, there
is not outstanding, nor is Cerulean or any Cerulean Subsidiary bound by, any
subscriptions, options, preemptive rights, warrants, calls, commitments or
agreements or rights of any character requiring Cerulean or any Cerulean
Subsidiary to issue or entitling any person or entity to acquire any additional
shares of capital stock or any other equity security of Cerulean or any Cerulean
Subsidiary, including any right of conversion or exchange under any outstanding
security or other instrument, and Cerulean or any Cerulean Subsidiary is not
obligated to issue or transfer any shares of its capital stock for any purpose.
Except as set forth on Schedule 3.03, there are no outstanding obligations of
Cerulean or any Cerulean Subsidiary to repurchase, redeem or otherwise acquire
any outstanding shares of capital stock of Cerulean or any Cerulean Subsidiary.
3.04 Financial Statements. The audited consolidated balance sheets of
Cerulean as of December 31, 1999 and 1998 and the related audited consolidated
statements of income, retained earnings and cash flows for the years then ended,
including the footnotes thereto, certified by Ernst & Young LLP, Cerulean's
independent certified public accountants, as set forth in Cerulean's Annual
Reports on Form 10-K, as amended, for the years ended December 31, 1999 and
1998, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
and present fairly the financial position in all material respects of Cerulean
and its consolidated Cerulean Subsidiaries as of the dates thereof and the
results of their operations for the periods then ended. The unaudited
consolidated balance sheet of Cerulean as of September 30, 2000 and the related
unaudited consolidated statements of income, retained earnings and cash flows
for the three-month period then ended (the "Interim Financial Statements") have
been prepared in accordance with GAAP for interim financial statements applied
on a basis consistent with prior periods and present fairly the financial
position in all material respects of Cerulean and its consolidated Cerulean
Subsidiaries as of the dates thereof and the results of their operations for the
period then ended.
3.05 No Undisclosed Liabilities. Except (i) as set forth in the Cerulean
SEC Filings (as hereinafter defined), (ii) as shown in the Interim Financial
Statements or (iii) as shown on Schedule 3.05, as of September 30, 2000, neither
Cerulean nor any Cerulean Subsidiary had any liability or obligation whatsoever,
whether accrued, absolute, contingent or otherwise, except for any such
liability or obligation that would not have a Cerulean Material Adverse Effect,
either individually or in the aggregate. Since September 30, 2000, neither
Cerulean nor any Cerulean Subsidiary has incurred any liability or obligation,
except for liabilities and obligations (x) incurred by Cerulean in the ordinary
course of its business
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consistent with past practice, (y) as reflected on Schedule 3.05 or (z) that
would not, individually or in the aggregate, have a Cerulean Material Adverse
Effect.
3.06 No Violation of Law. Except as set forth on Schedule 3.06 or for any
of the following which would not have a Cerulean Material Adverse Effect,
neither Cerulean nor any Cerulean Subsidiary is nor has been nor will be (by
virtue of any past or present action, omission to act, contract to which it is a
party or any occurrence or state of facts whatsoever) in violation of any
applicable local, state or federal law (including any Health Benefit Law (as
defined hereafter)), ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency or authority or court binding
on it, or relating to its property or business. For purposes of this Agreement,
the term "Health Benefit Law" shall mean any local, state or federal law,
ordinance, regulation or order relating to the license, certification,
qualification or authority to transact business relating to the provision of or
payment for health benefits and insurance and any such laws relating to the
regulation of health maintenance organizations, workers' compensation, managed
care organizations, insurance, preferred provider organizations,
point-of-service plans, third party administrators, utilization review, hospital
reimbursement, Medicare and Medicaid participation, fraud and abuse and patient
referrals.
3.07 Real and Personal Property.
(a) Schedule 3.07(a) sets forth a true, correct and complete schedule
of all real property owned by Cerulean or any of the Cerulean Subsidiaries
(the "Cerulean Real Property"). Cerulean or one of the Cerulean
Subsidiaries is the owner of the title to the real property described on
Schedule 3.07(a) and to all of the buildings, structures and other
improvements located thereon free and clear of any mortgage, deed of trust,
lien, pledge, security interest, claim, lease, charge, option, right of
first refusal, easement, restrictive covenant, encroachment or other survey
defect, encumbrance or other restriction or limitation except for matters
on Schedule 3.07(a) and any exceptions or restrictions which, individually
or in the aggregate, would not have a Cerulean Material Adverse Effect (the
"Cerulean Permitted Liens").
(b) Schedule 3.07(b) sets forth a true, correct and complete schedule
of all material leases, subleases, licenses or other agreements under which
Cerulean or any of the Cerulean Subsidiaries uses or occupies, or has the
right to use or occupy, now or in the future, any real property or
improvements thereon (the "Cerulean Real Property Leases"). Except for
matters listed on Schedule 3.07(b), Cerulean or one of the Cerulean
Subsidiaries holds the leasehold estate under an interest in each Cerulean
Real Property Lease free and clear of all material liens, encumbrances and
other rights of occupancy, except (i) liens for current taxes not yet due
and payable, (ii) such imperfections of title, liens or easements as do not
and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially
impair the business operations involving such properties or (iii) those
material liens, encumbrances and other rights of occupancy which would not
have a Cerulean Material Adverse Affect. Except as set forth on Schedule
3.07(b), all Cerulean Real Property Leases have been delivered to WellPoint
and are valid and binding on Cerulean or the Cerulean Subsidiary party
thereto and are valid and binding on the lessors thereunder in accordance
with their respective terms and to Cerulean's knowledge, there is not under
any such Cerulean Real Property Lease any existing default, or any
condition, event or act which with notice or lapse of time, or both, would
constitute such a default, which in either case, considered individually or
in the aggregate with all such other Cerulean's Real Property Leases under
which there is such a default, condition, event or act, would have a
Cerulean Material Adverse Effect.
(c) Cerulean and each Cerulean Subsidiary has good and marketable
title to, or a valid leasehold interest in, all personal property which is
material to the business of Cerulean or such Cerulean Subsidiary,
respectively. All such personal property is suitable for the purpose for
which it is presently used, and is adequate and sufficient for the current
operations of Cerulean and the Cerulean Subsidiaries.
3.08 Indebtedness. Schedule 3.08 sets forth a complete and accurate list
and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed money of
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Cerulean or a Cerulean Subsidiary (and the amounts owed thereunder as of the
date of this Agreement), as well as other material indebtedness by way of
lease-purchase arrangements, guarantees, undertakings on which others rely in
extending credit, and all conditional sales contracts, chattel mortgages and
other security arrangements with respect to personal property used or owned by
Cerulean or a Cerulean Subsidiary. The terms and conditions of the agreements
set forth in Schedule 3.08 do not materially differ from the terms and
conditions of the agreements previously provided to WellPoint except for the
principal amount available under the credit facilities.
3.09 Proxy Statement. None of the information relating to Cerulean and the
Cerulean Subsidiaries included in the Proxy Statement contains or will contain
(in the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the meeting of shareholders of Cerulean
to be held in connection with the transactions contemplated by this Agreement)
any untrue statement of material fact or omits or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except for information supplied or to be supplied by WellPoint
or WellPoint Subsidiaries in writing for inclusion therein, as to which no
representation is made, the Proxy Statement, and any supplements or amendments
thereto, will comply in all material respects with the Exchange Act and the
rules and regulations thereunder.
3.10 SEC Filings. Cerulean has made available to WPAC true and complete
copies of (i) its Annual Reports on Form 10-K, as amended, for the years ended
December 31, 1998 and December 31, 1999, as filed with the SEC, (ii) its proxy
statements relating to all of Cerulean's meetings of shareholders (whether
annual or special) since January 1, 1999, as filed with the SEC and (iii) all
other reports, statements and registration statements (including Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by
Cerulean with the SEC since January 1, 1999 (the reports and statements set
forth in clauses (i), (ii) and (iii) are referred to collectively as the
"Cerulean SEC Filings"). As of their filing date, none of the Cerulean SEC
Filings contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Cerulean SEC Filings at the time of filing complied in all
material respects with the Exchange Act or the Securities Act, as the case may
be, and the rules and regulations thereunder.
3.11 Intellectual Property. Schedule 3.11 sets forth a complete and
accurate list of all of Cerulean's and Cerulean's Subsidiaries registered
trademarks, service marks and patents, and trademark service mark copyrights and
patent registration applications, and all permits, grants and licenses or other
rights running to or from Cerulean and any Cerulean Subsidiaries relating to any
of the foregoing that are material to the business of Cerulean and Cerulean
Subsidiaries taken as a whole. Except where the following would not have a
Cerulean Material Adverse Effect, (i) Cerulean or one of the Cerulean
Subsidiaries owns, is licensed to use, or otherwise has the right to use all
registered patents, trademarks, service marks, tradenames, copyrights and
franchises set forth on Schedule 3.11; (ii) Cerulean's rights in the property
set forth on such list are free and clear of any liens or other encumbrances and
Cerulean and the Cerulean Subsidiaries have not received written notice of any
adversely-held patent, invention, trademark, service mark or tradename of any
other person, or notice of any charge or claim of any person, relating to such
intellectual property, and to Cerulean's knowledge there is no basis for any
such charge or claim; and (iii) Cerulean, the Cerulean Subsidiaries and their
respective predecessors, if any, have not conducted business at any time during
the period beginning five years prior to the date hereof under any corporate,
trade or fictitious names other than their current corporate names.
3.12 Employee Benefits. Except as described on Schedule 3.12(a), no
employee of Cerulean or any Cerulean Subsidiary (collectively, the "Cerulean
Employees") participates in or is entitled to benefits under any employee
benefit plan, as defined in Section 3(3) of Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), nor any other type of retirement, deferred
compensation, insurance, bonus, medical, stock option or other plan or
arrangement (the "Cerulean Employee Benefit Plans"). Cerulean has provided a
true and accurate copy of each Cerulean Employee Benefit Plan to WellPoint.
