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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 4, 1997
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WELLPOINT HEALTH NETWORKS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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DELAWARE 1-13803 95-4635504
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
21555 OXNARD STREET, WOODLAND HILLS,
CALIFORNIA 91367
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (818) 703-4000
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 4, 1997, WellPoint Health Networks Inc., a California corporation
("WellPoint California"), was effectively reincorporated in Delaware as
WellPoint Health Networks Inc., a Delaware corporation (the "Company") by virtue
of a merger transaction which resulted in the Company becoming substantially a
holding company as described below (the "Reincorporation").
The Reincorporation was effected via a merger (the "Merger") involving the
Company, WellPoint California, which was the parent of the Company prior to such
merger, and a wholly owned subsidiary of the Company organized solely for
purposes of effecting the Merger ("Merger Subsidiary"). As a result of the
Merger, Merger Subsidiary was merged into WellPoint California, Merger
Subsidiary disappeared and WellPoint California was the surviving entity and
became a wholly owned subsidiary of the Company. As a further result of the
Merger, the shareholders of WellPoint California became the stockholders of the
Company and the directors of WellPoint California became the directors of the
Company, maintaining their same class designations.
In connection with the Reincorporation, the Company assumed the obligations
under various agreements and plans of WellPoint California, including its
existing stock option plans and employee stock purchase plan. In addition,
WellPoint California's current license agreement with the Blue Cross Blue Shield
Association (the "BCBSA") has been terminated, and a new license agreement
between the Company and the BCBSA, having substantially the same terms, has
become effective. Certain of WellPoint California's agreements with the
California HealthCare Foundation have been amended and restated and assumed by
the Company. The Company has also assumed the obligations under WellPoint
California's senior credit agreement, pursuant to an amendment to such
agreement. The new BCBSA license agreement and the amended and restated
agreements with the California HealthCare Foundation, as well as the amendment
to the senior credit agreement, are included as exhibits hereto.
The Certificate of Incorporation and Bylaws of the Company include various
features, substantially similar to corresponding provisions that were in
WellPoint California's Articles of Incorporation and Bylaws, that may render
attempts to take over the Company more difficult. The Board believes that such
attempts would disrupt the Company, divert the attention of the Company's
directors, officers and employees and adversely affect the Company's operations.
These features include, among other things, ownership and transfer restrictions
on the Common Stock of the Company, the establishment of a classified Board of
Directors with staggered terms of office, the requirement of a supermajority
vote of stockholders to approve certain changes to the Certificate of
Incorporation and Bylaws, the elimination of cumulative voting of shares for
directors, the elimination of the right of stockholders (other than stockholders
owning 10% or more of the Company's outstanding voting stock) to call special
stockholders' meetings and the elimination of stockholder action by written
consent.
In addition to the Reincorporation, on August 4, 1997 Wellpoint California
has effected a restructuring with three of its wholly owned subsidiaries. Blue
Cross of California, WellPoint Pharmacy Plan and WellPoint Dental Plan, each a
California corporation, were merged with and into WellPoint California.
WellPoint California was the survivor of these mergers and has changed its name
to Blue Cross of California.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS TO BE ACQUIRED:
The following historical financial information was previously reported
by WellPoint California (SEC File No. 1-14340) and is incorporated
herein by reference:
(i) WellPoint California's Annual Report on Form 10-K for the year
ended December 31, 1996, at pages F-1 to F-27; and
(ii) WellPoint California's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, at pages 1 to 10.
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(b) PRO FORMA FINANCIAL INFORMATION OF THE BUSINESS TO BE ACQUIRED:
No changes in the Company's financial operations or financial
statements resulted from the Reincorporation. Thus, there is no pro
forma effect from the Reincorporation to report.
(c) EXHIBITS
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EXHIBIT NO. DESCRIPTION PAGE NO.
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3.1 Restated Certificate of Incorporation of the Company.................
3.2 Bylaws of the Company (originally filed as Appendix B to WellPoint
California's Schedule 14A filed on May 8, 1997, File No.
333-03292-01, and incorporated herein by reference)..................
3.3 Agreement of Merger, dated as of July 22, 1997, by and among the
Company, WellPoint California and WLP Acquisition Corp., a California
corporation..........................................................
99.1 Agreement and Plan of Reorganization dated as of July 22, 1997 by and
among WellPoint California, WLP Acquisition Corp., a California
corporation, and the Company.........................................
99.2 Amended and Restated Voting Trust Agreement dated as of August 4,
1997 by and among the Company, California HealthCare Foundation and
Wilmington Trust Company.............................................
99.3 Amended and Restated Voting Agreement dated as of August 4, 1997 by
and among the Company, WellPoint California and California HealthCare
Foundation...........................................................
99.4 Amended and Restated Share Escrow Agent Agreement dated as of August
4, 1997 by and between the Company and U.S. Trust Company of
California, N.A......................................................
99.5 Amended and Restated Registration Rights Agreement dated as of August
4, 1997 by and among the Company, California HealthCare Foundation
and WellPoint California.............................................
99.6 Blue Cross License Agreement effective as of August 4, 1997 by and
among the Blue Cross and Blue Shield Association and the Company.....
99.7 California Blue Cross License Addendum effective as of August 4,
1997, by and between the Blue Cross and Blue Shield Association and
the Company..........................................................
99.8 Blue Cross Affiliate License Agreement effective as of August 4, 1997
by and between the Blue Cross Blue Shield Association and Blue Cross
of California........................................................
99.9 Blue Cross Affiliate License Agreement effective as of August 4, 1997
by and between the Blue Cross Blue Shield Association and BC Life &
Health Insurance Company.............................................
99.10 Blue Cross Controlled Affiliate License Agreement Applicable to Life
Insurance Companies effective as of August 4, 1997 by and between
Blue Cross Blue Shield Association and BC Life & Health Insurance
Company..............................................................
99.11 Fourth Amendment to Credit Agreement and Consent dated as of July 21,
1997 by and among the Company, Bank of America National Trust and
Savings Association, as Administrative Agent, NationsBank of Texas,
N.A., as Syndication Agent, and Chase Manhattan Bank, as
Documentation Agent, and the other financial institutions named
therein..............................................................
99.12 Undertakings dated July 31, 1997 by the Company, WellPoint California
and WellPoint California Services, Inc. to the California Department
of Corporations......................................................
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 4, 1997
WELLPOINT HEALTH NETWORKS INC.
By: /s/ THOMAS C. GEISER
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Name: Thomas C. Geiser
Title: Executive Vice President
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EXHIBITS
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EXHIBIT NO. DESCRIPTION PAGE NO.
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3.1 Restated Certificate of Incorporation of the Company.................
3.2 Bylaws of the Company (originally filed as Appendix B to WellPoint
California's Schedule 14A filed on May 8, 1997, File No.
333-03292-01, and incorporated herein by reference)..................
3.3 Agreement of Merger, dated as of July 22, 1997, by and among the
Company, WellPoint California and WLP Acquisition Corp., a California
corporation..........................................................
99.1 Agreement and Plan of Reorganization dated as of July 22, 1997 by and
among WellPoint California, WLP Acquisition Corp., a California
corporation, and the Company.........................................
99.2 Amended and Restated Voting Trust Agreement dated as of August 4,
1997 by and among the Company, California HealthCare Foundation and
Wilmington Trust Company.............................................
99.3 Amended and Restated Voting Agreement dated as of August 4, 1997 by
and among the Company, WellPoint California and California HealthCare
Foundation...........................................................
99.4 Amended and Restated Share Escrow Agent Agreement dated as of August
4, 1997 by and between the Company and U.S. Trust Company of
California, N.A......................................................
99.5 Amended and Restated Registration Rights Agreement dated as of August
4, 1997 by and among the Company, California HealthCare Foundation
and WellPoint California.............................................
99.6 Blue Cross License Agreement effective as of August 4, 1997 by and
among the Blue Cross and Blue Shield Association and the Company.....
99.7 California Blue Cross License Addendum effective as of August 4,
1997, by and between the Blue Cross and Blue Shield Association and
the Company..........................................................
99.8 Blue Cross Affiliate License Agreement effective as of August 4, 1997
by and between the Blue Cross and Blue Shield Association and
CaliforniaCare Health Plans..........................................
99.9 Blue Cross Affiliate License Agreement effective as of August 4, 1997
by and between the Blue Cross Blue Shield Association and BC Life &
Health Insurance Company.............................................
99.10 Blue Cross Controlled Affiliate License Agreement Applicable to Life
Insurance Companies effective as of August 4, 1997 by and between
Blue Cross Blue Shield Association and BC Life & Health Insurance
Company..............................................................
99.11 Fourth Amendment to Credit Agreement and Consent dated as of July 21,
1997 by and among the Company, Bank of America National Trust and
Savings Association, as Administrative Agent, NationsBank of Texas,
N.A., as Syndication Agent, Chemical Bank, as Documentation Agent,
and the other financial institutions named therein...................
99.12 Undertakings dated July 31, 1997 by the Company, WellPoint California
and WellPoint California Services, Inc. to the California Department
of Corporations......................................................
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EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
WELLPOINT HEALTH NETWORKS INC.
(PURSUANT TO SECTION 245)
The undersigned, LEONARD D. SCHAEFFER and THOMAS C. GEISER, hereby
certify that:
ONE: They are the Chief Executive Officer and Secretary,
respectively, of WellPoint Health Networks Inc. (the "Corporation"). WellPoint
Health Networks Inc. was originally incorporated under the same name, and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on August 29, 1996.
TWO: Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
THREE: The Certificate of Incorporation of the Corporation is hereby
restated and amended to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (hereinafter called the "Corporation") is
WellPoint Health Networks Inc.
ARTICLE II
PURPOSE
SECTION 1. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware ("DGCL").
ARTICLE III
AUTHORIZED CAPITAL STOCK
SECTION 1. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is three hundred and fifty
million (350,000,000) shares as follows: (a) three hundred million
(300,000,000) shares of Common Stock, $.01 par value per share ("Common
Stock"), and (b) fifty million (50,000,000) shares of Preferred Stock, $.01 par
value per share ("Preferred Stock").
1.
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SECTION 2. The rights, preferences, privileges and restrictions of
the classes of stock of the Corporation and the express grant of authority to
the Board of Directors to fix by resolution the rights, preferences, privileges
and restrictions relating to the classes of stock of the Corporation which are
not fixed by this Restated Certificate of Incorporation, are as follows:
COMMON STOCK
A. DIVIDENDS.
Subject to any other provisions of this Restated Certificate of
Incorporation, as amended from time to time, holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon from time to time by the
Board of Directors of the Corporation (the "Board of Directors") out of assets
or funds of the Corporation legally available therefor.
B. VOTING.
(i) At every meeting of the stockholders, every holder of Common
Stock shall be entitled to one (1) vote in person or by proxy for each share of
Common Stock standing in his or her name on the transfer books of the
Corporation.
(ii) The provisions of this Article III of this Restated
Certificate of Incorporation shall not be modified, revised, altered or
amended, repealed or rescinded, in whole or in part, without the affirmative
vote of the holders of a majority of the shares of Common Stock.
PREFERRED STOCK
The Board of Directors is authorized to provide, by resolution, for
the issuance of one or more series of Preferred Stock out of the unissued
shares of Preferred Stock and the Board of Directors is authorized to determine
the designation and to fix the number of shares of each series. Except as may
be required by law, the shares in any series of Preferred stock need not be
identical to any other series of Preferred Stock or any other class.
The Board of Directors of the Corporation is further authorized to
determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock, and
to increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series of Preferred Stock subsequent
to the issue of shares of that series.
ARTICLE IV
BOARD OF DIRECTORS
AND STOCKHOLDER MEETINGS
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
2.
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SECTION 1. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors consisting of not
less than nine nor more than seventeen directors, the exact number of directors
to be determined in accordance with the Bylaws of the Corporation. The
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. At each annual meeting of stockholders beginning in 1998,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
but in no case shall a decrease in the number of directors shorten the term of
any incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
SECTION 2. In the case of any vacancy on the Board of Directors,
including any vacancy created by the removal of a director, or in the case of
any newly created directorship, a director elected to fill the vacancy or the
newly created directorship for the unexpired portion of the term being filled
shall be elected pursuant to the procedures set forth in the Bylaws of the
Corporation. The director elected to fill a vacancy shall hold office for the
unexpired term in respect of which the vacancy occurred and until his successor
shall be elected and shall qualify or until his or her earlier death,
resignation or removal.
SECTION 3. Any director or the entire Board of Directors may be
removed, with or without cause, by the affirmative vote of the holders of a
majority of the voting power of the shares of the Corporation's stock entitled
to vote at an election of directors. However, a director may not be removed
without cause if the votes cast against removal of the director would be
sufficient to elect the director if voted cumulatively (without regard to
whether shares may otherwise be voted cumulatively) at an election at which the
same total number of votes were cast and either the number of directors elected
at the most recent annual meeting of the stockholders, or if greater, the
number of directors for whom removal is being sought, were then being elected.
SECTION 4. Whenever the holders of any series of Preferred Stock
issued by the Corporation or of any other securities of the Corporation shall
have the right, voting separately by series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto.
SECTION 5. Election of Directors need not be by ballot unless a
stockholder demands election by ballot at the meeting and before the voting
begins or unless the Bylaws so require.
SECTION 6. The Board of Directors shall have the concurrent power
with the stockholders to make, alter, amend, change, add to or repeal
(collectively, "Change") the Bylaws of the Corporation.
3.
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SECTION 7. Meetings of the stockholders of the Corporation for any
purpose or purposes may be held within or without the State of Delaware, as the
Bylaws may provide.
SECTION 8. No action required or permitted to be taken at any annual
or special meeting of stockholders of the Corporation may be taken by written
consent without a meeting of such stockholders.
SECTION 9. Special meetings of the stockholders of the Corporation
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President, a majority of the members of the Board of Directors or
the holders of shares entitled to cast not less than 10% of the votes at the
meeting. Such special meeting may not be called by any other person or persons
or in any other manner.
SECTION 10. The approval of the greater of at least two-thirds or
seven of the directors of the Corporation then in office shall be required for
the Board of Directors to approve and authorize any of the following:
(a) any amendment to this Restated Certificate of Incorporation of the
Corporation; and
(b) the amendment of Sections 8 and 10 of Article II, Sections 2,
3 and 14 of Article III, Sections 1 and 2 of Article IV, and Sections 6 and 7
of Article V of the Bylaws of the Corporation.
ARTICLE V
INDEMNIFICATION
SECTION 1. Other than in the case of an action by, or in the right
of, the Corporation, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director or
an officer of the Corporation or of a Predecessor Corporation, against expenses
(including, but not limited to, attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding to the fullest extent and in the manner
set forth in and permitted by the DGCL and any other applicable law, as from
time to time in effect. To the maximum extent permitted by the DGCL, the
Corporation shall advance expenses (including attorneys' fees) incurred by any
person indemnified hereunder in defending any civil, criminal, administrative
or investigative action, suit or proceeding upon an undertaking by or on behalf
of such person to repay such amount if it shall ultimately be determined that
he or she is not entitled to be indemnified by the Corporation. Such rights of
indemnification and advancement of expenses shall not be deemed to be exclusive
of any other rights to which such director or officer may be entitled apart
from the foregoing provisions. The foregoing provisions of this Section 1
shall be deemed to be a contract between the Corporation (or any Predecessor
Corporation) and each director and officer who serves in such capacity at any
time while this Section 1 and the relevant provisions of the DGCL and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or
4.
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obligations then existing, with respect to any state of facts then or
theretofore existing, or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts. For purposes hereof "Predecessor Corporation" shall mean WellPoint
Health Networks Inc., a California corporation ("WellPoint California").
SECTION 2. The Corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was an employee or
agent of the Corporation (or a Predecessor Corporation), or is or was serving
at the request of the Corporation (or a Predecessor Corporation), as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including, but not
limited to, attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding to the extent and in the manner set forth in and permitted by the
DGCL and any other applicable law as from time to time in effect. Such right
of indemnification shall not be deemed to be exclusive of any other rights to
which any such person may be entitled apart from the foregoing provisions.
ARTICLE VI
LIABILITY FOR BREACH OF FIDUCIARY DUTY
A Director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, iii) under Section 174 of the Delaware General
Corporation Law, or iv) for any transaction from which the Director derived any
improper personal benefit. If the Delaware General Corporation Law is
hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of the corporation's
directors for breach of fiduciary duty, then a Director of the Corporation
shall not be liable for any such breach to the fullest extent permitted by the
Delaware General Corporation Law as so amended. Any repeal or modification of
the foregoing provisions of this Article VI by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ARTICLE VII
RESTRICTION ON TRANSFER
SECTION 1. No Person (as defined in Section 14 below) shall
Beneficially Own (as defined in Section 14 below) shares of Capital Stock (as
defined in Section 14 below) in excess of the Ownership Limit (as defined in
Section 14 below). Any Transfer (as defined in Section 14 below) that, if
effective, would result in any Person Beneficially Owning Capital Stock in
excess of the Ownership Limit shall result in such intended transferee
acquiring no rights in such shares of Capital Stock (other than those rights
expressly granted in this Article VII) and such number of shares of Capital
Stock shall be deemed transferred to the Share Escrow Agent (as defined in
Section 14 below) as set forth in this Article VII.
5.
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SECTION 2. If, notwithstanding any other provisions of this Article
VII, there is a purported Transfer or other change in the capital structure of
the Corporation such that any Person would Beneficially Own shares of Capital
Stock in excess of the Ownership Limit (a "Purported Owner"), then, upon such
Transfer or change in capital structure, such shares of Capital Stock in excess
of the Ownership Limit shall be Excess Shares for purposes of this Article VII;
provided, however, that in the event that any Person becomes a Purported Owner
as a result of Beneficial Ownership of Capital Stock of one Person being
aggregated with another Person, then the number of Excess Shares subject to
this Article VII shall be allocated pro rata among each Purported Owner in
proportion to each Person's total Beneficial Ownership (without regard to any
aggregation with another Person pursuant to Section 14(b)(4) or (5) of this
Article VII). Upon the occurrence of any event that would cause any Person to
exceed the Ownership Limit (including without limitation the expiration of a
voting trust, without being renewed on substantially similar terms, that
entitled such Person to an exemption from the Ownership Limit), all shares of
Capital Stock Beneficially Owned by such Person in excess of the Ownership
Limit shall also be Excess Shares for purposes of this Article VII, such Person
shall be deemed the Purported Owner of such Excess Shares and such Person's
rights in such Excess Shares shall be as prescribed in this Article VII.
Excess Shares shall not constitute a separate class of Capital Stock.
SECTION 3. If the Corporation at any time determines that a Transfer
has taken place in violation of Section 1 of this Article VII or that a
Purported Owner intends to acquire or has attempted to acquire Beneficial
Ownership of any shares of Capital Stock in violation of Section 1 of this
Article VII, the Corporation shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer, including, without
limitation, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin or rescind such Transfer;
provided, however, that any purported Transfers in violation of Section 1 of
this Article VII shall automatically result in all shares of Capital Stock in
excess of the Ownership Limit being deemed Excess Shares. Notwithstanding the
foregoing, nothing contained in this Article VII shall limit the authority of
the Corporation to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders.
SECTION 4. Any Purported Owner who acquires or attempts to acquire
shares of Capital Stock in violation of Section l of this Article VII, or any
Purported Owner who is a transferee such that any shares of Capital Stock are
deemed Excess Shares under Section 2 of this Article VII, shall immediately
give written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request.
SECTION 5. Each certificate for Capital Stock issued by the
Corporation shall bear the following legend:
The shares of stock represented by this certificate are
subject to restrictions on ownership and transfer. No Person shall
Beneficially Own shares of Capital Stock in excess of the Ownership
Limit (as defined in Article VII, Section 14 of the Restated
Certificate of Incorporation of the Corporation). Subject to certain
limited specific exemptions, Beneficial Ownership of 5% or more of the
outstanding shares of any class of Capital
6.
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Stock will exceed the Ownership Limit. These provisions have been
designed to ensure that the Corporation will not violate the terms of
the License Agreement between the Corporation and the Blue Cross and
Blue Shield Association (the "BCBSA"). The Corporation maintains at
its principal executive office a copy of the applicable requirements
of the BCBSA relating to such restrictions on ownership and transfer,
as such requirements may be amended from time to time, which are open
to inspection by the stockholders, at all reasonable times during
office hours. Any Person who attempts to beneficially own shares in
violation of this limitation must immediately notify the Corporation.
All capitalized terms in this legend have the meanings ascribed to
them in the Corporation's Restated Certificate of Incorporation, as
the same may be amended from time to time, a copy of which, including
the restrictions on ownership and transfer, will be sent without
charge to each stockholder who so requests. Upon the occurrence of
any event that would cause any Person to exceed the Ownership Limit
(including without limitation the expiration of a voting trust that
entitled such Person to an exemption from the Ownership Limit), all
shares of Capital Stock Beneficially Owned by such Person in excess of
the Ownership Limit will automatically be deemed Excess Shares and be
transferred immediately to the Share Escrow Agent and be subject to
the provisions of the Corporation's Restated Certificate of
Incorporation and the Share Escrow Agent Agreement, a copy of which
the Corporation maintains at its principal executive office. The
foregoing summary of the restrictions on ownership and transfer is
qualified in its entirety by reference to the Corporation's Restated
Certificate of Incorporation.
SECTION 6. Upon the occurrence of a Transfer or an event that results
in Excess Shares pursuant to Section 2 of this Article VII, such Excess Shares
shall automatically be transferred immediately to the Share Escrow Agent, which
Excess Shares, subject to the provisions of this Article VII, shall be held by
the Share Escrow Agent until such time as the Excess Shares are transferred to
a Person whose acquisition thereof will not violate the Ownership Limit (a
"Permitted Transferee") and the Share Escrow Agent shall be authorized to
execute any and all documents sufficient to transfer title to any Permitted
Transferee, even in the absence of receipt of certificate(s) representing
Excess Shares. The Corporation shall take such actions as it deems necessary
to give effect to such transfer to the Share Escrow Agent, including by issuing
a stop transfer order to the Corporation's transfer agent with respect to any
attempted transfer by the Purported Owner or its nominee of any Excess Shares
and by giving effect, or by instructing the Corporation's transfer agent to
give effect, to such transfer to a Permitted Transferee on the books of the
Corporation. Excess Shares so held shall be issued and outstanding shares of
Capital Stock. The Purported Owner shall have no rights in such Excess Shares
except as provided in Sections 7, 8, and 11 of this Article VII and the
administration of the Excess Shares escrow shall be governed by the terms of a
Share Escrow Agent Agreement.
SECTION 7. The Share Escrow Agent, as record holder of Excess Shares,
shall be entitled to receive all dividends and distributions as may be declared
by the Board of Directors with respect to Excess Shares (the "Excess Share
Dividends") and shall hold the Excess Share Dividends until disbursed in
accordance with the provisions of Section 11
7.
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following. The Purported Owner, with respect to Excess Shares purported to be
Beneficially Owned by such Purported Owner prior to such time that the
Corporation determines that such shares are Excess Shares, shall repay to the
Share Escrow Agent the amount of any Excess Share Dividends received by it that
(i) are attributable to any Excess Shares and (ii) the record date of which is
on or after the date that such shares become Excess Shares. The Corporation
shall take all measures that it determines reasonably necessary to recover the
amount of any Excess Share Dividends paid to a Purported Owner, including, if
necessary, withholding any portion of future dividends or distributions payable
on shares of Capital Stock Beneficially Owned by any Purported Owner (including
on shares which fall below the Ownership Limit as well as on Excess Shares),
and, as soon as practicable following the Corporation's receipt or withholding
thereof, shall pay over to the Share Escrow Agent the dividends so received or
withheld, as the case may be.
SECTION 8. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of, or any distribution of the assets of, the
Corporation, the Share Escrow Agent shall be entitled to receive, ratably with
each other holder of Capital Stock of the same class or series, that portion of
the assets of the Corporation that is available for distribution to the holders
of such class or series of Capital Stock. The Share Escrow Agent shall
distribute to the Purported Owner the amounts received upon such liquidations,
dissolution or winding up or distribution in accordance with the provisions of
Section 11 of this Article VII.
SECTION 9. The Share Escrow Agent shall be entitled to vote all
Excess Shares. The Share Escrow Agent shall be instructed by the Corporation
to vote, consent or assent the Excess Shares as follows: (i) if the matter
concerned is the election of directors, the Share Escrow Agent shall vote,
consent or assent the whole number of Excess Shares held by the Share Escrow
Agent for each director by multiplying the number of votes held in escrow by a
fraction, the numerator of which is the number of Nonaffiliated Votes cast for
the director and the denominator of which is the number of Nonaffiliated Votes
that could have been cast in the election of the director and are present in
person or by proxy at the meeting; (ii) where the matter under the DGCL or this
Restated Certificate of Incorporation or the Bylaws of the Corporation requires
at least an absolute majority of all outstanding shares of Common Stock in
order to be effected, then the Share Escrow Agent shall vote, assent or consent
all of such Excess Shares in favor of or in opposition to such matter as the
majority of all Nonaffiliated Votes are cast; and (iii) on all other matters,
the Share Escrow Agent shall at all times vote, assent or consent all of such
shares in the identical proportion in favor of or in opposition to such matter
as Nonaffiliated Votes are cast. If any calculation of votes under the
preceding sentence would require a fractional vote, the Share Escrow Agent
shall vote the next lower number of whole Excess Shares. The Share Escrow
Agent shall use all reasonable commercial efforts to ensure, with respect to
Excess Shares, that such Excess Shares are counted as being present for the
purposes of any quorum required for stockholder action of the Corporation and
to vote as set forth above. For purposes of this Restated Certificate of
Incorporation, "Nonaffiliated Votes" shall mean the votes cast by stockholders
other than any Share Escrow Agent with respect to Excess Shares.
SECTION 10.
8.
<PAGE> 9
(a) In an orderly fashion so as not to materially adversely affect
the price of Common Stock on the New York Stock Exchange or, if Common Stock is
not listed on the New York Stock Exchange, on the exchange or other principal
market on which Common Stock is traded, the Share Escrow Agent shall sell or
cause the sale of Excess Shares at such time or times as the Share Escrow Agent
determines to be appropriate. The Share Escrow Agent shall have the right to
take such actions as the Share Escrow Agent deems appropriate to seek to
restrict sale of the shares to Permitted Transferees.
(b) The Share Escrow Agent shall have the power to convey to the
purchaser of any Excess Shares sold by the Share Escrow Agent ownership of the
Excess Shares free of any interest of the Purported Owner of those Excess
Shares and free of any other adverse interest arising through the Purported
Owner.
(c) Upon acquisition by any Permitted Transferee of any Excess
Shares sold by the Share Escrow Agent or the Purported Owner, such shares shall
upon such sale cease to be Excess Shares and shall become regular shares of
Capital Stock in the class to which the Excess Shares belong, and the purchaser
of such shares shall acquire such shares free of any claims of the Share Escrow
Agent or the Purported Owner.
(d) To the extent permitted by law, none of the Corporation, the
Share Escrow Agent or anyone else shall have any liability to the Purported
Owner or anyone else by reason of any action or inaction the Corporation or the
Share Escrow Agent shall take which either shall in good faith believe to be
within the scope of its authority under this Article VII or by reason of any
decision as to when or how to sell any Excess Shares or by reason of any other
action or inaction in connection with activities under this Article VII which
docs not constitute gross negligence or willful misconduct. Without limiting
by implication the scope of the preceding sentence, to the extent permitted by
law, (a) neither the Share Escrow Agent nor the Corporation shall have any
liability on grounds that either failed to take actions which would have
produced higher proceeds for any of the Excess Shares or by reason of the
manner or timing for any disposition of any Excess Shares and (b) the Share
Escrow Agent shall not be deemed to be a fiduciary or Agent of any Purported
Owner.
SECTION 11. The proceeds from the sale of the Excess Shares to a
Permitted Transferee and any Excess Share Dividends shall be distributed as
follows: (i) first, to the Share Escrow Agent for any costs and expenses
incurred in respect of its administration of the Excess Shares that have not
theretofore been reimbursed by the Corporation; (ii) second, to the Corporation
for all costs and expenses incurred by the Corporation in connection with the
appointment of the Share Escrow Agent, the payment of fees to the Share Escrow
Agent with respect to the services provided by the Share Escrow Agent in
respect of the escrow and all funds expended by the Corporation to reimburse
the Share Escrow Agent for costs and expenses incurred by the Share Escrow
Agent in respect of its administration of the Excess Shares and for all fees,
disbursements and expenses incurred by the Share Escrow Agent in connection
with the sale of the Excess Shares; and (iii) third, the remainder thereof (as
the case may be) to the Purported Owner or the Person who was the holder of
record before the shares were transferred to the Share Escrow Agent (depending
on who shall at such time be entitled to any economic interest in the Excess
Shares); provided, however, if the Share Escrow Agent shall have any questions
as to whether any security interest or other interest
9.
<PAGE> 10
adverse to the Purported Owner shall have existed with respect to any Excess
Shares, the Share Escrow Agent shall not be obligated to disburse proceeds for
those shares until the Share Escrow Agent is provided with such evidence as the
Share Escrow Agent shall deem necessary to determine the parties who shall be
entitled such proceeds.
SECTION 12. Subject to Section 13 of this Article VII, nothing
contained in this Article VII or in any other provision of this Restated
Certificate of Incorporation shall limit the authority of the Corporation to
take such other action as it deems necessary or advisable to protect the
Corporation and the interests of its stockholders.
SECTION 13. Nothing in this Restated Certificate of Incorporation
shall preclude the settlement of any transactions entered into through the
facilities of the New York Stock Exchange or any other exchange or through the
means of any automated quotation system now or hereafter in effect.
SECTION 14. The following definitions shall apply with respect to
this Article VII:
(a) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended or supplemented (the "Exchange
Act") at the time as of which the term shall be applied and any other federal
law which BCBSA shall reasonably judge to have replaced or supplemented the
coverage of the Exchange Act as in effect at May 20, 1996.
(b) Except as is provided in (c) of this Section 14, a Person
shall be deemed to "Beneficially Own," be the "Beneficial Owner" of or have
"Beneficial Ownership" of any Capital Stock:
(1) in which such Person shall then have a direct or
indirect beneficial ownership interest;
(2) in which such Person shall have the right to acquire
any direct or indirect beneficial ownership interest pursuant to any option or
other agreement (either immediately or after the passage of time or the
occurrence of any contingency);
(3) which such Person shall have the right to vote;
(4) in which such Person shall hold any other interest
which would count in determining whether such Person would be required to file
a Schedule 13D; or
(5) which shall be Beneficially Owned (under the concepts
provided in the preceding clauses) by any affiliate or associate of the
particular Person or by any other Person with whom the particular Person or any
such affiliate or associate has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities and
other than pursuant to that certain Registration Rights Agreement between the
Corporation and Western Health Partnerships dated as of May 20, 1996 relating
to the acquisition, holding, voting or disposing of any securities of the
Corporation).
10.
<PAGE> 11
(c) The following provisions are included to clarify (b) above:
(1) A Person shall not be deemed to Beneficially Own, be
the Beneficial Owner of, or have Beneficial Ownership of Capital Stock by
reason of possessing the right to vote if (i) such right arises solely from a
revocable proxy or consent given to such Person in response to a public proxy
or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act, and (ii)
such Person is not the Purported Owner of any Excess Shares, is not named as
holding a beneficial ownership interest in any Capital Stock in any filing on
Schedule 13D and is not an affiliate or associate of any such Purported Owner
or named Person.
(2) A member of a national securities exchange or a
registered depositary shall not be deemed to Beneficially Own, be the
Beneficial Owner of or have Beneficial Ownership of Capital Stock held directly
or indirectly by it on behalf of another Person (and not for its own account)
solely because such member or depositary is the record holder of such Capital
Stock, and (in the case of such member), pursuant to the rules of such
exchange, such member may direct the vote of such Capital Stock without
instruction on matters which are uncontested and do not affect substantially
the rights or privileges of the holders of the Capital Stock to be voted but is
otherwise precluded by the rules of such exchange from voting such Capital
Stock without instruction on either contested matters or matters that may
affect substantially the rights or the privileges of the holders of such
Capital Stock to be voted.
(3) A Person who in the ordinary course of business is a
pledgee of Capital Stock under a written pledge agreement shall not be deemed
to Beneficially Own, be the Beneficial Owner of or have Beneficial Ownership of
such pledged Capital Stock solely by reason of such pledge until the pledgee
has taken all formal steps which are necessary to declare a default or has
otherwise acquired the power to vote or to direct to vote such pledged Capital
Stock, provided that;
(i) the pledge agreement is bona fide and was not
entered into with the purpose nor with the effect of changing or influencing
the control of the Corporation, nor in connection with any transaction having
such purpose or effect, including any transaction subject to Rule 13d-3(b)
promulgated under the Exchange Act; and
(ii) the pledge agreement does not grant to the
pledgee the right to vote or to direct the vote of the pledged securities prior
to the time the pledgee has taken all formal steps which are necessary to
declare a default.
(4) A Person engaged in business as an underwriter or a
placement agent for securities who enters into an agreement to acquire or
acquires Capital Stock solely by reason of its participation in good faith and
in the ordinary course of its business in the capacity of underwriter or
placement agent in any underwriting or agent representation registered under
the Securities Act of 1933, as amended and in effect at May 20, 1996 (the
"Securities Act"), a bona fide private placement, a resale under Rule 144A
promulgated under the Securities Act or in any foreign or other offering exempt
from the registration requirements under the Securities Act shall not be deemed
to Beneficially Own, be the
11.
<PAGE> 12
Beneficial Owner of or have Beneficial Ownership of such securities until the
expiration of forty (40) days after the date of such acquisition so long as (i)
such Person does not vote such Capital Stock during such period and (ii) such
participation is not with the purpose or with the effect of changing or
influencing control of the Corporation, nor in connection with or facilitating
any transaction having such purpose or effect, including any transaction
subject to Rule 13d-3(b) promulgated under the Exchange Act.
(5) If the Corporation shall sell shares in a transaction
not involving any public offering, then each purchaser in such offering shall
be deemed to obtain Beneficial Ownership in such offering of the shares
purchased by such purchaser, but no particular purchaser shall be deemed to
Beneficially Own or have acquired Beneficial Ownership or be the Beneficial
Owner in such offering of shares purchased by any other purchaser solely by
reason of the fact that all such purchasers are parties to customary agreements
relating to the purchase of equity securities directly from the Corporation in
a transaction not involving a public offering, provided that:
(i) all the purchasers are persons specified in
Rule 13d-1(b)(1)(ii) promulgated under the Exchange Act;
(ii) the purchase is in the ordinary course of
each purchaser's business and not with the purpose nor with the effect of
changing or influencing control of the Corporation, nor in connection with or
as a participant in any transaction having such purpose or effect, including
any transaction subject to Rule 13d-3(b) promulgated under the Exchange Act;
(iii) there is no agreement among or between any
purchasers to act together with respect to the Corporation or its securities
except for the purpose of facilitating the specific purchase involved; and
(iv) the only actions among or between any
purchasers with respect to the Corporation or its securities subsequent to the
closing date of the nonpublic offering are those which are necessary to
conclude ministerial matters directly related to the completion of the offer or
sale of the securities sold in such offering.
(6) The Share Escrow Agent shall not be deemed to be the
Beneficial Owner of any Excess Shares held by such Share Escrow Agent pursuant
to a Share Escrow Agent Agreement, nor shall any such Excess Shares be
aggregated with any other share of Capital Stock held by affiliates or
associates of such Share Escrow Agent.
(d) "Capital Stock" shall mean shares (or any other basic unit) of
any class or series of any voting security which the Corporation may at any
time issue or be authorized to issue, that entitles the holder thereof to vote
on any election, but not necessarily all elections, of directors. To the
extent that classes or series of Capital Stock vote together in the election of
directors with equal votes per share, they shall be treated as a single class
of Capital Stock for the purpose of computing the relevant Ownership Limit or
the right to amend this Restated Certificate of Incorporation.
12.
<PAGE> 13
(e) "License Agreement" shall mean the license agreement between
the Corporation and the BCBSA, including any and all addenda thereto, now in
effect and, as it may be amended, modified, superseded and/or replaced from
time to time, with respect to, among other things, the "Blue Cross" name and
mark.
(f) "Ownership Limit" shall mean the following:
(1) Except as otherwise expressly provided in this
Subsection (f) and subject to Section 15(a), the Ownership Limit shall be that
number of shares of Capital Stock one share lower than the number of shares of
Capital Stock which would represent 5% of the Voting Power.
(2) In the event the Corporation and BCBSA shall agree in
writing, through an amendment of the License Agreement or otherwise, that an
Ownership Limit of a higher percentage than that prescribed in clause (1) shall
apply, then the Ownership Limit shall be as specified in such written
agreement.
(3) In the event any particular Person shall Beneficially
Own shares of Capital Stock in excess of the Ownership Limit which would apply
were it not for this clause (3) (the "Regular Limit"), such ownership shall not
be deemed to exceed the Ownership Limit provided that (i) such Person shall not
at any time Beneficially Own shares of Capital Stock in excess of the Regular
Limit plus 1% and (ii) within thirty (30) days of the time when the particular
Person becomes aware of the fact that the regular Limit has been exceeded, the
particular Person reduces such Person's Beneficial Ownership below the Regular
Limit.
(g) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other entity, and shall
include any successor (by merger or otherwise) of any such entity.
(h) "Schedule 13D" means a report on Schedule 13D under Regulation
13D of the Exchange Act as in effect at May 20, 1996 and any report which may
be required in the future under any requirements which BCBSA shall reasonably
judge to have any of the purposes served by Schedule 13D as in effect at May
20, 1996.
(i) "Share Escrow Agent" shall mean the Person appointed by the
Corporation to act as escrow agent with respect to some or all of the Excess
Shares.
(j) "Transfer" shall mean any sale, transfer, gift, hypothecation,
pledge, assignment, devise or other disposition of Capital Stock (including (i)
the granting of any option or entering into any agreement for the sale,
transfer or other disposition of Capital Stock or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible into or
exchangeable for Capital Stock), whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise.
(k) "Voting Power." The percentage of the voting power
attributable to the shares of Capital Stock Beneficially Owned by any
particular Person shall be equal to the percentage of all votes which could be
cast in any election of any director which could be accounted for
13.
<PAGE> 14
by the shares of Capital Stock Beneficially Owned by that particular Person.
If in connection with an election for any particular position on the Board,
shares in different classes or series are entitled to be voted together for
purposes of such election, then in determining the number of "all votes which
could be cast" in the election for that particular position for purposes of the
preceding sentence, the number shall be equal to the number of votes which
could be cast in the election for that particular position if all shares
entitled to be voted in such election (regardless of series or class) were in
fact voted in such election. If the Corporation shall issue any series or
class of shares for which positions on the Board are reserved or shall
otherwise issue shares which have voting rights which can arise or vary based
upon terms governing that class or series, then the percentage of the voting
power represented by the shares of Capital Stock Beneficially Owned by any
particular Person shall be the highest percentage of the total votes which
could be accounted for by those shares in any election of any director.
SECTION 15. (a) This Article VII shall not be applicable with
respect to any outstanding shares of Capital Stock of the Corporation owned by
the California HealthCare Foundation (the "Foundation") which were (i) issued
by the Corporation in exchange for "Original Shares" (such shares of Capital
Stock being referred to as "Exchange Shares") or (ii) acquired by the
Foundation with respect to Exchange Shares as a result of a stock dividend,
stock split, conversion, recapitalization, exchange of shares or the like, so
long as such Capital Stock of this Corporation shall be Beneficially Owned by
the Foundation or an affiliate of the Foundation or by a trustee for the
account of the Foundation or affiliate of the Foundation. "Original Shares"
means shares of capital stock of WellPoint California owned by the Foundation
which were outstanding on May 20, 1996, and shares of WellPoint California
acquired by the Foundation with respect to such shares after such time as a
result of a stock dividend, stock split, conversion, recapitalization, exchange
of shares or the like. All (1) Exchange Shares and such other shares of
Capital Stock received by the Foundation or affiliate of the Foundation or by a
trustee for the account of the Foundation or affiliate of the Foundation as a
result of a stock dividend, stock split, conversion, recapitalization, exchange
of shares or the like relating to such Exchange Shares shall be aggregated with
(2) any other shares of Capital Stock for which the Foundation or affiliate or
trustee of the Foundation becomes a Beneficial Owner, including shares of
Capital Stock issued in exchange for shares of WellPoint California which were
not Original Shares (all such shares referred to in the immediately preceding
clause (2) being defined as "After Acquired Shares"), in determining if such
After Acquired Shares are Excess Shares. Upon the transfer of any Beneficial
Ownership interest in any Exchange Shares and such other shares of Capital
Stock received by the Foundation or affiliate of the Foundation or by a trustee
for the account of the Foundation or affiliate of the Foundation as a result of
a stock dividend, stock split, conversion, recapitalization, exchange of shares
or the like relating to such Exchange Shares, from the Foundation or affiliate
or trustee thereof to any unaffiliated transferee, that Capital Stock shall
become fully subject to this Article VII from and at all times after such
transfer.