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None of the Cerulean Employees participates in, and neither Cerulean nor any
Cerulean Subsidiary has any obligation to contribute to, a multiemployer plan
(as defined in Section 3(37) of ERISA) which is subject to Title IV of ERISA. To
the knowledge of Cerulean, except as otherwise described on Schedule 3.12(a),
the Cerulean Employee Benefit Plans, both in form and operation, are in material
compliance with any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree or any other requirement of any
governmental body, agency or authority or court binding on them (including ERISA
and the Internal Revenue Code of 1986, as amended). To the knowledge of
Cerulean, no officer, director or employee of Cerulean or any Cerulean
Subsidiary has committed a material breach of any responsibility or obligation
imposed upon fiduciaries by Title I of ERISA with respect to any Cerulean
Employee Benefit Plan. Except as described on Schedule 3.12(a), neither Cerulean
nor any Cerulean Subsidiary has received written notice that any of their
respective assets are currently subject to a lien or other process under Title
IV of ERISA, and neither has received written notice of any threatened or
pending action related to the Cerulean Employee Benefit Plans by an employee or
former employee, a plan participant, the Department of Labor, Internal Revenue
Service or Pension Benefit Guaranty Corporation or any other party Cerulean has
made full and timely payment of all amounts required to be contributed under the
terms of each Cerulean Employee Benefit Plan and applicable law or required to
be paid as expenses or benefits under each Cerulean Employee Benefit Plan which
is intended to be qualified under Code Section 401(a). Any group health plan
maintained by Cerulean or any Cerulean Subsidiary covering any employee or
former employee has, to Cerulean's knowledge been administered in all material
respects in compliance with the health care continuation coverage provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 and the Health
Insurance Portability and Accountability Act of 1996. To the best of Cerulean's
knowledge, neither Cerulean nor any Cerulean Subsidiary is obligated to provide
health care or welfare benefits of any kind to its current or former employees
or dependents or to any other person actively employed by Cerulean or any
Cerulean Subsidiary, pursuant to any agreement or understanding, except as set
forth in Schedule 3.12(a). Except for the triggering of payments, liabilities,
funding events or other obligations under the plans denoted with an asterisk on
Schedule 3.12(a), the execution and delivery of this Agreement by Cerulean, the
consummation of the transactions contemplated herein, and the performance of the
covenants and agreements of Cerulean hereto will not result in a breach or
violation of, a default under, or the triggering of any payment, liability,
funding event or other obligation pursuant to any Cerulean Employee Benefit Plan
or any grant, award or other agreement thereunder. For each individual
identified on Schedule 3.12(b), Cerulean has provided or made available to
WellPoint the plans and agreements and historical compensation and employment
information necessary to calculate the payments, costs and liabilities
associated with any Cerulean Employee Benefit Plan as a result of the change in
control occasioned by the Merger. Other than persons who have received or will
receive grants of units available for issuance under the Performance Unit Plan,
which has been provided to WellPoint and WPAC in its totality and under which
there are one million units available for issuance in the aggregate, no
individuals, other than those identified on Schedule 3.12(b), are entitled to
receive any payments or benefits under any Cerulean Employee Benefit Plan as a
result of such change in control.
3.13 Litigation. Schedule 3.13(a)(i) sets forth all litigation, claims,
suits, actions, known investigations, indictments, informations, proceedings,
arbitrations, grievances or other procedures (including known grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) (collectively, "Cerulean Claims")
pending, or to the knowledge of Cerulean, threatened, before any court,
commission, arbitration tribunal, or judicial, governmental or administrative
department, body, agency, administrator or official, grand jury or any other
forum for the resolution of grievances, against Cerulean or any Cerulean
Subsidiary or involving any of its property or business, the outcome of which,
individually or in the aggregate, could reasonably be expected to have a
Cerulean Material Adverse Effect and (ii) indicates which of such matters are
being defended by an insurance carrier, and which of the matters being so
defended are being defended under a reservation of rights. Further, except as
set forth on Schedule 3.13(b), there are no material judgments, orders, writs,
injunctions, decrees, plea agreements, stipulations or awards (whether rendered
by a court, commission, arbitration tribunal, or judicial, governmental or
administrative department, body, agency, administrator or official, grand jury
or any other forum for the resolution of grievances) against or relating to
Cerulean or
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involving any of its property or business. Neither Cerulean nor any Cerulean
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree, plea agreement, stipulation or award listed in Schedule 3.13(b).
Cerulean has made available to WellPoint true, correct and complete copies of
pleadings, briefs and other documents filed in each Cerulean Claim listed on
Schedule 3.13(a), and the material judgments, orders, writs, injunctions,
decrees, plea agreements, stipulations and awards listed in said Schedule.
3.14 Collective Bargaining. Except as set forth on Schedule 3.14, there
are no labor contracts, collective bargaining agreements, letters of
understanding or other arrangements, formal or informal with any union or labor
organization covering any of Cerulean's or Cerulean's Subsidiaries' employees
and none of said employees is represented by any union or labor organization.
Cerulean has made available to WPAC a true, correct and complete copy of each
agreement listed on Schedule 3.14.
3.15 Labor Disputes. Except for any of the following which would not have
a Cerulean Material Adverse Effect, neither Cerulean nor any Cerulean Subsidiary
is nor has been nor will be (by virtue of any past or present action, omission
to act, contract to which it is a party or any occurrence or state of facts
whatsoever) in violation of any federal and state laws respecting employment and
employment practices, terms and conditions of employment, wages and hours.
Neither Cerulean nor any Cerulean Subsidiary is nor has been engaged in any
unfair labor practice, and no unfair labor practice complaint against Cerulean
or a Cerulean Subsidiary is pending before the National Labor Relations Board,
the result of which would have a Cerulean Material Adverse Effect. There is no
labor strike or other labor action actually pending against Cerulean or a
Cerulean Subsidiary, or to the knowledge of Cerulean being threatened against or
affecting Cerulean or a Cerulean Subsidiary. To Cerulean's knowledge, there have
not been, nor are there presently, any attempts to organize non-union employees,
nor are there plans for any such attempts.
3.16 Environmental Requirements.
(a) Definitions. For purposes of this Agreement, the following
definitions apply:
(i) The term "Environmental Claims" means any and all
administrative, regulatory or judicial actions or proceedings relating
to the Release (as defined in (iv) below) or alleged Release into the
environment of any Hazardous Material (as defined in (iii) below) on or
at the Cerulean Real Property ("Claims"), including, without limitation,
Claims by any governmental or regulatory authority or by any third party
or other person for enforcement, mitigation, cleanup, removal, response,
remediation or other actions for damages, fines, penalties,
contribution, indemnification, cost recovery, compensation or injunctive
or declaratory relief pursuant to any Environmental Law (as defined in
(ii) below).
(ii) The term "Environmental Laws" means all federal and state
laws, rules and regulations relating to the regulation or protection of
human health, safety, natural resources or the environment and
applicable to the business of Cerulean, including but not limited to the
Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901, et seq., as
amended; the Comprehensive Environmental Response, Compensation &
Liability Act of 1980, 42 U.S.C. sec. 9601, et seq., as amended; the
Clean Water Act, 33 U.S.C. sec. 1251, et seq., as amended; the Clean Air
Act, 42 U.S.C. sec. 7401, et seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. sec. 2601, et seq., as amended; and the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. sec. 136, et seq.,
as amended.
(iii) The term "Hazardous Materials" means any substance or
material that is included within the definition of a "hazardous
substance," "hazardous waste," "hazardous constituent," "hazardous
material," "hazardous chemical" or "extremely hazardous substance"
contained in the Environmental Laws.
(iv) The term "Release" means spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment (including the abandonment or
discarding of barrels, containers, and other closed receptacles
containing any Hazardous Materials).
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(b) Cerulean's Premises. Except as disclosed in Schedule 3.16, during
Cerulean's ownership and operation of its business, there have been no
Releases of Hazardous Materials on the Cerulean Real Property that would
have a Cerulean Material Adverse Effect, nor are there any pending
Environmental Claims against or relating to the business of Cerulean or any
Cerulean Subsidiary that would have a Cerulean Material Adverse Effect.
(c) Permits. Except as disclosed in Schedule 3.16, each of Cerulean
and the Cerulean Subsidiaries has obtained and is in material compliance
with all approvals, certificates, consents, licenses, orders and other
similar authorizations of all governmental authorities that relate to the
conduct of their respective businesses and are required under any
Environmental Law.
(d) Compliance. Except as disclosed in Schedule 3.16, to Cerulean's
knowledge, each of Cerulean and any Cerulean Subsidiary is in material
compliance with all other material limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under
all Environmental Laws.
(e) Known Conditions. Except as set forth on Schedule 3.16, to the
knowledge of Cerulean, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or
plans relating to the Cerulean Real Property or the operations of the
business of Cerulean or any Cerulean Subsidiary that will interfere with or
prevent continued material compliance with any material Environmental Law
by Cerulean or any Cerulean Subsidiary, or that will likely give rise to
any Environmental Claims.
3.17 Required Licenses and Permits. Cerulean and each Cerulean Subsidiary
has all licenses, permits or other authorizations of governmental authorities
necessary for the conduct of its business, including those applicable to health
maintenance organizations, preferred provider organizations or insurance
business, except where the failure to have such would not result in a Cerulean
Material Adverse Effect. A correct and complete list of all such licenses,
permits and other authorizations is set forth on Schedule 3.17. Cerulean has
made available to WPAC, or will make available to WPAC prior to Closing, true,
correct and complete copies of all written licenses and permits listed on
Schedule 3.17.
3.18 Insurance Policies. Except to the extent that there would be no
Cerulean Material Adverse Effect, all of Cerulean's and its Subsidiaries'
insurance, surety bonds and umbrella policies insuring Cerulean and its
subsidiaries and their directors, officers, agents, properties and business, are
valid and in full force and effect and without any premium past due, and there
are no claims, singly or in the aggregate, under such policies which are in
excess of the limitations of coverage set forth in such policies. Except as set
forth on Schedule 3.18 or where any of the following would not have a Cerulean
Material Adverse Effect, neither Cerulean nor any Cerulean Subsidiary has
received notice of default under, or intended cancellation or non-renewal of,
any material policies of insurance which insure the properties, business or
liability of Cerulean or any Cerulean Subsidiary.