Any Exchange Shares and such other shares of Capital Stock received by
the Foundation or affiliate of the Foundation or by a trustee for the account
of the Foundation or affiliate of the Foundation as a result of a stock
dividend, stock split, conversion, recapitalization, exchange of shares or the
like relating to such Exchange Shares shall automatically become subject to
this Article VII upon transfer to any affiliate or trustee of the
14.
<PAGE> 15
Foundation, unless such affiliate or trustee is subject to a binding obligation
to vote such shares in the manner prescribed by the terms of the Voting
Agreement dated May 20, 1996 or Voting Trust Agreement dated May 8, 1996 (as
such agreements or replacements thereof may be in effect from time to time),
whichever is applicable, entered into by the Foundation with respect to
Original Shares subject to such agreement. For purposes of this Section 15(a),
neither The California Endowment nor any of its successors in interest or
affiliates shall be deemed to be an affiliate of the Foundation.
(b) This Article VII shall become ineffective and of no further
force and effect in the event that the Corporation ceases to be subject to any
License Agreement.
(c) Subject to (a) and (b) above, the Board of Directors of the
Corporation has the power to interpret this Article VII and, in the absence of
manifest error, any interpretation by the Board of Directors of the Corporation
shall be binding; provided, however, that in making any such interpretation,
the Board of Directors of the Corporation shall consider the Corporation's
obligations to the BCBSA, wherever relevant.
ARTICLE VIII
NO PREFERENTIAL RIGHTS
No stockholder of the Corporation shall, by reason of his, her or its
holding shares of any class, have any preemptive or preferential rights to
purchase or subscribe to any shares of the Corporation now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible
into or carrying options or warrants to purchase shares of any class now or
hereafter to be authorized (whether or not the issuance of any such shares or
such notes, debentures, bonds or other securities would adversely affect the
dividend or voting rights of such stockholder) other than such rights, if any,
as the Board of Directors in its discretion from time to time may grant and at
such price as the Board of Directors may fix; and the Board of Directors may
issue shares of the Corporation or any notes, debentures, bonds or other
securities, convertible into or carrying options or warrants to purchase shares
without offering any such shares, either in whole or in part, to the existing
stockholders.
ARTICLE IX
NO CUMULATIVE VOTING
Stockholders are not entitled to cumulate votes at any election of
directors.
ARTICLE X
BOOKS AND RECORDS
The books and records of the Corporation may be kept (subject to any
provision contained in the statutes) at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
ARTICLE XI
RIGHT TO AMEND RESTATED CERTIFICATE OF INCORPORATION
15.
<PAGE> 16
The Corporation reserves the right to Change any provision contained
in this Restated Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation; provided, however, that subject to the
powers and rights provided for herein with respect to Preferred Stock issued by
the Corporation, if any, but not withstanding anything else contained in this
Restated Certificate of Incorporation to the contrary, (a) the affirmative vote
of the holders of at least seventy-five percent (75%) of each class of the
shares of Capital Stock, represented and voting at a duly held meeting of
stockholders of the Corporation at which a quorum is present, voting by class,
shall be required to Change Sections 1, 2, 6, 8 and 10 of Article IV, Article
VII, Article IX or this Article XI; (b) no amendment of this Restated
Certificate of Incorporation as described in the preceding clause (a) shall be
effective unless approved by the affirmative vote of a majority of the
outstanding shares of Capital Stock entitled to vote, (c) the provisions of
clause (a) above shall not apply to any amendment to Article VII to conform
Article VII to a change to the terms of the License Agreement or to any
amendment to Article VII required or permitted by the BCBSA (whether or not
constituting a change to the terms of the License Agreement) and (d) the
provisions of clauses (a), (b) and (c) above shall become ineffective and of no
further force and effect in the event that the Corporation ceases to be subject
to any License Agreement.
ARTICLE XII
REGISTERED AGENT
The address of the registered office of the corporation in the state
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is CT Corporation.
FOUR: The foregoing amendment and restatement of the Certificate of
Incorporation was duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law.
We further declare under penalty of perjury under the laws of the
State of Delaware that the matters set forth in this Certificate are true and
correct of our own knowledge.
16.
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have executed this Certificate on
July 29, 1997.
/s/ LEONARD D. SCHAEFFER
--------------------------------------
Leonard D. Schaeffer,
Chief Executive Officer
/s/ THOMAS C. GEISER
--------------------------------------
Thomas C. Geiser, Secretary
17.
<PAGE> 18
The undersigned certify under penalty of perjury that they have read
the foregoing Restated Certificate of Incorporation and know the contents
thereof and that the statements therein are true and correct.
Executed at Los Angeles, California, on July 29, 1997.
/s/ LEONARD D. SCHAEFFER
--------------------------------------
Leonard D. Schaeffer,
Chief Executive Officer
/s/ THOMAS C. GEISER
--------------------------------------
Thomas C. Geiser, Secretary
18.
<PAGE> 1
EXHIBIT 3.3
AGREEMENT OF MERGER
This Agreement of Merger, dated as of July 22, 1997 ("Merger
Agreement"), is made and entered into by WellPoint Health Networks Inc., a
California corporation ("WellPoint California"), and WLP Acquisition Corp., a
California corporation ("Merger Sub") (WellPoint California and Merger Sub
being collectively referred to as the "Constituent Corporations") and
WellPoint Health Networks Inc., a Delaware corporation ("WellPoint
Delaware").
WITNESSETH:
WHEREAS, the Constituent Corporations and WellPoint Delaware
previously have entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement") providing for certain representations, warranties
and agreements in connection with the transactions contemplated; and
WHEREAS, the Boards of Directors of the Constituent
Corporations deem it advisable and in the best interests of the Constituent
Corporations and in the best interests of the shareholders of the Constituent
Corporations that WellPoint California and Merger Sub be combined through a
merger (the "Merger") of Merger Sub into WellPoint California.
NOW, THEREFORE, the Constituent Corporations and WellPoint
Delaware hereby agree as follows:
ARTICLE I.
The Constituent Corporations
1.01 (a) WellPoint California was incorporated under
the laws of the State of California on June 8, 1982.
(b) WellPoint California is authorized to issue
an aggregate of 300,000,000 Common Shares (the "WellPoint California Common
Stock") and 50,000,000 Preferred Shares (the "WellPoint California Preferred
Stock").
(c) As of the date and time immediately prior to
the consummation of the Merger, there will be an aggregate of 69,621,826 shares
of WellPoint California Common Stock and no shares of WellPoint California
Preferred Stock outstanding.
1.02 (a) Merger Sub was incorporated under the laws of
the State of California on May 7, 1997.
(b) Merger Sub is authorized to issue an
aggregate of 1,000 shares of Common Stock ("Merger Sub Common Stock").
1.
<PAGE> 2
(c) As of the date and time immediately prior to
the consummation of the Merger, an aggregate of 1,000 shares of Merger Sub
Common Stock will be outstanding and owned by WellPoint Delaware.
ARTICLE II.
The Merger
2.01 (a) This Merger Agreement shall be submitted to
the shareholders of WellPoint California and Merger Sub. If adopted and
approved by the vote of the shareholders of WellPoint California and by the
written consent of the shareholders of Merger Sub, and if all of the conditions
precedent to the consummation of the Merger specified in the Reorganization
Agreement shall have been satisfied or duly waived by the party entitled to
satisfaction thereof, then, unless terminated as provided in the Reorganization
Agreement, this Merger Agreement, along with certificates meeting the
requirements of the California General Corporation Law, shall be filed with the
Secretary of State of California. Upon such filing, the Merger shall become
effective ("Effective Time of the Merger").
(b) At the Effective Time of the Merger, Merger
Sub shall be merged into WellPoint California and the separate corporate
existence of Merger Sub shall thereupon cease. WellPoint California shall be
the surviving corporation in the Merger (the "Surviving Corporation") and the
separate corporate existence of WellPoint California, with all of its purposes,
objects, rights, privileges, powers, immunities and franchises, shall continue
unaffected and unimpaired by the Merger.
2.02 (a) The Surviving Corporation shall succeed to
all of the rights, privileges, powers, immunities and franchises of Merger Sub,
all of the properties and assets of Merger Sub and all of the debts, choses in
action and other interests due or belonging to Merger Sub and shall be subject
to, and responsible for, all of the debts, liabilities and obligations of
Merger Sub with the effect set forth in the California General Corporation Law.
(b) If, at any time after the Effective Time of
the Merger, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or otherwise
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, properties or assets of Merger Sub acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
to otherwise carry out this Merger Agreement, the officers and directors of the
Surviving Corporation shall and will be authorized to execute and deliver, in
the name and on behalf of Merger Sub or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of Merger Sub or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or to otherwise carry out this Merger Agreement.
2.
<PAGE> 3
ARTICLE III.
Articles of Incorporation
3.01 The Articles of Incorporation of WellPoint California
in effect immediately prior to the Effective Time of the Merger shall be the
Articles of Incorporation of the Surviving Corporation.
ARTICLE IV.
Manner And Basis Of Converting Shares
Of The Constituent Corporations
4.01 At the Effective Time of the Merger:
(a) Each share of Merger Sub Common Stock which
is outstanding immediately prior to the Effective Time of the Merger shall be
converted at the Effective Time of the Merger into one (1) share of WellPoint
California Common Stock.
(b) Each share of WellPoint California Common
Stock which is outstanding immediately prior to the Effective Time of the
Merger shall be converted into one (1) fully-paid and non-assessable share of
Common Stock, $.01 par value per share of WellPoint Delaware ("WellPoint
Delaware Common Stock").
(c) Each Share of WellPoint Delaware Common Stock
which is outstanding immediately prior to the Effective Time of the Merger
shall be cancelled.
4.02 On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of
WellPoint California Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the shares of WellPoint Delaware Common Stock
into which the shares of WellPoint California Common Stock represented by such
certificates have been converted as herein provided and shall be so registered
on the books and records of WellPoint Delaware or its transfer agents. The
registered owner of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to WellPoint Delaware or its transfer agent, have and be entitled
to exercise any voting and other rights with respect to and to receive any
dividend and other distributions upon the shares of WellPoint Delaware
evidenced by such outstanding certificate as above provided.
4.03 If any certificate for shares of WellPoint Delaware
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and that the person requesting such transfer pay to the Exchange Agent
any transfer or other taxes payable by reason of the issuance of such new
certificate in any name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of WellPoint Delaware
that such tax has been paid or is not payable.
3.
<PAGE> 4
ARTICLE V.
General
5.01 This Merger Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.02 Notwithstanding approval of this Merger Agreement by
the shareholders of either of the Constituent Corporations, this Merger
Agreement shall terminate forthwith in the event that the Reorganization
Agreement shall be terminated as therein provided.
5.03 This Merger Agreement may be amended by the parties
hereto at any time before or after approval hereof by the shareholders of
either of the Constituent Corporations, but, after any such approval, no
amendment shall be made which would have a material adverse effect on the
shareholders of either of the Constituent Corporations, or change any of the
principal terms of the Reorganization Agreement, without the further approval
of such shareholders. This Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Without
limiting the foregoing, the parties hereto acknowledge and agree that any
modification of the manner or basis of exchanging shares of WellPoint
California Common Stock into WellPoint Delaware Common Stock shall require
further approval of the Boards of Directors (or appropriate committee thereof
empowered to so act) of WellPoint Delaware and WellPoint California and the
stockholders of WellPoint California.
4.
<PAGE> 5
IN WITNESS WHEREOF, the parties have duly executed this Merger
Agreement as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
a California corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
WELLPOINT HEALTH NETWORKS INC.,
a Delaware corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
Chief Executive Officer
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
WLP ACQUISITION CORP.,
a California corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
President
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
5.
<PAGE> 1
EXHIBIT 99.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter called the
"Reorganization Agreement") is made as of July 22, 1997, by and between
WELLPOINT HEALTH NETWORKS INC., a California corporation ("WellPoint
California"), WLP ACQUISITION CORP., a California corporation ("Merger Sub"),
and WELLPOINT HEALTH NETWORKS INC., a Delaware corporation ("WellPoint
Delaware"). WellPoint California and Merger Sub are sometimes referred to as
the "Constituent Corporations."
WHEREAS, the authorized capital stock of WellPoint California consists
of Three Hundred Million (300,000,000) shares of Common Stock, $.01 par value,
and Fifty Million (50,000,000) shares of Preferred Stock, $.01 par value. The
authorized capital stock of WellPoint Delaware consists of Three Hundred
Million (300,000,000) shares of Common Stock, $.01 par value (``WellPoint
Delaware Common Stock''), and Fifty Million (50,000,000) shares of Preferred
Stock, $.01 par value.
WHEREAS, the directors of the Constituent Corporations and WellPoint
Delaware deem it advisable and to the advantage of the Constituent Corporations
and WellPoint Delaware that Merger Sub merge into WellPoint California upon the
terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Reorganization Agreement and do hereby agree that Merger
Sub shall merge into WellPoint California on the following terms, conditions
and other provisions:
ARTICLE I. TERMS AND CONDITIONS.
1.1 Reorganization. Merger Sub shall be merged with and into
WellPoint California (the "Reorganization"), and WellPoint California shall be
the surviving corporation (the "Surviving Corporation") effective upon the date
when the Merger Agreement in the form of Exhibit A hereto is filed with the
Secretary of State of California (the "Effective Date").
1.2 Succession. On the Effective Date, WellPoint California shall
continue its corporate existence under the laws of the State of California, and
the separate existence and corporate organization of Merger Sub shall be
terminated and cease.
1.3 Transfer of Assets and Liabilities. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and
all rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, of each of the
Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the
1.
<PAGE> 2
Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason
of the Reorganization.
1.4 Common Stock of WellPoint California, Merger Sub and WellPoint
Delaware. On the Effective Date, by virtue of the Reorganization and without
any further action on the part of the Constituent Corporations or their
shareholders, each share of Common Stock of WellPoint California issued and
outstanding immediately prior thereto shall be converted into one (1) fully
paid and nonassessable share of WellPoint Delaware Common Stock, each share of
Merger Sub issued and outstanding immediately prior to the Effective Date shall
be converted into one share of Common Stock of WellPoint California and each
share of Common Stock of WellPoint Delaware issued and outstanding immediately
prior thereto shall be canceled and returned to the status of authorized but
unissued shares.
1.5 Stock Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of WellPoint California shall be deemed
for all purposes to evidence ownership of and to represent the shares of
WellPoint Delaware into which the shares of WellPoint California represented by
such certificates have been converted as herein provided and shall be so
registered on the books and records of WellPoint Delaware or its transfer
agents. The registered owner of any such outstanding stock certificate shall,
until such certificate shall have been surrendered for transfer or conversion
or otherwise accounted for to WellPoint Delaware or its transfer agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive any dividend and other distributions upon the shares of WellPoint
Delaware evidenced by such outstanding certificate as above provided.
1.6 Options. On the Effective Date, the Surviving Corporation will
assume and continue WellPoint California's 1994 Stock Option/Award Plan and
Employee Stock Option Plan and the outstanding and unexercised portions of all
options to purchase Common Stock of WellPoint California, including without
limitation all options outstanding under such stock plans and any other
outstanding options, shall be converted into options of WellPoint Delaware,
such that an option for one (1) share of WellPoint California shall be
converted into an option for one (1) share of WellPoint Delaware, with no
change in the exercise price of the WellPoint Delaware option. No other changes
in the terms and conditions of such options will occur. Effective on the
Effective Date, WellPoint Delaware hereby assumes the outstanding and
unexercised portions of such options and the obligations of WellPoint
California with respect thereto.
1.7 Employee Benefit Plans. On the Effective Date, WellPoint
Delaware shall assume all obligations of WellPoint California under any and all
employee benefit plans, including the WellPoint Health Networks Inc. Employee
Stock Purchase Plan, in effect as of such date. On the Effective Date,
WellPoint Delaware shall adopt and continue in effect all such employee benefit
plans upon the same terms and conditions as were in effect immediately prior to
the Reorganization and shall reserve that number of shares of WellPoint
Delaware Common Stock with respect to each such employee benefit plan as is
proportional to the number of shares of WellPoint California Common Stock (if
any) so reserved on the Effective Date.
2.
<PAGE> 3
1.8 Assumption of Agreements. At or following the Effective Time,
WellPoint California shall assign, and WellPoint Delaware shall assume, such
other agreements as the parties herein shall agree are in the best interest of
the parties to so assign and assume.
ARTICLE II. DIRECTORS AND OFFICERS.
2.1 Directors. The directors of WellPoint California immediately
preceding the Effective Date shall become the directors of WellPoint Delaware
on and after the Effective Date to serve until the expiration of their terms
and until their successors are elected and qualified.
2.2 Officers. The officers of WellPoint California immediately
preceding the Effective Date shall become the officers of WellPoint Delaware on
and after the Effective Date to serve at the pleasure of its Board of Directors
of WellPoint Delaware.
ARTICLE III. MISCELLANEOUS.
3.1 Further Assurances. From time to time, and when required by
WellPoint Delaware or by its successors and assigns, there shall be executed
and delivered on behalf of WellPoint California such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest or
perfect in or to conform of record or otherwise, in the Surviving Corporation
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of WellPoint
California and otherwise to carry out the purposes of this Reorganization
Agreement, and the officers and directors of WellPoint Delaware are fully
authorized in the name and on behalf of WellPoint California or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
3.2 Amendment. At any time before or after approval by the
shareholders of WellPoint California, this Reorganization Agreement may be
amended in any manner (except that, after the approval of the Reorganization
Agreement by the shareholders of WellPoint California, the principal terms may
not be amended without the further approval of the shareholders of WellPoint
California) as may be determined in the judgment of the respective Board of
Directors of WellPoint Delaware and WellPoint California to be necessary,
desirable, or expedient in order to clarify the intention of the parties hereto
or to effect or facilitate the purpose and intent of this Reorganization
Agreement.
3.3 Conditions to Reorganization. The obligations of the Constituent
Corporations and WellPoint Delaware to effect the transactions contemplated
hereby are subject to satisfaction of the following conditions (any or all of
which may be waived by any of these Corporations in their sole discretion to
the extent permitted by law):
(a) the Reorganization shall have been approved by the
shareholders of WellPoint California in accordance with applicable
provisions of the General Corporation Law of the State of California;
3.
<PAGE> 4
(b) WellPoint California, as sole stockholder of
WellPoint Delaware, shall have approved the Reorganization in
accordance with the General Corporation Law of the State of Delaware;
(c) WellPoint Delaware, as the sole shareholder of Merger
Sub, shall have approved the Reorganization in accordance with the
General Corporation Law of the State of California; and
(d) any and all consents, permits, authorizations,
approvals, and orders deemed in the sole discretion of WellPoint
California to be material to consummation of the Reorganization shall
have been obtained.
3.4 Abandonment or Deferral. At any time before the Effective
Date, this Reorganization Agreement may be terminated and the Reorganization
may be abandoned by the Board of Directors of either WellPoint California or
WellPoint Delaware or both, notwithstanding the approval of this Reorganization
Agreement by the shareholders of WellPoint California or WellPoint Delaware, or
the consummation of the Reorganization may be deferred for a reasonable period
of time if, in the opinion of the Boards of Directors of WellPoint California
and WellPoint Delaware, such action would be in the best interest of such
corporations. In the event of termination of this Reorganization Agreement,
this Reorganization Agreement shall become void and of no effect and there
shall be no liability on the part of either Constituent Corporation, WellPoint
Delaware or its respective Board of Directors or shareholders with respect
thereto, except that WellPoint California shall pay all expenses incurred in
connection with the Reorganization or in respect of this Reorganization
Agreement or relating thereto.
3.5 Counterparts. This Reorganization Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original.
4.
<PAGE> 5
IN WITNESS WHEREOF, this Reorganization Agreement, having first been
duly approved by the Board of Directors of WellPoint California, Merger Sub and
WellPoint Delaware, is hereby executed on behalf of each said corporation and
attested by their respective officers thereunto duly authorized.
WELLPOINT HEALTH NETWORKS INC.
a California corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
WELLPOINT HEALTH NETWORKS INC.
a Delaware corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
Chief Executive Officer
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
WLP ACQUISITION CORP.
a California corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
President
By: /s/ THOMAS C. GEISER
---------------------------------
Thomas C. Geiser
Secretary
5.
<PAGE> 1
EXHIBIT 99.2
AMENDED AND RESTATED
VOTING TRUST AGREEMENT
This Amended and Restated Voting Trust Agreement ("Agreement") is made
and entered into as of the 4th day of August, 1997, by and between the
California HealthCare Foundation (formerly Western Health Partnerships, the
"Beneficiary") and Wilmington Trust Company, a Delaware corporation, as trustee
(hereinafter, with any successor trustee, referred to as "Trustee").
WITNESSETH:
WHEREAS, pursuant to an Agreement and Plan of Reorganization dated
July 22, 1997 (the "Reorganization Agreement") among WellPoint Health Networks
Inc., a Delaware corporation (the "Company" or "WellPoint Delaware"), WellPoint
Health Networks Inc., a California corporation, and WLP Acquisition Corp., a
wholly owned subsidiary of WellPoint Delaware ("Merger Sub"), Merger Sub was
merged into WellPoint California, the capital stock of WellPoint California was
converted into capital stock of WellPoint Delaware and the stockholders of
WellPoint California became stockholders of WellPoint Delaware and the
outstanding stock of Merger Sub was converted into stock of WellPoint
California and thereby WellPoint California became a wholly owned subsidiary of
WellPoint Delaware (the "Reorganization");
WHEREAS, as a result of the Reorganization, the parties hereto desire
to enter into this Agreement which amends and restates the Voting Trust
Agreement dated May 20, 1996 by and between the Beneficiary and Wilmington
Trust Company (the "Voting Trust Agreement") and sets forth the terms of the
voting trust established by this Agreement (the "Voting Trust");
WHEREAS, as of the date hereof, the Foundation, pursuant to the
Reorganization, owns approximately 43.0% of the outstanding equity securities
of the Company, representing approximately 43.0% of the voting power of the
outstanding stock of the Company;
WHEREAS, the Beneficiary wishes for its investment in the Company to
be as valuable as possible so long as such investment is maintained and
believes that the Company's primary license to use the "Blue Cross" name and
related rights (the "Blue Cross marks") contributes substantially to the
Company's value and its future prospects;
WHEREAS, the Blue Cross and Blue Shield Association ("BCBSA") has
conditioned the Company's license to continue to use the Blue Cross marks upon
the Company maintaining certain Basic Protections (as defined in the License
Addendum between the Company and BCBSA) which are intended by the BCBSA to
enable the Company to remain independent of the Beneficiary and any other
stockholder who may in the future acquire Capital Stock (as defined below) in
the Company in excess of the Ownership Limit (as defined below); and
1.
<PAGE> 2
WHEREAS, the Beneficiary has agreed to be bound by:
(i) a requirement that the Beneficiary make such
deposits into the voting trust established by this Agreement
(the "Voting Trust") as may be necessary to maintain the
shares of Capital Stock Beneficially Owned (as defined below)
by the Beneficiary outside the Voting Trust at a level which
does not exceed 50% of the voting power of the Company's
outstanding Capital Stock at all times from May 20, 1996 to
but not including May 20, 1999;
(ii) a requirement that the Beneficiary make such
additional deposits into the Voting Trust as may be necessary
to maintain the number of shares of Capital Stock Beneficially
Owned by the Beneficiary outside the Voting Trust at a level
which does not exceed 20% of the voting power of the Company's
outstanding Capital Stock from time to time from and including
May 20, 1999, to but not including May 20, 2001; and
(iii) a requirement that the Beneficiary make such
additional deposits into the Voting Trust as may be necessary
to prevent the Beneficiary from having Beneficial Ownership
outside the Voting Trust of any shares of Capital Stock in
excess of the Ownership Limit at any time on or after May 20,
2001.
The requirements for contributions into this Voting Trust described in
(i), (ii) and (iii) above of the preceding recital are herein called the
"Contributions Timetable."
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree that the Voting Trust Agreement shall be amended and restated as
of the Effective Date as follows:
1. DEPOSIT OF STOCK AND ISSUANCE OF VOTING TRUST CERTIFICATES.
1.1 DELIVERY OF STOCK CERTIFICATES. The Beneficiary shall make
such contributions of VA Shares (as defined below) which the Beneficiary may
Beneficially Own such that the number of shares Beneficially Owned by the
Beneficiary outside of the Voting Trust shall never exceed the number permitted
by the Contributions Timetable. Every certificate delivered by the Beneficiary
to the Trustee shall be duly endorsed for transfer or accompanied by duly
executed instruments of transfer sufficient to convey to the Trustee record
ownership of such shares and the power to vote such shares specified in this
Agreement. The Beneficiary shall pay any taxes and costs imposed upon such
transfers to the Trustee. Immediately upon each receipt of certificates
pursuant to this paragraph, the Trustee shall
2.
<PAGE> 3
cause the certificates to be surrendered to the Company's transfer agent and
canceled and new certificates therefor to be issued to the Trustee.
1.2 DELIVERY OF VOTING TRUST CERTIFICATE. The Trustee shall issue
and deliver one or more Voting Trust Certificates, in the form attached as
Exhibit "A" hereto (a "Certificate"), to the Beneficiary in respect of the
shares deposited with and held by the Trustee for the benefit of the
Beneficiary under this Agreement. The Trustee shall sign these certificate(s).
1.3 CERTIFICATE BOOK AND INSPECTION OF AGREEMENT. The Trustee
shall keep at 1100 North Market Street, Wilmington, Delaware 19890- 001 correct
books of account of all the Trustee's business and transactions relating to the
Voting Trust, and a book (the "Certificate Book") setting forth the number of
shares represented by the Certificate(s) held by the Beneficiary, and the date
of issuance of such Certificate(s). A duplicate of this Agreement and any
extension thereof shall be filed with the secretary of the Company and shall be
open to inspection by a stockholder, a holder of a Certificate or the agent of
either, upon the same terms as the record of stockholders of the Company is
open to inspection.
1.4 LOST CERTIFICATE. If a Certificate shall be lost, stolen,
mutilated or destroyed, the Trustee, in its discretion, may issue a duplicate
of such Certificate upon receipt of evidence of such fact satisfactory to the
Trustee, indemnity satisfactory to it, and the existing Certificate, if
mutilated.
1.5 WITHDRAWAL OF SHARES FROM TRUST. The Beneficiary shall be
entitled at any time to withdraw shares from the Voting Trust: (i) to the
extent that after giving effect to such withdrawal, the Beneficiary would not
Beneficially Own shares outside the Voting Trust in excess of the number
required for the Beneficiary to be in compliance with the Contributions
Timetable or (ii) to enable the Beneficiary to sell, assign or transfer its
entire Beneficial Ownership interest in each of the shares withdrawn promptly
after such withdrawal. Any share withdrawn in accordance with (i) or (ii)
above shall cease upon withdrawal to be subject to the terms and conditions
hereof.
1.6 PLEDGE, ENCUMBER OR GRANT OPTIONS. The Beneficiary shall be
entitled at any time to pledge, encumber or grant any option in any shares
subject to the Voting Trust hereunder, provided that such shares remain subject
to the provisions of this Agreement, so long as the Beneficiary or any
affiliate of the Beneficiary shall retain any interest therein.
2. TRUSTEE'S POWERS AND DUTIES.
2.1 LIMITS ON TRUSTEE'S POWERS. The Trustee shall have only the
powers set forth in this Agreement. It is expressly understood and agreed by
the parties hereto that under no circumstances shall the Trustee be personally
liable for the payment of any indebtedness or expenses of this Agreement except
as set forth in Section 5.2 of this Agreement, or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or
undertaken by the Trustee under this Agreement or the other related agreement
or document, except as set forth in Section 5.6 of this Agreement.
3.
<PAGE> 4
2.2 EXECUTION BY TRUSTEE. The Trustee shall execute all documents
as follows:
By: Wilmington Trust Company, not in its individual
capacity, but solely as Trustee
By:
---------------------------------
2.3 VOTING. With respect to all shares held in the Voting Trust,
the Beneficiary shall retain the entire economic and beneficial ownership
rights therein, including without limitation the right to receive dividends and
distributions on the shares and the right to direct the Trustee in any order
whatsoever to sell, assign, transfer, encumber or grant any option therein to
or in favor of any person other than the Beneficiary or an affiliate of the
Beneficiary or agree to do any such thing, except that the Trustee shall have
the exclusive and absolute right in respect of such shares to vote, assent or
consent such shares at all times during the term of this Agreement, including
without limitation the right to vote at any election of directors and in favor
of or in opposition to any resolution, any dissolution, liquidation, merger or
consolidation of the Company, any sale of all or substantially all of the
Company's assets, any issuance or authorization of securities, or any action of
any character whatsoever which may be presented at any meeting or require the
consent of stockholders of the Company. In exercising the Trustee's powers and
duties hereunder, the Trustee shall at all times vote, assent or consent in
respect of any action as follows, subject to the following paragraph: (i) if
the matter concerned is the election of directors, then the Trustee shall vote,
assent or consent the whole number of shares held by the Voting Trust in favor
of each nominee to the Board of Directors of the Company who has been nominated
by the Nominating Committee, the remaining BCC Designees, or the remaining
WellPoint Designees pursuant to Article IV, Section 2 of the bylaws of the
Company in effect as of the effective time of the Reorganization (the "Bylaws")
or any successor provision thereto, and, with respect to every Board position
for which no nominee is presented in accordance with the preceding provisions
in this clause (i), shall vote for the nominee selected by a majority of the
incumbent members of the Board of Directors of the Company and vote against any
candidate for the Board of Directors of the Company for whom no competing
candidate has been nominated in one of the methods prescribed in this clause
(i); (ii) where the matter under state law or the Restated Certificate of
Incorporation or the Bylaws requires at least an absolute majority of all
outstanding shares of common stock of the Company in order to be effected, then
the Trustee shall vote, assent or consent all of such shares in favor of or in
opposition to such matter as the majority of all Nontrust Votes (as defined
below) are cast; and (iii) on all other matters, the Trustee shall at all times
vote, assent or consent all of such shares in the identical proportions in
favor of or in opposition to such matters as Nontrust Votes are cast. If any
calculation of votes under the preceding sentence would require a fractional
vote, the Trustee shall vote the next lower number of whole shares.
With respect to (i), (ii) and (iii), the Trustee, unless such action
is initiated by or with the consent of the Board of Directors of the Company,
shall (a) vote against removal of any director of the Company, except in the
case of fraudulent or dishonest acts or gross abuse of authority or discretion
with reference to the Company (which acts or gross abuse shall have been
determined by a majority of those holders of Nontrust Votes entitled to vote at
a duly
4.
<PAGE> 5
held meeting of the stockholders of the Company at which a quorum is present),
(b) vote against adoption of new bylaws or certificate of incorporation of the
Company or any alteration, amendment, change or addition to or repeal of the
Bylaws or Restated Certificate of Incorporation, (c) not nominate any candidate
to fill any vacancy on the Board of Directors of the Company, (d) not call any
special meeting of the stockholders of the Company, and (e) not take any action
by voting shares held by the Voting Trust that would be inconsistent with or
would have the effect, directly or indirectly, of defeating or subverting the
board nomination procedures identified in clause (i) above. Before voting,
assenting or consenting, the Trustee shall at all times be entitled to receive
(x) any proxy or other written materials identifying any action on which the
Trustee's vote, assent or consent is requested and whether or not any action is
initiated by or with the consent of the Board of Directors of the Company and
(y) a certificate of the Secretary or other authorized officer of the Company
tabulating any votes cast at a meeting before the Trustee shall have voted and
identifying the number and percentage of votes cast by Nontrust Votes. The
Trustee shall use all reasonable commercial efforts to ensure, with respect to
the shares held in the Voting Trust hereunder, that such shares are counted as
being present for the purposes of any quorum required for stockholder action of
the Company and to vote, assent or consent as set forth above so long as the
Trustee has reasonable notice of the time to vote, assent or consent. For
purposes of this Agreement, Nontrust Votes shall mean the votes cast by
stockholders other than the Trust.
2.4 SALES. The Trustee shall have no authority to sell
or otherwise dispose of or to pledge, encumber or hypothecate, any of the stock
deposited pursuant to the provisions of this Agreement, unless directed to do
so by the Beneficiary. The Beneficiary shall have the right to direct the
Trustee to sell or otherwise dispose of or to pledge, encumber or hypothecate
all or any part of the shares held by the Voting Trust.
3. DIVIDENDS AND DISTRIBUTIONS.
3.1 CASH. The Beneficiary shall be entitled to receive payments
equal to the amount of cash dividends, if any, collected or received by the
Trustee or its successor upon the number of shares in respect of which any
Certificate was issued, subject to deduction in respect of expenses, charges or
fees pursuant to Section 5.2 or 5.3 below. The Trustee shall arrange with the
Company for the direct payment by the Company of such cash dividends to the
Beneficiary.
3.2 STOCK. In case the Trustee shall receive, as a dividend or
other distribution upon any shares of stock held by the Trustee under this
Agreement, any shares of stock of the Company, the Trustee shall hold the same
and said shares shall be subject to all of the terms and conditions of this
Agreement to the same extent as if originally deposited hereunder. The Trustee
shall issue Certificate(s) in respect of such additional shares to the
Beneficiary.
3.3 OTHER DISTRIBUTIONS. If at any time during the continuation
of this Agreement the Trustee shall receive or collect any monies through a
distribution by the Company to its stockholders, other than in payment of cash
dividends, or shall receive any property (other than shares of stock or
securities convertible into voting stock of the Company) through a distribution
by the Company to its stockholders, the Trustee shall distribute the same to
the
5.
<PAGE> 6
Beneficiary, subject to deduction in respect of expenses, charges or fees
pursuant to Section 5.2 or 5.3 below.
4. RIGHTS TO SUBSCRIBE.
In case any securities of the Company shall be offered for
subscription to the holders of stock held by the Trustee under this Agreement,
the Trustee, promptly upon receipt of notice of such offer, shall mail a copy
thereof to the Beneficiary. Upon receipt by the Trustee, two (2) days (or any
shorter time if this is feasible) prior to the last date fixed by the Company
for subscription, of a request from the Beneficiary of any Certificate to
subscribe in its behalf, accompanied by the sum of money (in immediately
available funds) required to be paid for such securities, the Trustee shall
make such subscription and payment on behalf of the Beneficiary, and upon
receiving from the Company the certificates for the securities so subscribed
for, the Trustee shall deliver the same to the Beneficiary, unless such
securities be voting stock or securities convertible into voting stock, in
which case the Trustee shall issue to the Beneficiary a Certificate in respect
thereof, and such securities shall be held by the Trustee for the benefit of
the Beneficiary subject to the terms of this Agreement.
5. THE TRUSTEE.
5.1 USE OF PROXIES. The Trustee may vote, assent or consent with
respect to all shares held in the Voting Trust in person or by such person or
persons as it may from time to time select as its proxy provided that the
Trustee shall at all times do so in conformity with the provisions of Section
2.3 hereof.
5.2 EXPENSES. The Trustee is expressly authorized to incur and
pay such reasonable expenses and charges, to employ and pay such agents,
attorneys and counsel, and to incur and pay such other charges and expenses as
the Trustee may deem reasonably necessary and proper for administering this
Agreement. The Beneficiary agrees to reimburse the Trustee for any such
expenses and charges, and any such expenses or charges may be deducted from the
cash dividends or other monies received by the Trustee on the shares deposited
hereunder, to the extent unreimbursed.
5.3 COMPENSATION. The Trustee shall be entitled to a fee for its
services as Trustee hereunder as provided in a separate fee agreement between
the parties hereto and such fee may be deducted from the cash dividends or
monies received by Trustee on the shares deposited hereunder, to the extent
otherwise unpaid by the Beneficiary.
5.4 SUCCESSOR TRUSTEE. The Trustee may resign after giving thirty
(30) days' advance written notice of its resignation to the Beneficiary. The
Beneficiary may in addition terminate the Trustee after giving thirty (30)
days' advance written notice thereof to the Trustee provided that such
termination of the Trustee shall not become effective until a Successor Trustee
(as defined below) becomes bound by this Agreement. If the Trustee shall
resign or be so terminated by the Beneficiary, the Trustee shall be replaced by
a reasonably competent alternate (who is an institution duly authorized to act
as such a trustee in the State of Delaware) (the "Successor Trustee"). The
Successor Trustee shall be designated by the
6.
<PAGE> 7
Trustee and approved by the Beneficiary. The Beneficiary shall not
unreasonably withhold its approval of any qualified Successor Trustee. The
Successor Trustee shall enjoy all the rights, powers, interests and immunities
of the Trustee originally designated and shall agree in writing to be bound by
this Agreement.
5.5 INTERESTS OF TRUSTEE. The Trustee and any firm, corporation,
trust or association of which it may be a member, trustee, stockholder, agent
or affiliate may contract with the Company or any affiliate and may be or
become pecuniarily interested in any matter to which the Company or any
affiliate may be a party or in which it may be concerned, as fully and freely
as though the Trustee were not the Trustee hereunder. Directors and officers
of the Trustee may act as directors and/or officers of the Company or any
affiliate.
5.6 TRUSTEE'S LIABILITY. The Trustee shall not be liable for any
act or omission undertaken in connection with its powers and duties under this
Agreement, except for any willful misconduct or gross negligence by Trustee.
No Successor Trustee shall be liable for actions or omissions of the Trustee or
any other Successor Trustee. The Trustee shall not be liable in acting on any
notice, request, consent, certificate, instruction, or other paper or document
or signature reasonably believed to be genuine and to have been signed by the
proper party. The Trustee may consult with legal counsel (reasonably competent
for the purpose) and any act or omission undertaken by it in good faith in
accordance with the opinion of such legal counsel shall not result in any
liability of the Trustee. The Beneficiary covenants and agrees to indemnify
and hold harmless the Trustee and its affiliates, directors, officers,
employees, agents and advisors (each an "Indemnified Party"), without
duplication, from and against any and all claims, damages, losses, liability,
obligations, actions, suits, costs, disbursements and expenses (including
without limitation reasonable fees and expenses of counsel) incurred by any
Indemnified Party, in any way relating to or arising out of or in connection
with or by reason of the preparation for a defense of any investigation,
litigation or proceeding arising out of this Agreement or the shares of the
Beneficiary held pursuant to this Agreement, the administration of this
Agreement or the action or inaction of the Trustee hereunder; except to the
extent such claim, damage, loss, liability, obligation, action, suit, cost,
disbursement or expense results from such Indemnified Parties' gross negligence
or willful misconduct. The indemnity set forth in this Section 5.6 shall be in
addition to any other obligation or liabilities of the Beneficiary hereunder or
at common law or otherwise and shall survive the termination of this Agreement.
Notwithstanding anything contained herein to the contrary, the Trustee
shall not be required to take any action in any jurisdiction other than in the
State of Delaware if the taking of such action will (i) require the consent or
approval or authorization or order of or the giving of notice to, or the
registration with or the taking of any action in respect of, any state or other
governmental authority or agency of any jurisdiction other than the State of
Delaware; (ii) result in any fee, tax or other governmental charge under the
laws of any jurisdiction or any political subdivisions thereof in existence on
the date hereof other than the State of Delaware becoming payable by the
Trustee; or (iii) subject the Trustee to personal jurisdiction in any
jurisdiction other than the State of Delaware for causes of action arising from
acts unrelated to the consummation of the transactions by the Trustee
contemplated hereby.
7.
<PAGE> 8
6. TERMINATION.
6.1 TERM. This Agreement shall terminate upon written notice by
the Beneficiary to the Trustee of such termination (a) if the Company no longer
licenses the Blue Cross marks from BCBSA, or (b) if the Beneficiary and its
affiliates cease to Beneficially Own Capital Stock in excess of the Ownership
Limit. Except as otherwise provided herein, the trust created by this Agreement
is hereby expressly declared to be and shall be irrevocable.
6.2 DELIVERY OF SHARE CERTIFICATE(S). As soon as practicable
after the termination of this Agreement, the Trustee shall deliver to the
Beneficiary, certificate(s) representing the number of shares beneficially
owned by the Beneficiary at the date of termination, upon the surrender of such
Certificate(s) properly endorsed and upon payment by the Beneficiary of any and
all taxes and other expenses relating to the transfer or delivery of such
certificates.
7. MISCELLANEOUS.
7.1 MERGER. If the Company shall merge into or consolidate with
another corporation or corporations, or if all or substantially all of the
assets of the Company are transferred to another corporation, the shares of
which are issued to stockholders of the Company in connection with such
transfer, then the terms "WellPoint Health Networks Inc." or the "Company"
shall be construed, so long as the "Blue Cross" name and mark continues to be
licensed by such entity from BCBSA, to include such successor corporation and
the Trustee shall receive and hold under this Agreement any shares of such
successor corporation received by it on account of its ownership as Trustee of
shares held by it hereunder prior to such merger, consolidation or transfer.
Certificates issued and outstanding at the time of such merger, consolidation
or transfer may remain outstanding, but the Trustee may, in its discretion,
substitute new Certificates in appropriate form.
7.2 SUCCESSORS. This Agreement shall bind and inure to the
benefit of the Trustee and each and all of its respective heirs, executors,
administrators, successors and assigns. Notwithstanding any provision of this
Agreement, the provisions of this Agreement shall not be binding on any offeree
or purchaser from the Beneficiary (other than such a person who is an affiliate
of the Beneficiary and except that any and all shares sold in violation of
paragraph 12 of that certain Amended and Restated Registration Rights Agreement
dated as of August 1, 1997 between the Company and the Beneficiary shall remain
subject to this Agreement). In case at any time the Trustee shall resign and
no successor Trustee shall have been appointed within thirty days after notice
of such resignation has been filed and mailed as required by Section 7.3, the
resigning Trustee may forthwith apply to a court of competent jurisdiction for
the appointment of a successor Trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and appropriate, appoint a successor
Trustee.
7.3 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage
8.
<PAGE> 9
prepaid, return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by like changes of
address which shall be effective upon receipt) or sent by electronic
transmission, with confirmation received, to the telecopy number specified
below:
(a) If to the Beneficiary:
California HealthCare Foundation
496 Ninth Street
Oakland, California 94607
Telecopier No.: (510) 238-1388
Attention: Vice President and Secretary
With a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, Suite 3500
Los Angeles, CA 90071-1560
Telecopier No.: (213) 687-3702
Attention: Ruth E. Fisher, Esq.
Marron, Reid & Sheehy LLP
601 California Street, Suite 1200
San Francisco, California 94108-2896
Telecopier No.: (415) 986-1374
Attention: E. Lewis Reid, Esq.
(b) If to the Trustee:
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-0001
Telecopier No.: (302) 651-8882
Attention: Corporate Trust Administration
With a copy to:
Richards, Layton & Finger P.A.
One Rodney Square
Post Office Box 551
Wilmington, Delaware 19899
Telecopier No.: (302) 658-6548
Attention: Glenn C. Kenton, Esq.
9.
<PAGE> 10
7.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to conflicts of laws principles.
7.5 ATTORNEYS' FEES. In the event of any suit or other proceeding
between the parties hereto with respect to any of the transactions contemplated
hereby or the subject matter hereof, the prevailing party shall, in addition to
such other relief as the court may award, be entitled to recover reasonable
attorneys' fees, expenses and costs of investigation, all as actually incurred,
including, without limitation, attorneys' fees, costs and expenses of
investigation incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding under Chapters
7, 11 and 13 of the Bankruptcy Code or any successor thereto.
7.6 FAIR CONSTRUCTION. This Agreement is the product of
negotiation and shall be deemed to have been drafted by all of the parties. It
shall be construed in accordance with the fair meaning of its terms and its
language shall not be strictly construed against, nor shall ambiguities be
resolved against, any particular party.
7.7 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto regarding the subject matter hereof, and
may not be amended, altered or modified except by a writing signed by the
parties hereto and consented to by the Company. This Agreement supersedes all
prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express
or implied, with respect to the subject matter hereof, all of which are
specifically integrated into this Agreement. No party hereto shall be bound by
or charged with any oral or written agreements, representations, warranties,
statements, promises, information, arrangements or understandings, express or
implied, not specifically set forth herein; and the parties hereto further
acknowledge and agree that in entering into this Agreement they have not in any
way relied and will not rely in any way on any of the foregoing not
specifically set forth herein.
7.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.9 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "Beneficially Own" has the meaning set forth in
Section 14 of Article VII of the Company's Restated Certificate of
Incorporation.
(b) "Capital Stock" has the meaning set forth in Section
14 of Article VII of the Company's Restated Certificate of Incorporation.
(c) "Ownership Limit" has the meaning set forth in
Section 14 of Article VII of the Company's Restated Certificate of
Incorporation, but without disregarding any shares Beneficially Owned by the
Beneficiary.
10.
<PAGE> 11
(d) "VA Shares" means all of the shares of the Company's
Capital Stock Beneficially Owned by the Health Foundation at any particular
time, except that (i) shares of Capital Stock which are held in the Voting
Trust and are voted as required by the terms of this Agreement shall not be
deemed VA Shares so long as they are so held in the Voting Trust and voted and
(ii) the Health Foundation shall be entitled to Beneficially Own at any
particular time shares of Capital Stock of the Company representing up to the
Ownership Limit free of and without being subject in any way to either this
Agreement or the Voting Agreement and none of the shares of Capital Stock
Beneficially Owned by the Health Foundation at or below the Ownership Limit
shall be deemed VA Shares. Without limiting by implication the generality of
the preceding sentence, any share of Capital Stock which shall be Beneficially
Owned by the Health Foundation at any particular time in excess of the
Ownership Limit shall be deemed a VA Share, unless at that particular time it
is on deposit in the Voting Trust and is required to be voted in accordance
with the terms of this Agreement.
IN WITNESS WHEREOF, the Trustee and the Beneficiary have executed this
Agreement on the day and year first above written.
WILMINGTON TRUST COMPANY CALIFORNIA HEALTHCARE
FOUNDATION
By: /s/ Authorized Signatory By: /s/ MARK D. SMITH
--------------------------------- ---------------------------------
Its: Financial Services Officer Its: President
------------------------------ ------------------------------
11.
<PAGE> 12
EXHIBIT A
[COMPANY NAME]
VOTING TRUST CERTIFICATE
CERTIFICATE NO. __________________ _________ SHARES
This certifies that the undersigned trustee (the "Trustee") holds
________ shares of common stock ("Shares") of [the recapitalized entity to be
known as WellPoint Health Networks Inc.] (the "Company") beneficially owned by
Western Health Partnerships (the "Beneficiary") subject to the terms and
conditions of a Voting Trust Agreement ("Agreement") dated as of August 1,
1997, between the Beneficiary and Trustee. This certificate is Exhibit A to
the Agreement, a copy of which is on file with the secretary of the Company in
Woodland Hills, California.
1. During the term of the Agreement, Trustee has the exclusive
and absolute right to vote the Shares as provided in the Agreement.
2. During the term of the Agreement, the Beneficiary shall be
subject to the terms and conditions of the Agreement and entitled to the
benefits of the Beneficiary under the Agreement.
3. As soon as practicable after the termination of the Agreement
and subject to its terms and conditions, the Trustee shall deliver to the
Beneficiary share certificates representing the number of shares of stock of
the Company beneficially owned by the Beneficiary at the date of termination of
the Agreement, upon the surrender of this certificate properly endorsed and
upon payment by the Beneficiary of any and all taxes and other expenses
relating to the transfer or delivery of share certificates to the Beneficiary
pursuant to the termination of the Agreement.
Dated as of ______________, 19___.
Wilmington Trust Company, not in its individual
capacity, but solely as Trustee
By:
---------------------------------
Its:
--------------------------------
12.
<PAGE> 1
EXHIBIT 99.3
AMENDED AND RESTATED
VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT ("Agreement") is
made and entered into this 4th day of August 1997, by and among WellPoint
Health Networks Inc., a California corporation (formerly Blue Cross of
California, "WellPoint California"), WellPoint Health Networks Inc., a Delaware
corporation (the "Company" or "WellPoint Delaware"), and California Healthcare
Foundation, a California nonprofit public benefit corporation (formerly Western
Health Partnerships, the "Health Foundation").
WHEREAS, pursuant to an Agreement and Plan of Reorganization
dated July 22, 1997 (the "Reorganization Agreement") among WellPoint Delaware,
WellPoint California and WLP Acquisition Corp., a wholly owned subsidiary of
WellPoint Delaware ("Merger Sub"), Merger Sub was merged into WellPoint
California, the capital stock of WellPoint California was converted into
capital stock of WellPoint Delaware and the shareholders of WellPoint
California became stockholders of WellPoint Delaware and the outstanding stock
of Merger Sub was converted into stock of WellPoint California and thereby
WellPoint California became a wholly owned subsidiary of WellPoint Delaware
(the "Reorganization");
WHEREAS, WellPoint California and the Health Foundation
entered into a Voting Agreement dated May 8, 1996 (the "Voting Agreement") and,
as a result of the Reorganization, each of WellPoint California and the Health
Foundation desire to amend the Voting Agreement to, among other things, have
the Company assume the rights and obligations of WellPoint California under the
Voting Agreement;
WHEREAS, the Company desires to become a party to this
Agreement with the same rights and obligations as WellPoint California has
under the Voting Agreement;
WHEREAS, as of the date of this Agreement, the Health
Foundation beneficially owns an aggregate of 29,910,000 shares of the Company's
Common Stock;
WHEREAS, the Health Foundation wishes for its investment in
the Company to be as valuable as possible so long as such investment is
maintained and believes that the Company's primary license to use the "Blue
Cross" name and related rights (the "Blue Cross marks") contributes
substantially to the Company's value and its future prospects;
WHEREAS, the Blue Cross and Blue Shield Association ("BCBSA")
has conditioned the Company's license to continue to use the Blue Cross marks
upon the Company maintaining certain Basic Protections (as defined in the
License Addendum between the Company and BCBSA) which are intended by the BCBSA
to enable the Company to remain independent of the Health Foundation and any
other stockholder who may in the future acquire Capital Stock (as defined
below) in the Company in excess of the Ownership Limit (as defined below) and
1.
<PAGE> 2
WHEREAS, the conditions imposed by the License Addendum
include a requirement that the Health Foundation vote all VA Shares (as defined
below) as provided herein and certain other matters with respect to the
Company's Common Stock.
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree that the Voting
Agreement is hereby amended and restated to add the Company as a party hereto,
that WellPoint Delaware shall assume the rights and obligations of WellPoint
California under the Voting Agreement, that WellPoint California is relieved of
any further obligations under the Voting Agreement and that the parties further
agree as follows:
1. VOTING AGREEMENT. During the Initial Period, the
Health Foundation agrees, with respect to all VA Shares: (A) to vote in favor
of each nominee to the Board of Directors of the Company who has been nominated
by the Nominating Committee, the remaining BCC Designees, or the remaining
WellPoint Designees pursuant to Article IV, Section 2 of the bylaws of the
Company in effect as of the date of this Agreement (the "Bylaws") or any
successor provision thereto, and, with respect to every Board position for
which no nominee is presented in accordance with the preceding provisions in
this clause (A), to vote for the nominee selected by a majority of the
incumbent members of the Board of Directors of the Company and vote against any
candidate for the Board of Directors of the Company for whom no competing
candidate has been nominated in one of the methods prescribed in this clause
(A); and (B) unless such action is initiated by or with the consent of the
Board of Directors of the Company, (i) to vote against removal of any director
of the Company, except in the case of fraudulent or dishonest acts or gross
abuse of authority or discretion with reference to the Company as determined by
the Health Foundation, (ii) to vote against adoption of new bylaws or articles
of incorporation of the Company or any alteration, amendment, change or
addition to or repeal of the Bylaws or Restated Certificate of Incorporation,
(iii) not to nominate any candidate to fill any vacancy on the Board of
Directors of the Company, (iv) not to call any special meeting of the
stockholders of the Company, and (v) to take no action by voting its VA Shares
that would be inconsistent with or would have the effect, directly or
indirectly, of defeating or subverting the board nomination procedures
identified in clause (A) above. For purposes of this Agreement, "Initial
Period" shall mean the period commencing as of the date of this Agreement and
ending upon the date on which the Health Foundation and its affiliates, when
taken together, cease to Beneficially Own Capital Stock in excess of the
Ownership Limit. For purposes of this Agreement, "affiliates" of the Health
Foundation shall be deemed not to include the Company and its subsidiaries.
2. STANDSTILL. During the Initial Period, the Health
Foundation will not, directly or indirectly, (i) individually, or as part of a
group, acquire, offer or propose to acquire, or agree to acquire, by purchase
or otherwise, any shares of the Company's Capital Stock, or direct or indirect
rights or options to acquire (through purchase, exchange, conversion or
otherwise), beneficial ownership of any shares of the Company's Capital Stock
or (ii) enter into any agreement, arrangement or understanding with any person,
other than the Company, that would have the effect of increasing such person's
or the Health Foundation's
2.
<PAGE> 3
voting power in the Company, provided that this clause (ii) shall not prohibit
transfers of the Company's Capital Stock by the Health Foundation that,
pursuant to Section 6(b) hereof, would otherwise result in such shares no
longer being subject to this Agreement. Notwithstanding the foregoing, it is
expressly agreed that any acquisition of shares of the Company's Capital Stock
by the Health Foundation shall not be deemed to violate or conflict with the
provisions of this Section 2 in the following circumstances: (i) any
acquisition of shares by reason of stock dividends, stock splits, spin-offs,
mergers, recapitalizations, combinations, conversions, exchanges of shares or
the like or (ii) any acquisition of shares at any time after the ownership of
the Company's Capital Stock by the Health Foundation shall have fallen to the
Ownership Limit or less with such acquisition having the effect of increasing
the ownership of the Company's Capital Stock by the Health Foundation within or
up to but not beyond the Ownership Limit.
3. NOMINATING BCC DESIGNEE TO BOARD. During the Initial
Period, so long as the Nominating Committee to the Board of Directors of the
Company shall remain in existence pursuant to the Bylaws, in the case of a
person nominated to be a replacement for any BCC Designee, the Company
undertakes to ensure that any such nomination shall only be made after
reasonable and adequate consultation thereon with the Health Foundation.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
HEALTH FOUNDATION. The Health Foundation represents, warrants and covenants to
the Company that (i) it is the record or beneficial owner of 26,433,651 VA
Shares, at the effective date of this Agreement; (ii) for so long as the Health
Foundation owns of record or beneficially VA Shares, those VA Shares owned by
the Health Foundation are and at all times prior to the expiration of the
Initial Period will be free and clear of any liens, claims, options, charges or
other encumbrances; (iii) it does not own of record or beneficially any shares
of Capital Stock of the Company in excess of the Ownership Limit, other than
the VA Shares and, if any, the Voting Trust Shares; and (iv) it has full power
and authority to make, enter into and carry out the terms of this Agreement.
Notwithstanding the foregoing, (a) the Health Foundation may pledge any of its
VA Shares as collateral provided that such pledge complies with Section
14(c)(3) of Article VII of the Company's Restated Certificate of Incorporation,
and (b) the Health Foundation shall be free to dispose of any of its VA Shares
in accordance with and subject to any other agreements or restrictions which
may be applicable, and any non-affiliated transferee shall acquire the VA
Shares free and clear of any provisions of this Agreement, except that any and
all VA Shares sold in violation of Section 12 of that certain Amended and
Restated Registration Rights Agreement as of even date herewith among the
Company, WellPoint California and the Health Foundation shall remain subject to
this Agreement. In addition, the Health Foundation agrees that, during the
Initial Period, it will be present, in person or represented by proxy, at all
meetings of the stockholders of the Company for which it has VA Shares, so that
all VA Shares then beneficially owned by the Health Foundation may be counted
for the purpose of determining the presence of a quorum at such meetings.
5. ADDITIONAL DOCUMENTS. The Health Foundation hereby
covenants and agrees to execute and deliver any additional documents necessary
or desirable, in the reasonable opinion of the Company, to carry out the
purpose and intent of this Agreement.
3.
<PAGE> 4
6. MISCELLANEOUS.
a) SEVERABILITY. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If any term, provision, covenant or restriction in Section I hereof is held by
a court of competent jurisdiction to be invalid, void or unenforceable, then
such provision shall be construed so as to require the VA Shares to be voted in
the identical proportions in favor of or in opposition to such matters as votes
of stockholders other than the Health Foundation are cast.
b) BINDING EFFECT AND ASSIGNMENT. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of WellPoint Delaware and the Health Foundation and their
respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of
WellPoint Delaware or the Health Foundation without the prior written consent
of the other. Notwithstanding the foregoing, the provisions of this Agreement
shall not be binding on any transferee who is not affiliated with the Health
Foundation except that any and all VA Shares sold in violation of Section 12 of
that certain Amended and Restated Registration Rights Agreement effective on or
before the effective date hereof among the Company, WellPoint California and
the Health Foundation shall remain subject to this Agreement.
c) AMENDMENTS AND MODIFICATION. This Agreement
may not be modified, amended, altered or supplemented except by the execution
and delivery of a written agreement executed by WellPoint Delaware and the
Health Foundation.
d) SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The
parties acknowledge that there will be irreparable harm and that there will be
no adequate remedy at law for a violation of any of the covenants or agreements
set forth herein. Therefore, it is agreed that, in addition to any other
remedies that may be available to any party upon any such violation, the
non-defaulting party shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to such party at law or in equity.
e) NOTICES. All notices and other
communications pursuant to this Agreement shall be in writing and deemed to be
sufficient if contained in a written instrument and shall be deemed given if
delivered personally, telecopied, sent by nationally recognized overnight
courier or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
4.
<PAGE> 5
If to the Company, then addressed to the Company at:
21555 Oxnard Street
Woodland Hills, CA 91367
Attn: General Counsel
Telecopy No.: (818) 703-4406
With a copy to:
Brobeck Phleger & Harrison LLP
Spear Street Tower
One Market Street
San Francisco, CA 94105
Attn: William L. Hudson, Esq.
Telecopy No.: (415) 442-1010
If to the Health Foundation:
California HealthCare Foundation
496 Ninth Street
Oakland, CA 94607
Attn: General Counsel
Telecopy No.: (510) 238-1388
With a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, Suite 3500
Los Angeles, CA 90071-1560
Attn.: Ruth E. Fisher, Esq.
Telecopy No.: (213) 687-3702
Marron, Reid & Sheehy LLP
601 California Street, Suite 1200
San Francisco, California 94108-2896
Attn.: E. Lewis Reid, Esq.
Telecopy No.: (415) 986-1374
f) GOVERNING LAW. This Agreement shall be
governed and enforced in accordance with the internal laws of the State of
Delaware without regard to its principles of conflicts of laws.
g) ENTIRE AGREEMENT. This Agreement contains
the entire understanding of the parties in respect of the subject matter
hereof, and supersedes all prior negotiations and understandings, including the
Voting Agreement, between the parties with respect to such subject matter.
5.
<PAGE> 6
h) COUNTERPARTS. This Agreement may be executed
in several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
i) EFFECT OF HEADING. The section headings
herein are for convenience only and shall not affect the construction or
interpretation of this Agreement.
j) AUTOMATIC TERMINATION. This Agreement shall
become ineffective and of no further force and effect in the event that (i) the
Company ceases to be subject to any License Agreement (as defined in Section
14(e) of Article VII of the Company's Restated Certificate of Incorporation);
and/or (ii) the Health Foundation and its affiliates cease to Beneficially Own
Capital Stock in excess of the Ownership Limit.
k) LEGENDING OF CERTIFICATES. Each certificate
representing (i) VA Shares, and (ii) any other securities issued in respect of
the VA Shares by reason of stock dividends, stock splits, spin-offs, mergers,
recapitalizations, combinations, conversions, exchanges of shares or the like,
shall bear a legend to the effect that: "The securities represented by this
certificate are subject to an Amended and Restated Voting Agreement (the
"Amended and Restated Voting Agreement") dated August 1, 1997 by and among
WellPoint Health Networks Inc., a Delaware corporation, WellPoint Health
Networks Inc., a California corporation, and California HealthCare Foundation,
a copy of which may be obtained from the Secretary of the Company. The
provisions of the Amended and Restated Voting Agreement are not binding on any
transferee who is not affiliated with the California HealthCare Foundation
except that any and all shares subject to the Amended and Restated Voting
Agreement sold in violation of Section 12 of that certain Amended and Restated
Registration Rights Agreement among WellPoint Health Networks Inc., a Delaware
corporation, WellPoint Health Networks Inc., a California corporation, and
California HealthCare Foundation dated as of even date with the Amended and
Restated Voting Agreement shall remain subject to the Amended and Restated
Voting Agreement." No VA Shares may be held by the Health Foundation or any of
its affiliates in any street or nominee name. All VA Shares shall be
represented at all times by stock certificates which do not represent any
shares other than VA Shares and which are registered in the name of the Health
Foundation or its affiliates or are registered in a way in which they can be
readily identified by the Company and its transfer agents as VA Shares. The
Health Foundation shall provide such information and assistance as the Company
may reasonably request at any time to identify the VA Shares.
l) CERTAIN DEFINITIONS. For purposes of this
Agreement, the term:
a) "Beneficially Own" has the meaning
set forth in Section 14 of Article
VII of the Company's Restated
Certificate of Incorporation;
6.
<PAGE> 7
b) "Capital Stock" has the meaning set
forth in Section 14 of Article VII
of the Company's Restated
Certificate of Incorporation;
c) "Ownership Limit" has the meaning
set forth in Section 14 of Article
VII of the Company's Restated
Certificate of Incorporation, but
without disregarding any shares
Beneficially Owned by the Health
Foundation;
d) "Trustee" means Wilmington Trust
Company or any successor thereto as
trustee pursuant to the Voting Trust
Agreement;
e) "VA Shares" means all shares of the
Company's Capital Stock Beneficially
Owned by the Health Foundation at
any particular time, except that (i)
Voting Trust Shares which are voted
as required by the terms of the
Voting Trust Agreement shall not be
deemed VA Shares so long as they are
so held in the voting trust created
by the Voting Trust Agreement and
voted, and (ii) the Health
Foundation shall be entitled to
Beneficially Own at any particular
time Capital Stock of the Company
representing up to the Ownership
Limit free of and without being
subject in any way to either the
Voting Trust Agreement or this
Agreement and none of the Capital
Stock Beneficially Owned by the
Health Foundation at or below the
Ownership Limit shall be deemed VA
Shares. Without limiting by
implication the generality of the
preceding sentence, any share of
Capital Stock which shall be
Beneficially Owned by the Health
Foundation at any particular time in
excess of the Ownership Limit shall
be deemed a VA Share unless at that
particular time it is on deposit in
the voting trust created by the
Voting Trust Agreement and is
required to be voted in accordance
with the terms of the Voting Trust
Agreement;
f) "Voting Trust Agreement" means that
certain Amended and Restated Voting
Trust Agreement of even date
herewith between the Health
Foundation and the Trustee, or any
replacement agreement thereof; and
g) "Voting Trust Shares" means those
shares of Capital Stock, if any,
held of record by the Trustee
pursuant to the Voting Trust
Agreement.
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed on the day and year first above written.
WELLPOINT HEALTH NETWORKS INC.,
a California corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Name: Leonard D. Schaeffer
-------------------------------
Title: Chief Executive Officer
------------------------------
WELLPOINT HEALTH NETWORKS INC.,
a Delaware corporation
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Name: Leonard D. Schaeffer
-------------------------------
Title: Chief Executive Officer
------------------------------
CALIFORNIA HEALTHCARE FOUNDATION
By: /s/ MARK D. SMITH
---------------------------------
Name: Mark D. Smith
-------------------------------
Title: President
------------------------------
8.
<PAGE> 1
EXHIBIT 99.4
AMENDED AND RESTATED
SHARE ESCROW AGENT AGREEMENT
THIS AMENDED AND RESTATED SHARE ESCROW AGENT AGREEMENT (this
"Agreement") is made and entered into, as of August 4, 1997 by and among
WellPoint Health Networks Inc., a California corporation (formerly Blue Cross
of California, "WellPoint California"), WellPoint Health Networks Inc., a
Delaware corporation (the "Corporation" or "WellPoint Delaware"), and U.S.
Trust Company of California, N.A., a national association, as share escrow
agent (the "Share Escrow Agent").
WHEREAS, pursuant to an Agreement and Plan of Reorganization
dated July 22, 1997 (the "Reorganization Agreement") among WellPoint Health
Networks Inc., a Delaware corporation, WellPoint California and WLP Acquisition
Corp., a wholly owned subsidiary of WellPoint Delaware ("Merger Sub"), Merger
Sub was merged into WellPoint California, the capital stock of WellPoint
California was converted into capital stock of WellPoint Delaware and the
shareholders of WellPoint California became stockholders of WellPoint Delaware
and the outstanding stock of Merger Sub was converted into stock of WellPoint
California and thereby WellPoint California became a wholly owned subsidiary of
WellPoint Delaware (the "Reorganization");
WHEREAS, as a result of the Reorganization, the parties hereto
wish to cause a novation to the Share Escrow Agent Agreement dated May 20, 1996
(the "Share Escrow Agreement"), such that the Corporation shall replace
WellPoint California as a party to the Share Escrow Agreement;
WHEREAS, the Restated Certificate of Incorporation (the
"Certificate") of the Corporation restrict the ability of any Person to
Beneficially Own shares of Capital Stock in excess of the Ownership Limit (all
capitalized terms used but not defined herein have their respective meanings as
set forth in the Certificate);
WHEREAS, any Transfer that, if effective, would result in a
violation of the Ownership Limit will also result in the creation of Excess
Shares pursuant to the Certificate;
WHEREAS, the Corporation desires to provide for the escrow of
Excess Shares in accordance with the Certificate; and
WHEREAS, the Share Escrow Agent has agreed to act as share
escrow agent for the Corporation in connection with the Excess Shares;
NOW, THEREFORE, the parties hereto agree that the Share Escrow
Agreement is hereby amended and restated to substitute the Corporation for
WellPoint California as a party to this Agreement and that this Agreement is as
follows:
<PAGE> 2
1. Excess Shares Escrow. If the Corporation at any time
determines that a Transfer has taken place such that a Person Beneficially Owns
shares of Capital Stock in excess of the Ownership Limit, or that a Purported
Owner intends to acquire or has attempted to acquire Beneficial Ownership of
any shares of Capital Stock in excess of the Ownership Limit, the Corporation
shall take such action as it deems advisable to refuse to give effect to or
prevent such Transfer, including, without limitation, by causing such Excess
Shares to be transferred immediately to the Share Escrow Agent, which Excess
Shares shall be held by the Share Escrow Agent until such time as the Excess
Shares are transferred to a Person whose acquisition thereof will not violate
the Ownership Limit (a "Permitted Transferee"). The Share Escrow Agent is
hereby authorized and directed by the Corporation to execute any and all
documents sufficient to transfer title to any Permitted Transferee, even in the
absence of receipt of certificate(s) representing Excess Shares.
2. Excess Dividends Escrow. The Share Escrow Agent, as
record holder of all Excess Shares, is entitled to receive all Excess Share
Dividends as may be declared by the Board of Directors of the Corporation and
shall hold all Excess Share Dividends until disbursed in accordance with the
provisions of Section 6. The Share Escrow Agent also agrees to hold in escrow,
subject to the provisions of this Agreement, any amounts it receives from the
Corporation or any Purported Owner of Excess Shares in respect of Excess Shares
Dividends.
3. Liquidation of Corporation. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, the Share Escrow Agent shall be
entitled to receive, ratably with each other holder of Capital Stock of the
same class or series, that portion of the assets of the Corporation that is
available for distribution to the holders of such class or series of Capital
Stock. The Share Escrow Agent shall distribute to the Purported Owner the
amounts received upon such liquidation, dissolution or winding up or
distribution in accordance with the provisions of Section 6.
4. Voting of Excess Shares. The Share Escrow Agent
shall be entitled to vote all Excess Shares. The Share Escrow Agent shall
vote, consent or assent the Excess Shares as follows at each stockholders'
meeting: (a) if the matter concerned is the election of directors, the Share
Escrow Agent shall vote, consent or assent the whole number of Excess Shares
held by the Share Escrow Agent for each director by multiplying the number of
votes held in escrow by a fraction, the numerator of which is the number of
Nonaffiliated Votes cast for the director and the denominator of which is the
number of Nonaffiliated Votes that could have been cast in the election of the
director and are present in person or by proxy at the meeting; (b) where the
matter under the applicable law of the Corporation's state of incorporation or
the Certificate or the Bylaws of the Corporation requires at least an absolute
majority of all outstanding shares of Common Stock in order to be effected,
then the Share Escrow Agent shall vote, assent or consent all of such Excess
Shares in favor of or in opposition to such matter as the majority of all
Nonaffiliated Votes are cast; and (c) on all other matters, the Share Escrow
Agent shall at all times vote, assent or consent all of such
2.
<PAGE> 3
shares in the identical proportion in favor of or in opposition to such matter
as Nonaffiliated Votes are cast. If any calculation of votes under the
preceding sentence would require a fractional vote, the Share Escrow Agent
shall vote the next lower number of whole Excess Shares. At such stockholders'
meeting the Corporation shall inform the Share Escrow Agent of how the
Nonaffiliated Votes were cast for purposes of determining how the Share Escrow
Agent shall vote the Excess Shares. The Share Escrow Agent shall use all
reasonable commercial efforts to ensure, with respect to Excess Shares, that
such Excess Shares are counted as being present for the purposes of any quorum
required for stockholder action of the Corporation and to vote as set forth
above, provided, that it receives reasonable prior written notice from the
Corporation of any such opportunities to vote the Excess Shares. For purposes
hereof, written notice given to the Share Escrow Agent with respect to voting
of Excess Shares in accordance with applicable state and federal laws, as well
as the Certificate and Bylaws of the Corporation, shall be deemed reasonable.
For purposes hereof "Nonaffiliated Votes" shall mean the votes cast by
stockholders other than the Share Escrow Agent with respect to Excess Shares.
5. Sales of Excess Shares. In an orderly fashion so as
not to materially adversely affect the price of Common Stock on the New York
Stock Exchange or, if Common Stock is not listed on the New York Stock
Exchange, on the exchange or other principal market on which Common Stock is
traded, the Share Escrow Agent shall sell or cause the sale of Excess Shares at
such time or times as the Share Escrow Agent determines to be appropriate. The
Share Escrow Agent shall have the power to convey to the purchaser of any
Excess Shares sold by the Share Escrow Agent ownership of the Excess Shares
free of any interest of the Purported Owner of those Excess Shares and free of
any other adverse interest arising through the Purported Owner. The Share
Escrow Agent shall also have the right to take actions as the Share Escrow
Agent deems appropriate to seek to restrict sale of the shares to Permitted
Transferees. In furtherance of its obligations under this Section 5, the Share
Escrow Agent shall have the right to request the Corporation to make a
determination as to whether a proposed sale of Excess Shares will materially
adversely affect the price of the Common Stock on the New York Stock Exchange
(or, if the Common Stock is not listed on the New York Stock Exchange, on the
exchange or other principal market on which Common Stock is traded) and shall
have no liability for any action it takes pursuant to such determination. Upon
acquisition by any Permitted Transferee of any Excess Shares sold by the Share
Escrow Agent or the Purported Owner, such shares shall upon such sales cease to
be Excess Shares and shall become regular shares of Capital Stock in the class
to which the Excess Shares belong, and the purchaser of such shares shall
acquire such shares free of any claims of the Share Escrow Agent or the
Purported Owner.
6. Distributions From Excess Shares Sold. The proceeds
from the sale of the Excess Shares to a Permitted Transferee, any Excess Share
Dividends and all interest therein pursuant to Section 10 shall be distributed
by the Share Escrow Agent as follows: (a) first, to the Share Escrow Agent for
any costs and expenses incurred in respect of its administration of the Excess
Shares that have not theretofore been reimbursed by the Corporation; (b)
second, to the Corporation for all costs and expenses incurred by the
3.
<PAGE> 4
Corporation in connection with the appointment of the Share Escrow Agent, the
payment of fees to the Share Escrow Agent with respect to the services provided
by the Share Escrow Agent and all funds expended by the Corporation to
reimburse the Share Escrow Agent for costs and expenses incurred by the Share
Escrow Agent in respect of its administration of the Excess Shares and for all
fees, disbursements and expenses incurred by the Share Escrow Agent in
connection with the sale of the Excess Shares; and (c) third, the remainder
thereof (as the case may be) to the Purported Owner or the Person who was the
holder of record before the shares were transferred to the Share Escrow Agent
(depending on who shall at such time be entitled to any economic interest in
the Excess Shares); provided, however, if the Share Escrow Agent shall have any
questions as to whether any security interest or other interest adverse to the
Purported Owner shall have existed with respect to any Excess Shares, the Share
Escrow Agent shall not be obligated to disburse proceeds for those shares until
the Share Escrow Agent is provided with such evidence as the Share Escrow Agent
shall deem necessary to determine the parties who shall be entitled to such
proceeds.
7. Escrow Account: The Share Escrow Agent shall
maintain an escrow account designated as WellPoint Health Networks Inc.--Share
Escrow Account (the "Escrow Account"). The Share Escrow Agent shall deposit
all checks and other payments received from the Corporation, Purported Holders
or other Persons pursuant to this Agreement into the Escrow Account.
8. Deposit of Funds.
(a) The Corporation will direct each Purported
Holder to make payment by (i) delivery to the Share Escrow Agent of a personal,
certified or official bank check, and made payable to "U.S. Trust Company of
California, N.A. for WellPoint Health Networks Inc.--Share Escrow Account" or
(ii) a bank wire transfer to the Escrow Account pursuant to instructions to be
agreed to by the parties.
(b) The Share Escrow Agent will promptly notify
the Corporation of the deposit of any funds into the Escrow Account.
9. Termination Date. Subject to the rights of the Share
Escrow Agent under Sections 12 and 20, which shall continue beyond the
termination of this Agreement, this Agreement shall terminate upon the
Corporation's delivery of a written notice to the Escrow Agent to such effect.
10. Investment of Escrow Property. The Share Escrow
Agent shall promptly invest any escrowed proceeds in any federally insured
money market deposit account that is acceptable to the Corporation. The Share
Escrow Agent and its affiliates may act as agent, principal sponsor, or
depositary, with respect to any such investment. The Share Escrow Agent shall
in no event be liable for any loss resulting from the performance of any funds
invested pursuant to this Section 10. Interest on proceeds invested pursuant to
this
4.
<PAGE> 5
Section 10 shall accrue from the date of investment of such proceeds until the
termination of such investment pursuant to the terms hereof and shall be paid as
set forth in Section 6.
11. Collections. The Share Escrow Agent shall be under
no duty or responsibility to enforce collection of any checks or other
instruments delivered to the Share Escrow Agent hereunder. The Share Escrow
Agent shall promptly notify the Corporation if any check or instrument received
from any Purported Holder shall be dishonored, not accepted or paid, or
otherwise uncollectible. The Share Escrow Agent may recover any costs or
expenses incurred in connection with such transaction from the applicable
Purported Holder or the Corporation.
12. Fees. The Share Escrow Agent shall provide all
administrative and reporting services contemplated by this Agreement. The
Share Escrow Agent's fees and expenses shall be in the amounts as set forth in
Schedule A to that certain Fee Letter Agreement (the "Fee Letter"), from the
Share Escrow Agent to the Corporation, or as otherwise provided herein or
therein. The Corporation shall pay such fees and expenses upon execution of
this Agreement, or as otherwise provided in the Fee Letter. The Share Escrow
Agent shall send the Corporation a final invoice after closing of the escrow
covering all out-of-pocket expenses or any other extraordinary services
rendered.
13. Consultation with Counsel. The Share Escrow Agent
may consult with legal counsel, at the expense of the Corporation (which
expenses shall be reasonable), in the event of any dispute or question as to
the consideration of the foregoing instructions or the Share Escrow Agent's
duties hereunder, and the Share Escrow Agent shall incur no liability and shall
be fully protected in acting in good faith in accordance with the opinion or
advice of such counsel.
14. Notices. All notices, communications and
instructions required or desired to be given hereunder shall be in writing
(including facsimile) and shall be given to such party, addressed to it, at its
address and facsimile number set forth below or to such other address or
facsimile number as such party may have furnished to the other parties in the
manner for giving notices hereunder. Each such notice, communication or
instruction shall be effective (i) if given by mail, five days after such
communication is deposited in the mails with first-class postage prepaid
addressed as aforesaid, (ii) if sent by facsimile to the facsimile number set
forth below, when such facsimile is transmitted and its receipt is
acknowledged, or (iii) if given by any other means, when delivered at the
address specified below,
If to the Corporation, to: WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attn: Thomas C. Geiser
Telephone No.: (818) 703-4000
Facsimile No.: (818) 703-3551
5.
<PAGE> 6
If to the Share Escrow
Agent, to: U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, CA 90071-2291
Attn: Corporate Trust Department
Telephone No.: (213) 861-5000
Facsimile No.: (213) 488-1370
15. Limited Duties.
(a) The duties and responsibilities of the Share
Escrow Agent shall be limited to those expressly set forth in this Agreement;
provided, however, that this Agreement may be amended at any time or times by
an instrument in writing signed by all the then parties in interest.
(b) The Share Escrow Agent is authorized, in its
sole discretion, to disregard any and all notices or instructions given by any
Person except only such notices or instructions provided by the Corporation or
as otherwise hereinabove provided or an order or process of any court entered
or issued with or without jurisdiction. If any property subject hereto is at
any time attached, garnished or levied upon under any court order or in case
any order, judgment or decree which the Share Escrow Agent is advised by legal
counsel of its own choosing is binding upon it, and further, if the Share
Escrow Agent complies with any such order, writ, judgment or decree it shall
not be liable to the Corporation or to any other Person by reason of such
compliance even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
(c) The Share Escrow Agent shall not be
responsible for the sufficiency or accuracy of the form, execution, validity or
genuineness of documents, or securities now or hereafter deposited hereunder,
or of an endorsement thereon, or for any lack of endorsement thereon, for any
description therein, nor shall the Share Escrow Agent be responsible or liable
in any respect on account of the authority or rights of the Persons executing
or delivering or purporting to execute or deliver any such document, security
or endorsement.
(d) The Share Escrow Agent shall not be
responsible in any manner whatsoever for the recitals made herein. It is the
intention of the parties hereto that the Share Escrow Agent shall not be
required to use or advance its own funds or otherwise incur personal financial
liability in the performance of any of its duties or the exercise of any rights
and powers hereunder.
(e) The Share Escrow Agent is not a party to, nor
is it bound by nor need it give consideration to the terms or provisions of,
any other agreement or undertaking between the Corporation and other Persons,
and the Share Escrow Agent is to give consideration only to the terms and
provisions of this Agreement and, to the extent referred to
6.
<PAGE> 7
herein, the Certificate. The Share Escrow Agent's only duties hereunder are to
safeguard the Excess Shares and any monies held in escrow, to vote such shares
as provided herein and to dispose of and deliver the same in accordance with
this Agreement and, to the extent referred to herein, the Certificate. If the
Share Escrow Agent is called upon by the terms of this Agreement to determine
the occurrence of any event or contingency, the Share Escrow Agent shall be
obligated in making such determination, only to exercise reasonable care and
diligence, and, in the event of error in making such determination, the Share
Escrow Agent shall be liable only for its own intentional misconduct or grossly
negligent conduct, and it shall, accordingly, not incur any such liability with
respect to any action taken or omitted in good faith upon advice of its counsel
given in respect to any questions relating to the duties and responsibilities
of the Share Escrow Agent under this Agreement. In determining the occurrence
of any such event or contingency, the Share Escrow Agent may request from the
Corporation or any other Person such additional evidence as the Share Escrow
Agent in its sole discretion may deem necessary to determine any fact relating
to the occurrence of such event or contingency and, in this connection, may
inquire and consult with its counsel and, among others, with the Corporation at
any time, and the Share Escrow Agent shall not be liable for any damages
resulting from its reasonable delay in acting hereunder pending its examination
of the additional evidence requested by it.
(f) In the event of any disagreement between the
parties to this Agreement, or between any of them and any other Person,
resulting in adverse claims or demands being made in connection with the
matters covered by this Agreement, or in the event that the Share Escrow Agent,
in good faith, be in doubt as to what action it should take hereunder, the
Share Escrow Agent may at its option, refuse to comply with any claims or
demands on it, or refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists, and in any such event, the Share
Escrow Agent shall not be or become liable in any to any Person for its failure
or refusal to act, and the Share Escrow Agent shall be entitled to continue to
refrain from acting until: (i) the rights of all interested parties shall have
been fully and finally adjudicated by a court of competent jurisdiction; or
(ii) all differences shall have been adjudged and all doubt resolved by
agreement among all of the interested Persons, and the Share Escrow Agent shall
have been notified thereof in writing signed by all such Persons.
Notwithstanding the preceding sentence, the Share Escrow Agent may in its
discretion obey the order, judgment, decree or levy of any court, whether with
or without jurisdiction, or of any agency of the United States or any political
subdivision thereof, and the Share Escrow Agent is hereby authorized to obey
such orders, judgments, decrees or levies. The rights of the Share Escrow
Agent under this subsection are cumulative of all other rights which it has by
law or otherwise.
(g) Should any controversy arise between the
parties hereto with respect to this Agreement or with respect to the right of
the Corporation to receive the Excess Shares or any monies held in escrow, the
Share Escrow Agent shall have the right to institute a bill of interpleader in
any court of competent jurisdiction to determine the rights of the parties.
Should a bill of interpleader be instituted, or should the Share Escrow Agent
become involved in litigation in any manner whatsoever on account of this
Agreement for the deposits
7.