3.19 Contracts and Commitments.
(a) For the purposes of this Agreement, the term "Contract" shall
mean: (i) any contract or other agreement filed as an exhibit to any
Cerulean SEC filing, (ii) any contract or other agreement listed on
Schedule 3.19(a) hereof, (iii) any contract or other agreement limiting in
any material respect the ability of Cerulean or any Cerulean Subsidiary to
sell any products or services, engage in any line of business or compete
with any person or entity or (iv) any customer contract that involves
annual premiums or premium equivalents in excess of $10,000,000 and
contains a fee, rate or performance guarantee applicable to any period
longer than 12 months. All such Contracts (other than Contracts within the
meaning of (iii) above) are valid and binding and are in full force and
effect and enforceable in accordance with their respective terms. Except as
set forth in Schedule 3.19(a), 3.20 or 3.21, (x) no approval or consent of,
or notice to any person is needed in order to ensure that such Contracts
shall continue in full force and effect in accordance with their respective
terms without penalty, acceleration or rights of early termination
following the consummation of the transactions contemplated by this
Agreement and (y) neither Cerulean nor any
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Cerulean Subsidiary is in violation or breach of or default under any such
Contract, nor to Cerulean's knowledge is any other party to any such
Contract in violation or breach or default under any such Contract, except
in the case of clauses (x) and (y) above, where any of the foregoing would
not result in a Cerulean Material Adverse Effect.
(b) Schedule 3.19(b) sets forth a list of all material contracts
between Cerulean and any of the Cerulean Subsidiaries and any of the
following: (i) any officers, directors or employees of Cerulean or any
Cerulean Subsidiary and (ii) any person or entity which would be considered
an "Affiliate" of Cerulean or any Cerulean Subsidiary. For the purpose of
the foregoing sentence, "Affiliate" shall mean, with respect to such person
or entity, a person or entity that, directly or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with such person or entity.
3.20 No Conflict. Subject to obtaining the consents and approvals and
making the filings described in Section 3.21 or as otherwise expressly set forth
in this Agreement, the execution and delivery of this Agreement by Cerulean, the
consummation of the transactions contemplated herein by Cerulean, and the
performance of the covenants and agreements of Cerulean will not (i) violate or
conflict with any of the provisions of the Articles of Incorporation or Bylaws
of Cerulean or any Cerulean Subsidiary; (ii) except as set forth on Schedule
3.19(a) or Schedule 3.20 and except as would not have a Cerulean Material
Adverse Effect, violate, conflict with or result in a breach or default under or
cause termination of any term or condition of any mortgage, indenture, contract,
license, permit, instrument or any Cerulean Subsidiary, trust document, will or
other agreement, document or instrument to which Cerulean is a party or by which
Cerulean or any Cerulean Subsidiary or any of its properties may be bound; (iii)
violate any provision of law, statute, rule, regulation, court order, judgment
or decree, or ruling of any governmental authority, to which Cerulean or any
Cerulean Subsidiary is a party or by which it or any of its properties may be
bound; or (iv) result in the creation or imposition of any lien or encumbrance
of any kind whatsoever upon any asset of Cerulean or any of the Cerulean
Subsidiaries, other than any such lien or encumbrance which would not have a
Cerulean Material Adverse Effect.
3.21 Required Filings, Consents and Approvals. Except as set forth on
Schedule 3.21, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is required or necessary by virtue of the execution hereof by Cerulean
or the consummation of any of the transactions contemplated herein by Cerulean
to avoid the violation or breach of, or the default under, or the creation of a
lien on assets of Cerulean or a Cerulean Subsidiary pursuant to the terms of,
any law, regulation, order, decree or award of any court or governmental agency
or any lease, agreement, contract, mortgage, note, license or any other
instrument to which Cerulean or a Cerulean Subsidiary is a party or to which it
or any of its property is subject, except for any such declaration, filing,
registration, notice, authorization, consent or approval, the failure of which
to obtain would not have a Cerulean Material Adverse Effect or could prevent or
materially delay the Merger.
3.22 Absence of Certain Changes and Events. Except as set forth on
Schedule 3.22, since September 30, 2000 through the date hereof, Cerulean and
each Cerulean Subsidiary has conducted its businesses only in the ordinary
course in all material respects, and specifically has not:
(a) experienced any event or occurrence which would result in a
Cerulean Material Adverse Effect or suffered any damage or destruction
which would have a Cerulean Material Adverse Effect;
(b) made any declaration setting aside or payment of any dividend or
other distribution of assets (whether in cash, stock or property) with
respect to the capital stock of Cerulean, or any direct or indirect
redemption, purchase or other acquisition of such stock;
(c) incurred, assumed or guaranteed any material liability or
obligation (absolute, accrued, contingent or otherwise) other than in the
ordinary course of business consistent with past practice;
(d) permitted any of its assets to be subjected to any mortgage, lien,
security interest, restriction, charge or other encumbrance of any kind
except for Cerulean Permitted Liens;
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(e) waived any claims or rights except any waiver which did not have a
Cerulean Material Adverse Effect;
(f) sold, transferred or otherwise disposed of any of its material
assets, except in the ordinary course of business consistent with past
practice;
(g) made any material change in any method, practice or principle of
financial or tax accounting, except such changes required by changes in
GAAP or statutory accounting principles;
(h) made or suffered to exist any material changes in the customary
methods of underwriting, investment or actuarial practices and policies;
(i) suffered any material adverse development in the claims or other
loss experience of Cerulean or any Cerulean Subsidiaries;
(j) granted or announced any increase in the wages, salaries,
compensations, bonuses, incentives, pension or other benefits payable by
Cerulean or any Cerulean Subsidiary to any of their respective employees,
including without limitation, any increase or change pursuant to any
Cerulean Employee Benefit Plan, except for regular salary or bonus or
benefit increases in the ordinary course of business consistent with past
practices, or established or increased or promised to increase any benefits
under, any Cerulean Employee Benefit Plan;
(k) made any material change in the methodology used in the
determination of the liability for reserves of Cerulean or any Cerulean
Subsidiary;
(l) made any material changes in the investment policies of Cerulean
or any Cerulean Subsidiary except as required by law; or
(m) agreed in writing, or otherwise, to take any action described in
this Section.
3.23 Tax Matters.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all (A) taxes, fees, assessments or
charges, however denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by
any federal, territorial, state, local or foreign government or any
agency or political subdivision of any such government, which taxes
shall include, without limiting the generality of the foregoing, all
income or profits taxes (including federal income taxes and state income
taxes), payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which are required to be paid, withheld or collected by the
relevant party or (B) any liability for payment of amounts described in
clause (A) whether as a result of transferee liability, of being a
member of an affiliated, consolidated, combined, unitary or other
similar group for any period, or otherwise through operation of law and
(C) any liability for the payment of amounts described in clauses (A) or
(B) as a result of any tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify or pay
any other person or entity; and the term "Tax" means any one of the
foregoing Taxes.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
(b) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 3.23(b): (i) all Returns required to be filed by or on behalf of
Cerulean and each Cerulean Subsidiary have been duly
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filed on a timely basis and such Returns are true, complete and correct in
all material respects; (ii) all Taxes shown to be payable on the Returns or
on subsequent assessments with respect thereto have been paid in full on a
timely basis, and no other Taxes are payable by Cerulean or any Cerulean
Subsidiary with respect to items or periods covered by such Returns
(whether or not shown on or reportable on such Returns) or with respect to
any period prior to the date of this Agreement; (iii) Cerulean and each
Cerulean Subsidiary has withheld and paid over all Taxes required to have
been withheld and paid over, and complied in all material respects with all
information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party; (iv) neither Cerulean nor any Cerulean Subsidiary has
incurred any liability for Taxes since the latest date covered by such
Returns other than in the ordinary course of business; (v) neither Cerulean
nor any Cerulean Subsidiary has any liability, contingent or otherwise, for
Taxes of any other person or entity; (vi) no person having responsibility
for Taxes of or with respect to Cerulean or any Cerulean Subsidiary has
knowledge of any basis upon which a Tax authority could impose a material
liability for Taxes against Cerulean or any Cerulean Subsidiary in excess
of those shown on the Returns previously filed and Taxes incurred in the
ordinary course of business since the latest date covered by such Returns;
(vii) none of the transactions contemplated by this Agreement will give
rise to any material liability for Taxes or to any payments within the
meaning of Section 280G of the Code; (viii) there are no deferred
intercompany gains, losses or other intercompany items, or excess loss
accounts, within the meaning of the Treasury Regulation Sections 1.1502-13
or 1.1502-19 (or any predecessor regulations or any comparable items for
state, local or foreign Tax purposes) with respect to Cerulean or any
Cerulean Subsidiary; and (ix) there are no liens on any of the assets of
Cerulean or any Cerulean Subsidiary with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that Cerulean or any
Cerulean Subsidiary is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established, which
contested Taxes are disclosed on Schedule 3.23(b).
(c) Tax Deficiencies; Audits; Statutes of Limitations. Except as
otherwise disclosed on Schedule 3.23(c): (i) the Returns of Cerulean and
each Cerulean Subsidiary have never been audited by a government or taxing
authority, nor is any such audit in process, pending or, to Cerulean's
knowledge, threatened (either in writing or verbally, formally or
informally); (ii) no deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) or are expected to be asserted
with respect to Taxes of Cerulean or any Cerulean Subsidiary, and Cerulean
or any Cerulean Subsidiary has not received notice (either in writing or
verbally, formally or informally) or expects to receive notice that it has
not filed a Return or paid Taxes required to be filed or paid by it; (iii)
neither Cerulean nor any Cerulean Subsidiary is a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or to Cerulean's knowledge, threatened (either in writing or
verbally, formally or informally) against Cerulean or any Cerulean
Subsidiary or any of their respective assets; (iv) no waiver or extension
of any statute of limitations is in effect with respect to Taxes or Returns
of Cerulean or any Cerulean Subsidiary; and (v) each of Cerulean and each
Cerulean Subsidiary has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
(d) Tax Sharing Agreements. Except as otherwise disclosed on Schedule
3.23(d), neither Cerulean nor any Cerulean Subsidiary is (nor has it ever
been) a party to any tax sharing agreement. All such agreements disclosed
on Schedule 3.23(d) shall be terminated prior to the Merger with no amount
due with respect thereto on or after the date hereof.