<PAGE> 8
made hereunder, the Corporation hereby binds and obligates itself, its
successors and assigns, to pay the Share Escrow Agent, in addition to any
charges made hereunder for acting as Share Escrow Agent, reasonable attorneys'
fees incurred by the Share Escrow Agent, and any other reasonable
disbursements, expenses, losses, costs and damages in connection with and
resulting from such litigation, except in the case where losses or damages
result from the Share Escrow Agent's intentional misconduct or gross
negligence.
(h) Without in any way limiting any other
provision of this Agreement, it is understood and agreed that the Share Escrow
Agent shall be under no duty or obligation to give any notice, except as
expressly provided herein.
(i) The Share Escrow Agent shall not be liable
for any error in judgment or any act or steps taken or permitted to be taken in
good faith, or for anything it may do or refrain from doing in connection
herewith, except for its own intentional misconduct or grossly negligent
conduct.
(j) In no event shall the Share Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Share
Escrow Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action, except for consequential loss or damage
arising out of the Share Escrow Agent's own intentional misconduct or grossly
negligent conduct.
16. Records. The Share Escrow Agent shall maintain
accurate records of all transactions hereunder. Promptly after the termination
of the Escrow Account, or as may reasonably be requested by the Corporation
from time to time before such termination, the Share Escrow Agent shall provide
the Corporation with a complete copy of such records, certified by the Share
Escrow Agent to be a complete and accurate account of all such transactions.
The authorized representatives of the Corporation shall also have access to
such books and records at all reasonable times during normal business hours
upon reasonable notice to the Share Escrow Agent.
17. Governing Law; Binding. This Agreement is being made
in, is governed by and is intended to be construed according to the laws of the
State of Delaware. It shall inure to and be binding upon the parties hereto,
their successors and assigns.
18. Severability. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
19. Time. Whenever under the terms of this Agreement the
performance date of any provision hereof shall fall on a day which is not a
legal banking day, and upon
8.
<PAGE> 9
which the Share Escrow Agent is not open for business, the performance thereof
on the next succeeding business day of the Share Escrow Agent shall be deemed
to be in full compliance.
20. Indemnification. The Share Escrow Agent shall be
indemnified and held harmless by the Corporation, from and against any
expenses, including reasonable counsel fees and disbursements, or loss suffered
by the Share Escrow Agent in connection with any claim or demand, which, in any
way, directly or indirectly, arises out of or relates to this Agreement or the
services of the Share Escrow Agent hereunder except in the case of gross
negligence or intentional misconduct under this Agreement by the Share Escrow
Agent. Promptly after the receipt by the Share Escrow Agent of notice of any
demand or claim or the commencement of any action, suit or proceeding, the
Share Escrow Agent shall notify the Corporation in writing.
21. Successors. The Share Escrow Agent may be merged or
consolidated with or into any entity or transfer all or substantially all of
its assets to any entity, in which case, any entity resulting from any merger
or consolidation or any entity succeeding to the business of the Share Escrow
Agent, shall be successor of the Share Escrow Agent hereunder without the
execution or filing of any paper or further act by any of the parties hereto.
In case at any time the Share Escrow Agent or its legal successor or successors
should become unable, through operation of law or otherwise, to act as Share
Escrow Agent, or if its properties and affairs shall be taken under the control
of any court or administrative body because of insolvency or bankruptcy or for
any other reason, a vacancy shall forthwith and ipso facto exist in the office
of the Share Escrow Agent, a successor Share Escrow Agent shall be appointed by
the Corporation. The Corporation may be merged or consolidated with or into
any entity or transfer all or substantially all of its assets to any entity, in
which case, any entity resulting from any merger or consolidation or any entity
succeeding to the business of the Corporation, shall be successor of the
Corporation hereunder without the execution or filing of any paper or further
act by any of the parties hereto.
22. Resignation. The Share Escrow Agent may resign at
any time upon thirty (30) days' prior written notice to the Corporation,
whereupon the Corporation shall appoint a substitute Share Escrow Agent and the
Share Escrow Agent shall deliver the Excess Shares and monies held in escrow to
any designated substitute Share Escrow Agent selected by the Corporation. If
the Corporation does not designate a substitute Share Escrow Agent within ten
(10) days, the Share Escrow Agent may, in its sole discretion, institute a bill
of interpleader as contemplated herein or otherwise submit appropriate
pleadings. Notwithstanding the immediately preceding sentence, until a
substitute Share Escrow Agent has been named and accepts its appointment or
until another disposition of the Excess Shares and monies held in the Escrow
Account has been agreed upon by all the parties hereto, the Share Escrow Agent
shall be discharged of all of its duties and obligations hereunder except to
hold such Excess Shares and monies in escrow.
9.
<PAGE> 10
23. Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original and all of
which shall constitute but one and the same instrument.
24. No Fiduciary Duty to Purported Holders. The Share
Escrow Agent shall not be deemed to be a fiduciary or agent of any Purported
Holder or other Person other than the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers, as of
the date first above written at Los Angeles, California.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/ AUTHORIZED SIGNATORY
---------------------------------
Its: Authorized Officer
WELLPOINT HEALTH NETWORKS INC.
a Delaware corporation
By: /s/ LEONARD D. SCHAEFFER
--------------------------------
Its: Chief Executive Officer
--------------------------
WELLPOINT HEALTH NETWORKS INC.
a California corporation
By: /s/ LEONARD D. SCHAEFFER
--------------------------------
Its: Chief Executive Officer
--------------------------
10.
<PAGE> 1
EXHIBIT 99.5
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement"), dated as of August 4, 1997, by and among CALIFORNIA HEALTHCARE
FOUNDATION, a California nonprofit public benefit corporation (formerly Western
Health Partnerships, the "Foundation"), WELLPOINT HEALTH NETWORKS INC., a
Delaware corporation ("WellPoint Delaware") and WELLPOINT HEALTH NETWORKS INC.,
a California corporation (formerly Blue Cross of California, "WellPoint
California").
WHEREAS, pursuant to an Agreement and Plan of Reorganization
dated July 22, 1997 (the "Reorganization Agreement") among WellPoint Delaware,
WellPoint California and WLP Acquisition Corp., a wholly owned subsidiary of
WellPoint Delaware ("Merger Sub"), Merger Sub was merged into WellPoint
California, the capital stock of WellPoint California was converted into
capital stock of WellPoint Delaware and the shareholders of WellPoint
California became stockholders of WellPoint Delaware and the outstanding stock
of Merger Sub was converted into stock of WellPoint California and thereby
WellPoint California became a wholly owned subsidiary of WellPoint Delaware
(the "Reorganization");
WHEREAS, WellPoint California, the Foundation and The
California Endowment (formerly Western Foundation for Health Improvement) and
WellPoint Health Networks Inc., a Delaware corporation ("Old WellPoint"),
entered into an Amended and Restated Recapitalization Agreement dated as of
March 31, 1995 (the "Recapitalization Agreement") pursuant to which WellPoint
California converted from a nonprofit public benefit corporation to for-profit
status and the Foundation became its sole shareholder, and thereafter Old
WellPoint merged into WellPoint California and following that merger the
Foundation became an 80.4% shareholder in WellPoint California, with other
former shareholders of Old WellPoint holding the remaining 19.6% of the
outstanding shares of Common Stock of WellPoint California;
WHEREAS, the Foundation and WellPoint California executed a
Registration Rights Agreement dated May 20, 1996 (the "Registration Rights
Agreement"), as required under the Recapitalization Agreement;
WHEREAS, as a result of the Reorganization, the parties hereto
desire to enter into this Agreement which amends and restates the Registration
Rights Agreement to have WellPoint Delaware assume the rights and obligations
of WellPoint California under the Registration Rights Agreement and sets forth
the terms of certain registration rights applicable to the Registrable
Securities (as defined below); and
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WHEREAS, as of the date hereof, the Foundation, pursuant to
the Reorganization, owns 29,910,000 shares of WellPoint Delaware's issued and
outstanding Common Stock, par value $.01 per share ("Common Stock").
NOW, THEREFORE, upon the premises and the mutual promises
herein contained, and for good and valuable consideration, the receipt and
adequacy of which are acknowledged, the parties agree that the Registration
Rights Agreement is hereby amended and restated to add WellPoint Delaware as a
party hereto, that WellPoint Delaware shall assume the rights and obligations
of WellPoint California under the Registration Rights Agreement (with the
exception of Sections 8(a) and 8(d) hereof) and that the parties further agree
as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any
person, any other person who, directly or indirectly, is in control of, is
controlled by or is under common control with the former person.
(b) "Holders" means the Foundation or any
Affiliate of the Foundation or any trustee for the account of the Foundation
and any "transferee" (as such term is defined in Section 11 hereof) which is
the record holder of Registrable Securities.
(c) "Registrable Securities" means the shares of
Common Stock held by the Foundation as of the date hereof, any stock or other
securities into which or for which such shares of Common Stock may hereafter be
changed, converted or exchanged, and any other securities issued to the Holders
of such shares of Common Stock (or such shares into which or for which such
shares are so changed, converted or exchanged) upon any reclassification, share
combination, share subdivision, share dividend, merger, consolidation or
similar transactions or events, provided that any such securities shall cease
to be Registrable Securities if (i) a registration statement with respect to
the sale of such securities shall have become effective under the Securities
Act (as defined below) and such securities shall have been disposed of in
accordance with the plan of distribution set forth in such registration
statement, (ii) such securities shall have been transferred pursuant to Rule
144, (iii) such securities are held by a Holder other than the Foundation,
unless such Holder shall furnish WellPoint Delaware an opinion of counsel,
which opinion shall be reasonably satisfactory to WellPoint Delaware, to the
effect that all of such securities are not permitted to be distributed by such
Holder in one transaction pursuant to Rule 144, or (iv) such securities are
held by a Holder whose aggregate holdings of Registrable Securities, computed
in accordance with the requirements of Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder,
constitute less than 4.9% of the total outstanding common equity of WellPoint
Delaware.
(d) "Registration Expenses" means all reasonable
expenses in connection with any registration of securities pursuant to this
Agreement including, without limitation, the following: (i) SEC filing fees;
(ii) the fees, disbursements and expenses of
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WellPoint Delaware's counsel(s) and accountants in connection with the
registration of the Registrable Securities to be disposed of under the
Securities Act; (iii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to any Holders, underwriters and dealers and all
expenses incidental to delivery of the Registrable Securities; (iv) the cost of
producing blue sky or legal investment memoranda; (v) all expenses in
connection with the qualification of the Registrable Securities to be disposed
of for offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters or Holders in connection with
such qualification and in connection with any blue sky and legal investments
surveys; (vi) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the Registrable Securities to be disposed of; (vii) transfer agents',
depositories' and registrars' fees and the fees of any other agent appointed in
connection with such offering; (viii) all security engraving and security
printing expenses; (ix) all fees and expenses payable in connection with the
listing of the Registrable Securities on each securities exchange or
inter-dealer quotation system on which a class of common equity securities of
WellPoint Delaware is then listed; (x) all reasonable out-of-pocket expenses of
WellPoint Delaware incurred in connection with road show presentations,
including the salaries (based on a per diem allocation) and expenses (to the
extent not reimbursed by the underwriters) of officers making road show
presentations and holding meetings with potential investors to facilitate the
distribution and sale of Registrable Securities and other out-of-pocket
expenses of WellPoint Delaware related thereto, but salaries shall be deemed a
Registrable Expense if and only to the extent such road show presentations and
meetings are made or held on more than five business days in the aggregate with
respect to any one registration (and then only if earned or incurred in respect
of such days in excess of five business days); (xi) the prorated salaries and
expenses of in-house attorneys performing legal services to the extent such
services would otherwise be performed by outside counsel; (xii) courier,
overnight delivery, word processing, duplication, telephone and facsimile
expenses; and (xiii) any one-time payment for directors and officers insurance
directly related to such offering, provided the insurer provides a separate
statement for such payment.
(e) "Rule 144" means Rule 144 promulgated under
the Securities Act, or any successor rule to similar effect.
(f) "SEC" means the United States Securities and
Exchange Commission.
(g) "Securities Act" means the Securities Act of
1933, as amended, or any successor statute.
2. DEMAND REGISTRATION.
(a) At any time, upon written notice from a
Holder in the manner set forth in Section 13(h) hereof requesting that
WellPoint Delaware effect the registration under the Securities Act of any or
all of the Registrable Securities held by such Holder, which
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notice shall specify the intended method or methods of disposition of such
Registrable Securities, WellPoint Delaware shall have the right, exercisable
within 15 days by written notice, to purchase all or a portion of the
Registrable Securities requested to be registered by such Holder at a cash
price per share equal to the arithmetic mean of each of the closing sales
prices per share of Common Stock on the New York Stock Exchange for each of the
15 consecutive trading days ending on the fifth trading day immediately
preceding the date of the written notice from the Holder under this Section
2(a). The closing of such purchase shall take place no later than 45 days
after the date of the written notice from WellPoint Delaware under this Section
2(a).
(b) If WellPoint Delaware does not exercise its
right to purchase under Section 2(a) above, WellPoint Delaware shall use its
best efforts to effect, in the manner set forth in Section 5, the registration
under the Securities Act of such Registrable Securities for disposition in
accordance with the intended method or methods of disposition stated in such
request, provided that:
(i) if prior to receipt of a
registration request pursuant to this Section 2(b), WellPoint Delaware
had commenced a financing plan through a formal "all hands" meeting
with outside advisors, including an underwriter if such financing plan
is an underwritten offering, and, in the good-faith business judgment
of WellPoint Delaware's underwriter, a registration at the time and on
the terms requested could materially and adversely affect or interfere
with such financing plan of WellPoint Delaware or its subsidiaries (a
"Transaction Blackout"), WellPoint Delaware shall not be required to
effect a registration pursuant to this Section 2(b) until the earliest
of (A) the abandonment of such offering, (B) 90 days after the
termination of such offering, (C) the termination of any "hold back"
period obtained by the underwriter(s) of such offering from any person
in connection therewith or (D) 110 days after receipt by the Holder
requesting registration of the written notice from WellPoint Delaware
referred to above in this subsection (i);
(ii) if, while a registration request is
pending pursuant to this Section 2(b), WellPoint Delaware has
determined in good faith that (A) the filing of a registration
statement could jeopardize or delay any contemplated material
transaction other than a financing plan involving WellPoint Delaware
or would require the disclosure of material information that WellPoint
Delaware had a bona fide business purpose for preserving as
confidential; or (B) WellPoint Delaware then is unable to comply with
SEC requirements applicable to the requested registration
(notwithstanding its best efforts to so comply), WellPoint Delaware
shall not be required to effect a registration pursuant to this
Section 2(b) until the earlier of (1) the date upon which such
contemplated transaction is completed or abandoned or such material
information is otherwise disclosed to the public or ceases to be
material or WellPoint Delaware is able to so comply with applicable
SEC requirements, as the case may be, and (2) 45 days after WellPoint
Delaware makes such good-faith determination, provided that WellPoint
Delaware shall not be permitted to delay a requested registration in
reliance on this clause (ii) more than once in any 12-month period;
and
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(iii) WellPoint Delaware shall not be
obligated to file a registration statement relating to a registration
request pursuant to this Section 2: (A) more than once in any calendar
year; (B) within a period of six months after the effective date of any
other registration statement of WellPoint Delaware demanded pursuant to
this Section 2(b); or (C) if such registration request is for a number
of Registrable Securities which have an aggregate market value less
than $75 million. For purposes of this subsection 2(b)(iii),
registration statements filed by WellPoint California prior to the
date hereof shall be deemed a registration statement filed by
WellPoint Delaware.
(c) Notwithstanding any other provision of this
Agreement to the contrary:
(i) a registration requested by a Holder
pursuant to this Section 2 shall not be deemed to have been effected
(and, therefore, not requested for purposes of Section 2(b)), (A) if
it is withdrawn based upon material adverse information relating to
WellPoint Delaware that is different from the information (x) known to
the Holder requesting registration at the time of their request for
registration, or (y) promptly disclosed by WellPoint Delaware to the
Holder at the time of their request for registration; (B) if after it
has become effective such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result
thereof, less than 90% of the Registrable Securities requested to be
registered can be completely distributed in accordance with the plan
of distribution set forth in the related registration statement; or
(C) if the conditions to closing specified in the purchase agreement
or underwriting agreement entered into in connection with such
registration are not satisfied (other than by reason of some act or
omission by such Holder) or waived by the underwriters;
(ii) a registration requested by a Holder
pursuant to this Section 2 and later withdrawn at the request of such
Holder (other than for any reason set forth in Section 2(c)(i)) shall
be deemed to have been effected (and, therefore, requested for
purposes of Section 2(b)), whether withdrawn by the Holder prior to or
after the effectiveness of such requested registration, provided, that
if the Holder bears the Registration Expenses for any registration
begun pursuant to Section 2(b) and subsequently withdrawn, such
registration shall not count as a requested registration pursuant to
Section 2(b).
(d) In the event that any registration pursuant
to this Section 2 shall involve, in whole or in part, an underwritten offering,
WellPoint Delaware, on the one hand, and the Holder initiating the demand
pursuant to Section 2(a), on the other hand, shall each have the right to
designate an underwriter as the sole lead managing underwriters of such
underwritten offering (with such co-lead managing underwriters sharing lead
managing underwriter compensation equally). WellPoint Delaware and such Holder
shall together select which of the co-lead managing underwriters shall serve as
"books-running" underwriter; provided that if WellPoint Delaware and such
Holder cannot, within 10 days following the
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notice from such Holder referred to in Section 2(a), reach a mutual agreement
on such selection, then (i) WellPoint Delaware shall have the right in the case
of the first such underwritten offering (subject to the consent of the
Foundation, which consent may not be unreasonably withheld) to select the
"books-running" underwriter for such first offering; (ii) such Holder shall
have the right (in the case of the next such underwritten offering as to which
no agreement can be reached as provided) to select the "books-running"
underwriter for such next offering; and (iii) the selection right shall
thereafter alternate for each subsequent offering as to which no agreement can
be reached as provided.
(e) Holders other than the Holder initiating the
demand pursuant to Section 2(b) shall have the right to include their shares of
Registrable Securities in any registration pursuant to Section 2(b); provided
that the Foundation may exclude participation by other Holders in connection
with registrations pursuant to two demands (no two of which can be in
consecutive years). In connection with those registrations in which multiple
Holders participate, in the event such registration involves an underwritten
offering and the lead managing underwriter advises that marketing factors
require a limitation on the number of shares to be underwritten, the number of
shares to be included in the underwriting and registration shall be allocated
pro rata among the Holders on the basis of the shares of Registrable Securities
held by each such Holder.
(f) WellPoint Delaware shall have the right to
cause the registration of additional securities for sale for the account of any
person (including WellPoint Delaware) in any registration of Registrable
Securities requested by a Holder pursuant to Section 2(b); provided that
WellPoint Delaware shall not have the right to cause the registration of such
additional securities if such Holder is advised in writing (with a copy to
WellPoint Delaware) by the lead managing underwriter designated by the Holder
pursuant to Section 2(d) that, in such firm's good-faith opinion, registration
of such additional securities would materially and adversely affect the
offering and sale of the Registrable Securities then contemplated by such
Holder.
3. PIGGYBACK REGISTRATION. At any time if WellPoint
Delaware proposes to register any of its Common Stock or any other of its
common equity securities (collectively, "Other Securities") under the
Securities Act (other than a registration on Form S-4 or S-8 or any successor
form thereto), whether or not for sale for its own account, in a manner which
would permit registration of Registrable Securities for sale for cash to the
public under the Securities Act, it will each such time give prompt written
notice to each Holder of its intention to do so at least 10 business days prior
to the anticipated filing date of the registration statement relating to such
registration. Such notice shall offer each such Holder the opportunity to
include in such registration statement such number of Registrable Securities as
each such Holder may request. Upon the written request of any such Holder made
within five business days after the receipt of WellPoint Delaware's notice
(which request shall specify the number of Registrable Securities intended to
be disposed of and the intended method of disposition thereof), WellPoint
Delaware shall effect, in the manner set forth in Section 5, in connection with
the registration of the Other Securities, the registration under the Securities
Act of all Registrable Securities which WellPoint Delaware has been so
requested to register, to the extent required to permit the disposition (in
accordance with such
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intended methods thereof) of the Registrable Securities so requested to be
registered, provided that:
(a) if at any time after giving written notice of
its intention to register any securities and prior to the effective date of
such registration, WellPoint Delaware shall determine for any reason not to
register or to delay registration of such securities, WellPoint Delaware may,
at its election, give written notice of such determination to the Holder and,
thereupon, (A) in the case of a determination not to register, WellPoint
Delaware shall be relieved of its obligation to register any Registrable
Securities in connection with such registration and (B) in the case of a
determination to delay such registration, WellPoint Delaware shall be permitted
to delay registration of any Registrable Securities requested to be included in
such registration for the same period as the delay in registering such other
securities;
(b) (i) if the registration referred to in the
first sentence of this Section 3 is to be an underwritten primary registration
on behalf of WellPoint Delaware, and the managing underwriter advises WellPoint
Delaware in writing that, in such firm's opinion, such offering would be
materially and adversely affected by the inclusion therein of the Registrable
Securities requested to be included therein, WellPoint Delaware shall include
in such registration: (1) first, all securities WellPoint Delaware proposes to
sell for its own account ("WellPoint Delaware Securities") and (2) second, up
to the full number of Registrable Securities in excess of the number or dollar
amount of WellPoint Delaware Securities, which, in the good-faith opinion of
such managing underwriter, can be so sold without materially and adversely
affecting such offering (and, if less than the full number of such Registrable
Securities, allocated pro rata among the Holders of such Registrable Securities
on the basis of the number of securities requested to be included therein by
each such Holder) and (ii) if the registration referred to in the first
sentence of this Section 3 is to be an underwritten secondary registration on
behalf of holders of securities (other than Registrable Securities) of
WellPoint Delaware (the "Other Holders"), and the managing underwriter advises
WellPoint Delaware in writing that in their good-faith opinion such offering
would be materially and adversely affected by the inclusion therein of the
Registrable Securities requested to be included therein, WellPoint Delaware
shall include in such registration the amount of securities (including
Registrable Securities) that such managing underwriter advises allocated as
follows: (1) first, that number of Registrable Securities requested to be
included therein as shall result in the Holder making such request owning less
than 20% of the total outstanding common equity of WellPoint Delaware and (2)
second, pro rata among the Other Holders and the Holders on the basis of the
number of remaining securities (including Registrable Securities) requested to
be included therein by each Other Holder and each Holder;
(c) WellPoint Delaware shall not be required to
effect any registration of Registrable Securities under this Section 3
incidental to the registration of any of its securities in connection with
mergers, acquisitions, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans; and
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(d) no registration of Registrable Securities
effected under this Section 3 shall relieve WellPoint Delaware of its
obligation to effect a registration of Registrable Securities pursuant to
Section 2 hereof.
4. EXPENSES. Unless otherwise elected to be borne by a
Holder pursuant to Section 2(c)(ii), WellPoint Delaware agrees to pay all
Registration Expenses with respect to an offering pursuant to Section 2 and
Section 3 hereof.
5. REGISTRATION AND QUALIFICATION. If and whenever
WellPoint Delaware is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities Act as provided
in Section 2 or 3 hereof, WellPoint Delaware, shall:
(a) prepare and file a registration statement
under the Securities Act relating to the Registrable Securities to be offered
as soon as practicable, but in no event later than 30 days (60 days if the
applicable registration form is other than Form S-3) after the date notice is
given, and use its best efforts to cause the same to become effective as
promptly as practicable;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for 70 days (or, in the case of an underwritten offering, such
shorter time period as the underwriters may require);
(c) furnish to the Holders and to any underwriter
of such Registrable Securities such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as the Holders or such underwriter
may reasonably request in order to facilitate the public sale of the
Registrable Securities, and a copy of any and all transmittal letters or other
correspondence to, or received from, the SEC or any other governmental agency
or self-regulatory body or other body having jurisdiction (including any
domestic or foreign securities exchange) relating to such offering;
(d) use its best efforts to register or qualify
all Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the Holders or any
underwriter of such Registrable Securities shall request, and use its best
efforts to obtain all appropriate registrations, permits and consents required
in connection therewith, and do any and all other acts and things which may be
necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that WellPoint Delaware shall
not for any such purpose be required to register or qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
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(e) (i) use its best efforts to furnish an
opinion of counsel for WellPoint Delaware addressed to the underwriters and
each Holder of Registrable Securities included in such registration (each a
"Selling Holder") and dated the date of the closing under the underwriting
agreement (if any) (or if such offering is not underwritten, dated the
effective date of the registration statement), and (ii) use its best efforts to
furnish a "cold comfort" letter addressed to each Selling Holder, if
permissible under applicable accounting practices, and signed by the
independent public accountants who have audited WellPoint Delaware's financial
statements included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other matters as the
Selling Holders may reasonably request and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements;
(f) immediately notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration pursuant
to Section 2 or 3 hereof is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any 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, and (ii) of any
request by the SEC or any other regulatory body or other body having
jurisdiction for any amendment of or supplement to any registration statement
or other document relating to such offering, and in either such case (i) or
(ii) at the request of the Selling Holders, subject to Section 4 hereof,
prepare and furnish to the Selling Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of material fact or omit 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 are made,
not misleading;
(g) use its best efforts to list all such
Registrable Securities covered by such registration on each securities exchange
and inter-dealer quotation system on which a class of common equity securities
of WellPoint Delaware is then listed, with expenses in connection therewith to
be paid in accordance with Section 4 hereof; and
(h) furnish unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the Selling Holders or the underwriters with expenses
therewith to be paid in accordance with Section 4 hereof.
6. CONVERSION OF OTHER SECURITIES, ETC. If a Holder
offers any options, rights, warrants or others securities issued by it or any
other person that are offered with, convertible into or exercisable or
exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall be eligible
for registration pursuant to Section 2 and Section 3 of this Agreement.
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7. UNDERWRITING, DUE DILIGENCE.
(a) If requested by the underwriters for any
underwritten offering of Registrable Securities pursuant to a registration
requested under this Agreement, WellPoint Delaware shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain such representations and warranties by WellPoint Delaware and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, indemnities and contribution substantially to the effect and to the
extent provided in Section 8 hereof and the provision of opinions of counsel
and accountants' letters to the effect and to the extent provided in Section
5(e) hereof. The Selling Holders on whose behalf the Registrable Securities
are to be distributed by such underwriters shall be parties to any such
underwriting agreement and the representations and warranties by, and the other
agreements on the part of, WellPoint Delaware to and for the benefit of such
underwriters, shall also be made to and for the benefit of such Selling
Holders. Such underwriting agreement shall also contain such representations
and warranties by the Selling Holders on whose behalf the Registrable
Securities are to be distributed as are customarily contained in underwriting
agreements with respect to secondary distributions. Selling Holders may
require that any additional securities included in an offering proposed by a
Holder be included on the same terms and conditions as the Registrable
Securities that are included therein.
(b) In the event that any registration pursuant
to Section 3 shall involve, in whole or in part, an underwritten offering,
WellPoint Delaware may require the Registrable Securities requested to be
registered pursuant to Section 3 to be included in such underwriting on the
same terms and conditions as shall be applicable to the other securities being
sold through underwriters under such registration. If requested by the
underwriters for such underwritten offering, the Selling Holders on whose
behalf the Registrable Securities are to be distributed shall enter into an
underwriting agreement with such underwriters, such agreement to contain such
representations and warranties by the Selling Holders and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution substantially to the effect and to the extent provided in Section
8 hereof. Such underwriting agreement shall also contain such representations
and warranties by WellPoint Delaware and such other person or entity for whose
account securities are being sold in such offering as are customarily contained
in underwriting agreements with respect to secondary distributions.
(c) In connection with the preparation and filing
of each registration statement registering Registrable Securities under the
Securities Act, WellPoint Delaware shall give the Holders of such Registrable
Securities and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books and records and
such opportunities to discuss the business of WellPoint Delaware with its
officers and the independent public accountants who have certified WellPoint
Delaware's financial statements as shall be necessary, in the opinion of such
Holder and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
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8. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable
Securities made pursuant to this Agreement, each of WellPoint Delaware and
WellPoint California agrees to indemnify and hold harmless each Holder, its
officers and directors, each underwriter of Registrable Securities so offered
and each person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act, from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to
which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, and shall promptly reimburse them, as and when incurred, for any
reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
in any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that neither WellPoint California nor WellPoint Delaware shall be liable to a
particular Holder in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to WellPoint Delaware in writing
by or on behalf of such Holder specifically for use in the preparation of the
registration statement (or in any preliminary or final prospectus included
therein) or any amendment thereof or supplement thereto. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of a Holder and shall survive the transfer of such securities. The
foregoing indemnity agreement is in addition to any liability which WellPoint
Delaware or WellPoint California may otherwise have to each Holder, its
officers and directors, underwriters of the Registrable Securities or any
controlling person of the foregoing; provided, further, that, as to any
underwriter or any person controlling any underwriter, this indemnity does not
apply to any loss, liability, claim, damage or expense arising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus if a copy of a prospectus was not sent
or given by or on behalf of an underwriter to such person asserting such loss,
claim, damage, liability or action at or prior to the written confirmation of
the sale of the Registrable Securities as required by the Securities Act and
such untrue statement or omission had been corrected in such prospectus.
(b) In the case of each offering made pursuant to
this Agreement, each Holder of Registrable Securities included in such
offering, by exercising its registration rights hereunder, agrees to indemnify
and hold harmless WellPoint Delaware, its officers and directors and each
person, if any, who controls any of the foregoing within the meaning of the
Securities Act (and if requested by the underwriters, each underwriter who
participates in the offering and each person, if any, who controls any such
underwriter within the meaning of the Securities Act), from and against any and
all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject under the
11.
<PAGE> 12
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened, and shall promptly reimburse them, as and
when incurred, for any legal or other expenses incurred by them in connection
with investigating any claims and defending any actions, insofar as any such
losses, claims, damages, liabilities or actions shall arise out of, or shall be
based upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
any omission or alleged omission to state therein a material fact relating to
the Holder required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact contained in, or such material fact relating to
the Holder is omitted from, information relating to such Holder furnished in
writing to WellPoint Delaware by or on behalf of such Holder specifically for
use in the preparation of such registration statement (or in any preliminary or
final prospectus included therein). The foregoing indemnity is in addition to
any liability which such Holder may otherwise have to WellPoint Delaware, or
any of its directors, officers or controlling persons; provided, however, that,
as to any underwriter or any person controlling any underwriter, this indemnity
does not apply to any loss, liability, claim, damage or expense arising out of
or based upon any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus if a copy of a prospectus was
not sent to given by or on behalf of an underwriter to such person asserting
such loss, claim, damage, liability or action at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in such
prospectus.
(c) Procedure for Indemnification. Each party
indemnified under paragraph (a) or (b) of this Section 8 shall, promptly after
receipt of notice of any claim or the commencement of any action against such
indemnified party in respect of which indemnity may be sought, notify the
indemnifying party in writing of the claim or the commencement thereof;
provided that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have to an indemnified party on account of the
indemnity agreement contained in paragraph (a) or (b) of this Section 8, except
to the extent the indemnifying party was prejudiced by such failure, and in no
event shall relieve the indemnifying party from any other liability which it
may have to such indemnified party. If any such claim or action shall be
brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided that each indemnified party,
its officers and directors, if any, and each person, if any, who controls such
indemnified party within the meaning of the Securities Act, shall have the
right to employ separate counsel reasonably approved by the indemnifying party
to represent them if the named parties to any action (including any impleaded
parties) include both such indemnified party and an indemnifying party or an
affiliate of an indemnifying party, and such indemnified party shall have been
advised by counsel either (i)
12.
<PAGE> 13
that there may be one or more legal defenses available to such indemnified
party that are different from or additional to those available to such
indemnifying party or such affiliate or (ii) a conflict may exist between such
indemnified party and such indemnifying party or such affiliate, and in that
event the fees and expenses of one such separate counsel for all such
indemnified parties shall be paid by the indemnifying party. An indemnified
party will not enter into any settlement agreement which is not approved by the
indemnifying party, such approval not to be unreasonably withheld. The
indemnifying party may not agree to any settlement of any such claim or action
which provides for any remedy or relief other than monetary damages for which
the indemnifying party shall be responsible hereunder, without the prior
written consent of the indemnified party, which consent shall not be
unreasonably withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof with counsel reasonably satisfactory to
the indemnified party, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, but, except
as set forth above, the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party for the costs thereof. In all instances, the
indemnified party shall cooperate fully with the indemnifying party or its
counsel in the defense of each claim or action.
If the indemnification provided for in this Section 8 shall
for any reason be unavailable to an indemnified party in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
herein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in
respect thereof, in such proportion as shall be appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted
in such loss, claim, damage or liability, or action in respect thereof, as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in WellPoint Delaware. In no event, however, shall a Holder be
required to contribute in excess of the amount of the net proceeds received by
such Holder in connection with the sale of Registrable Securities in the
offering which is the subject of such loss, claim, damage or liability. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph shall be deemed to include, for purposes of this paragraph, any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(d) With respect to offerings completed under the
Registration Rights Agreement, the indemnification obligations imposed on
WellPoint California under the Registration Rights Agreement shall survive the
execution of this Agreement.
13.
<PAGE> 14
9. RULE 144. WellPoint Delaware shall take such
measures and file such information, documents and reports as shall be required
by the SEC as a condition to the availability of Rule 144.
10. HOLDBACK.
(a) Each Holder agrees if so required by the
managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any securities of WellPoint Delaware, during the 30 days
prior to and the 90 days after any underwritten registration pursuant to
Section 2 or 3 hereof has become effective (or such shorter period as may be
required by the underwriter), except as part of such underwritten registration.
WellPoint Delaware may legend and may impose stop transfer instructions on any
certificate evidencing Registrable Securities relating to the restrictions
provided for in this Section 10.
(b) WellPoint Delaware agrees, if so required by
the managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of (other than pursuant to employee benefit plans),
effect any public sale or distribution of or otherwise dispose of its equity
securities or securities convertible into or exchangeable or exercisable for
any such securities during the 30 days prior to and the 90 days after any
underwritten registration pursuant to Section 2 or 3 hereof has become
effective, except as part of such underwritten registration and except pursuant
to registrations on Form S-4, S-8 or any successor or similar forms thereto.
11. TRANSFER OF REGISTRATION RIGHTS.
(a) A Holder may transfer all or any portion of
its rights under this Agreement to any transferee of Registrable Securities
representing at least 4.9% of the total outstanding common equity of WellPoint
Delaware (each, a "transferee"). The Holder making such transfer shall
promptly notify WellPoint Delaware in writing stating the name and address of
any transferee and identifying the amount of Registrable Securities with
respect to which the rights under this Agreement are being transferred and the
nature of the rights so transferred. In connection with any such transfer, the
term "Holder" as used in this Agreement shall, where appropriate to assign the
rights and obligations of a Holder hereunder to such direct transferee, be
deemed to refer to the transferee holder of such Registrable Securities.
(b) After any such transfer, the Holder making
such transfer shall retain its rights under this Agreement with respect to all
other Registrable Securities still owned by such Holder.
(c) Upon the request of the Holder making such
transfer, WellPoint Delaware shall execute a Registration Rights Agreement with
such transferee or a proposed transferee substantially similar to this
Agreement.
14.
<PAGE> 15
12. RESTRICTION ON TRANSFER.
A Holder shall not transfer any shares of Registrable
Securities whether in a private placement or pursuant to a registration under
this Agreement if such transfer shall, to such Holder's knowledge, result in
Registrable Securities in excess of the Ownership Limit which become Excess
Shares within the meaning of Article VII, Section 2 of WellPoint Delaware's
Restated Certificate of Incorporation. This Section 12 shall expire and be of
no further force or effect in the event WellPoint Delaware ceases to be subject
to any License Agreement, as defined in Section 14 of Article VII of WellPoint
Delaware's Restated Certificate of Incorporation.
13. MISCELLANEOUS.
(a) INJUNCTIONS. Each party acknowledges and
agrees that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance with its specific
terms or was otherwise breached. Therefore, each party shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court having jurisdiction, such remedy being in addition to any other remedy to
which such party may be entitled at law or in equity.
(b) SEVERABILITY. If any term or provision of
this Agreement shall be held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms and provisions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and each of the parties shall use its best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term or provision.
(c) FURTHER ASSURANCES. Subject to the specific
terms of this Agreement, each of the parties hereto shall make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
(d) WAIVERS, ETC. No failure or delay on the
part of either party (or the intended third-party beneficiaries referred to
herein) in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Agreement
nor consent to any departure therefrom shall in any event be effective unless
the same shall be in writing and signed by an authorized officer of each of the
parties, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
(e) ENTIRE AGREEMENT. This Agreement contains
the entire understanding of the parties with respect to its subject matter.
Except as provided in
15.
<PAGE> 16
Sections 8(a) and 8(d) hereof, this Agreement supersedes all prior agreements
and understandings between the parties, including the Registration Rights
Agreement, whether written or oral, with respect to the subject matter hereof.
The paragraph headings contained in this Agreement are for reference purposes
only, and shall not affect in any manner the meaning or interpretation of this
Agreement.
(f) COUNTERPARTS. For the convenience of the
parties, this Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but all of which together shall be one
and the same instrument.
(g) AMENDMENT. This Agreement may be amended
only by a written instrument duly executed by an authorized officer of each of
WellPoint Delaware and the Foundation. This Agreement may not be amended to
alter or amend the obligations of WellPoint California under Sections 8(a) or
8(d) hereof without the written consent of WellPoint California.
(h) NOTICES. Unless expressly provided herein,
all notices, claims, certificates, requests, demands and other communications
hereunder shall be in writing and shall be deemed to be duly given (i) when
personally delivered or (ii) if mailed registered or certified mail, postage
prepaid, return receipt requested, on the date the return receipt is executed
or the letter refused by the addressee or its agent or (iii) if sent by
overnight courier which delivers only upon the signed receipt of the addressee,
on the date the receipt acknowledgment is executed or refused by the addressee
or its agent:
(i) if to the Foundation:
California HealthCare Foundation
496 Ninth Street
Oakland, CA 94607
Attn.: Vice President and Secretary
Telecopy No.: (510) 238-1388
With copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue, Suite 3500
Los Angeles, CA 90071-1560
Attn.: Ruth E. Fisher, Esq.
Telecopy No.: (213) 687-3702
Marron, Reid & Sheehy LLP
601 California Street, Suite 1200
San Francisco, California 94108-2896
Attn.: E. Lewis Reid, Esq.
Telecopier No.: (415) 986-1374
16.
<PAGE> 17
(ii) if to WellPoint Delaware or WellPoint
California, then addressed to WellPoint
Delaware or WellPoint California at:
21555 Oxnard Street
Woodland Hills, CA 91367
Attn.: General Counsel
Telecopy No.: (818) 703-4406
With copy to:
Brobeck Phleger & Harrison LLP
Spear Street Tower
One Market Street
San Francisco, CA 94105
Attn.: William L. Hudson, Esq.
Telecopy No.: (415) 442-1010
(i) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF DELAWARE.
(j) TERM. This Agreement shall remain in full
force and effect until there are no Registrable Securities outstanding or until
terminated by the mutual agreement of WellPoint Delaware and the Foundation.
(k) ASSIGNMENT. Except as provided herein, the
parties may not assign their rights under this Agreement. WellPoint Delaware
may not delegate its obligations under this Agreement. WellPoint California
may not delegate its obligations which survive the termination of the
Registration Rights Agreement under Sections 8(a), 8(d) and 13(e) of this
Agreement.
(l) PRIORITY OF RIGHTS. The rights granted to
the Holders under this Agreement shall be senior to and take priority over any
other registration rights granted by WellPoint Delaware. WellPoint Delaware
agrees that it shall not grant any registration rights to any third party
unless such rights are expressly made subject to the rights of the Holders in a
manner consistent with this Agreement. WellPoint Delaware also agrees that it
shall not grant any Holder any registration rights which are senior or take
priority over the registration rights granted to all Holders under this
Agreement.
(m) OWNERSHIP LIMIT. For purposes of this
Agreement, Ownership Limit has the meaning set forth in Section 14 of Article
VII of WellPoint Delaware's Restated Certificate of Incorporation.
17.
<PAGE> 18
IN WITNESS WHEREOF, the Foundation, WellPoint Delaware and WellPoint
California have caused this Agreement to be duly executed by their authorized
representative as of the date first above written.
CALIFORNIA HEALTHCARE FOUNDATION
By: /s/ MARK D. SMITH
--------------------------------
Name: Mark D. Smith
-------------------------------
Title: President
-----------------------------
WELLPOINT HEALTH NETWORKS INC.,
a Delaware corporation
By: /s/ LEONARD D. SCHAEFFER
--------------------------------
Name: Leonard D. Schaeffer
-------------------------------
Title: Chief Executive Officer
-----------------------------
WELLPOINT HEALTH NETWORKS INC.,
a California corporation
By: /s/ LEONARD D. SCHAEFFER
--------------------------------
Name: Leonard D. Schaeffer
-------------------------------
Title: Chief Executive Officer
-----------------------------
18.
<PAGE> 1
EXHIBIT 99.6
BLUE CROSS LICENSE AGREEMENT
This agreement by and between Blue Cross and Blue Shield Association
("BCBSA") and The Blue Cross Plan, known as WellPoint Health Networks Inc. (the
"Plan").
PREAMBLE
WHEREAS, the Plan and/or its predecessor(s) in interest (collectively the
"Plan") had the right to use the BLUE CROSS and BLUE CROSS Design service marks
(collectively the "Licensed Marks") for health care plans in its service area,
which was essentially local in nature;
WHEREAS, the Plan was desirous of assuring nationwide protection of the
Licensed Marks, maintaining uniform quality controls among Plans, facilitating
the provision of cost effective health care services to the public and otherwise
benefiting the public;
WHEREAS, to better attain such ends, the Plan and the predecessor of BCBSA
in 1972 simultaneously executed the BCA License Agreement (s) and the Ownership
Agreement; and
WHEREAS, BCBSA and the Plan desire to supercede said Agreement(s) to
reflect their current practices and to assure the continued integrity of the
Licensed Marks and of the BLUE CROSS system;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
<PAGE> 2
AGREEMENT
1. BCBSA hereby grants to the Plan, upon the terms and conditions of this
License Agreement, the right to use BLUE CROSS in its trade and/or corporate
name (the "Licensed Name"), and the right to use the Licensed Marks, in the
sale, marketing and administration of health care plans and related services in
the Service Area set forth and defined in paragraph 5 below. As used herein,
health care plans and related services shall include acting as a nonprofit
health care plan, a for-profit health care plan, or mutual health insurer
operating on a not-for-profit or for-profit basis, under state law; financing
access to health care services; providing health care management and
administration; administering, but not underwriting, non-health portions of
Worker's Compensation insurance; and delivering health care services.
2. The Plan may use the Licensed Marks and Name in connection with the
offering of: a) health care plans and related services in the Service Area
through Controlled Affiliates, provided that each such affiliate is separately
licensed to use the Licensed Marks and Name under the terms and conditions
contained in the Agreement attached as Exhibit 1 hereto (the "Controlled
Affiliate License Agreement"); and: b) insurance coverages offered by life
insurers under the applicable law in the Service Area, other than those which
the Plan may offer in its own name, provided through Controlled Affiliates,
provided that each such affiliate is separately licensed to use the Licensed
Marks and Name under the terms and conditions contained in the Agreement
attached as Exhibit 1A hereto (the "Controlled Affiliate License Agreement
Applicable to Life Insurance Companies") and further provided that the offering
of such services does not and will not dilute or tarnish the unique value of the
Licensed Marks and Name; and c) administration and underwriting of Workers'
Compensation Insurance Controlled Affiliates, provided that each such Affiliate
is separately licensed to use the Licensed Marks and Name under the terms and
conditions contained in the Agreement attached as Exhibit 1 hereto (the
"Controlled Affiliate License.") With respect to any HMO previously sublicensed
as provided in a License Addendum between BCBSA and the Plan, the Plan shall
have one (1) year from the date hereof to obtain execution of the direct license
required herein. As used herein, a Controlled Affiliate is defined as an entity
organized and operated in such a manner that it is subject to the bona fide
control of a Plan or Plans. Absent written approval by BCBSA of an alternative
method of control, bona fide control shall mean:
A. The legal authority, directly or indirectly through wholly-owned
subsidiaries: (a) to select members of the Controlled Affiliate's
governing body having not less than 51% voting control thereof; (b)
to exercise operational control with respect to the governance
thereof; and (c) to prevent any change in its articles of
incorporation, bylaws or other governing documents deemed
inappropriate. In addition, a Plan or Plans shall own at least 51%
of any for-profit Controlled Affiliate; or
B. The legal authority directly or indirectly through wholly-owned
subsidiaries (a) to select members of the Affiliate's governing body
having not less than 50% voting control; (b) the legal ability to
prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Affiliate with which it
does not concur; (c) at least equal control over the operations of
the Affiliate; and (d) to concur before the Affiliate can:
AMENDED AS OF NOVEMBER 16, 1995
-2-
<PAGE> 3
1. Change its legal and/or trade name;
2. Change the geographic area in which it operates;
3. Change the types of businesses in which it engages;
4. Take any action that Plan or BCBSA reasonably believes will adversely affect
the Licensed Marks or Names.
AMENDED AS OF NOVEMBER 17, 1994
-2a-
(The next page is page 3)
<PAGE> 4
3. The Plan may engage in activities not required by BCBSA to be directly
licensed through Controlled Affiliates and may indicate its relationship thereto
by use of the Licensed Name as a tag line, provided that the engaging in such
activities does not and will not dilute or tarnish the unique value of the
Licensed Marks and Name and further provided that such tag line use is not in a
manner likely to cause confusion or mistake. Consistent with the avoidance of
confusion or mistake, each tag line use of the Plan's Licensed Name: (a) shall
be in the style and manner specified by BCBSA from time-to-time; (b) shall not
include the design service marks; (c) shall not be in a manner to import more
than the Plan's mere ownership of the affiliate; and (d) shall be restricted to
the Service Area. No rights are hereby created in any Controlled Affiliate to
use the Licensed Name in its own name or otherwise. At least annually, the Plan
shall provide BCBSA with representative samples of each such use of its Licensed
Name pursuant to the foregoing conditions.
4. The Plan recognizes the importance of a comprehensive national network
of independent BCBSA licensees which are committed to strengthening the Licensed
Marks and Name. The Plan further recognizes that its actions within its Service
Area may affect the value of the Licensed Marks and Name nationwide. The Plan
agrees (a) to maintain in good standing its membership in BCBSA; (b) promptly to
pay its dues to BCBSA, said dues to represent the royalties for this License
Agreement; (c) materially to comply with all applicable laws; (d) to comply with
the Membership Standards of BCBSA, a current copy of which is attached as
Exhibit 2 hereto; and (e) reasonably to permit BCBSA, upon a written, good faith
request and during reasonable business hours, to inspect the Plan's books and
records necessary to ascertain compliance herewith. As to other Plans and third
parties, BCBSA shall maintain the confidentiality of all documents and
information furnished by the Plan pursuant hereto, or pursuant to the Membership
Standards, and clearly designated by the Plan as containing proprietary
information of the Plan.
5. The rights hereby granted are exclusive to the Plan within the
geographical area(s) served by the Plan on June 30, 1972, and/or as to which the
Plan has been granted a subsequent license, which is hereby defined as the
"Service Area," except that BCBSA reserves the right to use the Licensed Marks
in said Service Area, and except to the extent that said Service Area may
overlap areas served by one or more other licensed Blue Shield Plans as of said
date or subsequent license, as to which overlapping areas the rights hereby
granted are nonexclusive as to such other Plan or Plans only.
AMENDED AS OF SEPTEMBER 19, 1996
-3-
<PAGE> 5
6. Except as expressly provided by BCBSA with respect to National
Accounts, Government Programs and certain other necessary and collateral uses,
the current rules and regulations governing which are attached as Exhibit 3 and
Exhibit 4 hereto, or as expressly provided herein, the Plan may not use the
Licensed Marks and Name outside the Service Area or in connection with other
goods and services, nor may the Plan use the Licensed Marks or Name in a manner
which is intended to transfer in the Service Area the goodwill associated
therewith to another mark or name. Nothing herein shall be construed to prevent
the Plan from engaging in lawful activity anywhere under other marks and names
not confusingly similar to the Licensed Marks and Name, provided that engaging
in such activity does and will not dilute or tarnish the unique value of the
Licensed Marks and Name.
7. The Plan agrees that it will display the Licensed Marks and Name only
in such form, style and manner as shall be specifically prescribed by BCBSA from
time-to-time in regulations of general application in order to prevent
impairment of the distinctiveness of the Licensed Marks and Name and the
goodwill pertaining thereto. The Plan shall cause to appear on all materials on
or in connection with which the Licensed Marks or Name are used such legends,
markings and notices as BCBSA may reasonably request in order to give
appropriate notice of service mark or other proprietary rights therein or
pertaining thereto.
8. BCBSA agrees that: (a) it will not grant any other license effective
during the term of this License Agreement for the use of the Licensed Marks or
Name which is inconsistent with the rights granted to the Plan hereunder; and
(b) it will not itself use the Licensed Marks in derogation of the rights of the
Plan or in a manner to deprive the Plan of the full benefits of this License
Agreement. The Plan agrees that it will not attack the title of BCBSA in and to
the Licensed Marks or Name or attack the validity of the Licensed Marks or of
this License Agreement. The Plan further agrees that all use by it of the
Licensed Marks and Name or any similar mark or name shall inure to the benefit
of BCBSA, and the Plan shall cooperate with BCBSA in effectuating the assignment
to BCBSA of any service mark or trademark registrations of the Licensed Marks or
any similar mark or name held by the Plan or a Controlled Affiliate of the Plan,
all or any portion of which registration consists of the Licensed Marks.
-4-
<PAGE> 6
9. (a). Should the Plan fail to comply with the provisions of paragraphs
2-4, 6, 7 and/or 12, and not cure such failure within thirty (30) days of
receiving written notice thereof (or commence curing such failure within such
thirty day period and continue diligent efforts to complete the curing of such
failure if such curing cannot reasonably be completed within such thirty day
period), BCBSA shall have the right to issue a notice that the Plan is in a
state of noncompliance. Except as to the termination of a Plan's License
Agreement or the merger of two or more Plans, disputes as to noncompliance, and
all other disputes between or among BCBSA, the Plan, other Plans and/or
Controlled Affiliates, shall be submitted promptly to mediation and mandatory
dispute resolution pursuant to the rules and regulations of BCBSA, a current
copy of which is attached as Exhibit 5 hereto, and shall be timely presented and
resolved. The mandatory dispute resolution panel shall have authority to issue
orders for specific performance and assess monetary penalties. If a state of
noncompliance as aforesaid is undisputed by the Plan or is found to exist by a
mandatory dispute resolution panel and is uncured as provided above, BCBSA shall
have the right to seek judicial enforcement of the License Agreement and/or to
issue a notice of termination thereof. Except, however, as provided in paragraph
15(a)(i)-(viii) below, no Plan's license to use the Licensed Marks and Name may
be finally terminated for any reason without the affirmative vote of
three-fourths of the Plans and three-fourths of the total then current weighted
vote of all the Plans.
(b). Notwithstandng any other provision of this License Agreement, a
Plan's license to use the Licensed Marks and Name may be forthwith terminated by
the affirmative vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans at a special meeting expressly
called by BCBSA for the purpose on ten (10) days written notice for: (i) failure
to comply with any minimum capital or liquidity requirement under the Membership
Standard on Financial Responsibility; or (ii) impending financial insolvency; or
(iii) such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA, the Plans and/or
the Licensed Marks.
(c). To the extent not otherwise provided therein, neither: (i) the
Membership Standards; nor (ii) the rules and regulations governing National
Accounts, Government Programs and certain other uses; nor (iii) the rules and
regulations governing mediation and mandatory dispute resolution, may be amended
unless and until each such amendment is first adopted by the affirmative vote of
three-fourths of the Plans and of three-fourths of the total then current
weighted vote of all the Plans.
AMENDED AS OF NOVEMBER 17, 1994
-5-
<PAGE> 7
9. (d). The Plan may operate as a for-profit company on the following
conditions:
(i) The Plan shall discharge all responsibilities which it has to the
Association and to other Plans by virtue of this Agreement and the Plan's
membership in BCBSA.
(ii) The Plan shall not use the licensed Marks and Name, or any derivative
thereof, as part of its legal name or any symbol used to identify the Plan in
any securities market. The Plan shall use the licensed Marks and Name as part of
its trade name within its service area for the sale, marketing and
administration of health care and related services in the service area.
(iii) The Plan's license to use the Licensed Marks and Name shall
automatically terminate effective ten business days after: (a) any Person,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of securities representing 20% or more of the voting power of
the Plan, unless such Person shall cease to be such a Beneficial Owner prior to
such automatic termination becoming effective; (b) individuals who at the time
the Plan went public constituted the Board of Directors of the Plan (together
with any new directors whose election to the Board was approved by a vote of 2/3
of the directors then still in office who were directors at the time the Plan
went public or whose election or nomination was previously so approved) (the
"Continuing Directors") cease for any reason to constitute a majority of the
Board of Directors; or (c) the Plan consolidates with or merges with or into any
person or conveys, assigns, transfers or sells all or substantially all of its
assets to any person other than a merger in which the Plan is the surviving
entity and immediately after which merger, no person or group beneficially owns
securities representing 20% or more of the voting power of the Plan: provided
that, if requested by the affected Plan prior to such automatic termination
becoming effective, the provisions of this paragraph 9(d)(iii) may be waived or
made conditional, in whole or in part, upon the affirmative vote of a majority
of the disinterested Plans and a majority of the total then current weighted
vote of the disinterested Plans.
In the event that the Plan's license to use the Licensed Marks and Name is
terminated pursuant to this Paragraph 9(d)(iii), the license may be reinstated
by BCBSA if, within 30 days of the date of such termination, the Plan
demonstrates that the Person referred to in the preceding sentence is no longer
the Beneficial Owner of securities representing 20% or more of the voting power
of the Plan.
AMENDED AS OF SEPTEMBER 29, 1994
-5a-
<PAGE> 8
The Plan's license to use the Licensed Marks and Name may be terminated if any
Person, together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of securities representing 5% or more of the voting power of
the Plan and such Person's Beneficial Ownership is deemed in BCBSA's absolute
discretion, detrimental to the best interest of the Name and Marks; provided,
however that such termination shall become effective only upon the affirmative
vote of three-fourths of the disinterested Plans and three-fourths of the total
then current weighted vote of the disinterested Plans.
(iv) For purposes of paragraph 9(d)(iii), the following definitions shall
apply:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended and in effect on November 17, 1993 (the "Exchange
Act").
(b) A Person shall be deemed the "Beneficial Owner" of and shall
be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding, or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise; or (B) the right to vote
pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding
(other than customary agreements with and between
AMENDED AS OF SEPTEMBER 29, 1994
-5b-
<PAGE> 9
underwriters and selling group members with respect to a bona
fide public offering of securities) relating to the
acquisition, holding, voting (except to the extent
contemplated by the proviso to (b)(ii)(B) above) or disposing
of any securities of the Plan.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when
used with reference to a Person's Beneficial Ownership of
securities of the Plan, shall mean the number of such
securities then issued and outstanding together with the
number of such securities not then actually issued and
outstanding which such Person would be deemed to own
beneficially hereunder.
(c) "Person" shall mean any individual, firm, partnership,
corporation, trust, association, joint venture or other
entity, and shall include any successor (by merger or
otherwise) or such entity.
AMENDED AS OF SEPTEMBER 29, 1994
-5c-
(The next page is page 6)
<PAGE> 10
10. This License Agreement shall remain in effect: (a) until terminated as
provided herein; or (b) until this and all such other License Agreements are
terminated by the affirmative vote of three-fourths of the Plans and
three-fourths of the total then current weighted vote of all the Plans; or (c)
until termination of the aforesaid Ownership Agreement; or (d) until terminated
by the Plan upon six (6) months written notice to BCBSA.
11. Except as otherwise provided in paragraph 15 below or by the
affirmative vote of three-fourths of the Plans and three-fourths of the total
then current weighted vote of all the Plans, or unless this and all such other
License Agreements are simultaneously terminated by force of law, the
termination of this License Agreement for any reason whatsoever shall cause the
reversion to BCBSA of all rights in and to the Licensed Marks and Name, and the
Plan agrees that it will promptly discontinue all use of the Licensed Marks and
Name, will not use them thereafter, and will promptly, upon written notice from
BCBSA, change its corporate name so as to eliminate the Licensed Name therefrom.
12. The license hereby granted to Plan to use the Licensed Marks and Name
is and shall be personal to the Plan so licensed and shall not be assignable by
any act of the Plan, directly or indirectly, without the written consent of
BCBSA. Said license shall not be assignable by operation of law, nor shall Plan
mortgage or part with possession or control of this license or any right
hereunder, and the Plan shall have no right to grant any sublicense to use the
Licensed Marks and Name.
13. BCBSA shall maintain appropriate service mark registrations of the
Licensed Marks and BCBSA shall take such lawful steps and proceedings as may be
necessary or proper to prevent use of the Licensed Marks by any person who is
not authorized to use the same. Any actions or proceedings undertaken by BCBSA
under the provisions of this paragraph shall be at BCBSA's sole cost and
expense. BCBSA shall have the sole right to determine whether or not any legal
action shall be taken on account of unauthorized use of the Licensed Marks, such
right not to be unreasonably exercised. The Plan shall report any unlawful usage
of the Licensed Marks to BCBSA in writing and agrees, free of charge, to
cooperate fully with BCBSA's program of enforcing and protecting the service
mark rights, trade name rights and other rights in the Licensed Marks.
-6-
<PAGE> 11
14. The Plan hereby agrees to save, defend, indemnify and hold BCBSA and
any other Plan(s) harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description which may arise exclusively and
directly as a result of the activities of the Plan. BCBSA hereby agrees to save,
defend, indemnify and hold the Plan and any other Plan(s) harmless from and
against all claims, damages, liabilities and costs of every kind, nature and
description which may arise exclusively and directly as a result of the
activities of BCBSA.
15. (a). This Agreement shall automatically terminate upon the occurrence
of any of the following events: (i) a voluntary petition shall be filed by the
Plan or by BCBSA seeking bankruptcy, reorganization, arrangement with creditors
or other relief under the bankruptcy laws of the United States or any other law
governing insolvency or debtor relief, or (ii) an involuntary petition or
proceeding shall be filed against the Plan or BCBSA seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency or debtor relief
and such petition or proceeding is consented to or acquiesced in by the Plan or
BCBSA or is not dismissed within sixty (60) days of the date upon which the
petition or other document commencing the proceeding is served upon the Plan or
BCBSA respectively, or(iii) an order for relief is entered against the Plan or
BCBSA in any case under the bankruptcy laws of the United States, or the Plan or
BCBSA is adjudged bankrupt or insolvent (as that term is defined in the Uniform
Commercial Code as enacted in the state of Illinois) by any court of competent
jurisdiction, or (iv) the Plan or BCBSA makes a general assignment of its assets
for the benefit of creditors, or (v) the Department of Insurance or other
regulatory agency assumes control of the Plan or delinquency proceedings
(voluntary or involuntary) are instituted, or (vi) an action is brought by the
Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other custodian for
any of its property or business, or (vii) an action is instituted against the
Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking
appointment of a trustee, interim trustee, receiver or other custodian for any
of its property or business and such action is consented to or acquiesced in by
the Plan or BCBSA or is not dismissed within sixty (60) days of the date upon
which the pleading or other document commencing the action is served upon the
Plan or BCBSA respectively, or(viii) a trustee, interim trustee, receiver or
other custodian for any of the Plan's or BCBSA's property or business is
appointed, or (ix) the Plan shall fail to pay its dues and shall not cure such
failure within thirty (30) days of receiving written notice thereof.
AMENDED NOVEMBER 21, 1996
-7-
<PAGE> 12
(b). BCBSA, or the Plans (as provided and in addition to the rights
conferred in Paragraph 10(b) above), may terminate this Agreement immediately
upon written notice upon the occurrence of either of the following events: (a)
the Plan or BCBSA becomes insolvent (as that term is defined in the Uniform
Commercial Code enacted in the state of Illinois), or (b) any final judgment
against the Plan or BCBSA remains unsatisfied or unbonded of record for a period
of sixty (60) days or longer.
(c). If this License Agreement is terminated as to BCBSA for any reason
stated in subparagraphs 15(a) and (b) above, the ownership of the Licensed Marks
shall revert to each of the Plans as provided in the Ownership Agreement.
(d). Upon termination of this License Agreement or any Controlled
Affiliate License Agreement of a Larger Affiliate, as defined in Exhibit 1 to
this License Agreement:
(i) The terminated entity shall send a notice through the
U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and
agents of products or services sold, marketed,
underwritten or administered by the terminated entity or
its Controlled Affiliates under the Licensed Marks and
Name. The form and content of the notice shall be
specified by BCBSA and shall, at a minimum, notify the
recipient of the termination of the license, the
consequences thereof, and instructions for obtaining
alternate products or services licensed by BCBSA. This
notice shall be mailed within 15 days after termination
or, if termination is pursuant to paragraph 10(d) of
this Agreement, within 15 days after the written notice
to BCBSA described in paragraph 10(d).
(ii) The terminated entity shall deliver to BCBSA within five
days of a request by BCBSA a listing of national
accounts in which the terminated entity is involved (in
a Control, Participating or Servicing capacity),
identifying the national account and the terminated
entity's role therein. For those accounts where the
terminated entity is the Control Plan, the Plan must
also indicate the Participating and Servicing Plans in
the national account syndicate.
AMENDED AS OF SEPTEMBER 19, 1996
-8-
<PAGE> 13
(iii) Unless the cause of termination is an event stated in
paragraph 15(a) or (b) above respecting BCBSA, the Plan
and its Licensed Controlled Affiliates shall be jointly
liable for payment to BCBSA of an amount equal to $25
multiplied by the number of Licensed Enrollees of the
terminated entity and its Licensed Controlled
Affiliates; provided that if any other Plan is permitted
by BCBSA to use marks or names licensed by BCBSA in the
Service Area established by this Agreement, the payment
shall be multiplied by a fraction, the numerator of
which is the number of Licensed Enrollees of the
terminated entity and its Licensed Controlled Affiliates
and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed
Enrollee means each and every person and covered
dependent who is enrolled as an individual or member of
a group receiving products or services sold, marketed or
administered under marks or names licensed by BCBSA as
determined at the earlier of (a) the end of the last
fiscal year of the terminated entity which ended prior
to termination or (b) the fiscal year which ended before
any transactions causing the termination began.
Notwithstanding the foregoing, the amount payable
pursuant to this subparagraph (d)(iii) shall be due only
to the extent that, in BCBSA's opinion, it does not
cause the net worth of the Plan to fall below 100% of
the capital benchmark formula or its equivalent under
any successor formula, as set forth in the applicable
financial responsibility standards established by BCBSA,
measured as of the date of termination and adjusted for
the value of any transactions not made in the ordinary
course of business.
(iv) BCBSA shall have the right to audit the books and
records of the terminated entity and its Licensed
Controlled Affiliates to verify compliance with this
paragraph 15(d).
AMENDED AS OF SEPTEMBER 19, 1996
-8a-
<PAGE> 14
(v) As to a breach of 15 (d) (i), (ii), (iii) or (iv), the
parties agree that the obligations are immediately
enforceable in a court of competent jurisdiction. As to
a breach of 15 (d) (i), (ii) or (iv) by the Plan, the
parties agree there is no adequate remedy at law and
BCBSA is entitled to obtain specific performance.
(e). BCBSA shall be entitled to enjoin the Plan or any related party
in a court of competent jurisdiction from entry into any transaction which would
result in a termination of this License Agreement unless the License Agreement
has been terminated pursuant to paragraph 10 (d) of this Agreement upon the
required six (6) month written notice.
(f). BCBSA acknowledges that it is not the owner of assets of the
Plan.
16. This Agreement supersedes any and all other agreements between the
parties with respect to the subject matter herein, and contains all of the
covenants and agreements of the parties as to the licensing of the Licensed
Marks and Name. This Agreement may be amended only by a signed writing, the form
of which shall have been approved by the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted vote of all the
Plans.
17. If any provision or any part of any provision of this Agreement is
judicially declared unlawful, each and every other provision, or any part of any
provision, shall continue in full force and effect notwithstanding such judicial
declaration.
18. No waiver by BCBSA or the Plan of any breach or default in performance
on the part of BCBSA or the Plan or any other licensee of any of the terms,
covenants or conditions of this Agreement shall constitute a waiver of any
subsequent breach or default in performance of said terms, covenants or
conditions.
19. All notices provided for hereunder shall be in writing and shall be
sent in duplicate by regular mail to BCBSA or the Plan at the address currently
published for each by BCBSA and shall be marked respectively to the attention of
the President and, if any, the General Counsel, of BCBSA or the Plan.
AMENDED AS OF SEPTEMBER 19, 1996
-8b-
(The next page is page 9)
<PAGE> 15
20. Nothing herein contained shall be construed to constitute the parties
hereto as partners or joint venturers, or either as the agent of the other, and
Plan shall have no right to bind or obligate BCBSA in any way, nor shall it
represent that it has any right to do so. BCBSA shall have no liability to third
parties with respect to any aspect of the business, activities, operations,
products, or services of the Plan.
21. This Agreement shall be governed, construed and interpreted in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed, effective as of the date of last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By /s/ ROGER WILSON
----------------------------------
Title Sr. Vice President,
Gen. Counsel, Corp. Sec.
Date August 4, 1997
WELLPOINT HEALTH NETWORKS INC.
By: /s/ LEONARD D. SCHAEFFER
---------------------------------
Leonard D. Schaeffer
Title: Chief Executive Officer
Date: August 1, 1997
-9-
<PAGE> 16
EXHIBIT 1
BLUE CROSS
AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and __________________ ("Affiliate"), an affiliate of the Blue Cross
Plan(s), known as _______________________ ("Plan"), which is also a Party
signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS
Design service marks;
WHEREAS, Plan and Affiliate desire that the latter be entitled to use the
BLUE CROSS and BLUE CROSS Design service marks (collectively the "Licensed
Marks") as service marks and be entitled to use the term BLUE CROSS in a trade
name ("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants
to Affiliate the right to use the Licensed Marks and Name in connection with,
and only in connection with: (i) health care plans and related services and
administering the non-health portion of workers' compensation insurance, and
(ii) underwriting the indemnity portion of workers' compensation insurance,
provided that Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the Service Area served
by the Plan. Affiliate may not use the Licensed Marks and Name in its legal name
and may use the Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Affiliate agrees to use the Licensed Marks and Name only in
connection with the licensed services and further agrees to be bound by the
conditions regarding quality control shown in attached Exhibit A as they may be
amended by BCBSA from time-to-time.
<PAGE> 17
B. Affiliate agrees to comply with all applicable federal, state and
local laws.
C. Affiliate agrees that it will provide on an annual basis (or more
often if reasonably required by Plan or by BCBSA) a report or reports to Plan
and BCBSA demonstrating Affiliate's compliance with the requirements of this
Agreement including but not limited to the quality control provisions of this
paragraph and the attached Exhibit A.
D. Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon
reasonable notice, review and inspect the manner and method of Affiliate's
rendering of service and use of the Licensed Marks and Name.
E. As used herein, an Affiliate is defined as an entity organized and
operated in such a manner, that it meets the following requirements:
(1) If the Plan has 50 percent of the voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in the
articles of incorporation, bylaws or other establishing or governing
documents of the Affiliate with which it does not concur;
(b) the Plan must have at least equal control over the operations of the
Affiliate;
(c) the Plan must concur in writing before the Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates;
(iii) change the fundamental type(s) of business in which it
engages;
(iv) take any action that Plan or BCBSA reasonably believes will
adversely affect the Licensed Marks and Name.
(2) If the Plan has more than 50 percent voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in the
articles of incorporation, bylaws or other establishing or governing
documents of the Affiliate with which it does not concur;
<PAGE> 18
(b) the Plan must have control over the policy and operations of the
Affiliate.
3. SERVICE MARK USE
A. Affiliate shall at all times make proper service mark use of the
Licensed Marks and Name, including but not limited to use of such symbols or
words as BCBSA shall specify to protect the Licensed Marks and Name and shall
comply with such rules (generally applicable to Affiliates licensed to use the
Licensed Marks and Name) relative to service mark use, as are issued from
time-to-time by BCBSA. Affiliate recognizes and agrees that all use of the
Licensed Marks and Name by Affiliate shall inure to the benefit of BCBSA.
B. Affiliate may not directly or indirectly use the Licensed Marks and
Name in a manner that transfers or is intended to transfer in the Service Area
the goodwill associated therewith to another mark or name, nor may Affiliate
engage in activity that may dilute or tarnish the unique value of the Licensed
Marks and Name.
C. If Affiliate meets the standards of 2E(1) but not 2E(2) above and
any of Affiliate's advertising or promotional material is reasonably determined
by BCBSA and/or the Plan to be in contravention of rules and regulations
governing the use of the Licensed Marks and Name, Affiliate shall for ninety
(90) days thereafter obtain prior approval from BCBSA of advertising and
promotional efforts using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of receipt of same by
BCBSA or its designee. In all advertising and promotional efforts, Affiliate
shall observe the Service Area limitations applicable to Plan.
D. Affiliate shall use its best efforts in the Service Area to promote
and build the value of the Licensed Marks and Name.
4. SUBLICENSING AND ASSIGNMENT
Affiliate shall not sublicense, transfer, hypothecate, sell, encumber or
mortgage, by operation of law or otherwise, the rights granted hereunder and any
such act shall be voidable at the sole option of Plan or BCBSA. This Agreement
and all rights and duties hereunder are personal to Affiliate.
5. INFRINGEMENT
Affiliate shall promptly notify Plan and Plan shall promptly notify BCBSA
of any suspected acts of infringement, unfair competition or passing off that
may occur in relation to the Licensed Marks and Name. Affiliate shall not be
entitled
<PAGE> 19
to require Plan or BCBSA to take any actions or institute any proceedings to
prevent infringement, unfair competition or passing off by third parties.
Affiliate agrees to render to Plan and BCBSA, without charge, all reasonable
assistance in connection with any matter pertaining to the protection of the
Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Affiliate and Plan hereby agree to save, defend, indemnify and hold BCBSA
harmless from and against all claims, damages, liabilities and costs of every
kind, nature and description (except those arising solely as a result of BCBSA's
negligence) that may arise as a result of or related to Affiliate's rendering of
services under the Licensed Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license granted by this
Agreement shall remain in effect for a period of one (1) year and shall be
automatically extended for additional one (1) year periods upon evidence
satisfactory to the Plan and BCBSA that Affiliate meets the then applicable
quality control standards.
B. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that Plan ceases to be authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement, this license
to use the Licensed Marks and Name may be forthwith terminated by the Plan or
the affirmative vote of the majority of the Board of Directors of BCBSA present
and voting at a special meeting expressly called by BCBSA for the purpose on ten
(10) days written notice for: (1) failure to comply with any applicable minimum
capital or liquidity requirement under the quality control standards of this
Agreement; or (2) failure to comply with the "Organization and Governance"
quality control standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Affiliate (as defined in Exhibit A), failure to
comply with any of the applicable requirements of Standards 2, 3, 4, 5 or 7 of
attached Exhibit A; or (5) such other reason as is determined in good faith
immediately and irreparably to threaten the integrity and reputation of BCBSA,
the Plans, any other licensee including Affiliate and/or the Licensed Marks and
Name.
<PAGE> 20
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E)
herein, should Affiliate fail to comply with the provisions of this Agreement
and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be completed
within such thirty day period) BCBSA or the Plan shall have the right to issue a
notice that the Affiliate is in a state of noncompliance. If a state of
noncompliance as aforesaid is undisputed by the Affiliate or is found to exist
by a mandatory dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the Agreement or to issue a
notice of termination thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License pursuant to
Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to
mediation and mandatory dispute resolution. All other disputes between BCBSA,
the Plan and/or Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall have authority
to issue orders for specific performance and assess monetary penalties. Except,
however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason
without the affirmative vote of a majority of the present and voting members of
the Board of Directors of BCBSA.
E. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that:
(1) Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Affiliate
pursuant to paragraph 9 hereof, which are the royalties for this License
Agreement, are more than sixty (60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition shall be
filed by Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an involuntary petition
or proceeding shall be filed against Affiliate seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy
laws of the United States of any other law governing insolvency or debtor relief
and such petition or proceeding is consented to or acquiesced in by Affiliate or
is not dismissed within sixty (60) days of the date upon which it was filed, or
(iii) an order for relief is entered against Affiliate in any case under the
bankruptcy laws of the United States, or Affiliate is adjudged bankrupt or
insolvent as those terms are defined in the Uniform Commercial Code as enacted
in the State of Illinois
<PAGE> 21
by any court of competent jurisdiction, or (iv) Affiliate makes a general
assignment of its assets for the benefit of creditors, or (v) the Department of
Insurance or other regulatory agency assumes control of Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an action is
brought by Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business, or (vii) an action is instituted
against Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is consented to or
acquiesced in by Affiliate or is not dismissed within sixty (60) days of the
date upon which it was instituted, or (viii) a trustee, interim trustee,
receiver or other custodian for any of Affiliate's property or business is
appointed.
F. Upon termination of this Agreement for cause or otherwise, Affiliate
agrees that it shall immediately discontinue all use of the Licensed Marks and
Name, including any use in its trade name.
G. Upon termination of this Agreement, Affiliate shall immediately
notify all of its customers that it is no longer a licensee of BCBSA and, if
directed by the Association's Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to obtain further
information on securing coverage. The notification required by this paragraph
shall be in writing and in a form approved by BCBSA. The BCBSA shall have the
right to audit the terminated entity's books and records to verify compliance
with this paragraph.
H. In the event that the Plan has more than 50 percent voting control
of the Affiliate under Paragraph 2(E)(2) above and is a Larger Affiliate (as
defined in Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the Blue Cross
Plans which are Regular Members of BCBSA and three-fourths of the total then
current weighted vote of all the Blue Cross Plans which are Regular Member Plans
of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between or among
either of them and one or more Plans or Affiliates of Plans that use in any
manner the Blue Cross and Blue Shield Marks and Name are subject to the
Mediation and Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name as Exhibits 5,
5A and 5B as amended from time-to-time, which documents are incorporated herein
by reference as though fully set forth herein.
<PAGE> 22
9. LICENSE FEE
Affiliate will pay to BCBSA a fee for this License determined pursuant to
the formula(s) set forth in Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between Plan and
Affiliate or between either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to
the last known address of each other party, marked respectively to the attention
of its President and, if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by a
writing executed by all parties hereto or by the vote of three-fourths of the
Plans and three-fourths of the total then current weighted vote of all the
Plans.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of
competent jurisdiction, such findings shall in no way affect the remaining
obligations of the parties hereunder and the court may substitute a lawful term
or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of
Affiliate or any other licensee of any of the terms, covenants or conditions of
this Agreement shall constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
<PAGE> 23
THIS PAGE IS INTENTIONALLY BLANK.
<PAGE> 24
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience only and shall
have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed and effective as of the date of last signature written below.
AFFILIATE _______________________________
By:______________________________________
Date:____________________________________
PLAN ____________________________________
By:______________________________________
Date:____________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:_______________________________________
Date:_____________________________________
<PAGE> 25
EXHIBIT A
AFFILIATE LICENSE STANDARDS
June 1996
PREAMBLE
The standards for licensing affiliates are established by BCBSA and are subject
to change from time-to-time upon the affirmative vote of three-fourths (3/4) of
the Plans and three-fourths (3/4) of the total weighted vote. Each licensed Plan
is required to use a standard affiliate license form provided by BCBSA and to
cooperate fully in assuring that the licensed affiliate maintains compliance
with the license standards.
The Affiliate License provides a flexible vehicle to accommodate the potential
range of health and workers' compensation related products and services Plan
affiliates provide. The Affiliate License collapses former health affiliate
licenses (HCC, HMO, PPO, TPA, and IDS) into a single license using the following
business-based criteria to provide a framework for license standards:
- - Percent of affiliate controlled by parent: Greater than 50 percent or 50
percent?
- - Risk assumption: yes or no?
- - Medical care delivery: yes or no?
- - Importance of the affiliate to the parent: If the affiliate has health or
workers' compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger" affiliate) of the
parent's and other licensed health subsidiaries' contract enrollment?
<PAGE> 26
EXHIBIT A (CONTINUED)
For purposes of definition:
- - A "smaller affiliate:" (1) comprises less than fifteen percent (15%) of
Plan's and its licensed affiliates' total contract enrollment (as reported
on the BCBSA Quarterly Enrollment Report, excluding rider and freestanding
coverage, and treating an entity seeking licensure as licensed);* or (2)
underwrites the indemnity portion of workers' compensation insurance and
has total premium revenue less than 15 percent of the sponsoring Plan's
net subscription revenue.
- - A "larger affiliate" comprises fifteen percent (15%) or more of Plan's and
its licensed affiliates' total contract enrollment (as reported on the
BCBSA Quarterly Enrollment Report, excluding rider and freestanding
coverage, and treating an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
- - For smaller affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS licensees under
fifteen percent (15%).
- - For larger affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier licensees, and -
June 1996, for all other currently licensed affiliates presently at
or over fifteen percent(15%).
Changes in affiliate status:
If ANY affiliate's status changes regarding: its Plan ownership level, its risk
acceptance or direct delivery of medical care, the affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and come into compliance
with the applicable standards within six (6) months.
If a smaller affiliate's health and workers' compensation administration
business surpasses fifteen percent (15%) of the total contract enrollment of the
Plan and licensed affiliates, the affiliate shall:
<PAGE> 27
EXHIBIT A (CONTINUED)
1. Within thirty (30) days, notify BCBSA of this fact in writing, including
evidence that the affiliate meets the minimum liquidity and capital (BCBSA
Capital Benchmark and state-established minimum reserve) requirements of
the larger affiliate Financial Responsibility standard; and
2. Within six (6) months after surpassing the fifteen percent (15%)
threshold, demonstrate compliance with all license requirements for a
larger affiliate.
If an affiliate that underwrites the indemnity portion of workers' compensation
insurance receives a change in rating or proposed change in rating, the
affiliate shall notify BCBSA within 30 days of notification by the external
rating agency.
- -----------
*For purposes of this calculation,
The numerator equals:
Applicant affiliate's contract enrollment, as defined in BCBSA's Quarterly
Enrollment Report (excluding rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed affiliates' contract enrollment, as
reported in BCBSA's Quarterly Enrollment Report (excluding rider and
freestanding coverage).
<PAGE> 28
EXHIBIT A (CONTINUED)
STANDARDS FOR LICENSED AFFILIATES
THIS PAGE WAS PREPARED IN DESKTOP
<PAGE> 29
EXHIBIT A (CONTINUED)
STANDARD 1 - ORGANIZATION AND GOVERNANCE
1A.) The Standard for more than 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that it is
controlled by a licensed Plan or Plans which have, directly or indirectly: 1)
more than 50% of the voting control of the affiliate; and 2) the legal ability
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the affiliate with which it does not
concur; and 3) operational control of the affiliate.
1B.) The Standard for 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that a licensed
Plan or Plans have directly or indirectly:
1) not less than 50% of the voting control of the affiliate; and
2) the legal ability to prevent any change in the articles of incorporation,
bylaws or other establishing or governing documents of the affiliate with
which it does not concur; and
3) at least equal direct or indirect control over the operations of the
affiliate; and
4) sufficient authority so that changes in the following require the approval
of the Licensed Plan or Plans:
- geographic operating area of the affiliate
- the legal and trade names of the affiliate
- the types of activity in which the affiliate engages
- any action which would cause the affiliate to be in violation of the
Standards applicable to Licensure by BCBSA.
<PAGE> 30
EXHIBIT A (CONTINUED)
STANDARD 2 - FINANCIAL RESPONSIBILITY
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers. If a risk-assuming affiliate ceases operations for any reason, Blue
Cross and/or Blue Shield Plan coverage will be offered to all affiliate
subscribers without exclusions, limitations or conditions based on health
status. If a nonrisk-assuming affiliate ceases operations for any reason,
sponsoring Plan(s) will provide for services to its (their) customers.
STANDARD 3 - STATE LICENSURE/CERTIFICATION
3A.) The Standard for an affiliate that employs, owns or contracts on a
substantially exclusive basis for medical services is:
An affiliate shall maintain unimpaired licensure or certification for its
medical care providers to operate under applicable state laws.
3B.) The Standard for an affiliate that does not employ, own or
contract on a substantially exclusive basis for medical services
is:
An affiliate shall maintain unimpaired licensure or certification to operate
under applicable state laws.
STANDARD 4 - CERTAIN DISCLOSURES
An affiliate shall make adequate disclosure in contracting with third
parties and in disseminating public statements of 1) the structure of
the Blue Cross and Blue Shield System; and 2) the independent nature of
every licensee; and 3) the affiliate's financial condition.
STANDARD 5 - REPORTS AND RECORDS FOR CERTAIN SMALLER AFFILIATES
For a smaller affiliate that does not underwrite the indemnity portion of
workers' compensation insurance, the Standard is:
An affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate
basis, reports and records relating to these Standards and the License
Agreements between BCBSA and affiliate.
<PAGE> 31
EXHIBIT A (CONTINUED)
STANDARD 6 - OTHER STANDARDS FOR LARGER AFFILIATES
Standards 6(A) - (I) that follow apply to larger affiliates.
Standard 6(A): Board of Directors
An affiliate Governing Board shall act in the interest of its Corporation in
providing cost-effective health care services to its customers. An affiliate
shall maintain a governing Board, which shall control the affiliate, composed of
a majority of persons other than providers of health care services, who shall be
known as public members. A public member shall not be an employee of or have a
financial interest in a health care provider, nor be a member of a profession
which provides health care services.