(e) No Transfer Tax. There shall not be any Georgia sales or transfer
taxes, including stock transfer taxes, arising out of the consummation of
Merger.
3.24 Brokerage. Except as disclosed on Schedule 3.24, neither Cerulean nor
any of its officers or directors has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated under this Agreement.
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3.25 Year 2000 Compliance. To the knowledge of Cerulean, year 2000 issues
affecting Cerulean, any Cerulean Subsidiary, or any of their suppliers,
customers, contracting providers and others with which they conduct business
have not had and will not have a Cerulean Material Adverse Effect.
3.26 Reserves. The reserves established by Cerulean and its subsidiaries
in the Cerulean SEC Filings or in any financial statement or balance sheet
contained in any document filed with the SEC after the date hereof for
statutorily required reserves and for incurred but not yet paid claims for, or
relating to health care, life insurance or other claims (i) have been computed
in accordance with presently accepted actuarial standards consistently applied
and are fairly stated in all material respects in accordance with sound
actuarial principles, (ii) meet the requirements of any law, rule or regulation
applicable to such reserves, (iii) have been computed on the basis of
methodologies consistent with those used in computing the corresponding reserves
in the prior fiscal year and (iv) include provisions for all actuarial reserves
and related items which ought to be established in accordance with applicable
laws and regulations and prudent insurance practices. Cerulean is not aware of
any facts or circumstances which would necessitate, in the good faith
application of prudent reserving practices and policies, any material adverse
change in the statutorily required reserves or reserves for such incurred but
not yet paid claims above those reflected in the most recent balance sheet
included in the Cerulean SEC Filings (other than increases consistent with past
experience resulting from increases in enrollment with respect to services
provided by Cerulean or any Cerulean Subsidiary).
3.27 Statutory Financial Statements. Except as otherwise set forth
therein, the annual statements and the quarterly statements filed by any
Cerulean Subsidiary with the Georgia Department of Insurance for the years ended
December 31, 1998 and 1999 and for the quarterly period ended June 30, 2000 (the
"DOI Filings") and the statutory balance sheets and income statements included
in such DOI Filings fairly present the statutory financial condition and results
of operations of such Cerulean Subsidiary as of the dates and for the periods
indicated therein and have been prepared in accordance with applicable statutory
accounting principles consistently applied throughout the periods indicated.
3.28 Disclosure. No representations, warranties, assurances or statements
by Cerulean in this Agreement and no statement contained in any certificates or
other writings to be delivered by Cerulean (or caused to be delivered by
Cerulean) to WPAC or any of their respective representatives pursuant to the
provisions hereof contains or will contain any untrue statement of material
fact, or omits or will omit to state any material fact necessary, in light of
the circumstances under which it was made, to make the statements herein or
therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WELLPOINT & WPAC
WellPoint and WPAC hereby jointly and severally represent and warrant as of
the date hereof to Cerulean as follows:
4.01 Organization and Authorization.
(a) WellPoint and each of the WellPoint Subsidiaries (as hereinafter
defined) is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization,
and has all requisite power and authority, corporate or otherwise, to carry
on and conduct its business as it is now being conducted and to own or
lease its properties and assets. WellPoint and each WellPoint Subsidiary is
duly qualified and in good standing in every state of the United States in
which the conduct of its business or the ownership of its properties and
assets requires it to be so qualified, except where the failure to be so
qualified and in good standing would not have a "WellPoint Material Adverse
Effect," as defined below. As used in this Agreement, "WellPoint Material
Adverse Effect" shall mean a material adverse effect on the business,
assets, or financial condition of WellPoint and the WellPoint Subsidiaries,
taken as a whole. WellPoint has heretofore delivered or made available to
Cerulean accurate and complete copies of the Certificate of
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Incorporation and Bylaws, or equivalent governing instruments, as currently
in effect, of WellPoint and each of the WellPoint Subsidiaries as of the
date hereof.
(b) The term "WellPoint Subsidiary" shall mean every entity in which
WellPoint owns 50% or more of the outstanding equity, directly and
indirectly, and which is material to the operations or financial condition
of WellPoint. Schedule 4.01(b) sets forth every entity as of the date
hereof which is a WellPoint Subsidiary, and the equity interest in such
entities that is owned by WellPoint. WellPoint owns all of the issued and
outstanding shares of WPAC. For the purpose of all the representations and
warranties made in this Article IV, WPAC shall be considered a "WellPoint
Subsidiary." Except as noted on Schedule 4.01(b). WellPoint's ownership
interest in the WellPoint Subsidiaries (the "WellPoint Subsidiary Shares")
are owned by WellPoint, directly or indirectly, free and clear of all
liens, restrictions, claims, equities, charges, options, rights of first
refusal, encumbrances or other restrictions of any kind, with no defects of
title whatsoever. WellPoint has full power, right and authority to vote all
of the WellPoint Subsidiary Shares. WellPoint is not a party to or bound by
any agreement affecting or relating to its right to transfer or vote the
WellPoint Subsidiary Shares.
(c) WellPoint and WPAC, respectively, have the corporate right, power
and capacity to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by WellPoint's
and WPAC's respective Boards of Directors. This Agreement has been duly and
validly executed and delivered by WellPoint and WPAC, and constitutes
WellPoint's and WPAC's legal, valid and binding obligation, enforceable in
accordance with its terms except that such enforcement may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting or relating to the enforcement of creditors' rights generally and
(ii) general equitable principles.
4.02 Financial Statements. The audited consolidated balance sheets of
WellPoint as of December 31, 1999 and 1998 and the related consolidated
statements of income, retained earnings and cash flows for the years then ended,
including the footnotes thereto, certified by PricewaterhouseCoopers LLP.
WellPoint's independent certified public accountants, as set forth in
WellPoint's Annual Reports on Form 10-K, as amended, for the years ended
December 31, 1999 and 1998, have been prepared in accordance with GAAP applied
on a consistent basis during the periods involved and present fairly the
financial position in all material respects of WellPoint and its consolidated
subsidiaries as of the dates thereof and the results of their operations for the
periods then ended.
4.03 Proxy Statement. None of the information relating to WellPoint and
the WellPoint Subsidiaries furnished by WellPoint in writing for inclusion in
the Proxy Statement contains or will contain (in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement and any amendments or supplements thereto, and at the time
of the meeting of shareholders of Cerulean to be held in connection with the
transactions contemplated by this Agreement) any untrue statement of material
fact or omits or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.04 No Conflict. Subject to obtaining the consents and approvals and
making the filings described in Section 4.05 or as otherwise expressly set forth
in this Agreement, the execution and delivery of this Agreement by WellPoint and
WPAC, the consummation of the transactions contemplated herein by WellPoint and
WPAC, and the performance of the covenants and agreements of WellPoint and WPAC
will not (i) violate or conflict with any of the provisions of the Certificate
of Incorporation or Bylaws of each of WellPoint and WPAC; (ii) except as set
forth on Schedule 4.04 and except for any of the following which does not and
will not have a WellPoint Material Adverse Effect, violate, conflict
respectively, with or result in a breach or default under or cause termination
of any term or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, will, or other agreement, document or instrument to
which WellPoint or WPAC is a party or by which WellPoint or WPAC or any
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of its properties may be bound; (iii) violate any provision of any material law,
statute, rule, regulation, court order, judgment or decree, or ruling of any
governmental authority, to which WellPoint or WPAC is a party or by which it or
any of its properties may be bound; or (iv) result in the creation or imposition
of any lien, claim, charge, restriction, security interest or encumbrance of any
kind whatsoever upon any asset of WellPoint or WPAC or any of the WellPoint
Subsidiaries other than any such lien or encumbrance which would not have a
WellPoint Material Adverse Effect.
4.05 Required Filings, Consents and Approval. Except as set forth on
Schedule 4.05, no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is required or necessary by virtue of the execution hereof by
WellPoint and WPAC or the consummation of any of the transactions contemplated
herein by WellPoint or WPAC to avoid the violation or breach of, or the default
under, or the creation of a lien on assets of WellPoint or a WellPoint
Subsidiary pursuant to the terms of, any law, regulation, order, decree or award
of any court or governmental agency or any lease, agreement, contract, mortgage,
note, license or any other instrument to which WellPoint or a WellPoint
Subsidiary is a party or to which it or any of its property is subject, except
for any such declaration, filing, registration, notice, authorization, consent
or approval, the failure of which to obtain would not have a WellPoint Material
Adverse Effect.
4.06 Absence of Certain Changes and Events. Except as set forth on
Schedule 4.06, from September 30, 2000 through the date hereof, neither
WellPoint nor any WellPoint Subsidiary has experienced any event or occurrence
or suffered any damage or destruction which, individually or in the aggregate,
would have a WellPoint Material Adverse Effect.
4.07 Disclosure. No representations, warranties, assurances or statements
by WellPoint or WPAC in this Agreement and no statement contained in any
certificates or other writings to be delivered by WellPoint or WPAC (or caused
to be delivered by WellPoint or WPAC) to Cerulean or any of its representatives
pursuant to the provisions hereof contains or will contain any untrue statement
of material fact, or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
ARTICLE V
COVENANTS OF THE PARTIES
The parties covenant as provided in this Article V and as expressly set
forth in the Schedules and ancillary documents delivered in connection herewith
(with the term "WellPoint" being deemed to include "WPAC" for purposes of this
Article V):
5.01 Pre-Closing Operations.
(a) Cerulean. Cerulean hereby covenants and agrees that, except as
consented to in writing by WellPoint, pending the Closing, Cerulean will
operate and conduct its business, and that of the Cerulean Subsidiaries,
only in the ordinary course in accordance with prior practices. Pursuant to
this section and not in limitation of the foregoing (for purposes of the
following, "Cerulean" shall be deemed to include the Cerulean
Subsidiaries):
(i) Cerulean shall maintain its assets in their present state of
repair (ordinary wear and tear excepted), shall use its reasonable best
efforts to keep available the services of its employees, and preserve
the good will of its business and relationships with the customers,
licensors, suppliers, distributors and brokers with whom it has business
relations.