Standard 6(B): Responsiveness to Customers
An affiliate shall be operated in a manner responsive to customer needs and
requirements.
Standard 6(C): Participation in National Programs
An affiliate shall effectively and efficiently participate in each national
program as from time to time may be adopted by the Member Plans for the purposes
of providing portability of membership between the licensees and ease of claims
processing for customers receiving benefits outside of the affiliate's Service
Area.
Such programs are applicable to licensees, and include:
A. Inter-Plan Transfer Agreement;
B. National Account Equalization Program;
C. BlueCard Program;
<PAGE> 32
EXHIBIT A (CONTINUED)
D. Inter-Plan Teleprocessing System (ITS); and
E. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs listed in Standard 6C:
Participation in National Programs, an affiliate shall take such action as
required to ensure its financial performance in programs and contracts of an
inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response Process
An affiliate shall cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the administration of the Plan
Performance Response Process and in addressing affiliate performance problems
identified thereunder.
Standard 6(F): Independent Financial Rating
An affiliate shall obtain a rating of its financial strength from an independent
rating agency approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, an affiliate shall use its best efforts in the designated
Service Area to promote and build the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
<PAGE> 33
EXHIBIT A (CONTINUED)
Standard 6(I): Reports and Records
An affiliate shall furnish to BCBSA on a timely and accurate basis reports and
records relating to compliance with these Standards and the License Agreements
between BCBSA and affiliate. Such reports and records are the following:
A) Annual Application for Renewal of Standard Affiliate License for
affiliates, including trade name and service mark usage material;
B) Changes in the ownership and governance of the affiliate, including
changes in its charter, articles of incorporation, or bylaws, changes in
an affiliate's Board composition, or changes in the identity of the
affiliate's Principal Officers, and changes in risk acceptance, contract
growth, or direct delivery of medical care; and
C) Quarterly Financial Report including the Capital Benchmark Worksheet,
Annual Financial Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement filed with State Insurance
Department (with all attachments); and
D) Quarterly Utilization Report, Quarterly Enrollment Report, Cost
Containment Report, NMIS Quarterly Report.
STANDARD 7 - OTHER STANDARDS FOR RISK-ASSUMING WORKERS' COMPENSATION
AFFILIATES
Standards 7(A)-(E) that follow apply to affiliates that underwrite the
indemnity portion of workers' compensation insurance.
Standard 7 (A): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
<PAGE> 34
EXHIBIT A (CONTINUED)
Standard 7(B): Reports and Records
An affiliate shall furnish, on a timely and accurate basis,
reports and records relating to compliance with these Standards
and the License Agreements between BCBSA and the affiliate. Such
reports and records are the following:
A. Annual Application for Renewal of Standard Affiliate License for
affiliates, including trade name and service mark usage materials; and
B. Annual Certified Audit Report, Annual Statement as filed with the State
Insurance Department (with all attachments), Annual NAIC's Risk-Based
Capital Worksheets for Property and Casualty Insurers, and Annual
Financial Forecast; and
C. Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for
Property and Casualty Insurers, Insurance Department Examination Report,
and Quarterly NMIS Report (for licensed health business only); and
D. Notification of all changes and proposed changes to independent ratings
within 30 days of receipt and submission of a copy of all rating reports;
and
E. Changes in the ownership and governance of the affiliate including changes
in its charter, articles of incorporation, or bylaws, changes in an
affiliate's Board composition, Plan control, state license status,
operating area, the affiliate's Principal Officers or direct delivery of
medical care.
Standard 7(C): Loss Prevention
An affiliate shall apply loss prevention protocol to both new and existing
business.
<PAGE> 35
EXHIBIT A (CONTINUED)
Standard 7(D): Claims Administration
An affiliate shall maintain an effective claims administration process that
includes all the necessary functions to assure prompt and proper resolution of
medical and indemnity claims.
Standard 7(E): Disability and Provider Management
An affiliate shall arrange for the provision of appropriate and necessary
medical and rehabilitative services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
STANDARD 8 - COOPERATION WITH AFFILIATE LICENSE PERFORMANCE RESPONSE
PROCESS PROTOCOL
An affiliate and its Sponsoring Plan(s) shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards Committee in the
administration of the Affiliate License Performance Response Process Protocol
(ALPRPP) and in addressing affiliate compliance problems identified thereunder.
STANDARD 9: PARTICIPATION IN NATIONAL PROGRAMS BY SMALLER AFFILIATES
A smaller affiliate for which this standard applies pursuant to the Preamble
section of Exhibit A of the Affiliate License Agreement shall effectively and
efficiently participate in certain national programs from time to time as may be
adopted by Member Plans for the purposes of providing ease of claims processing
for customers receiving benefits outside of the affiliate's service area and be
subject to certain relevant financial and reporting requirements.
<PAGE> 36
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
AFFILIATE LICENSE AGREEMENT
Affiliate will pay BCBSA a fee for this license in accordance with the following
formula:
FOR RISK PRODUCTS:
For affiliates not underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to its pro rata share of each sponsoring Plan's dues payable to
BCBSA computed with the addition of the affiliate's subscription revenue and
contracts arising from products using the marks. The payment by each sponsoring
Plan of its dues to BCBSA, including that portion described in this paragraph,
will satisfy the requirement of this paragraph, and no separate payment will be
necessary.
For affiliates underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to 0.35 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus, an annual fee of $5,000 per license
for an affiliate subject to Standard 7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus:
1) An annual fee of $5,000 per license for an affiliate subject to Standard
6.
2) An annual fee of $2,000 per license for all other affiliates.
The foregoing shall be reduced by one-half where both a BLUE CROSS(R) and BLUE
SHIELD(R) License are issued to the same affiliate. In the event that any
license period is greater or less than one (1) year, any amounts due shall be
prorated. Royalties under this formula will be calculated, billed and paid in
arrears.
<PAGE> 37
EXHIBIT 1A
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
This agreement by and among Blue Cross and Blue Shield Association
("BCBSA") _______________________________("Controlled Affiliate"), a controlled
affiliate of the Blue Cross Plan(s), known as
_______________________________________("Plan").
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the latter be
entitled to use the BLUE CROSS and BLUE CROSS Design service marks (collectively
the "Licensed Marks") as service marks and be entitled to use the term BLUE
CROSS in a trade name ("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants
to the Controlled Affiliate the exclusive right to use the licensed Marks and
Names in connection with and only in connection with those life insurance and
related services authorized by applicable state law, other than health care
plans and related services (as defined in the Plan's License Agreements with
BCBSA) which services are not separately licensed to Controlled Affiliate by
BCBSA, in the Service Area served by the Plan, except that BCBSA reserves the
right to use the Licensed Marks and Name in said Service Area, and except to the
extent that said Service Area may overlap the area or areas served by one or
more other licensed Blue Shield Plans as of the date of this License as to which
overlapping areas the rights hereby granted are non-exclusive as to such other
Plan or Plans and their respective Licensed Controlled Affiliates only.
Controlled Affiliate cannot use the Licensed Marks or Name outside the Service
Area or, anything in any other license to Controlled Affiliate notwithstanding,
in its legal or trade name.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only
in relation to the sale, marketing and rendering of authorized products and
further agrees to be bound by the conditions regarding quality control shown in
Exhibit A as it may be amended by BCBSA from time-to-time.
AMENDED AS OF NOVEMBER 17, 1994
-1-
<PAGE> 38
B. Controlled Affiliate agrees that Plan and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method
of Controlled Affiliate's rendering of service and use of the Licensed Marks and
Name.
C. Controlled Affiliate agrees that it will provide on an annual basis
(or more often if reasonably required by Plan or by BCBSA) a report to Plan and
BCBSA demonstrating Controlled Affiliate's compliance with the requirements of
this Agreement including but not limited to the quality control provisions of
Exhibit A.
D. As used herein, a Controlled Affiliate is defined as an entity
organized and operated in such a manner that it is subject to the bona fide
control of a Plan or Plans. Absent written approval by BCBSA of an alternative
method of control, bona fide control shall mean the legal authority, directly or
indirectly through wholly-owned subsidiaries: (a) to select members of the
Controlled Affiliate's governing body having not less than 51% voting control
thereof; (b) to exercise operational control with respect to the governance
thereof; and (c) to prevent any change in its articles of incorporation, bylaws
or other governing documents deemed inappropriate. In addition, a Plan or Plans
shall own at least 51% of any for-profit Controlled Affiliate. If the Controlled
Affiliate is a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items (a) and (c) above, proxies
representing 51% of the votes at any meeting of the policyholders and shall
demonstrate that there is no reason to believe this such proxies shall be
revoked by sufficient policyholders to reduce such percentage below 51%.
3. SERVICE MARK USE
Controlled Affiliate shall at all times make proper service mark use
of the Licensed Marks, including but not limited to use of such symbols or words
as BCBSA shall specify to protect the Licensed Marks, and shall comply with such
rules (applicable to all Controlled Affiliates licensed to use the Marks)
relative to service mark use, as are issued from time-to-time by BCBSA. If there
is any public reference to the affiliation between the Plan and the Controlled
Affiliate, all of the Controlled Affiliate's licensed services in the Service
Area of the Plan shall be rendered under the Licensed Marks. Controlled
Affiliate recognizes and agrees that all use of the Licensed Marks by Controlled
Affiliate shall inure to the benefit of BCBSA.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer, hypothecate,
sell, encumber or mortgage, by operation of law or otherwise, the rights granted
hereunder and any such act shall be
-2-
<PAGE> 39
voidable at the option of Plan or BCBSA. This Agreement and all rights and
duties hereunder are personal to Controlled Affiliate.
5. INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and BCBSA of any
suspected acts of infringement, unfair competition or passing off which may
occur in relation to the Licensed Marks. Controlled Affiliate shall not be
entitled to require Plan or BCBSA to take any actions or institute any
proceedings to prevent infringement, unfair competition or passing off by third
parties. Controlled Affiliate agrees to render to Plan and BCBSA, free of
charge, all reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend, indemnify and
hold Plan and BCBSA harmless from and against all claims, damages, liabilities
and costs of every kind, nature and description which may arise as a result of
Controlled Affiliate's rendering of health care services under the Licensed
Marks.
7. LICENSE TERM
The license granted by this Agreement shall remain in effect for a
period of one (1) year and shall be automatically extended for additional one
(1) year periods upon evidence satisfactory to the Plan and BCBSA that
Controlled Affiliate meets the then applicable quality control standards, unless
one of the parties hereto notifies the other party of the termination hereof at
least sixty (60) days prior to expiration of any license period.
This Agreement may be terminated by the Plan or by BCBSA for cause
at any time provided that Controlled Affiliate has been given a reasonable
opportunity to cure and shall not effect such a cure within thirty (30) days of
receiving written notice of the intent to terminate (or commence a cure within
such thirty day period and continue diligent efforts to complete the cure if
such curing cannot reasonably be completed within such thirty day period). By
way of example and not for purposes of limitation, Controlled Affiliate's
failure to abide by the quality control provisions of Paragraph 2, above, shall
be considered a proper ground for cancellation of this Agreement.
This Agreement and all of Controlled Affiliate's rights hereunder
shall immediately terminate without any further action by any party or entity in
the event that:
-3-
<PAGE> 40
A. Controlled Affiliate shall no longer comply with Standard No. 1
(Organization and Governance) of Exhibit A or, following an opportunity to cure,
with the remaining quality control provisions of Exhibit A, as it may be amended
from time-to-time; or
B. Plan ceases to be authorized to use the Licensed Marks; or
C. Appropriate dues for Controlled Affiliate pursuant to item 8 hereof,
which are the royalties for this License Agreement are more than sixty (60) days
in arrears to BCBSA.
Upon termination of this Agreement for cause or otherwise, Controlled
Affiliate agrees that it shall immediately discontinue all use of the Licensed
Marks including any use in its trade name.
In the event of any disagreement between Plan and BCBSA as to whether
grounds exist for termination or as to any other term or condition hereof, the
decision of BCBSA shall control, subject to provisions for mediation or
mandatory dispute resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled Affiliate shall
immediately notify all of its customers that it is no longer a licensee of the
Blue Cross and Blue Shield Association and provide instruction on how the
customer can contact the Blue Cross and Blue Shield Association or a designated
licensee to obtain further information on securing coverage. The written
notification required by this paragraph shall be in writing and in a form
approved by the Association. The Association shall have the right to audit the
terminated entity's books and records to verify compliance with this paragraph.
8. DUES
Controlled Affiliate will pay to BCBSA a fee for this license in
accordance with the following formula:
- An annual fee of five thousand dollars ($5,000) per license, plus
- .05 percent of gross revenue per annum of Licensee arising from
group products using the Marks, plus
- .5 percent of gross revenue per annum of Licensee arising from
individual products using the Marks
The foregoing percentages shall be reduced by one-half where both a BLUE
CROSS(R) and BLUE SHIELD(R) license are issued to the same entity. In the
event that any License period is greater or less than one (1) year, any
amounts due shall be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
AMENDED AS OF SEPTEMBER 29, 1994
-4-
<PAGE> 41
Plan will promptly and timely transmit to BCBSA all dues owed by
Controlled Affiliate as determined by the above formula and if Plan shall fail
to do so, Controlled Affiliate shall pay such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between Plan and
Controlled Affiliate or between either and BCBSA.
-4a-
(The next page is page 5)
<PAGE> 42
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to
the last known address of each other party, marked respectively to the attention
of its President and, if any, its General Counsel.
11. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by a
writing executed by all parties.
12. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of
competent jurisdiction, such finding shall in no way effect the remaining
obligations of the parties hereunder and the court may substitute a lawful term
or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
13. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of
the Controlled Affiliate or any other licensee of any of the terms, covenants or
conditions of this Agreement shall constitute a waiver of any subsequent breach
or default in performance of said terms, covenants or conditions.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed, effective as of the date of last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:_______________________________________
Date:_____________________________________
__________________________________________
Controlled Affiliate
By:_______________________________________
Date:_____________________________________
Plan:_____________________________________
-5-
<PAGE> 43
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 1 of 2
PREAMBLE
The standards for licensing Life Insurance Companies (Life and Health Insurance
companies, as defined by state statute) are established by BCBSA and are subject
to change from time-to-time upon the affirmative vote of three-fourths (3/4) of
the Plans and three-fourths (3/4) of the total weighted vote of all Plans. Each
Licensed Plan is required to use a standard controlled affiliate license form
provided by BCBSA and to cooperate fully in assuring that the licensed Life
Insurance Company maintains compliance with the license standards.
An organization meeting the following standards shall be eligible for a license
to use the Licensed Marks within the service area of its sponsoring Licensed
Plan to the extent and the manner authorized under the Controlled Affiliate
License applicable to Life Insurance
Companies and the principal license to the Plan.
STANDARD 1 - ORGANIZATION AND GOVERNANCE
The LIC shall be organized and operated in such a manner that it is controlled
by a licensed Plan or Plans which have, directly or indirectly: 1) not less than
51% of the voting control of the LIC; and 2) the legal ability to prevent any
change in the articles of incorporation, bylaws or other establishing or
governing documents of the LIC with which it does not concur; and 3) operational
control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items 1 and 2 above, proxies
representing at least 51% of the votes at any policyholder meeting and shall
demonstrate that there is no reason to believe such proxies shall be revoked by
sufficient policyholders to reduce such percentage below 51%.
STANDARD 2 - STATE LICENSURE
The LIC must maintain unimpaired licensure or certificate of authority to
operate under applicable state laws as a life and health insurance company in
each state in which the LIC does business.
STANDARD 3 - RECORDS AND EXAMINATION
The LIC and its sponsoring licensed Plan(s) shall maintain and furnish, on a
timely and accurate basis, such records and reports regarding the LIC as may be
required in order to establish compliance with the license agreement. The LIC
and its sponsoring licensed Plan(s) shall permit BCBSA to examine the affairs of
the LIC and shall agree that BCBSA's board may submit a written report to the
chief executive officer(s) and the board(s) of directors of the sponsoring
Plan(s).
-1-
<PAGE> 44
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 2 of 2
STANDARD 4 - MEDIATION
The LIC and its sponsoring Plan(s) shall agree to use the then-current BCBSA
mediation and mandatory dispute resolution processes, in lieu of a legal action
between or among another licensed controlled affiliate, a licensed Plan or
BCBSA.
STANDARD 5 - FINANCIAL RESPONSIBILITY
The LIC shall maintain adequate financial resources to protect its customers and
meet its business obligations.
-2-
<PAGE> 45
EXHIBIT 2
MEMBERSHIP STANDARDS
Page 1 of 3
Preamble
The Membership Standards apply to all organizations seeking to become or to
continue as Regular Members of the Blue Cross and Blue Shield Association. Any
organization seeking to become a Regular Member must be found to be in
substantial compliance with all Membership Standards at the time membership is
granted and the organization must be found to be in substantial compliance with
all Membership Standards for a period of two (2) years preceding the date of its
application. If Membership is sought by an entity which controls or is
controlled by one or more Plans, such compliance shall be determined on the
basis of compliance by such Plan or Plans.
The Regular Member Plans shall have authority to interpret these Standards.
Compliance with any Membership Standard may be excused, at the Plans'
discretion, if the Plans agree that compliance with such Standard would require
the Plan to violate a law or governmental regulation governing its operation or
activities.
Standard 1: A Plan's Board shall not be controlled by any special interest
group, and shall act in the interest of its Corporation in
providing cost-effective health care services to its
customers. A Plan shall maintain a governing Board, which
shall control the Plan, composed of a majority of persons
other than providers of health care services, who shall be
known as public members. A public member shall not be an
employee of or have a financial interest in a health care
provider, nor be a member of a profession which provides
health care services.
Standard 2: A Plan shall furnish to the Association on a timely and
accurate basis reports and records relating to compliance with
these Standards and the License Agreements between the
Association and the Plans. Such reports and records are the
following:
A. BCBSA Membership Information Request;
B. Biennial trade name and service mark usage material,
including disclosure material under Standard 7;
C. Changes in the governance of the Plan, including changes
in a Plan's Charter, Articles of Incorporation, or
Bylaws, changes in a Plan's Board composition, or
changes in the identity of the Plan's Principal
Officers;
AMENDED AS OF NOVEMBER 21, 1996
<PAGE> 46
EXHIBIT 2
MEMBERSHIP STANDARDS
Page 2 of 3
D. Quarterly Financial Report including the Plan Capital
Benchmark Worksheet, Annual Financial Forecast, Annual
Certified Audit Report, Insurance Department Examination
Report, Annual Statement filed with State Insurance
Department (with all attachments), and Consolidating
Financial Statement;
E. Quarterly Utilization Report, Quarterly Enrollment
Report, Cost Containment Report, and NMIS Quarterly
Report.
Standard 3: A Plan shall be operated in a manner that provides reasonable
financial assurance that it can fulfill its contractual
obligations to its customers.
Standard 4: A Plan shall be operated in a manner responsive to customer
needs and requirements.
Standard 5: A Plan shall effectively and efficiently participate in each
national program as from time to time may be adopted by the
Member Plans for the purposes of providing portability of
membership between the Plans and ease of claims processing for
customers receiving benefits outside of the Plan's Service
Area.
Such programs are applicable to Blue Cross and Blue Shield
Plans, and include:
A. Transfer Program;
B. National Account Equalization Program;
C. Inter-Plan Data Reporting (IPDR) Program;
D. Inter-Plan Teleprocessing System (ITS); and
E. BlueCard Program.
AMENDED AS OF NOVEMBER 21, 1996
<PAGE> 47
EXHIBIT 2
MEMBERSHIP STANDARDS
Page 3 of 3
Standard 6: In addition to requirements under the national programs listed
in Standard 5: Participation in National Programs, a Plan
shall take such action as required to ensure its financial
performance in programs and contracts of an inter-Plan nature
or where the Association is a party.
Standard 7: A Plan shall make adequate disclosure in contracting with
third parties and in disseminating public statements of (i)
the structure of the Blue Cross and Blue Shield System, (ii)
the independent nature of every Plan, and (iii) the Plan's
financial condition.
Standard 8: A Plan shall cooperate with the Association's Board of
Directors and its Plan Performance and Financial Standards
Committee in the administration of the Plan Performance
Response Process and in addressing Plan performance problems
identified thereunder.
Standard 9: A Plan shall obtain a rating of its financial strength from an
independent rating agency approved by the Association's Board
of Directors for such purpose.
Standard 10: During each year, a Plan and its Controlled Affiliate(s)
engaged in providing licensable services (excluding Life
Insurance and Charitable Foundation Services) shall use their
best efforts in the designated Service Area to promote and
build the value of the Blue Cross and Blue Shield Marks.
Standard 11: Neither a Plan nor any Larger Affiliate shall cause or permit
an unlicensed entity to obtain control of the Plan or Larger
Affiliate or to acquire a substantial portion of its assets
related to licensable services.
AMENDED AS OF SEPTEMBER 19, 1996
<PAGE> 48
EXHIBIT 3
GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL ACCOUNTS
Page 1 of 3
1. The strength of the Blue Cross/Blue Shield National Accounts mechanism,
and the continued provision of cost effective, quality health care benefits to
National Accounts, are predicated on locally managed provider networks
coordinated on a national scale in a manner consistent with effective service to
National Account customers and consistent with the preservation of the integrity
of the Blue Cross/Blue Shield system and the Licensed Marks. These guidelines
shall be interpreted in keeping with such ends.
2. A National Account is an entity with employee and/or retiree locations in
more than one Plan's Service Area. Unless otherwise agreed, a National Account
is deemed located in the Service Area in which the corporate headquarters of the
National Account is located. The Control Plan of a National Account is the Plan
in whose Service Area the National Account is located. A participating ("Par")
Plan is a Plan in whose Service Area the National Account has employee and/or
retiree locations, but in which the National Account is not located.
3. The National Account Guidelines enunciated herein below shall be
applicable only with respect to the business of new National Accounts acquired
after January 1, 1991.
4. Control Plans shall utilize National Account identification cards
complying with then currently effective BCBSA graphic standards in connection
with all National Accounts business to facilitate administration thereof, to
minimize subscriber and provider confusion, and to reflect a commitment to
cooperation among Plans.
5. Disputes among Plans and/or BCBSA as to the interpretation or
implementation of these Guidelines or as to other National Accounts issues shall
be submitted to mediation and mandatory dispute resolution as provided in the
License Agreement. For two years from the effective date of the License
Agreement, however, such disputes shall be subject to mediation only, with the
results of such mediation to be collected and reported in order to establish
more definitive operating parameters for National Accounts business and to serve
as ground rules for future binding dispute resolution.
<PAGE> 49
EXHIBIT 3
Page 2 of 3
6. The Control Plan may use the BlueCard Program (as defined by IPOC) to
deliver benefits to employees and non-Medicare eligible retirees in a
Participating Plan's service area if an alternative arrangement with the
Participating Plan cannot be negotiated. The Participating Plan's minimum
servicing requirement for those employees and non-Medicare retirees in its
service area is to deliver benefits using the BlueCard Program. Account delivery
is subject to the policies, provisions and procedures of the BlueCard Program.
7. For provider payments in a Participating Plan's area (on non-BlueCard
claims), payment to the provider may be made by the Participating Plan or the
Control Plan at the Participating Plan's option. If the Participating Plan
elects to pay the provider, it may not withhold payment of a claim verified by
the Control Plan or its designated processor, and payment must be in conformity
with service criteria established by the Board of Directors of BCBSA (or an
authorized committee thereof) to assure prompt payment, good service and minimum
confusion with providers and subscribers. The Control Plan, at the Participating
Plan's request, will also assure that measures are taken to protect the
confidentiality of the data pertaining to provider reimbursement levels and
profiles.
8. For claim payments in a Participating Plan's area (on non-BlueCard
claims), Participating Plans are strongly encouraged, but not required, to pass
along to the Control Plan part or all of local provider discounts and
differentials for use by the Control Plan in negotiating financial arrangements
with National Accounts. However, since the size, basis, form and use of local
differentials can vary substantially among Plans and also by individual National
Account characteristics, the degree and form of any discount or differential
passed along to the Control Plan shall be strictly a matter of negotiated
contractual agreement between a Participating Plan and the Control Plan and may
also vary from one National Account to another. In order to facilitate the
quotation of national account pricing and the offering of a variety of National
Account delivery systems, all Plans are strongly encouraged to periodically
publish to other Plans and the BCBSA their National Account contracting policies
with respect to the handling of differentials.
The Control Plan, in its financial agreements with a National Account, is
expected to reasonably reflect the aggregate amount of differentials passed
along to the Control Plan by all Participating Plans in a National Account. The
exact form and substance of this may vary from one National Account to another
and shall be a matter of
AMENDED AS OF JUNE 14, 1996
<PAGE> 50
EXHIBIT 3
Page 3 of 3
explicit negotiation and contractual relationship between the National Account
and the Control Plan. The specifics in an agreement between the Control Plan and
the National Account may vary in form (e.g., a guaranteed offset against
retentions, or a direct pass through, or a guaranteed aggregate percentage
discount, or no pass back at all, etc.), and the Control Plan has the
responsibility and the Authority to negotiate precise arrangements. However,
irrespective of the final arrangements between the Control Plan and the National
Account, a Participating Plan's liability for passing along differentials shall
be limited to the contractual agreement the Participating Plan has with the
Control Plan on a specific National Account.
9. Other than in contracting with health care providers or soliciting such
contracts in areas contiguous to a Plan's Service Area in order to serve its
subscribers or those of its licensed Controlled Affiliate residing or working in
its Service Area, a Control Plan may not use the Licensed Marks and/or Name, as
a tag line or otherwise, to negotiate directly with providers outside its
Service Area.
<PAGE> 51
EXHIBIT 4
GOVERNMENT PROGRAMS AND CERTAIN OTHER USES
Page 1 of 2
1. A Plan and its licensed Controlled Affiliate may use the Licensed Marks
and Name in bidding on and executing a contract to serve a Government Program,
and in thereafter communicating with the Government concerning the Program. With
respect, however, to such contracts entered into after the 1st day of January,
1991, the Licensed Marks and Name will not be used in communications or
transactions with beneficiaries or providers in the Government Program located
outside a Plan's Service Area, unless the Plan can demonstrate to the
satisfaction of BCBSA's governing body that such a restriction on use of the
Licensed Marks and Name will jeopardize its ability to procure the contract for
the Government Program. As to both existing and future contracts for Government
Programs, Plans will discontinue use of the Licensed Marks and Name as to
beneficiaries and Providers outside their Service Area as expenditiously as
circumstances reasonably permit. Effective January 1, 1995, except as provided
in the first sentence above, all use by a Plan of the Licensed Marks and Name in
Government Programs outside of the Plan's Service Area shall be discontinued.
Incidental communications outside a Plan's Service Area with resident or former
resident beneficiaries of the Plan, and other categories of necessary incidental
communications approved by BCBSA, are not prohibited.
2. In connection with activity otherwise in furtherance of the License
Agreement, a Plan may use the Licensed Marks and Name outside its Service Area
in the following circumstances which are deemed legitimate and necessary and not
likely to cause consumer confusion:
a. sending letterhead, envelopes, and similar items for administrative
purposes which do not solicit the sale of health care plans and
related services;
b. distributing business cards other than in marketing and selling;
c. contracting with health care providers or soliciting such contracts
in areas contiguous to a Plan's Service Area in order to serve its
subscribers or those of its licensed Controlled Affiliate residing
or working in its service area;
d. issuing a small sign containing the legal name or trade name of the
Plan or its licensed Controlled Affiliate for display by a provider
to identify the latter as a participating provider of the Plan or
Controlled Affiliate;
<PAGE> 52
EXHIBIT 4
Page 2 of 2
e. advertising in publications or electronic media solely to persons
for employment;
f. advertising in print, electronic or other media which serve, as a
substantial market, the Service Area of the Plan or licensed
Controlled Affiliate, provided that no Plan may advertise outside
its Service Area on the national broadcast and cable networks and
that advertisements in national print media are limited to the
smallest regional edition encompassing the Service Area;
g. advertising by direct mail where the addressee's zip code plus 4
includes, at least in part, the Plan's Service Area or that of a
licensed Controlled Affiliate.
<PAGE> 53
EXHIBIT 5
MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES
The Blue Cross and Blue Shield Plans ("Plans") and the Blue Cross Blue
Shield Association ("BCBSA") recognize and acknowledge that the Blue Cross and
Blue Shield system is a unique nonprofit and for-profit system offering cost
effective health care financing and services. The Plans and BCBSA desire to
utilize Mediation and Mandatory Dispute Resolution ("MMDR") to avoid expensive
and time-consuming litigation that may otherwise occur in the federal and state
judicial systems. Even MMDR should be viewed, however, as methods of last
resort, all other procedures for dispute resolution having failed. Except as
otherwise provided in the License Agreements, the Plans, their Controlled
Affiliates and BCBSA agree to submit all disputes to MMDR pursuant to these
Rules and in lieu of litigation.
1. INITIATION OF PROCEEDINGS
A. Pre-MMDR Efforts
Before filing a Complaint to invoke the MMDR process, the CEO of a
complaining party, or his/her designated representative, shall undertake good
faith efforts with the other side(s) to try to resolve any dispute.
B. Complaint
To commence a proceeding, the complaining party (or parties) shall provide
by certified mail, return receipt requested, a written Complaint to the BCBSA
Corporate Secretary (which shall also constitute service on BCBSA if it is a
respondent) and to any Plan(s) and/or Controlled Affiliate(s) named therein. The
Complaint shall contain:
i. identification of the complaining party (or parties)
requesting the proceeding;
ii. identification of the respondent(s);
iii. identification of any other persons or entities who are
interested in a resolution of the dispute;
iv. a full statement describing the nature of the dispute;
v. identification of all of the issues that are being submitted
for resolution;
AMENDED AS OF NOVEMBER 21, 1996
<PAGE> 54
vi. the remedy sought;
vii. a statement as to whether the complaining party (or parties)
elect(s) first to pursue Mediation;
viii. any request, if applicable, that one or more members of the
Mediation Committee be disqualified from the proceeding and
the grounds for such request;
ix. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor; and
x. a statement signed by the CEO of the complaining party
affirming that the CEO has undertaken efforts, or has directed
efforts to be undertaken, to resolve the dispute before
resorting to the MMDR process.
The complaining party (or parties) shall file and serve with the Complaint
copies of all documents which the party (or parties) intend(s) to offer at the
Arbitration Hearing and a statement identifying the witnesses the party (or
parties) intend(s) to present at the Hearing, along with a summary of each
witness' expected testimony.
C. Answer
Within twenty (20) days after receipt of the Complaint, each respondent
shall serve on the BCBSA and on the complaining party (or parties) and on the
Chairman of the Mediation Committee;
i. a full Answer to the aforesaid Complaint;
ii. a statement of any Counterclaims against the complaining party
(or parties), providing with respect thereto the information
specified in Paragraph 1.B., above;
iii. a statement as to whether the respondent elects to first
pursue Mediation;
iv. any request, if applicable, that one or more members of the
Mediation Committee be disqualified from the proceeding and
the grounds for such request; and
v. any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor.
<PAGE> 55
The respondent(s) shall file and serve with the Answer or by the date of the
Initial Conference set forth in Paragraph 3.B., below, copies of all documents
which the respondent(s) intend(s) to offer at the Arbitration Hearing and a
statement identifying the witnesses the party (or parties) intend(s) to present
at the Hearing, along with a summary of each witness' expected testimony.
D. Reply To Counterclaim
Within ten (10) days after receipt of any Counterclaim, the complaining
party (or parties) shall serve on BCBSA and on the responding party (or parties)
and on the Chairman of the Mediation Committee, a Reply to the Counterclaim.
Such Reply must provide the same information required by Paragraph 1.C.
2. MEDIATION
A. Mediation Committee
To facilitate the mediation of disputes between or among BCBSA, the Plans
and/or their Controlled Affiliates, the BCBSA Board has established a Mediation
Committee. Mediation may be pursued in lieu of or in an effort to obviate the
Mandatory Dispute Resolution process, and all parties are strongly urged to
exhaust the mediation procedure.
B. Election To Mediate
If any party elects first to pursue Mediation, and if it appears to the
Corporate Secretary that the dispute falls within the jurisdiction of the
Mediation Committee, as set forth in Exhibit 5-A hereto, then the Corporate
Secretary will promptly furnish the Mediation Committee with copies of the
Complaint, Answer, Counterclaim and Reply to Counterclaim, and other documents
referenced in Paragraph 1, above.
C. Selection of Mediators
The parties shall promptly attempt to agree upon: (i) the number of
mediators desired, not to exceed three mediators; and (ii) the selection of the
mediator(s) who may include members of the Mediation Committee and/or
experienced mediators from an independent entity to mediate all disputes set
forth in the Complaint and Answer (and Counterclaim and Reply, if any). In the
event the parties cannot agree upon the number of mediators desired, that number
shall default to three. In the event the parties cannot agree upon the selection
of mediator(s), the Chairman will select the mediator(s), at least one of which
shall be an experienced mediator from an independent entity, consistent with the
provisions set forth in this Paragraph. No member of the Mediation Committee who
is a representative of any party to the Mediation may be selected to mediate the
dispute. The Chairman shall also endeavor not to select as a mediator any member
of the Mediation Committee whom a party has requested to be disqualified. If,
after due regard for availability, expertise, and such other considerations as
may best promote an expeditious Mediation, the Chairman
<PAGE> 56
believes that he or she must consider for selection a member of the Mediation
Committee whom a party has requested to be disqualified, the other members of
the Committee eligible to be selected to mediate the dispute shall decide the
request for disqualification. By agreeing to participate in the Mediation of a
dispute, a member of the Mediation Committee represents to the party (or
parties) thereto that he or she knows of no grounds which would require his or
her disqualification.
D. Binding Decision
Before the date of the Mediation Hearing described below, the Corporate
Secretary will contact the party (or parties) to determine whether they wish to
be bound by any recommendation of the selected mediators for resolution of the
disputes. If all wish to be bound, the Corporate Secretary will send appropriate
documentation to them for their signatures before the Mediation Hearing begins.
E. Mediation Procedure
The Chairman shall promptly advise the parties of a scheduled Mediation
Hearing date. Unless a party requests an expedited procedure, or unless all
parties to the proceeding agree to one or more extensions of time, the Mediation
Hearing set forth below shall be completed within forty (40) days of BCBSA's
receipt of the Complaint. The selected mediators, unless the parties otherwise
agree, shall adhere to the following procedure:
i. Each party must be represented by its CEO or other
representative who has been delegated full authority to
resolve the dispute. However, parties may send additional
representatives as they see fit.
ii. By no later than five (5) days prior to the date designated
for the Mediation Hearing, each party shall supply and serve a
list of all persons who will be attending the Mediation
Hearing, and indicate who will have the authority to resolve
the dispute.
iii. Each party will be given one-half hour to present its case,
beginning with the complaining party (or parties), followed by
the other party or parties. The parties are free to structure
their presentations as they see fit, using oral statements or
direct examination of witnesses. However, neither
cross-examination nor questioning of opposing representatives
will be permitted. At the close of each presentation, the
selected mediators will be given an opportunity to ask
questions of the presenters and witnesses. All parties must be
present throughout the Mediation Hearing. The selected
mediators may extend the time allowed for each party's
presentation at the Mediation Hearing. The selected mediators
may meet in executive session, outside the presence of the
parties, or may meet with the parties separately, to discuss
the controversy.
<PAGE> 57
iv. After the close of the presentations, the parties will attempt
to negotiate a settlement of the dispute. If the parties
desire, the selected mediators, or any one or more of the
selected mediators, will sit in on the negotiations.
v. After the close of the presentations, the selected mediators
may meet privately to agree upon a recommendation for
resolution of the dispute which would be submitted to the
parties for their consideration and approval. If the parties
have previously agreed to be bound by the results of this
procedure, this recommendation shall be binding upon the
parties.
vi. The purpose of the Mediation Hearing is to assist the parties
to settle their grievances short of mandatory dispute
resolution. As a result, the Mediation Hearing has been
designed to be as informal as possible. Rules of evidence
shall not apply. There will be no transcript of the
proceedings, and no party may make a tape recording of the
Mediation Hearing.
vii. In order to facilitate a free and open discussion, the
Mediation proceeding shall remain confidential. A "Stipulation
to Confidentiality" which prohibits future use of settlement
offers, all position papers or other statements furnished to
the selected mediators, and decisions or recommendations in
any Mediation proceeding shall be executed by each party.
viii. Upon request of the selected mediators, or one of the parties,
BCBSA staff may also submit documentation at any time during
the proceedings.
F. Notice Of Termination Of Mediation
If the Mediation cannot be completed within the prescribed or agreed time
period due to the lack of cooperation of any party, as determined by the
selected mediators, or if the Mediation does not result in a final resolution of
all disputes at the Mediation Hearing or within forty (40) days after the
Complaint was served, whichever comes first, any party or any one of the
selected mediators may so notify the Corporate Secretary, who shall promptly
issue a Notice of termination of mediation to all parties, to the selected
mediators, and to the MDR Administrator, defined below. Such notice shall serve
to bring the Mediation to an end and to initiate Mandatory Dispute Resolution.
Upon agreement of all parties and the selected mediators, the Mediation process
may continue at the same time the MDR process is invoked. The Notice described
above would serve to initiate the MDR proceeding and would not terminate the
proceedings.
<PAGE> 58
3. MANDATORY DISPUTE RESOLUTION (MDR)
If all parties elect not to first pursue Mediation, or if a notice of
termination of Mediation is issued as set forth in Paragraph 2.F., above, then
the unresolved disputes set forth in any Complaint and Answer (and Counterclaim
and Reply, if any) shall be subject to MDR.
A. MDR Administrator
The Administrator shall be an independent entity such as the Center for
Public Resources, Inc. or Endispute, Inc., specializing in alternative dispute
resolution. The Administrator shall be designated initially, and may be changed
from time to time, by the affirmative vote of fifty-one (51) percent of the
Plans and fifty-one (51) percent of the total then current weighted vote of all
the Plans.
B. Initial Conference
Within five (5) days after a Notice of Termination has issued, or within
five (5) days after the time for filing and serving the Reply to any
Counterclaim if the parties elect first not to mediate, the parties shall confer
with the Administrator to discuss selecting a dispute resolution panel ("the
Panel"). This Initial Conference may be by telephone. The parties are encouraged
to agree to the composition of the Panel and to present that agreement to the
Administrator at the Initial Conference. If the parties do not agree on the
composition of the Panel by the time of the Initial Conference, or by any
extension thereof agreed to by all parties and the Administrator, then the Panel
Selection Process set forth in subparagraph C shall be followed.
C. Panel Selection Process
The Administrator shall designate at least seven potential arbitrators.
The exact number designated shall be sufficient to give each party at least two
peremptory strikes. Each party shall be permitted to strike any designee for
cause and the Administrator shall determine the sufficiency thereof in its sole
discretion. The Administrator will designate a replacement for any designee so
stricken. Each party shall then be permitted two peremptory strikes. From the
remaining designees, the Administrator shall select a three member Panel. The
Administrator shall set the dates for exercising all strikes and shall complete
the Panel Selection Process within fifteen (15) days of the Initial Conference.
Each Arbitrator shall be compensated at his or her normal hourly rate or, in the
absence of an established rate, at a reasonable hourly rate to be promptly fixed
by the Administrator for all time spent in connection with the proceedings and
shall be reimbursed for any travel and other reasonable expenses.
<PAGE> 59
D. Duties Of The Arbitrators
The Panel shall promptly designate a Presiding Arbitrator for the purposes
reflected below, but shall retain the power to review and modify any ruling or
other action of said Presiding Arbitrator. Each Arbitrator shall be an
independent Arbitrator, shall be governed by the Code of Ethics for Arbitrators
in Commercial Disputes, appended as Exhibit "5-B" hereto, and shall at or prior
to the commencement of any Arbitration Hearing take an oath to that effect. Each
Arbitrator shall promptly disclose in writing to the Panel and to the parties
any circumstances, whenever arising, that might cause doubt as to such
Arbitrator's compliance, or ability to comply, with said Code of Ethics, and,
absent resignation by such Arbitrator, the remaining Arbitrators shall determine
in their sole discretion whether the circumstances so disclosed constitute
grounds for disqualification and for replacement. With respect to such
circumstances arising or coming to the attention of a party after an
Arbitrator's selection, a party may likewise request the Arbitrator's
resignation or a determination as to disqualification by the remaining
Arbitrators. With respect to a sole Arbitrator, the determination as to
disqualification shall be made by the Administrator.
There shall be no ex parte communication between the parties or their
counsel and any member of the Panel.
E. Panel's Jurisdiction And Authority
The Panel's jurisdiction and authority shall extend to all disputes
between or among the Plans, their Controlled Affiliates, and/or BCBSA, except
for those disputes excepted from these MMDR procedures as set forth in the
License Agreements.
With the exception of punitive or treble damages, the Panel shall have
full authority to award the relief it deems appropriate to resolve the parties'
disputes, including monetary awards and injunctions, mandatory or prohibitory.
The Panel has no authority to award punitive or treble damages except that the
Panel may allocate or assess responsibility for punitive or treble damages
assessed by another tribunal. Subject to the above limitations, the Panel may,
by way of example, but not of limitation:
i. interpret or construe the meaning of any terms, phrase or
provision in any license between BCBSA and a Plan or a
Controlled Affiliate relating to the use of the BLUE CROSS(R)
or BLUE SHIELD(R) service marks.
ii. determine whether BCBSA, a Plan or a Controlled Affiliate has
violated the terms or conditions of any license between the
BCBSA and a Plan or a Controlled Affiliate relating to the use
of the BLUE CROSS(R) or BLUE SHIELD(R) service marks.
iii. decide challenges as to its own jurisdiction.
<PAGE> 60
iv. issue such orders for interim relief as it deems appropriate
pending Hearing and Award in any Arbitration.
It is understood that the Panel is expected to resolve issues based on
governing principles of law, preserving to the maximum extent legally possible
the continued integrity of the Licensed Marks and the BLUE CROSS/BLUE SHIELD
system. The Panel shall apply federal law to all issues which, if asserted in
the United States District Court, would give rise to federal question
jurisdiction, 28 U.S.C. Section 1331. The Panel shall apply Illinois law to all
issues involving interpretation, performance or construction of any License
Agreement or Controlled Affiliate License Agreement unless the agreement
otherwise provides. As to other issues, the Panel shall choose the applicable
law based on conflicts of law principles of the State of Illinois.
F. Administrative Conference And Preliminary Arbitration Hearing
Within ten (10) days of the Panel being selected, the Presiding Arbitrator
will schedule an Administrative Conference to discuss scheduling of the
Arbitration Hearing and any other matter appropriate to be considered including:
any written discovery in the form of requests for production of documents or
requests to admit facts; the identity of any witness whose deposition a party
may desire and a showing of exceptional good cause for the taking of any such
deposition; the desirability of bifurcation or other separation of the issues;
the need for and the type of record of conferences and hearings, including the
need for transcripts; the need for expert witnesses and how expert testimony
should be presented; the appropriateness of motions to dismiss and/or for full
or partial summary judgment; consideration of stipulations; the desirability of
presenting any direct testimony in writing; and the necessity for any on-site
inspection by the Panel.
G. Discovery
i. REQUESTS FOR PRODUCTION OF DOCUMENTS: All requests for the
production of documents must be served as of the date of the
Administrative Conference as set forth in Paragraph 3.F.,
above. Within twenty (20) days after receipt of a request for
documents, a party shall produce all relevant and
non-privileged documents to the requesting party. In his or
her discretion, the Presiding Arbitrator may require the
parties to provide lists in such detail as is deemed
appropriate of all documents as to which privilege is claimed
and may further require in-camera inspection of the same.
<PAGE> 61
ii. REQUESTS FOR ADMISSIONS: Requests for Admissions may be served
up to 21 days prior to the Arbitration Hearing. A party served
with Requests For Admissions must respond within twenty (20)
days of receipt of said request. The good faith use of and
response to Requests for Admissions is encouraged, and the
Panel shall have full discretion, with reference to the
Federal Rules of Civil Procedure, in awarding appropriate
sanctions with respect to abuse of the procedure.
iii. DEPOSITIONS As a general rule, the parties will not be
permitted to take deposition testimony for discovery purposes.
The Presiding Arbitrator, in his or her sole discretion, shall
have the authority to permit a party to take such deposition
testimony upon a showing of exceptional good cause, provided
that no deposition, for discovery purposes or otherwise, shall
exceed three (3) hours, excluding objections and colloquy of
counsel.
iv. EXPERT WITNESS(ES): If a party intends to present the
testimony of an expert witness during the oral hearing, it
shall provide all other parties with a written statement
setting forth the information required to be provided by Fed.
R. Civ. P. 26(b)(4)(A)(i) prior to the expiration of the
discovery period.
v. DISCOVERY CUT-OFF: The Presiding Arbitrator shall determine
the date on which the discovery period will end, but the
discovery period shall not exceed forty-five (45) days from
its commencement, without the agreement of all parties.
vi. ADDITIONAL DISCOVERY: Any additional discovery will be at the
discretion of the Presiding Arbitrator. The Presiding
Arbitrator is authorized to resolve all discovery disputes,
which resolution will be binding on the parties unless
modified by the Arbitration Panel. If a party refuses to
comply with a decision resolving a discovery dispute, the
Panel, in keeping with Fed. R. Civ. P. 37, may refuse to allow
that party to support or oppose designated claims or defenses,
prohibit that party from introducing designated matters into
evidence or, in extreme cases, decide an issue submitted for
resolution adversely to that party.
<PAGE> 62
H. Panel Suggested Settlement/Mediation
At any point during the proceedings, the Panel at the request of any party
or on its own initiative, may suggest that the parties explore settlement and
that they do so at or before the conclusion of the Arbitration Hearing, and the
Panel shall give such assistance in settlement negotiations as the parties may
request and the Panel may deem appropriate. Alternatively, the Panel may direct
the parties to endeavor to mediate their disputes as provided above, or to
explore a mini-trial proceeding, or to have an independent party render a
neutral evaluation of the parties' respective positions. The Panel shall enter
such sanctions as it deems appropriate with respect to any party failing to
pursue in good faith such Mediation or other alternate dispute resolution
methods.
I. Subpoenas On Third Parties
Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C.
Section 9 et seq., a party may request the issuance of a subpoena on a third
party, to compel testimony or documents, and, if good and sufficient cause is
shown, the Panel shall issue such a subpoena.
J. Arbitration Hearing
An Arbitration Hearing will be held within thirty (30) days after the
Administrative Conference if no discovery is taken, or within thirty (30) days
after the close of discovery, unless all parties and the Panel agree to extend
the Arbitration Hearing date, or unless the parties agree in writing to waive
the Arbitration Hearing. The parties may mutually agree on the location of the
Arbitration Hearing. If the parties fail to agree, the Arbitration Hearing shall
be held in Chicago, Illinois, or at such other location determined by the
Presiding Arbitrator to be most convenient to the participants. The Panel will
determine the date(s) and time(s) of the Arbitration Hearing(s) after
consultation with all parties and shall provide reasonable notice thereof to all
parties or their representatives.
K. Arbitration Hearing Memoranda
Twenty (20) days prior to the Arbitration Hearing, each party shall submit
to the other party (or parties) and to the Panel an Arbitration Hearing
Memorandum which sets forth the applicable law and any argument as to any
relevant issue. The Arbitration Hearing Memorandum will supplement, and not
repeat, the allegations, information and documents contained in or with the
Complaint, Answer, Counterclaim and Reply, if any. Ten (10) days prior to the
Arbitration Hearing, each party may submit to the other party (or parties) and
to the Panel a Response Arbitration Hearing Memorandum which sets forth any
response to another party's Arbitration Hearing Memorandum.
<PAGE> 63
L. Notice For Testimony
Ten (10) days prior to the Arbitration Hearing, any party may serve a
Notice on any other party (or parties) requesting the attendance at the
Arbitration Hearing of any officer, employee or director of the other party (or
parties) for the purpose of providing noncumulative testimony. If a party fails
to produce one of its officers, employees or directors whose noncumulative
testimony during the Arbitration Hearing is reasonably requested by an adverse
party, the Panel may refuse to allow that party to support or oppose designated
claims or defenses, prohibit that party from introducing designated matters into
evidence or, in extreme cases, decide an issue submitted for mandatory dispute
resolution adversely to that party. This Rule may not be used for the purpose of
burdening or harassing any party, and the Presiding Arbitrator may impose such
orders as are appropriate so as to prevent or remedy any such burden or
harassment.
M. Arbitration Hearing Procedures
i. ATTENDANCE AT ARBITRATION HEARING: Any person having a direct
interest in the proceeding is entitled to attend the
Arbitration Hearing. The Presiding Arbitrator shall otherwise
have the power to require the exclusion of any witness, other
than a party or other essential person, during the testimony
of any other witness. It shall be discretionary with the
Presiding Arbitrator to determine the propriety of the
attendance of any other person.
ii. CONFIDENTIALITY: The Panel and all parties shall maintain the
privacy of the Arbitration Proceeding. The parties and the
Panel shall treat the Arbitration Hearing and any discovery or
other proceedings or events related thereto, including any
award resulting therefrom, as confidential except as otherwise
necessary in connection with a judicial challenge to or
enforcement of an award or unless otherwise required by law.
iii. STENOGRAPHIC RECORD: Any party, or if the parties do not
object, the Panel, may request that a stenographic or other
record be made of any Arbitration Hearing or portion thereof.
The costs of the recording and/or of preparing the transcript
shall be borne by the requesting party and by any party who
receives a copy thereof. If the Panel requests a recording
and/or a transcript, the costs thereof shall be borne equally
by the parties.
iv. OATHS: The Panel may require witnesses to testify under oath
or affirmation administered by any duly qualified person and,
if requested by any party, shall do so.
<PAGE> 64
v. ORDER OF ARBITRATION HEARING: An Arbitration Hearing shall be
opened by the recording of the date, time, and place of the
Arbitration Hearing, and the presence of the Panel, the
parties, and their representatives, if any. The Panel may, at
the beginning of the Arbitration Hearing, ask for statements
clarifying the issues involved.
Unless otherwise agreed, the complaining party (or parties)
shall then present evidence to support their claim(s). The
respondent(s) shall then present evidence supporting their
defenses and Counterclaims, if any. The complaining party (or
parties) shall then present evidence supporting defenses to
the Counterclaims, if any, and rebuttal.
Witnesses for each party shall submit to questions by adverse
parties and/or the Panel.
The Panel has the discretion to vary these procedures, but
shall afford a full and equal opportunity to all parties for
the presentation of any material and relevant evidence.
vi. EVIDENCE: The parties may offer such evidence as is relevant
and material to the dispute and shall produce such evidence as
the Panel may deem necessary to an understanding and
resolution of the dispute. Unless good cause is shown, as
determined by the Panel or agreed to by all other parties, no
party shall be permitted to offer evidence at the Arbitration
Hearing which was not disclosed prior to the Arbitration
Hearing by that party. The Panel may receive and consider the
evidence of witnesses by affidavit upon such terms as the
Panel deems appropriate.
The Panel shall be the judge of the relevance and materiality
of the evidence offered, and conformity to legal rules of
evidence, other than enforcement of the attorney-client
privilege and the work product protection, shall not be
necessary. The Federal Rules of Evidence shall be considered
by the Panel in conducting the Arbitration Hearing but those
rules shall not be controlling. All evidence shall be taken in
the presence of the Panel and all of the parties, except where
any party is in default or has waived the right to be present.
Settlement offers by any party in connection with Mediation or
MDR proceedings, decisions or recommendations of the selected
mediators, and a party's position papers or statements
furnished to the selected mediators shall not be admissible
evidence or considered by the Panel without the consent of all
parties.
<PAGE> 65
vii. CLOSING OF ARBITRATION HEARING: The Presiding Arbitrator shall
specifically inquire of all parties whether they have any
further proofs to offer or witnesses to be heard. Upon
receiving negative replies or if he or she is satisfied that
the record is complete, the Presiding Arbitrator shall declare
the Arbitration Hearing closed with an appropriate notation
made on the record. Subject to being reopened as provided
below, the time within which the Panel is required to make the
award shall commence to run, in the absence of contrary
agreement by the parties, upon the closing of the Arbitration
Hearing.
With respect to complex disputes, the Panel may, in its sole
discretion, defer the closing of the Arbitration Hearing for a
period of up to thirty (30) days after the presentation of
proofs in order to permit the parties to submit post-hearing
briefs and argument, as the Panel deems appropriate, prior to
making an award.
For good cause, the Arbitration Hearing may be reopened for up
to thirty (30) days on the Panel's initiative, or upon
application of a party, at any time before the award is made
N. Awards
An Award must be in writing and shall be made promptly by the Panel and,
unless otherwise agreed by the parties or specified by law, no later than thirty
(30) days from the date of closing the Arbitration Hearing. If all parties so
request, the Award shall contain findings of fact and conclusions of law. The
Award, and all other rulings and determinations by the Panel, may be by a
majority vote.
Parties shall accept as legal delivery of the Award the placing of the
Award or a true copy thereof in the mail addressed to a party or its
representative at its last known address or personal service of the Award on a
party or its representative.
Awards are binding only on the parties to the Arbitration and are not
binding on any non-parties to the Arbitration and may not be used or cited as
precedent in any other proceeding.
After the expiration of twenty (20) days from initial delivery, the Award
(with corrections, if any) shall be final and binding on the parties, and the
parties shall undertake to carry out the Award without delay.
Proceedings to confirm, modify or vacate an Award shall be conducted in
conformity with and controlled by the Federal Arbitration Act. 9 U.S.C. Section
1, et seq.
<PAGE> 66
O. Return Of Documents
Within sixty (60) days after the Award and the conclusion of any judicial
proceedings with respect thereto, each party and the Panel shall return any
documents produced by any other party, including all copies thereof. If a party
receives a discovery request in any other proceeding which would require it to
produce any documents produced to it by any other party in a proceeding
hereunder, it shall not produce such documents without first notifying the
producing party and giving said party reasonable time to respond, if
appropriate, to the discovery request.
4. MISCELLANEOUS
A. Expedited Procedures
Any party to a Mediation may direct a request for an expedited Mediation
Hearing to the Chairman of the Mediation Committee, to the selected Mediators,
and to all other parties at any time. The Chairman of the Mediation Committee,
or at his or her direction, the then selected Mediators, shall grant any request
which is supported by good and sufficient reasons. If such a request is granted,
the Mediation shall be completed within as short a period as practicable, as
determined by the Chairman of the Mediation Committee or, at his or her
direction, the then selected Mediators.
Any party to an Arbitration may direct a request for expedited proceedings
to the Administrator, to the Panel, and to all other parties at any time. The
Administrator, or the Presiding Arbitrator if the Panel has been selected, shall
grant any such request which is supported by good and sufficient reasons. If
such a request is granted, the Arbitration shall be completed within as short a
time as practicable, as determined by the Administrator and/or the Presiding
Arbitrator.
B. Temporary Or Preliminary Injunctive Relief
Any party may seek temporary or preliminary injunctive relief with the
filing of a Complaint or at any time thereafter. If such relief is sought prior
to the time that an Arbitration Panel has been selected, then the Administrator
shall select a single Arbitrator who is a lawyer who has no interest in the
subject matter of the dispute, and no connection to any of the parties, to hear
and determine the request for temporary or preliminary injunction. If such
relief is sought after the time that an Arbitration Panel has been selected,
then the Arbitration Panel will hear and determine the request. The request for
temporary or preliminary injunctive relief will be determined with reference to
the temporary or preliminary injunction standards set forth in Fed. R. Civ. P.
65.
<PAGE> 67
C. Defaults And Proceedings In The Absence Of A Party
Whenever a party fails to comply with the MDR Rules in a manner deemed
material by the Panel, the Panel shall fix a reasonable time for compliance and,
if the party does not comply within said period, the Panel may enter an Order of
default or afford such other relief as it deems appropriate. Arbitration may
proceed in the event of a default or in the absence of any party who, after due
notice, fails to be present or fails to obtain an extension. An Award shall not
be made solely on the default or absence of a party, but the Panel shall require
the party who is present to submit such evidence as the Panel may require for
the making of findings, determinations, conclusions, and Awards.
D. Notice
Each party shall be deemed to have consented that any papers, notices, or
process necessary or proper for the initiation or continuation of a proceeding
under these rules or for any court action in connection therewith may be served
on a party by mail addressed to the party or its representative at its last
known address or by personal service, in or outside the state where the MDR
proceeding is to be held.
The Corporate Secretary and the parties may also use facsimile
transmission, telex, telegram, or other written forms of electronic
communication to give the notices required by these rules.
E. Expenses
The expenses of witnesses shall be paid by the party causing or requesting
the appearance of such witnesses. All expenses of the MDR proceeding, including
compensation, required travel and other reasonable expenses of the Panel, and
the cost of any proof produced at the direct request of the Panel, shall be
borne equally by the parties and shall be paid periodically on a timely basis,
unless they agree otherwise or unless the Panel in the Award assesses such
expenses, or any part thereof against any party (or parties). In exceptional
cases, the Panel may award reasonable attorneys' fees as an item of expense, and
the Panel shall promptly determine the amount of such fees based on affidavits
or such other proofs as the Panel deems sufficient.
F. Disqualification Or Disability Of A Panel Member
In the event that any Arbitrator of a Panel with more than one Arbitrator
should become disqualified, resign, die, or refuse or be unable to perform or
discharge his or her duties after the commencement of MDR but prior to the
rendition of an Award, and the parties are unable to agree upon a replacement,
the remaining Panel member(s):
i. shall designate a replacement, subject to the right of any
party to challenge such replacement for cause.
<PAGE> 68
ii. shall decide the extent to which previously held hearings
shall be repeated.
If the remaining Panel members consider the proceedings to have progressed
to a stage as to make replacement impracticable, the parties may agree, as an
alternative to the recommencement of the Mandatory Dispute Resolution process,
to resolution of the dispute by the remaining Panel members.
In the event that a single Arbitrator should become disqualified, resign,
die, or refuse or be unable to perform or discharge his or her duties after the
commencement of MDR but prior to the rendition of an Award, and the parties are
unable to agree upon a replacement, the Administrator shall appoint a successor,
subject to the right of any party to challenge such successor for cause, and the
successor shall decide the extent to which previously held proceedings shall be
repeated.
G. Amendments
These MMDR Rules may be altered or amended from time to time by the
affirmative vote of fifty-one (51) percent of the Plans and fifty-one (51)
percent of the total then current weighted vote of all the Plans.
H. Extensions of Time
Any time limit set forth in these Rules may be extended upon agreement of
the parties and approval of: (i) the Chairman of the Mediation Committee if the
proceeding is then in Mediation; (ii) the Administrator if the proceeding is in
Arbitration, but no Arbitration Panel has been selected; or (iii) the
Arbitration Panel, if the proceeding is in Arbitration and the Arbitration Panel
has been selected.
I. Intervention
The Plans, their Controlled Affiliates, and BCBSA, to the extent subject
to MMDR pursuant to their License Agreements, shall have the right to move to
intervene in any pending Arbitration. A written motion for intervention shall be
made to: (i) the Administrator, if the proceeding is in Arbitration, but no
Arbitration Panel has been selected; or (ii) the Arbitration Panel, if the
proceeding is in Arbitration and the Arbitration Panel has been selected. The
written motion for intervention shall be delivered to the BCBSA Corporate
Secretary (which shall also constitute service on the BCBSA if it is a
respondent) and to any Plan(s) and/or Controlled Affiliate(s) which are parties
to the proceeding. Any party to the proceeding can submit written objections to
the motion to intervene. The motion for intervention shall be granted upon good
cause shown. Intervention also may be allowed by stipulation of the parties to
the Arbitration proceeding. Intervention shall be allowed upon such terms as the
Arbitration Panel decides.
<PAGE> 69
J. BCBSA Assistance In Resolution of Disputes
The resources and personnel of the BCBSA may be requested by any member
Plan at any time to try to resolve disputes with another Plan.
K. Neutral Evaluation
The parties can voluntarily agree at any time to have an independent party
render a neutral evaluation of the parties' respective positions.
<PAGE> 70
EXHIBIT 5-A
MEDIATION COMMITTEE
REPORTS TO: Board of Directors
CHARGE: 1. Develop and implement processes for resolving
misunderstandings or disagreements between Plans or
between Plans and the Association under the following
circumstances:
a. Matters at issue regarding relationships between Plans
or between Plans and the Association.
b. Matters at issue regarding relationships between Plans
or between Plans and the Association.
c. Matters at issue under the Inter-Plan Bank, Reciprocity,
and Transfer Programs.
d. Matters at issue regarding contractor selection or
performance under the Medicare Part A Program.
2. Determination of equalization allowances and/or cost
allowances under FEP shall not be considered by this
Committee.
MEMBERSHIP: Six to Eight
STAFF: Senior Vice President and General Counsel
<PAGE> 1
EXHIBIT 99.7
CALIFORNIA BLUE CROSS LICENSE ADDENDUM
This License Agreement Addendum ("this Addendum") has been executed as
of August 4, 1997 (the "date hereof") by the Blue Cross and Blue Shield
Association ("BCBSA"), WellPoint Health Networks Inc. ("WellPoint"), and the
corporation identified herein as "California Blue Cross." Capitalized terms not
otherwise defined herein shall have the meanings given them in Article VII of
WellPoint's Charter.
Whereas: It is fundamental to the integrity of the Blue Cross and Blue
Shield names and marks that each primary licensee remain independent of any
control or influence by any particular economic interest or other special
interest which might impair its ability to: (i) exercise independent judgment as
to the programs which will best meet the needs of the communities in the state
or area for which it is responsible, and (ii) function as an integral part of
the Blue Cross and Blue Shield national system of health benefits.
Whereas: WellPoint was incorporated in Delaware for the purpose of
becoming the ultimate parent corporation in an organization (the "WellPoint
Organization") which among other things provides health care plans and related
services in California under the "Blue Cross" name and under various related
marks.
Whereas: WellPoint has assumed its position as the ultimate parent in
the WellPoint Organization as a result of a number of inter-related actions
which are collectively called the "Reincorporation" in this Addendum. The
Reincorporation occurred immediately prior to the execution of this Addendum.
The Reincorporation is described in a proxy statement issued on May 9, 1997.
Whereas: Prior to the Reincorporation, the WellPoint Organization was
headed by a corporation incorporated in California which had the name "WellPoint
Heath Networks Inc." (and which is called "California Blue Cross" in this
Addendum). As a result of the Reincorporation: (i) every share of common stock
issued by California Blue Cross and outstanding immediately prior to the
Reincorporation was converted into a share of common stock issued by WellPoint;
(ii) California Blue Cross has become an indirect wholly owned subsidiary of
WellPoint; and (iii) the name of California Blue Cross is being changed to "Blue
Cross of California."
Whereas: Prior to May 1996, California Blue Cross was organized as a
nonprofit public benefit corporation. In May 1996, California Blue Cross was
converted into a for-profit business stock corporation as part of a series of
interrelated actions which in this Addendum are collectively called the "1996
For-Profit Conversion." As part of the 1996 For-Profit Conversion, California
Blue Cross issued shares of its common stock to a California nonprofit public
benefit corporation which (i) then had the name "Western Health Partnerships,"
(ii) now has the name "California HealthCare
<PAGE> 2
Foundation, and (iii) is called the "Foundation" in this Addendum. The common
shares issued to the Foundation represented (i) a substantial majority of
California Blue Cross's common stock outstanding immediately after the 1996
For-Profit Conversion and (ii) carried voting power significantly in excess of
the amount which BCBSA's licensing requirements allow to be concentrated in the
hands of any single shareholder of a primary licensee.
Whereas: To mitigate the risks and disadvantages of the concentration of
common stock in the hands of the Foundation (i) certain mechanisms and covenants
(the "Original Basic Protections") were incorporated in the Articles of
Incorporation and Bylaws governing California Blue Cross and in agreements
between California Blue Cross and the Foundation and (ii) California Blue Cross
entered into a License Addendum (the "Original Addendum") which provided among
other things that the primary Blue Cross license for the WellPoint Organization
would automatically terminate if there were any failure to comply with any of
the Original Basic Protections specified in the Original Addendum.
Whereas: In the Reincorporation, the common stock previously held by the
Foundation in California Blue Cross was converted on a share for share basis to
common stock issued by WellPoint in the Reincorporation. The Foundation holds
the same percentage of WellPoint's common stock outstanding immediately after
the Reincorporation as the percentage of the outstanding common stock which the
Foundation held in California Blue Cross immediately prior to the
Reincorporation. The voting power attributable to the WellPoint common stock
held by the Foundation is significantly higher than the percentage that BCBSA's
licensing requirements allow to be concentrated in the hands of any single
shareholder of a primary licensee.
Whereas: WellPoint has requested that notwithstanding the concentration
of its common stock in the hands of the Foundation resulting from the
Reincorporation, BCBSA issue the following licenses (the "New Licenses"): a
Primary Blue Cross License to WellPoint to replace the primary license held
prior to the Reincorporation by California Blue Cross; a Controlled Affiliate
License to California Blue Cross to entitle it to conduct operations in
California under the Blue Cross name; and various other affiliate licenses to
other WellPoint subsidiaries to enable them to continue to conduct operations
under the "Blue Cross" name and/or related names.
Whereas: To induce BCBSA to issue the New Licenses, WellPoint has: (i)
incorporated into its Certificate of Incorporation and Bylaws mechanisms
designed to protect WellPoint from being controlled by the Foundation (or any
other large shareholder which might emerge in the future) which are analogous to
the mechanisms previously incorporated into California Blue Cross's governing
instruments; (ii) agreed with the Foundation and California Blue Cross to amend
and restate the agreements previously made by California Blue Cross with the
Foundation to obtain for WellPoint the benefit of the covenants in those
agreements designed to protect WellPoint from being controlled by the
Foundation; and (iii) entered into this Addendum to take the place of the
Original Addendum.
2
<PAGE> 3
The parties agree as follows:
1. Waiver. BCBSA hereby agrees that the ownership of WellPoint shares by
the Foundation in excess of the number permitted by the Primary Blue Cross
License will not be deemed to provide grounds for termination of the Primary
Blue Cross License so long as the conditions specified in Part 2 of this
Addendum are satisfied. In order to obtain the waiver in the preceding sentence,
WellPoint agrees that its right to hold and utilize the Primary Blue Cross
License will at all times be subject to the conditions in Part 2 of this
Addendum and hereby covenants not to take or allow any action which could
provide grounds for termination of the Primary Blue Cross License.
2. Automatic Termination.
2.1. Except as otherwise expressly provided in this Part 2, WellPoint's
Primary Blue Cross License shall automatically terminate effective at the end of
the Applicable Interval following the occurrence of any of the following events:
(a) Any of the provisions in Article VII of WellPoint's Charter or
any of the other Basic Protections identified in Section 3.5
shall expire or be amended (other than to extend its term),
eliminated or otherwise impaired or any person shall be
permitted, by the ruling of any court or otherwise, to take any
action contrary to the terms of any of the Basic Protections
without the written consent of BCBSA.
(b) Any VA Shares (identified as prescribed in Section 3.8) shall
not be voted as prescribed by the terms of the Voting Agreement
identified in Section 3.5(b)(3).
(c) At any time before May 20, 2001, the Foundation's board of
directors does not contain at least a majority of directors who
served as directors of California Blue Cross prior to May 17,
1996.
(d) The Foundation is not independent of all state governmental
authority over its affairs including any authority over the
composition and membership of its board of directors, other than
customary regulatory powers exercised by the California Attorney
General over similar situated entities and other than in
accordance with California Blue Cross' Undertakings to the
California Department of Corporations dated March 5, 1996 as
provided to BCBSA prior to May 17, 1996.
(e) The Foundation Beneficially Owns WellPoint shares not on deposit
in the Voting Trust identified in Section 3.5(b)(4)
representing:
(1) 50% or more of the voting power at any time between the
date hereof and May 20, 1999; or
3
<PAGE> 4
(2) 20% or more of the voting power at any time from and
including May 20, 1999 to but not including May 20,
2001; or
(3) 5% or more of the voting power at any time on or after
May 20, 2001.
(f) Any person other than the Foundation shall Beneficially Own
WellPoint shares representing more than 5% of the voting power
in WellPoint except that no automatic termination shall result
by reason of any person's Beneficial Ownership exceeding that 5%
limit if prior to the end of the Applicable Interval arising
from such Beneficial Ownership (i) such person shall cease to
Beneficially Own WellPoint shares representing more than 5% of
the voting power in WellPoint and (ii) none of the WellPoint
shares Beneficially Owned in excess of the 5% voting power limit
shall be voted while they are so Beneficially Owned.
(g) Any shares on deposit in the Voting Trust identified in Section
3.5(b)(4) shall not be voted in accordance with the terms of the
Voting Trust Agreement identified in Section 3.5(b)(4).
(h) Any shares known by WellPoint to be Excess Shares shall not be
voted in accordance with the terms in Section 9 of Article VII
of WellPoint's Charter as constituted immediately after the
Reincorporation.
(i) Less than a majority of the positions on the WellPoint Board
shall be held by Independent Directors.
(j) WellPoint shall fail to comply with the requirements of Part 4
of this Addendum.
2.2. Applicable Interval.
(a) The "Applicable Interval" with respect to any event specified in
clause (d) or (j) of Section 2.1 shall begin upon the occurrence
of that event and shall end on the 40th day after WellPoint
shall first learn of such event.
(b) The "Applicable Interval" with respect to any event specified in
clause (f) of Section 2.1 shall begin upon the occurrence of
that event and shall end on the 90th day after WellPoint shall
first learn of such event.
(c) The "Applicable Interval" with respect to any event specified in
any other clause of Section 2.1 shall begin upon the occurrence
of that event and shall end on the 10th day after WellPoint
shall first learn of such event.
4
<PAGE> 5
2.3. Waiver. WellPoint shall have the right to request any time prior to
the expiration of the Applicable Interval that any termination which would
otherwise be caused by the occurrence of any event listed in Section 2.1 be
waived. Once such request has been made by WellPoint to BCBSA, the Primary Blue
Cross License and any related controlled affiliate license shall be deemed to
remain in full force and effect until a determination has been made by BCBSA.
Such determination shall be made by BCBSA's disinterested member plans and any
requested waiver shall be deemed to have been denied unless it shall be approved
at the meeting called to consider such waiver by the affirmative vote of a
majority of the disinterested BCBSA member plans and a majority of the then
current weighted vote of the disinterested BCBSA member plans. Any such waiver
may be conditioned upon such additional requirements (including but not limited
to requirements imposing new independent grounds for termination of the Primary
Blue Cross License) as shall be approved by WellPoint and by such vote by the
disinterested BCBSA member plans.
2.4. Notice. WellPoint shall notify BCBSA in writing immediately after
WellPoint learns of (i) the occurrence of any event specified in Section 2.1 or
(ii) any development or state of facts which it is reasonably possible will lead
to the occurrence of any event specified in Section 2.1.
2.5. No Implied Exemption for Other Changes. The references in the
definitions of "WellPoint's Charter", "WellPoint's Bylaws", "Voting Agreement"
and "Voting Trust Agreement" to possible future amendments thereto or to
instruments which may supersede such original instruments in the future shall
not be deemed to exempt any amendment or replacement of any such instrument from
the operation of Section 2.1 and any such replacement shall be deemed to cause
an automatic termination at the end of the Applicable Interval if it changes or
impacts any of the terms of the Basic Protections in a manner which causes such
termination under the terms in Section 2.1.
3. Definitions. The following terms shall have the following meanings as
used herein:
3.1. Primary Blue Cross License. The term "Primary Blue Cross License"
means the license to use the Blue Cross name and all other rights granted under
or by reason of the Blue Cross License Agreement dated the date hereof between
BCBSA and WellPoint and under any amendments or supplements to, or restatements
or replacements of, that Agreement. The Primary Blue Cross License shall at all
times be subject to this Addendum and in the event of any conflict between the
Primary Blue Cross License and this Addendum, this Addendum shall control. In
the event the Primary Blue Cross License shall terminate, such termination shall
have the effect of terminating the right of any WellPoint subsidiary to use the
Blue Cross name and all other names or rights licensed from BCBSA.
3.2. Voting Power. The WellPoint shares Beneficially Owned by any
particular person shall be deemed to represent a percentage of the voting power
equal to the percentage of all votes which could be cast in any election of any
WellPoint director which could be accounted for by the shares Beneficially Owned
by that particular person. If in connection with an election for any particular
position on the WellPoint Board, shares in different classes or series are
entitled to be
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<PAGE> 6
voted together for purposes of such election, then in determining
the number of "all votes which could be cast" in the election for that
particular position for purposes of the preceding sentence, the number shall be
equal to the number of votes which would be cast in the election for that
particular position if all shares entitled to be voted in such election
(regardless of series or class) were in fact voted in such election. If
WellPoint shall issue any series or class of shares for which positions on the
Board are reserved or shall otherwise issue shares which have voting rights
which can arise or vary based upon terms governing that class or series, then
the percentage of the voting power represented by the WellPoint shares
Beneficially Owned by any particular person shall be the highest percentage of
the total votes which could be accounted for by those shares in any election of
any director.
3.3. WellPoint Share. The term "WellPoint share" designates and includes
a share of common stock and a share (or other basic unit) of any class or series
of any other voting security which WellPoint may at any time issue or be
authorized to issue.
3.4. Beneficial Ownership:
(a) Except as otherwise provided in Section 3.4(b), any particular
person shall be deemed to Beneficially Own and to be the
Beneficial Owner of:
(1) Any WellPoint share in which such person shall then have
a direct or indirect beneficial ownership interest;
(2) Any WellPoint share in which such person shall have the
right to acquire any direct or indirect beneficial
ownership interest pursuant to any option or other
agreement (either immediately or after the passage of
time or the occurrence of any contingency);
(3) Any WellPoint share which such person shall have the
right to vote;
(4) Any WellPoint share (i) which constitutes an "Excess
Share" under Article VII of WellPoint's Charter or any
successor to such provision and (ii) of which such
person is the "Purported Owner" under such Article VII
(or has an equivalent position under any such successor
provision);
(5) Any WellPoint share in which such person shall hold any
other interest which would count in determining whether
such person would be required to file a Schedule 13D;
and
(6) Any WellPoint share which shall be Beneficially Owned
(under the concepts provided in the preceding clauses)
by any affiliate or associate of the particular person
or by any other person with whom the particular person
or
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<PAGE> 7
any such affiliate or associate has any agreement,
arrangement or understanding (other than customary
agreements with and between underwriters and selling
group members with respect to a bona fide public
offering of securities or other than that certain
Amended and Restated Registration Rights Agreement
between WellPoint and the Foundation entered into on or
prior to the consummation of the Reincorporation)
relating to the acquisition, holding, voting or
disposing of any WellPoint shares. For purposes of this
Addendum, the terms "affiliate" and "associate" have the
same meanings they have under Rule 12b-2 under the
Exchange Act as such Rule is constituted and interpreted
on the date hereof.
(b) Exceptions:
(1) A person shall not be deemed to "Beneficially Own" or
have "Beneficial Ownership" of any particular WellPoint
shares by reason of possessing the right to vote if (i)
such right arises solely from a revocable proxy or
consent given to such person in response to a public
proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations
promulgated under the Exchange Act, and (ii) such person
is not the Purported Owner of any Excess Shares (as
those terms are used in Article VII of WellPoint's
Charter), is not named as holding a beneficial ownership
interest in any WellPoint shares in any filing on
Schedule 13D, and is not an affiliate or associate of
any such Purported Owner or named person.
(2) A member of a national securities exchange or a
registered depository shall not be deemed to
"Beneficially Own" or have "Beneficial Ownership" of any
particular WellPoint shares held directly or indirectly
by it on behalf of another person (and not for its own
account) solely because such member or depository is the
record holder of such WellPoint shares, and (in the case
of such member) pursuant to the rules of such exchange,
such member may direct the vote of those WellPoint
shares without instruction on matters which are
uncontested and do not affect substantially the rights
or the privileges of the holders of the shares to be
voted, but is precluded by the rules of such exchange
from voting those particular WellPoint shares without
instruction on either contested matters or matters that
may affect substantially the rights or the privileges of
the holders of the WellPoint shares to be voted.
(3) A person who in the ordinary course of business is a
pledgee of WellPoint shares under a written pledge
agreement shall not be deemed to "Beneficially Own" or
have "Beneficial Ownership" of those pledged WellPoint
shares solely by reason of such pledge until the pledgee
has taken all formal steps
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<PAGE> 8
which are necessary to declare a default or has
otherwise acquired the power to vote or to direct the
vote of such pledged WellPoint shares, provided that:
(A) The pledge agreement is bona fide and was not
entered into with the purpose nor with the
effect of changing or influencing the control of
WellPoint, nor in connection with any
transaction having such purpose or effect,
including any transaction subject to Rule
13d-3(b) promulgated under the Exchange Act as
constituted on the date hereof; and
(B) The pledge agreement does not grant to the
pledgee the right to vote or to direct the vote
of such pledged WellPoint shares prior to the
time the pledgee has taken all formal steps
which are necessary to declare a default.
(4) A person engaged in business as an underwriter or a
placement agent for securities who enters into an
agreement to acquire or acquires any particular
WellPoint shares solely by reason of its participation
in good faith and in the ordinary course of its business
in the capacity of underwriter or placement agent in any
underwriting or agent representation registered under
the Securities Act of 1933, as amended and as
constituted on the date hereof (the "Securities Act"), a
bona fide private placement, a resale under Rule 144A
promulgated under the Securities Act or in any foreign
or other offering exempt from the registration
requirements under the Securities Act shall not be
deemed to "Beneficially Own" or have "Beneficial
Ownership" of those particular WellPoint shares until
the expiration of forty (40) days after the date of such
acquisition so long as (i) such person does not vote
such WellPoint shares during such period and (ii) such
participation is not with the purpose or with the effect
of changing or influencing control of WellPoint, nor in
connection with or facilitating any transaction having
such purpose or effect, including any transaction
subject to Rule 13d-3(b) promulgated under the Exchange
Act as such Rule is constituted on the date hereof.
(5) If WellPoint shall sell shares in a transaction not
involving any public offering, then each purchaser in
such offering shall be deemed to obtain Beneficial
Ownership in such offering of the shares purchased by
such purchaser but no particular purchaser shall be
deemed to have acquired Beneficial Ownership in such
offering of shares purchased by any other purchaser
solely by reason of the fact that all such purchasers
are parties to customary agreements relating to the
purchase of equity securities directly from WellPoint in
a transaction not involving a public offering, provided
that:
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<PAGE> 9
(A) All the purchasers are persons specified in Rule
13d-1(b)(1)(ii) promulgated under the Exchange
Act as such Rule is constituted on the date
hereof;
(B) The purchase is in the ordinary course of each
purchaser's business and not with the purpose
nor with the effect of changing or influencing
control of WellPoint, nor in connection with or
as a participant in any transaction having such
purpose or effect, including any transaction
subject to Rule 13d-3(b) promulgated under the
Exchange Act as such Rule is constituted on the
date hereof;
(C) There is no agreement among or between any
purchasers to act together with respect to
WellPoint or any WellPoint shares except for the
purpose of facilitating the specific purchase
involved; and
(D) The only actions among or between any purchasers
with respect to WellPoint or its securities
subsequent to the closing date of the nonpublic
offering are those which are necessary to
conclude ministerial matters directly related to
the completion of the offer or sale of the
WellPoint shares sold in such offering.
3.5. Basic Protections:
(a) The term "Basic Protections" designates and includes the
following provisions in WellPoint's Charter: Section 1 of
Article IV; all provisions in Article VII and Article IX; and
the provision is Article XI which requires the affirmative vote
of at least 75% of each class of WellPoint shares, represented
and voting at a duly held meeting at which a quorum is present,
voting by class to amend any of the provisions cited in this
sentence or to amend Sections 2, 6, 8 or 10 in Article IV of
WellPoint's Charter. (The term "WellPoint's Charter" as used in
this Addendum means WellPoint's Restated Certificate of
Incorporation as in effect from time to time after the
Reincorporation. In the event WellPoint's Charter shall be
replaced by another governing instrument as a result of a
merger, a reorganization or other similar event, if any, then
the term "WellPoint's Charter" shall thereafter refer to such
other governing instrument and the citations and terms used in
this agreement shall be deemed adjusted to refer to the
appropriate provisions in such subsequent instrument.)
(b) Until the Diversity Goal (identified in Section 3.6) is
achieved, the term "Basic Protections" also means:
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<PAGE> 10
(1) Sections 2, 6, 8, and 10 in Article IV in WellPoint's
Charter.
(2) The following provisions in WellPoint's Bylaws: Sections
2 and 3 of Article III; and Section 2 of Article IV.
(The term "WellPoint's Bylaws" as used in this Addendum
means WellPoint's Bylaws as in effect from time to time
after the Reincorporation. In the event WellPoint's
Bylaws shall be replaced by another governing instrument
as a result of a merger, a reorganization or other
similar event, if any, then the term "WellPoint's
Bylaws" shall thereafter refer to such other governing
instrument and the citations and terms used in this
agreement shall be deemed adjusted to refer to the
appropriate provisions in such subsequent instrument.)
(3) The Voting Agreement. (The term "Voting Agreement"
whenever it is used in this Addendum means the Amended
and Restated Voting Agreement dated the date hereof
between WellPoint, California Blue Cross and the
Foundation as in effect from time to time after the
Reorganization. In the event the Voting Agreement shall
be replaced by another agreement as a merger, a
reorganization or other similar event, if any, then the
term "Voting Agreement" shall thereafter refer to that
replacement agreement and the citations and terms used
in this agreement shall be deemed adjusted to refer to
the appropriate provisions in that replacement
agreement.)