(ii) Cerulean shall not:
(a) sell, transfer or otherwise dispose of any assets other than
in the ordinary course of business consistent with past practice,
except for sales, transfers or disposals which would not have a
Cerulean Material Adverse Effect;
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(b) enter into any new material contract or commitment relating
to its business, with "material contract or commitment" being defined
for the purpose of this Section as a contract or commitment which
involves Cerulean incurring a liability in excess of $5 million
individually or $10 million in the aggregate, or which is not
terminable by Cerulean without penalty upon less than 180 days
notice;
(c) mortgage, pledge or subject to liens or other encumbrances
or charges any material assets, except by incurring Cerulean
Permitted Liens;
(d) purchase or commit to purchase any capital asset outside of
the relevant Cerulean business plan for a price exceeding $5 million
individually, or $25 million in the aggregate;
(e) amend or terminate in any material respect any material
agreement, including any Cerulean employee benefit plan (except for
certain programs intended to retain members of information systems
and financial management on terms conforming to standard industry
practices and as to which Cerulean's Chief Executive Officer has
consulted with WellPoint's Chief Executive Officer), or any insurance
policy, in force on the date hereof, without the approval of the
Transition Team (as defined in Section 5.02(b)), which approval shall
not be unreasonably withheld;
(f) amend its charter or bylaws in any manner which would
adversely affect the ability of Cerulean to consummate the
transactions contemplated by this Agreement;
(g) acquire (whether by merger, consolidation, share exchange,
acquisition of stock, or acquisition of assets) any corporation,
partnership, joint venture, or other business (or any part thereof,
except where the consideration paid by Cerulean in connection with
such acquisition (including any debt assumed as a result thereof) is
less than $5 million individually, or $10 million in the aggregate;
(h) split, combine or reclassify its outstanding capital stock
or, except for dividends regularly due and payable upon shares of
Cerulean Class B Stock, declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise, except
for the payments or distributions by a wholly owned subsidiary of
Cerulean;
(i) issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of or otherwise cause to become outstanding any
additional shares of or any options, warrants or rights of any kind
to acquire any shares of its capital stock of any class or any debt
or equity securities convertible into or exchangeable for such
capital stock;
(j) (A) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (1) borrowings in the
ordinary course of business or (2) commercially reasonable borrowings
to refinance existing indebtedness or (B) redeem, purchase, acquire
or offer to purchase or acquire any shares of its capital stock or
any options, warrants or rights to acquire any of its capital stock
or any security convertible into or exchangeable for its capital
stock;
(k) adopt, enter into or materially amend any employment,
severance, special pay arrangement, bonus plan or other benefit plan
or arrangement for the benefit or welfare of any employee or retiree,
including those relating to the termination of employment or other
similar arrangements or agreements with any directors, officers or
key employees, except (i) in accordance with standard industry
practice and following consultation with the Transition Team
described in Section 5.02(b) or (ii) to enter into retention
agreements with Cerulean personnel, which arrangements may only be
entered into with persons and on terms approved by the Transition
Team described in Section 5.02(b);
(l) modify or change its current written investment policies
except to accommodate changes in applicable law; or
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(m) increase the salary and bonus for Cerulean's Tier I and Tier
II Employees and its chief executive officer for the year 2000 in any
manner and for the year 2001 by more than 10% in the aggregate,
without the approval of the Transition Team. For purposes of this
Section 5.01(m), "Tier I and Tier II Employees" include all
individuals who are classified on Cerulean's books and records as a
Tier I or Tier II participant.
(b) WellPoint. WellPoint hereby covenants and agrees that, except as
consented to in writing by Cerulean, pending the Closing, WellPoint (for
purposes of the following, "WellPoint" shall be deemed to include the
WellPoint Subsidiaries) will not amend its charter or bylaws in any manner
which would adversely affect the ability of WellPoint to consummate the
transactions contemplated by this Agreement.
5.02 Access; New Information.
(a) Each of Cerulean and WellPoint shall be obligated to promptly
disclose in writing to the other any new information which would result in
a breach of their respective representations and warranties in Articles III
and IV of this Agreement if such representation or warranty were made at
the time of the discovery of the new information.
(b) Promptly following execution of this Agreement, the parties shall
establish a transition planning team (the "Transition Team") comprised of
an equal number of representatives of Cerulean and WellPoint. The
Transition Team shall be responsible for facilitating a transition and
integration planning process to ensure the successful combination of the
operations of Cerulean with those of WellPoint. The Transition Team shall
be responsible for developing, and monitoring the development of, and
deliverables due under, an action plan for the combination of the
businesses which, among other things, shall include an information systems
action plan intended to facilitate the most effective combination of the
information systems resources of Cerulean and WellPoint. The Transition
Team, or designated representatives thereof, shall meet monthly to review
the financial performance of Cerulean and its affiliates and at such
meetings Cerulean shall advise the Transition Team of the status of
achieving Cerulean's then current Operating Plan (as has been presented to
WellPoint), including all of the material components thereof, such as
sales, enrollment, revenues, investment income, quarterly claim trends,
medical loss ratio, administrative expenses, net income, reserves and
statutory capital (as indicated on the quarterly balance sheet). The
Transition Team shall be informed at each quarterly meeting of the
applicable trends and retention experience arising from Cerulean's business
planning and underwriting process.
(c) From and after the date hereof and subject to the terms of that
certain Confidentiality Agreement by and between the parties hereto, dated
November 14, 1997, and to facilitate the activities of the Transition Team,
WellPoint, through its General Counsel, Chief Financial Officer or Alice
Rosenblatt, or duly authorized designees identified by such persons, shall
have access during regular business hours to Cerulean's and any Cerulean
Subsidiary's books, records, offices, personnel, counsel, accountants and
actuaries as WellPoint or its designees may from time to time reasonably
request; provided, however, that (i) no on-site investigation by WellPoint
shall be made unless WellPoint shall have provided at least two business
days prior notice to Cerulean, (ii) no investigation made pursuant to this
section shall unreasonably interfere with the operation or conduct of the
business of Cerulean or any Cerulean Subsidiary, (iii) any requests by
WellPoint for investigation or access pursuant to this Section shall be
made to Cerulean's Executive Vice President, Finance and Strategic
Planning, General Counsel or any designee of such persons and (iv) Cerulean
shall not be compelled to provide any customer-specific information
pursuant to this Section.
5.03 Transfer Taxes. All sales or transfer taxes, including stock transfer
taxes, document recording fees, real property transfer taxes and excise taxes,
arising out of or in connection with the consummation of the transactions
contemplated hereby shall be paid by WellPoint.
5.04 Preparation of Supporting Documents. In addition to such actions as
the parties may otherwise be required to take under this Agreement or applicable
law in order to consummate this Agreement and
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the transactions contemplated hereby, the parties shall take such action, shall
furnish such information, and shall prepare, or cooperate in preparing, and
execute and deliver such certificates, agreements and other instruments as the
other party may reasonably request from time to time, before, at or after the
Closing, with respect to compliance with the obligations of Cerulean, WPAC or
WellPoint in connection with the Merger. Any information so furnished by the
parties shall be true, correct and complete in all material respects and shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
5.05 Shareholders Meeting. As soon as practicable, Cerulean will take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders (including filing with the SEC and mailing to its shareholders the
Proxy Statement) for the purpose of adopting and approving this Agreement and
the Merger and for such other purposes as may be necessary or desirable in
connection with effectuating the transactions contemplated hereby and thereby.
Subject to applicable law, the fiduciary duties of the directors (including the
duties of loyalty and care), and compliance by WellPoint and WPAC with the
material terms and conditions of this Agreement, the Board of Directors of
Cerulean shall recommend that its shareholders vote in favor of the Merger, the
adoption of this Agreement, and the approval of the transactions contemplated
hereby, and shall use its best efforts to obtain any necessary approval by the
shareholders of Cerulean of the foregoing.
5.06 Dissenting Shareholders. Cerulean shall give WellPoint prompt notice
of any demands received by Cerulean for appraisal of shares pursuant to Article
13 of the GBCC, and WellPoint shall have the right to direct all negotiations
and proceedings with respect to such demands. WellPoint shall not make any
payment with respect to, or settle or offer to settle, any such demands, without
the written consent of Cerulean, which consent shall not be unreasonably
withheld or delayed.
5.07 SEC and Shareholder Filings. Each of Cerulean and WellPoint shall
send to the other party copies of all public reports and materials as and when
they send the same to their shareholders or the SEC.
5.08 Labor Matters. Cerulean shall provide any notice to affected
employees before the Effective Time as may be required by the Workers Adjustment
and Retraining Notification Act of 1988, as amended ("WARN Act"). WellPoint
agrees to indemnify Cerulean and its directors, officers, employees, consultants
and agents for, and to hold Cerulean and its directors, officers, employees,
consultants and agents harmless from and against, any and all losses arising or
resulting, or alleged to arise or result from the notification or other
requirements of the WARN Act as a result of the Merger, including without
limitation any failure to meet the full notice period required by the WARN Act.
The indemnifications contained in this Section will survive the Closing and
remain effective concurrent with the statute of limitations period applicable to
WARN Act liability.
5.09 Consents, Waivers, Authorizations, etc. Each of Cerulean and
WellPoint will use its best efforts to obtain all consents, waivers,
authorizations, orders and approvals of and make all filings and registrations
with, any governmental commission, board or other regulatory body or any
nongovernmental third party, required for, or in connection with, the
performance by them of this Agreement and the consummation by them of the
transactions contemplated hereby, or as may be required in order not to
accelerate, violate, breach or terminate any agreement to which either party or
any of their respective Subsidiaries may be subject. Each party will cooperate
fully with each other party in assisting it to obtain such consents,
authorizations, orders and approvals. The parties will not take any action which
could reasonably be anticipated to have the effect of delaying, impairing or
impeding the receipt of any required approvals, regulatory or otherwise. Without
limiting the generality of the foregoing, the parties agree that Cerulean shall
on behalf of WellPoint prepare and, with the consent of WellPoint (which consent
shall not be unreasonably withheld), file the "Form A" regulatory filing to be
made pursuant to O.C.G.A. sec. 33-13-3 in connection with this Agreement and the
transactions contemplated hereby, and shall coordinate the conduct of the
hearing before the Department of Insurance in connection with such filing.
Cerulean and WellPoint will reasonably cooperate with regard to the content of
such filing. Cerulean shall submit all such filings and hearing testimony,
witness lists and other similar materials relating to the hearing to
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WellPoint for its review and approval, which approval shall not be unreasonably
withheld. At the request and direction of Cerulean, WellPoint agrees to appeal
any adverse finding in connection with any order issued as a result of such
hearing and to use its best efforts in pursuing such appeal. Cerulean and
WellPoint will reasonably cooperate with regard to such appeal.
5.10 Indemnification; Insurance. From and after the Effective Time, the
parties shall not take any action nor permit any action to be taken which would
have the effect of eliminating or impairing the rights prior to the Effective
Time of current or former officers and the directors of Cerulean to be
indemnified for any actions taken by such officers or directors in such
capacities so long as such indemnification would have been available to such
parties at such time in accordance with the respective Bylaws and Articles of
Incorporation of Cerulean, as the case may be, and applicable law. As of the
Effective Time, WellPoint shall purchase "tail" coverage under Cerulean's
existing director and officer liability insurance policies for a period of six
(6) years after the Effective Time; provided, however, that WellPoint's funding
obligation with respect to the purchase of such "tail" coverage shall not exceed
$500,000. In the event that the cost of "tail" coverage for six (6) years after
the Effective Time exceeds $500,000, WellPoint shall be obligated to purchase
the maximum coverage available for $500,000.
5.11 Hart-Scott-Rodino Notification. Each of Cerulean and WellPoint shall
promptly prepare and file as soon as practicable after the date hereof a
notification with the United States Justice Department (the "Justice
Department") and the Federal Trade Commission (the "FTC") as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act").
Each party shall cooperate with each other party in connection with the
preparation of such notification, including sharing information concerning sales
and ownership and such other information as may be needed to complete such
notification, and providing a copy of such notification to the other prior to
filing. Each party shall keep all information about the other party obtained in
connection with the preparation of such notification confidential.
5.12 Further Assurances. Subject to the terms and conditions herein
provided, each of Cerulean and WellPoint agrees to use its best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including (i) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging the Agreement or the consummation of the
transactions contemplated hereby, (ii) obtaining all governmental consents
required for the consummation of the Merger and the transactions contemplated
thereby and (iii) making and causing their shareholders, as applicable, to
timely make all necessary filings under the HSR Act. Upon the terms and subject
to the conditions hereof, each of the parties agree to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things reasonably necessary to satisfy the other conditions of the Closing set
forth herein. Each party will consult with counsel for the other party as to,
and will permit such counsel to participate in. at such other party's expense,
any lawsuits or proceedings referred to in clause (i) above brought against any
party. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the officers
and directors of WPAC shall take all such necessary action to the extent not
inconsistent with their other duties and obligations or applicable law.
5.13 Public Announcements. So long as this Agreement is in effect, each of
Cerulean and WellPoint shall not and shall cause their affiliates not to issue
or cause the publication of any press release or any other announcement with
respect to the Merger or the transactions contemplated by this Agreement without
the prior written consent of the other party, except where such release or
announcement is required by applicable law or pursuant to any listing agreement
with, or the rules or regulations of the SEC or the New York Stock Exchange, in
which case each of Cerulean and WellPoint will permit review by the other of any
such press release or announcement prior to its release or filing and shall
deliver simultaneously a final copy of such release or announcement to the other
upon its release or filing.
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5.14 Dividend on Cerulean Class B Stock. Immediately prior to the Closing,
Cerulean shall pay the accrued dividend on each share of Cerulean Class B Stock
then owing as provided in Section 4.3 of the Articles of Incorporation of
Cerulean.
5.15 Obligations with Respect to WPAC and Blue Cross Blue Shield of
Georgia, Inc. It is the intent of the parties that WellPoint and WPAC (i)
maintain Blue Cross Blue Shield of Georgia, Inc. ("Insurance Sub") as a Georgia
corporation or other Georgia legal entity separate and apart from WellPoint or
WPAC and (ii) fill a majority of the seats of the Board of Directors of
Insurance Sub with residents of the State of Georgia.
5.16 Appointment of Director of WellPoint. As of the Closing, the
nominating committee of the Board of Directors of WellPoint shall nominate for
election to the Board of Directors of WellPoint a person who is a member of the
Board of Directors of Cerulean on the date hereof.
5.17 Non-Solicitation. So long as this Agreement is in effect, neither
Cerulean nor any Cerulean Subsidiary shall, and each shall use its best efforts
to cause its representatives not to, directly or indirectly, solicit any
proposal from a third party regarding a purchase, affiliation, or lease of all
or a material part of the assets of Cerulean, whether by sale of capital stock,
merger, consolidation, sale or lease of material assets, affiliation, joint
venture, or other material transaction (a "Merger Proposal"). Neither the
foregoing prohibition, nor any other provision of this Agreement shall be
interpreted to prohibit Cerulean from (i) making any disclosure of information
required by law, (ii) communicating any information to the shareholders of
Cerulean to the extent necessary to comply with the fiduciary duties of the
Board of Directors of Cerulean or (iii) providing non-public information
regarding Cerulean to, or negotiating with, any third party (provided such party
is subject to an executed confidentiality agreement) that makes an unsolicited
Merger Proposal; provided, however, that prior to any such action referred to in
clause (iii), the Board of Directors of Cerulean shall have determined in good
faith after consultation with its outside legal counsel and financial advisors
that such Merger Proposal, if accepted by Cerulean on substantially the terms
presented, is likely to be consummated and would, if consummated, result in a
transaction superior to the one contemplated by this Agreement after taking into
account all relevant factors, including, without limitation, the consideration
to be received pursuant to such Merger Proposal (any such superior Merger
Proposal being referred to herein as a "Superior Proposal").
5.18 Employee Benefits Funding. WellPoint will, from and after the
Effective Time and to the extent that the cash of the Surviving Corporation is
insufficient to satisfy such obligations, fund all employee benefit obligations
of the Surviving Corporation following the Merger as such obligations become
due.
5.19 Benefits. WellPoint and WPAC covenant to provide to the retained
employees of Cerulean and the Cerulean Subsidiaries employee benefits comparable
to the employee benefits offered by WellPoint to its employees and the employees
of its affiliates.
ARTICLE VI
CONDITIONS
6.01 Conditions to Each Party's Obligations. The respective obligation of
each party to effect the Merger and the other transactions to be effected
contemporaneous with or as a result of the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval; Consummation of Merger. This Agreement and
the Merger shall have been adopted at or prior to the Effective Time by the
requisite vote of the shareholders of Cerulean in accordance with generally
applicable law and the Articles of Incorporation and Bylaws of Cerulean,
and the Merger shall have been consummated concurrently with the Closing.
(b) No Injunction. No order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been enacted,
entered, promulgated or enforced by any court or governmental authority
which prohibits or prevents the consummation of the transactions
contemplated hereby and
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which has not been stayed or vacated by the Effective Time. Each of
Cerulean, WPAC and WellPoint shall use its best efforts and shall cooperate
with each other to have any such order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction vacated, lifted or
stayed.
(c) HSR Act. Any waiting period applicable to the Merger under the
HSR Act shall have expired or earlier termination thereof shall have been
granted.
(d) Consent of Georgia Department of Insurance and Other State
Regulators. The consent of the Georgia Department of Insurance, together
with any other state regulatory consents, shall have been obtained pursuant
to an order which by its terms does not impose any Materially Burdensome
Condition (as defined below), and be in full force and effect, except for
those the failure of which to obtain or be in full force and effect would
not have a WellPoint Material Adverse Effect. "Materially Burdensome
Condition" shall mean a condition imposed upon WPAC, WellPoint, Cerulean or
a Cerulean Subsidiary which differs materially in character, degree or
scope from conditions commonly imposed by such consents and which would (i)
materially limit the ability of WPAC to operate the businesses of Cerulean
and the Cerulean Subsidiaries after the Merger or (ii) materially change
the material terms of the transaction.
(e) Approval of The Blue Cross Blue Shield Association. The approval
of the Blue Cross Blue Shield Association of the consummation of the
transactions contemplated by this Agreement pursuant to that certain
license agreement with Cerulean dated February 22, 1996 shall have been
obtained.
(f) Superior Proposal. In the event that Cerulean has provided
WellPoint with written notice pursuant to Section 7.01(f)(ii), the
expiration of the seven (7) day period referenced in subsection (iii) of
7.02(f) shall have expired.
6.02 Conditions to Obligations of Cerulean. The obligation of Cerulean to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waived in writing by Cerulean:
(a) Obligations Performed. WellPoint and WPAC shall have performed
and complied with in all material respects its obligations, agreements and
covenants under this Agreement which are required to be performed or
complied with by it at or prior to the Effective Time.
(b) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties contained in Article IV
shall be true and correct in all material respects as if made on and as of
the Closing Date (except in each case for (i) such changes that are caused
by WellPoint's compliance with the terms of this Agreement and (ii)
representations and warranties that address matters only as of a date or
with respect to the period of time specified therein and not as of the
Closing Date or for any period through the Closing Date); provided,
however, that with respect to the representations and warranties other than
those already qualified by WellPoint Material Adverse Effect, such
representations and warranties shall be deemed true and correct in all
material respects unless the failure of such representations and warranties
to be true and correct, whether individually or in the aggregate, would
result in a WellPoint Material Adverse Effect.
(c) Certificate Delivered. WellPoint and WPAC shall have delivered to
Cerulean a certificate executed on their behalf by their respective
Presidents or another authorized executive officer in its corporate
capacity to the effect that the conditions set forth in subsections 6.02(a)
and 6.02(b) have been satisfied.
(d) Fairness Opinion. The opinion of Morgan Stanley, dated as of the
date of the Proxy Statement, that the value of the consideration to be paid
to the shareholders of Cerulean in the Merger is fair from a financial
point of view to the shareholders of Cerulean, shall not have been
withdrawn or amended or modified in any material respect.
(e) Certificate of Merger. WPAC shall have executed and delivered the
Certificate of Merger in accordance with Section 1.02 hereof.
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(f) Appointment of Cerulean Director. WellPoint shall have taken all
action necessary to appoint to the Board of Directors of WellPoint the
person nominated pursuant to Section 5.16.
(g) Required Consents. Any required material consents or approvals to
be obtained by WellPoint and WPAC, as contemplated hereby, shall have been
obtained and be in full force and effect.
(h) No Material Adverse Change. There shall have not occurred any
WellPoint Material Adverse Effect which has as its proximate cause an
action or inaction by WellPoint since the date of this Agreement.
6.03 Conditions to Obligations of WellPoint and WPAC. The obligations of
WellPoint and WPAC to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Time of the following additional conditions, any one
or more of which may be waived in writing by WellPoint:
(a) Obligations Performed. Cerulean shall have performed and complied
with in all material respects its obligations, agreements and covenants
under this Agreement which are required to be performed or complied with by
it at or prior to the Effective Time.
(b) Representations and Warranties True at Closing Date. As of the
Effective Time, the representations and warranties contained in Article III
shall be true and correct in all material respects as if made on and as of
the Closing Date (except in each case for (i) such changes that are caused
by Cerulean's compliance with the terms of this Agreement and (ii)
representations and warranties that address matters only as of a date or
with respect to the period of time specified therein, and not as of the
Closing Date or for any period through the Closing Date); provided,
however, that with respect to the representations and warranties other than
those already qualified by Cerulean Material Adverse Effect, such
representations and warranties shall be deemed true and correct in all
material respects unless the failure of such representations and warranties
to be true and correct, whether individually or in the aggregate, would
result in a Cerulean Material Adverse Effect; and provided further, that no
representation or warranty contained in Section 3.19 shall be violated by
reason of the expiration of any Contract in accordance with its terms.
(c) Certificate Delivered. Cerulean shall have delivered to WellPoint
a certificate executed on its behalf by its President or another authorized
executive officer in its corporate capacity to the effect that the
conditions set forth in subsections 6.03(a) and 6.03(b) have been
satisfied.
(d) Certificate of Merger. Cerulean shall have executed and delivered
the Certificate of Merger in accordance with Section 1.02 hereof.
(e) Required Consents. Any required material consents or approvals to
be obtained by Cerulean as contemplated hereby shall have been obtained and
be in full force and effect.
(f) No Other Litigation. There shall not be pending any suit,
litigation or other similar proceeding relating to the conversion of
Cerulean's affiliate Blue Cross and Blue Shield of Georgia, Inc. or to the
distribution of consideration contemplated by this Agreement and as to
which there is a significant likelihood of material liability to either
WellPoint, Cerulean or any of their affiliates (a "Material Case");
provided, however, that in the event WellPoint notifies Cerulean that it
considers a matter to be a Material Case, Cerulean and WellPoint agree that
Cerulean may refer the matter to an Independent Arbitrator (as defined in
Section 8.16) for a determination of whether the matter is a Material Case
within the meaning of this Section 6.03(f). The Independent Arbitrator
shall hold a hearing and render his decision, which shall be final and
binding upon the parties, within ten (10) days following Cerulean's
request. Each party shall be entitled to submit a written brief to the
Independent Arbitrator (with a copy being simultaneously provided to the
other party) prior to the hearing. The costs and expenses of the arbitrator
shall be borne by WellPoint.
(g) No Material Adverse Change. There shall have not occurred any
Cerulean Material Adverse Effect which has as its proximate cause an action
or inaction by Cerulean since the date of this Agreement.
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(h) Conversion of Warrants. Prior to the Effective Time, all
outstanding warrants to purchase Cerulean Series A Stock shall have been
exercised in the manner specified in the warrant agreement without payment
of cash.
(i) Settlement of Certain Litigation. The judgment of the Superior
Court of Richmond County entered on November 2, 2000 with respect to the
Stipulation and Agreement of Conditional Settlement dated October 2, 2000
(the "Stipulation") by and between Cerulean and the plaintiffs in Tiller et
al. v. Cerulean Companies, Inc. et al, Civil Action No. 98-RCCV-806,
Superior Court of Richmond County, Georgia, shall have become final (as
defined in the Stipulation) and no more than 1,000 members of the
Settlement Class shall have opted out of the Settlement.
ARTICLE VII
TERMINATION PRIOR TO CLOSING
7.01 Termination of Agreement. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, whether before or after approval by the shareholders of Cerulean:
(a) By the written agreement of Cerulean and WellPoint;
(b) By either of Cerulean or WellPoint if the Merger shall not have
been consummated on or before the one year anniversary of this Agreement
(or such later date as may be agreed to by Cerulean and WellPoint);
provided, however, neither Cerulean nor WellPoint may terminate this
Agreement under this Section if the failure has been caused by such party's
material breach or default of its obligations under this Agreement;
(c) By Cerulean in writing, without liability, if WellPoint or WPAC
shall have (i) materially breached any of their respective covenants
contained herein or (ii) breached any of their respective representations
or warranties contained herein which, individually or in the aggregate, has
resulted in a WellPoint Material Adverse Effect, which breach is not cured
within thirty (30) days after Cerulean has notified WellPoint of its intent
to terminate this Agreement pursuant to this subparagraph (c);
(d) By WellPoint and WPAC in writing, without liability, if Cerulean
shall have (i) materially breached any of its covenants contained herein or
(ii) breached any of its representations or warranties contained herein
which, individually or in the aggregate, has resulted in a Cerulean
Material Adverse Effect, which breach is not cured within thirty (30) days
after WellPoint has notified Cerulean of its intent to terminate this
Agreement pursuant to this subparagraph (d);
(e) By either Cerulean or WellPoint in writing, without liability, if
any order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction shall have been enacted, entered, promulgated or
enforced by any court or governmental authority which prohibits or prevents
the consummation of the transactions contemplated hereby, provided that
WellPoint, WPAC and Cerulean shall have used their respective best efforts
to have any such order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction vacated, lifted or stayed and the same shall
not have been vacated, lifted or stayed within 30 days after entry, by any
such court or governmental or regulatory agency;
(f) By Cerulean in writing, without liability other than as provided
in Section 7.02, if the Board of Directors of Cerulean authorizes Cerulean
to execute a binding written agreement with respect to a transaction that
constitutes a Superior Proposal; provided, however, that prior to any
termination pursuant to this Section 7.01(f), (i) the Board of Directors of
Cerulean, after consultation with legal counsel, determines in good faith
that contemplation of such Superior Proposal and terminating this Agreement
is necessary for such Board of Directors to comply with its fiduciary
duties under applicable law, (ii) Cerulean must notify WellPoint in writing
that it intends to enter into such an agreement and provide WellPoint with
the then current version of the proposed definitive documentation for such
transaction and (iii) WellPoint does not, within seven (7) days after the
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receipt of such written notice, provide a written offer that the Board of
Directors of Cerulean determines in good faith, after application of the
analysis set forth in Section 5.17, to be at least as favorable as the
Superior Proposal; or
(g) By either of Cerulean or WellPoint in writing, without liability
other than as provided in Section 7.02, if (i) Cerulean's shareholders
decline to approve the Merger, (ii) the Georgia Department of Insurance
declines to approve the Merger, (iii) the FTC or the Justice Department
declines to approve the Merger under the HSR Act or (iv) the Blue Cross
Blue Shield Association declines to approve the Merger.
7.02 Liquidated Damages. In the event of termination pursuant to Section
7.01(f) or Section 7.01(g) (if but only if such termination pursuant to Section
7.01(g) results from the failure of the holders of Cerulean Class B Stock to
approve the Merger), Cerulean shall be obligated to pay to WellPoint within 15
days after such termination a termination fee of $18.5 million, which the
parties hereto agree shall be the appropriate measure of liquidated damages and
shall represent complete reimbursement of expenses incurred by WellPoint up to
the date of termination, and which amount shall be the total damages and sole
remedy of WellPoint and WPAC upon the termination of this Agreement pursuant to
Section 7.01(f) or Section 7.01(g).
7.03 Termination of Obligations. Termination of this Agreement pursuant to
this Article VII shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 7.02 (if applicable in connection with
a termination), 7.03 and 8.07 hereof; provided, however, that termination
pursuant to subparagraphs (b), (c) or (d) of Section 7.01 hereof shall not
relieve a defaulting or breaching party from any liability to the other party
hereto.
ARTICLE VIII
MISCELLANEOUS
8.01 Entire Agreement. This Agreement (including the Schedules and
Exhibits) constitutes the sole understanding of the parties with respect to the
subject matter hereof; provided, however, that this provision is not intended to
abrogate any other written agreement between the parties executed with or after
this Agreement, or abrogate the effect of that certain Confidentiality Agreement
dated November 14, 1997 between Cerulean and WellPoint.
8.02 Amendment. This Agreement may be amended by the parties hereto, by or
pursuant to action taken by their respective Board of Directors, at any time
before or after approval by such party's shareholders (if such approval is
required by law), provided, however, that after any such approval, no amendment
shall be made which by law requires further approval by such shareholders
without such further approval. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the parties hereto.
8.03 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto prior to the Effective
Time without the prior written consent of the other parties hereto. Except for
the parties hereto and any person or entity covered by an indemnification
provision hereunder, this Agreement is not intended to confer upon any other
person any rights or remedies hereunder. Each of the parties hereby hereto
acknowledges and agrees to the assignment of all of the rights and obligations
of Water Polo Acquisition Corp., a Delaware corporation, under the Original
Merger Agreement to WPAC.
8.04 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
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8.05 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
8.06 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to be or shall constitute a waiver of any other provision hereof
(whether or not similar).
8.07 Expenses. Except as otherwise expressly provided herein, if the
Merger is not consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses, subject to the rights of such party
contemplated under Article VII with respect to a willful breach, violation or
default by the other party hereto.
8.08 Survival of Representations and Warranties. The respective
representations and warranties of Cerulean, WellPoint and WPAC contained herein
or in any certificates or other documents delivered prior to or at the Closing
by such parties pursuant to the terms of this Agreement shall terminate upon the
consummation of the Merger and be of no further force and effect.
8.09 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid, or sent by facsimile with original sent by overnight courier,
if to Cerulean to:
Cerulean Companies, Inc.
3350 Peachtree Road, N.E.
Capital City Plaza Building, 4th floor
Atlanta, Georgia 30326
Attention: General Counsel
Telecopy No.: (404) 848-2341
with a copy to:
Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: Edgar H. Sims, Jr., Esq.
Jonathan H. Short, Esq.
Telecopy No.: (404) 527-4198
if to WellPoint or WPAC to:
WellPoint Health Networks Inc.
1 WellPoint Way
Thousand Oaks, CA 91362
Attn: General Counsel
Telecopy No.: (805) 557-6821
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Kenneth M. Doran, Esq.
Telecopy No.: (213) 229-6537
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or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.
8.10 Governing Law. This Agreement is executed by the parties hereto in
and shall be construed in accordance with and governed by the laws of Georgia
without giving effect to the principles of conflicts of law thereof.
8.11 Cerulean's Knowledge. As used herein, the terms "Cerulean's
knowledge" and "to the knowledge of Cerulean" with respect to Cerulean shall
mean the actual knowledge of any officer of Cerulean listed on Schedule 8.11.
8.12 "Including." Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
8.13 "Gender and Number." Where the context requires, the use of a pronoun
of one gender or the neuter is to be deemed to include a pronoun of the
appropriate gender, singular words are to be deemed to include the plural, and
vice versa.
8.14 References. Whenever reference is made in this Agreement to any
Article, Section, Schedule or Exhibit, such reference shall be deemed to apply
to the specified Article or Section of this Agreement or the specified Schedule
or Exhibit to this Agreement.
8.15 Waiver of Jury Trial. Each party hereto waives its rights to a trial
by jury in connection with any matter related to the Merger or this Agreement.
8.16 Independent Arbitrator. As used herein, the term "Independent
Arbitrator" shall mean an arbitrator which is mutually acceptable to the
parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date indicated on the first page
hereof.
CERULEAN COMPANIES, INC.
By: /s/ RICHARD D. SHIRK
------------------------------------
Name: Richard D. Shirk
Title: Chief Executive Officer
WELLPOINT HEALTH NETWORKS INC.
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Name: Leonard D. Schaeffer
Title: Chief Executive Officer
WATER POLO ACQUISITION CORP.
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Name: Leonard D. Schaeffer
Title: Chief Executive Officer
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APPENDIX B
OPINION OF MORGAN STANLEY & CO. INCORPORATED
AS TO THE FAIRNESS OF THE MERGER
TO THE CERULEAN SHAREHOLDERS
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MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NY 10036
(212) 761-4000
November 29, 2000
Board of Directors
Cerulean Companies, Inc.
3350 Peachtree Road, NE
Atlanta, Georgia 30326
Members of the Board of Directors:
We understand that Cerulean Companies, Inc. (the "Company"), WellPoint
Health Networks Inc. (the "Buyer") and Water Polo Acquisition Corp., a wholly
owned subsidiary of the Buyer ("Acquisition Sub"), propose to enter into an
Amended and Restated Agreement and Plan of Merger, dated November 29, 2000 (the
"Merger Agreement") which provides, among other things, for the merger (the
"Merger") of the Acquisition Sub with and into the Company. Pursuant to the
Merger, each outstanding share of Class A Convertible Common Stock, no par
value, of the Company (the "Class A Common Stock"), each outstanding share of
Series A Preferred Stock, no par value, of the Company (the "Series A Preferred
Stock"), and each outstanding share of Class B Convertible Preferred Stock, no
par value, of the Company (the "Class B Preferred Stock"), in each case, other
than shares held in treasury or held by the Buyer or an affiliate of the Buyer
or as to which dissenters' rights have been perfected, will be converted into a
certain amount per share in cash determined pursuant to a certain formula set
forth in the Merger Agreement. For the purposes of this opinion, we have assumed
that the Series A Preferred Stock, the Class B Preferred Stock, and the Class A
Common Stock have been converted into Cerulean common stock immediately prior to
the consummation of the Merger. The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Class A Common Stock, Series A Preferred
Stock and Class B Preferred Stock pursuant to the Merger Agreement is fair from
a financial point of view to such holders. For purposes of the opinion set forth
herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) compared the financial performance of the Company with that of certain
comparable publicly-traded companies and their securities;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(vii) participated in discussions and negotiations among representatives of
the Company and Buyer and the Company and a certain other potential
purchaser and each of their financial and legal advisors;
<PAGE> 86
(viii) reviewed the Merger Agreement and certain related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. In addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Morgan Stanley has
assumed that in connection with the receipt of all necessary regulatory
approvals for the proposed Merger, no restrictions will be imposed that would
have a material adverse effect upon the contemplated benefits expected to be
derived from the proposed Merger. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. We note that the capital structure of the
Company, at the time of the consummation of the Merger, is comprised of three
classes of stock, the Class A Common Stock, the Series A Preferred Stock and the
Class B Preferred Stock, and we express no opinion as to the relative fairness
of the consideration to be received among the various classes or series of
stock. Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and the Buyer and
their affiliates and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company in respect of the transaction with the
Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of the Company should vote
at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Class A
Common Stock, Series A Preferred Stock and Class B Preferred Stock pursuant to
the Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ LISA EYLES BEESON
------------------------------------
Lisa Eyles Beeson
Principal
<PAGE> 87
APPENDIX C
ARTICLE 13 OF THE
GEORGIA BUSINESS CORPORATION CODE
RELATING TO RIGHTS OF
DISSENTING SHAREHOLDERS
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Official Code of Georgia Annotated Copyright 1982-1996 State of Georgia.
CODE OF GEORGIA
TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS
CHAPTER 2. BUSINESS CORPORATIONS
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
CURRENT THROUGH THE END OF 1995 EXTRAORDINARY SESSION OF THE GENERAL ASSEMBLY
14-2-1301 Definitions.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
(Code 1981, Sec. 14-2-1301, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 16.)
14-2-1302. Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or 14-2-1104 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
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(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
(Code 1981, Sec. 14-2-1302, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 58.)
14-2-1303. Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts
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dissenters' rights. The rights of a partial dissenter under this Code section
are determined as if the shares as to which he dissents and his other shares
were registered in the names of different shareholders.
(Code 1981, Sec. 14-2-1303, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
(Code 1981, Sec. 14-2-1320, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 17.)
14-2-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
(Code 1981, Sec. 14-2-1321, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
Official Code of Georgia Annotated Copyright 1982-1996 State of Georgia.
14-2-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
(Code 1981, Sec. 14-2-1322, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1323. Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
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(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
(Code 1981, Sec. 14-2-1323, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(Code 1981, Sec. 14-2-1324, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1325. Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall by notice to each dissenter who complied with Code
Section 14-2-1323 offer to pay to such dissenter the amount the corporation
estimates to be the fair value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
(Code 1981, Sec. 14-2-1325, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 59; Ga. L. 1993, p. 1231, Sec. 18.)
14-2-1326. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
(Code 1981, Sec. 14-2-1326, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1990, p. 257, Sec. 20.)
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14-2-1327. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
(Code 1981, Sec. 14-2-1327, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 60; Ga. L. 1990, p. 257, Sec. 21; Ga. L. 1993, p. 1231, Sec.
19.)
14-2-1330 Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or statutory
overnight delivery or by publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter,
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Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies to any
proceeding with respect to dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
(Code 1981, Sec. 14-2-1330, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 61; Ga. L. 1993, p. 1231, Sec. 20.)
14-2-1331 Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
(Code 1981, Sec. 14-2-1331, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1332 Limitation of actions.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
(Code 1981, Sec. 14-2-1332, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
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PROXY
IMPORTANT SHAREHOLDER VOTE - SIGN AND RETURN
REVOCABLE PROXY
CLASS A CONVERTIBLE COMMON STOCK
[CERULEAN COMPANIES LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE JANUARY 30, 2001 SPECIAL MEETING OF CLASS A SHAREHOLDERS
The undersigned hereby appoints Hugh J. Stedman and Joseph M. Feuer, and each of
them, proxies, with full power of substitution, to act for and in the name of
the undersigned to vote all shares of Class A Convertible Common Stock of
CERULEAN COMPANIES, INC. (the "Company") which the undersigned is entitled to
vote at the Special Meeting of Class A Shareholders of the Company to be held at
the Swissotel, 3391 Peachtree Road, N.E., Atlanta, Georgia on Tuesday, January
30, 2001, at 9:00 a.m. local time, and at any and all adjournments thereof, as
indicated on reverse.
YOUR PREVIOUS VOTE AND CASH ELECTION ARE NO LONGER EFFECTIVE. TO VOTE AND TO
RECEIVE CASH IN THE MERGER, YOU MUST COMPLETE, DATE, SIGN, AND MAIL THIS PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 95
Please mark [X]
your votes as
indicated in
this example.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
This proxy card will be voted as directed. If no instructions are specified,
this proxy card will be voted "FOR" Item 1 listed below on this proxy card.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTE "FOR" ITEM 1
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
Item 1. Approve the Merger. / / / / / /
Approve of the Merger, as more fully described
in the Proxy Statement and the transactions
contemplated thereby.
AWAITING TIN
W-9 INFORMATION (required for cash distribution) / /
Please enter your Social Security No. or Employer
Identification No. here:
------------------------------------------------------
</TABLE>
Please mark if you plan to attend the meeting [ ]
Date:
---------------------------------------------------
--------------------------------------------------------
(Signature)
--------------------------------------------------------
(Signature)
NOTE: Please sign as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
Certification - Under penalties of perjury, I certify that (1) the number shown
on this form is my correct Taxpayer Identification Number (or I am waiting for a
number to be issued to me), and (2) I am not subject to backup withholding as a
result of a failure to report an interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
IF YOU HAVE QUESTIONS OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CONTACT THE FIRM ASSISTING US IN THE SOLICITATION AND TABULATION OF PROXIES:
GEORGESON
SHAREHOLDER
COMMUNICATIONS INC.
17 STATE STREET
NEW YORK, NY 10004
TOLL-FREE 1-877-800-8895