(4) The Voting Trust Agreement. (The term "Voting Trust
Agreement" whenever it is used in this Addendum means
the Amended and Restated Voting Trust Agreement dated
the date hereof between the Foundation and Wilmington
Trust Company as in effect from time to time after the
Reincorporation. In the event the Voting Trust Agreement
shall be replaced by another agreement as a merger, a
reorganization or other similar event, if any, then the
term "Voting Trust Agreement" shall thereafter refer to
that replacement agreement and the citations and terms
used in this agreement shall be deemed adjusted to refer
to the appropriate provisions in that replacement
agreement. The term "Voting Trust" whenever it is used
in this Addendum means the voting trust governed by the
Voting Trust Agreement.)
(5) Section 12 of the Amended and Restated Registration
Rights Agreement among WellPoint, California Blue Cross
and the Foundation.
3.6. Diversity Goal. The Foundation's Diversity Goal shall be deemed to
be achieved when the Foundation shall Beneficially Own WellPoint shares
representing less than 5% of the voting power.
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<PAGE> 11
3.7. Independent Director. Any particular individual shall be deemed to
be a "Independent Director" if (but not unless) such individual
(a) either (i) is David R. Banks, W. Toliver Besson, Roger E. Birk,
Sheila P. Burke, Stephen L. Davenport, Julie A. Hill, Elizabeth
A. Sanders, or Leonard D. Schaeffer or (ii) was elected to the
Board after the date hereof with the approval of two thirds of
the directors then in office who then constituted Independent
Directors
and
(b) does not Beneficially Own WellPoint shares which represent more
than 5% of the voting power,
and
(c) was not nominated by a person who Beneficially Owns WellPoint
shares representing more than 5% of the voting power and, prior
to such individual's election, did not have any agreement,
arrangement or understanding with any such Beneficial Owner with
respect to any action to be taken by such individual as a
director.
3.8. VA Shares. All WellPoint shares which shall be Beneficially Owned
by the Foundation at any particular time shall be deemed to be "VA Shares"
except that (i) WellPoint shares which are held in the voting trust created by
the Voting Trust Agreement and are voted as required by the terms of the Voting
Trust Agreement shall not be deemed VA Shares so long as they are so held and
voted and (ii) the Foundation shall be entitled to Beneficially Own at any
particular time WellPoint shares representing up to 5% of the voting power free
of (and without being subject in any way to) the voting requirements in either
the Voting Trust Agreement or the Voting Agreement and none of the WellPoint
shares Beneficially Owned by the Foundation at or below this 5% limit shall be
deemed VA Shares. Without limiting by implication the generality of the
preceding sentence, so long as the only Capital Stock outstanding is Common
Stock, any share of Common Stock which shall be Beneficially Owned by the
Foundation at any particular time in excess of 5% of the number of shares of
Common Stock then outstanding shall be deemed a VA Share unless at that
particular time it is on deposit in the voting trust created by the Voting Trust
Agreement and is required to be voted in accordance with the terms of the Voting
Trust Agreement.
3.9. Exchange Act. The term "Exchange Act" means the Securities Exchange
Act of 1934 as amended or supplemented at the time as of which the term shall be
applied and any other federal law which BCBSA shall reasonably judge to have
replaced or supplemented the coverage of the Securities Exchange Act of 1934 as
in effect on the date hereof.
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3.10. Schedule 13D. The term "Schedule 13D" means a report on Schedule
13D under Regulation 13D under the Exchange Act as constituted on the date
hereof and any report which may be required in the future under any requirement
which BCBSA shall reasonably judge to have any of the purposes served by
Schedule 13D on the date hereof.
4. Commitment to Use Blue Cross Marks.
4.1. WellPoint covenants that all Relevant Businesses conducted in the
State of California by WellPoint or any of its affiliates will be conducted
after the date hereof under the name "Blue Cross of California" and will be
conducted utilizing the Blue Cross name and marks in identifying such business.
The term "Relevant Businesses" means all health care benefits businesses which
were conducted on February 13, 1996 by California Blue Cross or its subsidiary
which then had the name "CaliforniaCare Health Plans" and the businesses in
California which may develop or evolve from those businesses after February 13,
1996. The term "Relevant Businesses" shall not include (except as provided in
Section 4.2) the business acquired by California Blue Cross from Massachusetts
Mutual Life Insurance Company on March 31, 1996 (the "MassMutual Business") and
shall not include the workers' compensation business conducted by WellPoint's
subsidiary UniCARE Insurance Company.
4.2. The MassMutual Business comprised of accounts with California
headquarters ("California Accounts") shall be transitioned to being offered by
WellPoint, California Blue Cross, or BC Life & Health Insurance Company on or
prior to May 17, 2001 and after such transition shall use the Blue Cross name
and marks to the extent required by this Part 4 for businesses operated by those
companies. No new California Accounts shall become part of the MassMutual
Business after May 17, 1996, but rather all new accounts with California
headquarters arising after May 17, 1996 shall be offered by WellPoint,
California Blue Cross, or BC Life & Health Insurance Company and shall use the
Blue Cross name and marks to the extent required by this Part 4 for businesses
operated by those companies.
4.3. BC Life and Health Insurance Company and WellPoint shall take the
actions necessary so that BC Life and Health Insurance Company (i) continuously
meets all qualifications necessary to hold a controlled affiliate license from
BCBSA, (ii) utilizes the Blue Cross of California name and Blue Cross marks in
marketing materials, (iii) identifies its products in marketing materials as
being brought to its subscribers by "Blue Cross of California," and (iv) shall
identify itself in marketing materials as an affiliate of Blue Cross of
California.
4.4. Transfers of businesses from WellPoint or California Blue Cross to
BC Life & Health Insurance Company after January 13, 1997 (the "Transferred
Businesses") shall not violate this Part 4 if, on or prior to May 17, 2001, the
Transferred Businesses do not comprise in excess of 50% of the Relevant
Businesses, based on relative annual premium revenues, and such Transferred
Businesses are marketed under the Blue Cross of California name and Blue Cross
marks.
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4.5. The covenants in this Part 4 are in addition to and distinct from
WellPoint's obligations under the Primary Blue Cross License. For purposes of
this Part 4 only, the term "affiliate" does not include the Foundation.
5. No Other Waiver. Nothing herein shall constitute a waiver of BCBSA's
rights to terminate the Primary Blue Cross License for any reason allowed under
the Primary Blue Cross License other than the reason expressly waived in Part 1
of this Addendum. All agreements, understandings or other circumstances which
were made or arose prior to the date hereof granting WellPoint, California Blue
Cross or any of their respective subsidiaries or predecessors licenses or rights
in the Blue Cross name or other rights licensed by BCBSA are hereby terminated
effective as of the date hereof, and neither WellPoint nor California Blue Cross
nor any of their respective affiliates shall have any rights under or by reason
of such earlier agreements, understandings or other circumstances. The rights of
WellPoint, California Blue Cross and their respective subsidiaries to use the
Blue Cross name and other rights licensed by BCBSA shall instead be derived from
the date hereof exclusively from the Primary Blue Cross License and related
agreements granted on or after the date hereof.
6. Miscellaneous
6.1. WellPoint shall not assign its rights or obligations under this
Addendum to any other person without the prior written consent of BCBSA. BCBSA
shall have the right to assign its rights under this Addendum to any corporation
or other entity which shall assume any of its responsibility for the Blue Cross
name or other rights licensed under the Primary License Agreement. This Addendum
and the provisions hereof shall be binding upon each of the parties, and their
successors and assigns, and shall inure to the benefit of each party's
successors and permitted assignees.
6.2. Any term or provision of this Addendum may be amended, and the
observance of any term of this Addendum may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby. Without limiting by implication the
generality of the preceding sentence, every time any event listed in Section 2.1
shall occur, it shall constitute a separate and self-sufficient cause for
automatic termination of the Primary Blue Cross License regardless of whether
any prior occurrence of such event or any other event shall have been waived
absolutely or conditionally. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
6.3. Each of the parties acknowledges that the other party will be
irreparably harmed and that there will be no adequate remedy at law for a
violation of any of the covenants of the other party set forth herein.
Therefore, it is agreed that, in addition to any other remedies that may be
available to either party to this Addendum in connection with any such violation
or prospective violation, such party shall have the right to enforce such
covenant by specific performance, by injunctive relief or by any other means
available to such party at law or in equity.
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6.4. WellPoint warrants to BCBSA that: (i) the Merger identified in the
proxy statement issued on May 9, 1997 by California Blue Cross has become
effective in Delaware and California on the terms and with the effect described
in that proxy statement; (ii) WellPoint has provided BCBSA with complete and
accurate copies of WellPoint's Charter, WellPoint's Bylaws, the Voting
Agreement, the Voting Trust Agreement and the Registration Rights Agreement as
constituted immediately after the Reincorporation; (iii) the Foundation has
executed and delivered the Voting Agreement, the Voting Trust Agreement, and the
Registration Rights Agreement; (iv) on the date hereof, the Foundation
Beneficially Owns approximately 43% of WellPoint's common stock outstanding
immediately after the Reincorporation; and (v) no person other than the
Foundation Beneficially Owns WellPoint shares representing more than 5% of the
voting power. This Addendum replaces and supersedes the Original Addendum
effective upon its execution and delivery by the parties hereto.
6.5. The internal laws of the State of Illinois (irrespective of its
choice of law principles) shall govern all issues concerning the validity of
this Addendum, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties.
Each of the parties has executed this Addendum to evidence its agreement
to be bound by all of its terms.
Blue Cross and Blue Shield Association
By: /s/ ROGER WILSON
-------------------------------------
Name: Roger Wilson
Title: Sr. Vice Pres.,
Gen. Counsel, Corp. Secy.
WellPoint Health Networks Inc.
(a Delaware Corporation identified
herein as "WellPoint")
By: /s/ LEONARD D. SCHAEFFER
-------------------------------------
Name: Leonard D. Schaeffer
Title: Chief Executive Officer
Blue Cross of California
(a California corporation identified
herein as "California Blue Cross")
By: /s/ LEONARD D. SCHAEFFER
-------------------------------------
Name: Leonard D. Schaeffer
Title: Chief Executive Officer
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<PAGE> 1
EXHIBIT 99.8
BLUE CROSS
AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and Blue Cross of California ("Affiliate"), an affiliate of the Blue
Cross Plan(s), known as WellPoint Health Networks Inc. ("Plan"), which is also
a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, Plan and Affiliate desire that the latter be entitled to use
the BLUE CROSS and BLUE CROSS Design service marks (collectively the "Licensed
Marks") as service marks and be entitled to use the term BLUE CROSS in a trade
name ("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby
grants to Affiliate the right to use the Licensed Marks and Name in connection
with, and only in connection with: (i) health care plans and related services
and administering the non-health portion of workers' compensation insurance, and
(ii) underwriting the indemnity portion of workers' compensation insurance,
provided that Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the Service Area served
by the Plan. Affiliate may not use the Licensed Marks and Name in its legal name
and may use the Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Affiliate agrees to use the Licensed Marks and Name only in
connection with the licensed services and further agrees to be bound by the
conditions regarding quality control shown in attached Exhibit A as they may be
amended by BCBSA from time-to-time.
<PAGE> 2
B. Affiliate agrees to comply with all applicable federal, state
and local laws.
C. Affiliate agrees that it will provide on an annual basis (or
more often if reasonably required by Plan or by BCBSA) a report or reports to
Plan and BCBSA demonstrating Affiliate's compliance with the requirements of
this Agreement including but not limited to the quality control provisions of
this paragraph and the attached Exhibit A.
D. Affiliate agrees that Plan and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method
of Affiliate's rendering of service and use of the Licensed Marks and Name.
E. As used herein, an Affiliate is defined as an entity organized
and operated in such a manner, that it meets the following requirements:
(1) If the Plan has 50 percent of the voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in
the articles of incorporation, bylaws or other establishing or
governing documents of the Affiliate with which it does not concur;
(b) the Plan must have at least equal control over the operations
of the Affiliate;
(c) the Plan must concur in writing before the Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates;
(iii) change the fundamental type(s) of business in which
it engages;
(iv) take any action that Plan or BCBSA reasonably
believes will adversely affect the Licensed Marks and
Name.
(2) If the Plan has more than 50 percent voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in
the articles of incorporation, bylaws or other establishing or
governing documents of the Affiliate with which it does not concur;
(b) the Plan must have control over the policy and operations of
the Affiliate.
3. SERVICE MARK USE
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<PAGE> 3
A. Affiliate recognizes the importance of a comprehensive
national network of independent BCBSA licensees which are committed to
strengthening the Licensed Marks and Name. The Affiliate further recognizes that
its actions within its Service area may affect the value of the Licensed Marks
and Name nationwide.
B. Affiliate shall at all times make proper service mark use of
the Licensed Marks and Name, including but not limited to use of such symbols or
words as BCBSA shall specify to protect the Licensed Marks and Name and shall
comply with such rules (generally applicable to Affiliates licensed to use the
Licensed Marks and Name) relative to service mark use, as are issued from
time-to-time by BCBSA. Affiliate recognizes and agrees that all use of the
Licensed Marks and Name by Affiliate shall inure to the benefit of BCBSA.
C. Affiliate may not directly or indirectly use the Licensed
Marks and Name in a manner that transfers or is intended to transfer in the
Service Area the goodwill associated therewith to another mark or name, nor may
Affiliate engage in activity that may dilute or tarnish the unique value of the
Licensed Marks and Name.
D. If Affiliate meets the standards of 2E(1) but not 2E(2) above
and any of Affiliate's advertising or promotional material is reasonably
determined by BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name, Affiliate shall
for ninety (90) days thereafter obtain prior approval from BCBSA of advertising
and promotional efforts using the Licensed Marks and Name, approval or
disapproval thereof to be forthcoming within five (5) business days of receipt
of same by BCBSA or its designee. In all advertising and promotional efforts,
Affiliate shall observe the Service Area limitations applicable to Plan.
E. Affiliate shall use its best efforts in the Service Area to
promote and build the value of the Licensed Marks and Name.
4. SUBLICENSING AND ASSIGNMENT
Affiliate shall not sublicense, transfer, hypothecate, sell, encumber
or mortgage, by operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or BCBSA. This
Agreement and all rights and duties hereunder are personal to Affiliate.
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<PAGE> 4
5. INFRINGEMENT
Affiliate shall promptly notify Plan and Plan shall promptly notify
BCBSA of any suspected acts of infringement, unfair competition or passing off
that may occur in relation to the Licensed Marks and Name. Affiliate shall not
be entitled to require Plan or BCBSA to take any actions or institute any
proceedings to prevent infringement, unfair competition or passing off by third
parties. Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to the protection
of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Affiliate and Plan hereby agree to save, defend, indemnify and hold
BCBSA harmless from and against all claims, damages, liabilities and costs of
every kind, nature and description (except those arising solely as a result of
BCBSA's negligence) that may arise as a result of or related to Affiliate's
rendering of services under the Licensed Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license granted by
this Agreement shall remain in effect for a period of one (1) year and shall be
automatically extended for additional one (1) year periods unless terminated
pursuant to the provisions herein.
B. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that Plan ceases to be authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement, this
license to use the Licensed Marks and Name may be forthwith terminated by the
Plan or the affirmative vote of the majority of the Board of Directors of BCBSA
present and voting at a special meeting expressly called by BCBSA for the
purpose on ten (10) days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the quality control
standards of this Agreement; or (2) failure to comply with the "Organization and
Governance" quality control standard of this Agreement; or (3) impending
financial insolvency; or (4) for a Smaller Affiliate (as defined in Exhibit A),
failure to comply with any of the applicable requirements of Standards 2, 3, 4,
5 or 7 of attached Exhibit A; or (5) such other reason as is determined in good
faith immediately and irreparably to threaten the integrity and reputation of
BCBSA, the Plans, any other licensee including Affiliate and/or the Licensed
Marks and Name.
4
<PAGE> 5
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E)
herein, should Affiliate fail to comply with the provisions of this Agreement
and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be completed
within such thirty day period) BCBSA or the Plan shall have the right to issue a
notice that the Affiliate is in a state of noncompliance. If a state of
noncompliance as aforesaid is undisputed by the Affiliate or is found to exist
by a mandatory dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the Agreement or to issue a
notice of termination thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License pursuant to
Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to
mediation and mandatory dispute resolution. All other disputes between BCBSA,
the Plan and/or Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall have authority
to issue orders for specific performance and assess monetary penalties. Except,
however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason
without the affirmative vote of a majority of the present and voting members of
the Board of Directors of BCBSA.
E. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that:
(1) Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Affiliate
pursuant to paragraph 9 hereof, which are the royalties for this License
Agreement, are more than sixty (60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition
shall be filed by Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an involuntary petition
or proceeding shall be filed against Affiliate seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency or debtor relief
and such petition or proceeding is consented to or acquiesced in by Affiliate or
is not dismissed within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the Affiliate, or (iii)
an order for relief is entered against Affiliate in any case under the
bankruptcy laws of the United States, or Affiliate is adjudged bankrupt or
insolvent as those terms are defined in the Uniform Commercial Code as enacted
in the State of Illinois
5
<PAGE> 6
by any court of competent jurisdiction, or (iv) Affiliate makes a general
assignment of its assets for the benefit of creditors, or (v) the Department of
Insurance or other regulatory agency assumes control of Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an action is
brought by Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business, or (vii) an action is instituted
against Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is consented to or
acquiesced in by Affiliate or is not dismissed within sixty (60) days of the
date upon which the pleading or other document commencing the action is served
upon the Affiliate, or (viii) a trustee, interim trustee, receiver or other
custodian for any of Affiliate's property or business is appointed.
F. Upon termination of this Agreement for cause or otherwise,
Affiliate agrees that it shall immediately discontinue all use of the Licensed
Marks and Name, including any use in its trade name.
G. Upon termination of this Agreement, Affiliate shall
immediately notify all of its customers that it is no longer a licensee of BCBSA
and, if directed by the Association's Board of Directors, shall provide
instruction on how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The notification required by
this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA
shall have the right to audit the terminated entity's books and records to
verify compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Affiliate is a Larger Affiliate (as defined in
Exhibit A), upon termination of this Agreement, the provisions of Paragraph 7.G.
shall not apply and the following provisions shall apply:
(1) The Affiliate shall send a notice through the U.S. mails, with
first class postage affixed, to all individual and group customers, providers,
brokers and agents of products or services sold, marketed, underwritten or
administered by the Affiliate under the Licensed Marks and Name. The form and
content of the notice shall be specified by BCBSA and shall, at a minimum,
notify the recipient of the termination of the license, the consequences
thereof, and instructions for obtaining alternate products or services licensed
by BCBSA. This notice shall be mailed within 15 days after termination.
6
<PAGE> 7
(2) The Affiliate shall deliver to BCBSA within five days of a
request by BCBSA a listing of national accounts in which the Affiliate is
involved (in a control, participating or servicing capacity), identifying the
national account and the Affiliate's role therein.
(3) Unless the cause of termination is an event respecting BCBSA
stated in paragraph 15(a) or (b) of the Plan's license agreement with BCBSA to
use the Licensed Marks and Name, the Affiliate, the Plan, and any other Licensed
Controlled Affiliates of the Plan shall be jointly liable for payment to BCBSA
of an amount equal to $25 multiplied by the number of Licensed Enrollees of the
Affiliate; provided that if any other Plan is permitted by BCBSA to use marks or
names licensed by BCBSA in the Service Area established by this Agreement, the
payment shall be multiplied by a fraction, the numerator of which is the number
of Licensed Enrollees of the Affiliate, the Plan, and any other Licensed
Controlled Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means each and every
person and covered dependent who is enrolled as an individual or member of a
group receiving products or services sold, marketed or administered under marks
or names licensed by BCBSA as determined at the earlier of (i) the end of the
last fiscal year of the terminated entity which ended prior to termination or
(ii) the fiscal year which ended before any transactions causing the termination
began. Notwithstanding the foregoing, the amount payable pursuant to this
subparagraph H. (3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Affiliate, the Plan or any other Licensed
Controlled Affiliates of the Plan to fall below 100% of the capital benchmark
formula, or its equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by BCBSA measured as
of the date of termination, and adjusted for the value of any transactions not
made in the ordinary course of business.
(4) BCBSA shall have the right to audit the books and records of
the Affiliate, the Plan, and any other Licensed Controlled Affiliates of the
Plan to verify compliance with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree
that the obligations are immediately enforceable in a court of competent
jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Affiliate, the
parties agree there is no adequate remedy at law and BCBSA is entitled to obtain
specific performance.
I. In the event the Affiliate is a Smaller Affiliate (as defined
in Exhibit A), the Affiliate agrees to be jointly liable for the amount
described in H.3. hereof upon termination of the BCBSA license agreement of any
Larger Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Affiliate or any related
party in a court of competent jurisdiction from entry into any transaction which
would result in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d)
of the Plan's license agreement upon the required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets of the
Affiliate.
7
<PAGE> 8
L. In the event that the Plan has more than 50 percent voting
control of the Affiliate under Paragraph 2(E)(2) above and is a Larger Affiliate
(as defined in Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the Blue Cross
Plans which are Regular Members of BCBSA and three-fourths of the total then
current weighted vote of all the Blue Cross Plans which are Regular Member Plans
of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between or among
either of them and one or more Plans or Affiliates of Plans that use in any
manner the Blue Cross and Blue Shield Marks and Name are subject to the
Mediation and Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name as Exhibits 5,
5A and 5B as amended from time-to-time, which documents are incorporated herein
by reference as though fully set forth herein.
9. LICENSE FEE
Affiliate will pay to BCBSA a fee for this License determined pursuant
to the formula(s) set forth in Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as creating a
joint venture, partnership, agency or employment relationship between Plan and
Affiliate or between either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to
the last known address of each other party, marked respectively to the attention
of its President and, if any, its General Counsel.
8
<PAGE> 9
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by a
writing executed by all parties hereto or by the vote of three-fourths of the
Plans and three-fourths of the total then current weighted vote of all the
Plans.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of
competent jurisdiction, such findings shall in no way affect the remaining
obligations of the parties hereunder and the court may substitute a lawful term
or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part
of Affiliate or any other licensee of any of the terms, covenants or conditions
of this Agreement shall constitute a waiver of any subsequent breach or default
in performance of said terms, covenants or conditions.
9
<PAGE> 10
THIS PAGE IS INTENTIONALLY BLANK.
10
<PAGE> 11
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience only and
shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License Agreement to
be executed and effective as of the date of last signature written below.
BLUE CROSS OF CALIFORNIA
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Date: August 1, 1997
WELLPOINT HEALTH NETWORKS INC.
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Date: August 1, 1997
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ ROGER WILSON
------------------------------------
Date: August 4, 1997
----------------------------------
11
<PAGE> 12
EXHIBIT A
AFFILIATE LICENSE STANDARDS
March 1997
PREAMBLE
The standards for licensing affiliates are established by BCBSA and are subject
to change from time-to-time upon the affirmative vote of three-fourths (3/4) of
the Plans and three-fourths (3/4) of the total weighted vote. Each licensed Plan
is required to use a standard affiliate license form provided by BCBSA and to
cooperate fully in assuring that the licensed affiliate maintains compliance
with the license standards.
The Affiliate License provides a flexible vehicle to accommodate the potential
range of health and workers' compensation related products and services Plan
affiliates provide. The Affiliate License collapses former health affiliate
licenses (HCC, HMO, PPO, TPA, and IDS) into a single license using the following
business-based criteria to provide a framework for license standards:
- - Percent of affiliate controlled by parent: Greater than 50 percent or
50 percent?
- - Risk assumption: yes or no?
- - Medical care delivery: yes or no?
- - Importance of the affiliate to the parent: If the affiliate has health
or workers' compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger" affiliate) of
the parent's and other licensed health subsidiaries' contract
enrollment?
12
<PAGE> 13
EXHIBIT A (CONTINUED)
For purposes of definition:
- - A "smaller affiliate:" (1) comprises less than fifteen percent (15%) of
Plan's and its licensed affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report, excluding rider and
freestanding coverage, and treating an entity seeking licensure as
licensed);* or (2) underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less than 15
percent of the sponsoring Plan's net subscription revenue.
- - A "larger affiliate" comprises fifteen percent (15%) or more of Plan's
and its licensed affiliates' total contract enrollment (as reported on
the BCBSA Quarterly Enrollment Report, excluding rider and freestanding
coverage, and treating an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
- - For smaller affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS licensees
under fifteen percent (15%).
- - For larger affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier licensees,
and - June 1996, for all other currently licensed affiliates
presently at or over fifteen percent(15%).
Changes in affiliate status:
If ANY affiliate's status changes regarding: its Plan ownership level, its risk
acceptance or direct delivery of medical care, the affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and come into compliance
with the applicable standards within six (6) months.
If a smaller affiliate's health and workers' compensation administration
business surpasses fifteen percent (15%) of the total contract enrollment of the
Plan and licensed affiliates, the affiliate shall:
13
<PAGE> 14
EXHIBIT A (CONTINUED)
1. Within thirty (30) days, notify BCBSA of this fact in writing,
including evidence that the affiliate meets the minimum liquidity and
capital (BCBSA Capital Benchmark and state-established minimum reserve)
requirements of the larger affiliate Financial Responsibility standard;
and
2. Within six (6) months after surpassing the fifteen percent (15%)
threshold, demonstrate compliance with all license requirements for a
larger affiliate.
If an affiliate that underwrites the indemnity portion of workers' compensation
insurance receives a change in rating or proposed change in rating, the
affiliate shall notify BCBSA within 30 days of notification by the external
rating agency.
- -----------
*For purposes of this calculation,
The numerator equals:
Applicant affiliate's contract enrollment, as defined in BCBSA's Quarterly
Enrollment Report (excluding rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed affiliates' contract enrollment, as
reported in BCBSA's Quarterly Enrollment Report (excluding rider and
freestanding coverage).
14
<PAGE> 15
EXHIBIT A (CONTINUED)
STANDARDS FOR LICENSED AFFILIATES
Each affiliate seeking licensure must answer all four questions. Depending on
the affiliate's answers, certain standards apply:
1. What percent of the affiliate is controlled by the parent Plan?
<TABLE>
<S> <C>
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
</TABLE>
IN ADDITION,
2. Is risk being assumed?
<TABLE>
<CAPTION>
Yes No
<S> <C> <C> <C> <C>
Affiliate underwrites Affiliate comprises * Affiliate comprises ** Affiliate comprises * Affiliate comprises **
any indemnity portion 15% of total contract 15% of total contract 15% of total contract 15% of total contract
of workers' enrollment of Plan and enrollment of Plan and enrollment of Plan and enrollment of Plan and
compensation insurance its licensed its licensed its licensed its licensed
affiliates, and does affiliates, and does affiliates affiliates
Standards 7A7E not underwrite the not underwrite the
indemnity portion of indemnity portion of Standard 2 Standard 6H
workers' compensation workers' compensation (Guidelines 2.1,2.3)
insurance insurance
Standard 2 Standard 6H
Guidelines (2.1,2.2)
</TABLE>
IN ADDITION,
3. Is medical care being directly provided?
<TABLE>
<CAPTION>
Yes No
<S> <C>
Standard 3A Standard 3B
</TABLE>
IN ADDITION,
4. If the affiliate has health or workers' compensation administration business,
does such business comprise 15% or more of the total contract enrollment of Plan
and its licensed affiliates?
<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
Standards 6A6I Affiliate is a former Affiliate is not a former
primary licensee primary licensee
Standards 5,8,9 Standards 5,8
</TABLE>
* less than
** greater than or equal to
15
<PAGE> 16
EXHIBIT A (CONTINUED)
STANDARD 1 - ORGANIZATION AND GOVERNANCE
1A.) The Standard for more than 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that it is
controlled by a licensed Plan or Plans which have, directly or indirectly: 1)
more than 50% of the voting control of the affiliate; and 2) the legal ability
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the affiliate with which it does not
concur; and 3)
operational control of the affiliate.
1B.) The Standard for 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that a licensed
Plan or Plans have directly or indirectly:
1) not less than 50% of the voting control of the affiliate; and
2) the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of
the affiliate with which it does not concur; and
3) at least equal direct or indirect control over the operations of the
affiliate; and
4) sufficient authority so that changes in the following require the
approval of the Licensed Plan or Plans:
- geographic operating area of the affiliate
- the legal and trade names of the affiliate
- the types of activity in which the affiliate engages
- any action which would cause the affiliate to be in violation
of the Standards applicable to Licensure by BCBSA.
16
<PAGE> 17
EXHIBIT A (CONTINUED)
STANDARD 2 - FINANCIAL RESPONSIBILITY
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers. If a risk-assuming affiliate ceases operations for any reason, Blue
Cross and/or Blue Shield Plan coverage will be offered to all affiliate
subscribers without exclusions, limitations or conditions based on health
status. If a nonrisk-assuming affiliate ceases operations for any reason,
sponsoring Plan(s) will provide for services to its (their) customers.
STANDARD 3 - STATE LICENSURE/CERTIFICATION
3A.) The Standard for an affiliate that employs, owns or contracts on a
substantially exclusive basis for medical services is:
An affiliate shall maintain unimpaired licensure or certification for its
medical care providers to operate under applicable state laws.
3B.) The Standard for an affiliate that does not employ, own or contract on
a substantially exclusive basis for medical services is:
An affiliate shall maintain unimpaired licensure or certification to operate
under applicable state laws.
STANDARD 4 - CERTAIN DISCLOSURES
An affiliate shall make adequate disclosure in contracting with third parties
and in disseminating public statements of 1) the structure of the Blue Cross and
Blue Shield System; and 2) the independent nature of every licensee; and 3) the
affiliate's financial condition.
STANDARD 5 - REPORTS AND RECORDS FOR CERTAIN SMALLER AFFILIATES
For a smaller affiliate that does not underwrite the indemnity portion of
workers' compensation insurance, the Standard is:
An affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate
basis, reports and records relating to these Standards and the License
Agreements between BCBSA and affiliate.
17
<PAGE> 18
EXHIBIT A (CONTINUED)
STANDARD 6 - OTHER STANDARDS FOR LARGER AFFILIATES
Standards 6(A) - (I) that follow apply to larger affiliates.
Standard 6(A): Board of Directors
An affiliate Governing Board shall act in the interest of its Corporation in
providing cost-effective health care services to its customers. An affiliate
shall maintain a governing Board, which shall control the affiliate, composed of
a majority of persons other than providers of health care services, who shall be
known as public members. A public member shall not be an employee of or have a
financial interest in a health care provider, nor be a member of a profession
which provides health care services.
Standard 6(B): Responsiveness to Customers
An affiliate shall be operated in a manner responsive to customer needs and
requirements.
Standard 6(C): Participation in National Programs
An affiliate shall effectively and efficiently participate in each national
program as from time to time may be adopted by the Member Plans for the purposes
of providing portability of membership between the licensees and ease of claims
processing for customers receiving benefits outside of the affiliate's Service
Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. National Account Equalization Program;
C. BlueCard Program;
18
<PAGE> 19
EXHIBIT A (CONTINUED)
D. Inter-Plan Teleprocessing System (ITS); and
E. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs listed in
Standard 6C: Participation in National Programs, an affiliate shall take such
action as required to ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response Process
An affiliate shall cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the administration of the Plan
Performance Response Process and in addressing affiliate performance problems
identified thereunder.
Standard 6(F): Independent Financial Rating
An affiliate shall obtain a rating of its financial strength from an independent
rating agency approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, an affiliate shall use its best efforts in the designated
Service Area to promote and build the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
19
<PAGE> 20
EXHIBIT A (CONTINUED)
Standard 6(I): Reports and Records
An affiliate shall furnish to BCBSA on a timely and accurate basis reports and
records relating to compliance with these Standards and the License Agreements
between BCBSA and affiliate. Such reports and records are the following:
A) BCBSA Affiliate Licensure Information Request; and
B) Biennial trade name and service mark usage material, including
disclosure material; and
C) Changes in the ownership and governance of the affiliate, including
changes in its charter, articles of incorporation, or bylaws, changes
in an affiliate's Board composition, or changes in the identity of the
affiliate's Principal Officers, and changes in risk acceptance,
contract growth, or direct delivery of medical care; and
D) Quarterly Financial Report including the Capital Benchmark Worksheet,
Annual Financial Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement filed with State
Insurance Department (with all attachments); and
E) Quarterly Utilization Report, Quarterly Enrollment Report, Cost
Containment Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities Prohibited
No affiliate shall cause or permit an unlicensed entity to obtain control of the
affiliate or to acquire a substantial portion of its assets related to
licensable services.
STANDARD 7 - OTHER STANDARDS FOR RISK-ASSUMING WORKERS' COMPENSATION AFFILIATES
Standards 7(A) - (E) that follow apply to affiliates that underwrite the
indemnity portion of workers' compensation insurance.
20
<PAGE> 21
EXHIBIT A (CONTINUED)
Standard 7 (A): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
Standard 7(B): Reports and Records
An affiliate shall furnish, on a timely and accurate basis, reports and records
relating to compliance with these Standards and the License Agreements between
BCBSA and the affiliate. Such reports and records are the following:
A. BCBSA Affiliate Licensure Information Request; and
B. Biennial trade name and service mark usage materials, including
disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as filed with the State
Insurance Department (with all attachments), Annual NAIC's Risk-Based
Capital Worksheets for Property and Casualty Insurers, and Annual
Financial Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for
Property and Casualty Insurers, Insurance Department Examination
Report, and Quarterly NMIS Report (for licensed health business only);
and
E. Notification of all changes and proposed changes to independent ratings
within 30 days of receipt and submission of a copy of all rating
reports; and
F. Changes in the ownership and governance of the affiliate including
changes in its charter, articles of incorporation, or bylaws, changes
in an affiliate's Board composition, Plan control, state license
status, operating area, the affiliate's Principal Officers or direct
delivery of medical care.
21
<PAGE> 22
EXHIBIT A (CONTINUED)
Standard 7(C): Loss Prevention
An affiliate shall apply loss prevention protocol to both new and existing
business.
Standard 7(D): Claims Administration
An affiliate shall maintain an effective claims administration process that
includes all the necessary functions to assure prompt and proper resolution of
medical and indemnity claims.
Standard 7(E): Disability and Provider Management
An affiliate shall arrange for the provision of appropriate and necessary
medical and rehabilitative services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
STANDARD 8 - COOPERATION WITH AFFILIATE LICENSE PERFORMANCE RESPONSE PROCESS
PROTOCOL
An affiliate and its Sponsoring Plan(s) shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards Committee in the
administration of the Affiliate License Performance Response Process Protocol
(ALPRPP) and in addressing affiliate compliance problems identified thereunder.
STANDARD 9 - PARTICIPATION IN NATIONAL PROGRAMS BY SMALLER AFFILIATES
A smaller affiliate for which this standard applies pursuant to the Preamble
section of Exhibit A of the Affiliate License Agreement shall effectively and
efficiently participate in certain national programs from time to time as may be
adopted by Member Plans for the purposes of providing ease of claims processing
for customers receiving benefits outside of the affiliate's service area and be
subject to certain relevant financial and reporting requirements.
22
<PAGE> 23
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
AFFILIATE LICENSE AGREEMENT
Affiliate will pay BCBSA a fee for this license in accordance with the following
formula:
FOR RISK PRODUCTS:
For affiliates not underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to its pro rata share of each sponsoring Plan's dues payable to
BCBSA computed with the addition of the affiliate's subscription revenue and
contracts arising from products using the marks. The payment by each sponsoring
Plan of its dues to BCBSA, including that portion described in this paragraph,
will satisfy the requirement of this paragraph, and no separate payment will be
necessary.
For affiliates underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to 0.35 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus, an annual fee of $5,000 per license
for an affiliate subject to Standard 7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus:
1) An annual fee of $5,000 per license for an affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other affiliates.
The foregoing shall be reduced by one-half where both a BLUE CROSS(R) and BLUE
SHIELD(R) License are issued to the same affiliate. In the event that any
license period is greater or less than one (1) year, any amounts due shall be
prorated. Royalties under this formula will be calculated, billed and paid in
arrears.
23
<PAGE> 1
EXHIBIT 99.9
BLUE CROSS
AFFILIATE LICENSE AGREEMENT
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and BC Life & Health Insurance Company ("Affiliate"), an affiliate of
the Blue Cross Plan(s), known as WellPoint Health Networks Inc. ("Plan"),
which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, Plan and Affiliate desire that the latter be entitled to use
the BLUE CROSS and BLUE CROSS Design service marks (collectively the "Licensed
Marks") as service marks and be entitled to use the term BLUE CROSS in a trade
name ("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby
grants to Affiliate the right to use the Licensed Marks and Name in connection
with, and only in connection with: (i) health care plans and related services
and administering the non-health portion of workers' compensation insurance, and
(ii) underwriting the indemnity portion of workers' compensation insurance,
provided that Affiliate's total premium revenue comprises less than 15 percent
of the sponsoring Plan's net subscription revenue.
This grant of rights is non-exclusive and is limited to the Service Area served
by the Plan. Affiliate may not use the Licensed Marks and Name in its legal name
and may use the Licensed Marks and Name in its Trade Name only with the prior
consent of BCBSA.
2. QUALITY CONTROL
A. Affiliate agrees to use the Licensed Marks and Name only in
connection with the licensed services and further agrees to be bound by the
conditions regarding quality control shown in attached Exhibit A as they may be
amended by BCBSA from time-to-time.
<PAGE> 2
B. Affiliate agrees to comply with all applicable federal, state
and local laws.
C. Affiliate agrees that it will provide on an annual basis (or
more often if reasonably required by Plan or by BCBSA) a report or reports to
Plan and BCBSA demonstrating Affiliate's compliance with the requirements of
this Agreement including but not limited to the quality control provisions of
this paragraph and the attached Exhibit A.
D. Affiliate agrees that Plan and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method
of Affiliate's rendering of service and use of the Licensed Marks and Name.
E. As used herein, an Affiliate is defined as an entity organized
and operated in such a manner, that it meets the following requirements:
(1) If the Plan has 50 percent of the voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in
the articles of incorporation, bylaws or other establishing or
governing documents of the Affiliate with which it does not concur;
(b) the Plan must have at least equal control over the operations
of the Affiliate;
(c) the Plan must concur in writing before the Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates;
(iii) change the fundamental type(s) of business in which
it engages;
(iv) take any action that Plan or BCBSA reasonably
believes will adversely affect the Licensed Marks and
Name.
(2) If the Plan has more than 50 percent voting control of the Affiliate:
(a) the Plan must have the legal ability to prevent any change in
the articles of incorporation, bylaws or other establishing or
governing documents of the Affiliate with which it does not concur;
(b) the Plan must have control over the policy and operations of
the Affiliate.
3. SERVICE MARK USE
2
<PAGE> 3
A. Affiliate recognizes the importance of a comprehensive
national network of independent BCBSA licensees which are committed to
strengthening the Licensed Marks and Name. The Affiliate further recognizes that
its actions within its Service area may affect the value of the Licensed Marks
and Name nationwide.
B. Affiliate shall at all times make proper service mark use of
the Licensed Marks and Name, including but not limited to use of such symbols or
words as BCBSA shall specify to protect the Licensed Marks and Name and shall
comply with such rules (generally applicable to Affiliates licensed to use the
Licensed Marks and Name) relative to service mark use, as are issued from
time-to-time by BCBSA. Affiliate recognizes and agrees that all use of the
Licensed Marks and Name by Affiliate shall inure to the benefit of BCBSA.
C. Affiliate may not directly or indirectly use the Licensed
Marks and Name in a manner that transfers or is intended to transfer in the
Service Area the goodwill associated therewith to another mark or name, nor may
Affiliate engage in activity that may dilute or tarnish the unique value of the
Licensed Marks and Name.
D. If Affiliate meets the standards of 2E(1) but not 2E(2) above
and any of Affiliate's advertising or promotional material is reasonably
determined by BCBSA and/or the Plan to be in contravention of rules and
regulations governing the use of the Licensed Marks and Name, Affiliate shall
for ninety (90) days thereafter obtain prior approval from BCBSA of advertising
and promotional efforts using the Licensed Marks and Name, approval or
disapproval thereof to be forthcoming within five (5) business days of receipt
of same by BCBSA or its designee. In all advertising and promotional efforts,
Affiliate shall observe the Service Area limitations applicable to Plan.
E. Affiliate shall use its best efforts in the Service Area to
promote and build the value of the Licensed Marks and Name.
4. SUBLICENSING AND ASSIGNMENT
Affiliate shall not sublicense, transfer, hypothecate, sell, encumber
or mortgage, by operation of law or otherwise, the rights granted hereunder and
any such act shall be voidable at the sole option of Plan or BCBSA. This
Agreement and all rights and duties hereunder are personal to Affiliate.
3
<PAGE> 4
5. INFRINGEMENT
Affiliate shall promptly notify Plan and Plan shall promptly notify
BCBSA of any suspected acts of infringement, unfair competition or passing off
that may occur in relation to the Licensed Marks and Name. Affiliate shall not
be entitled to require Plan or BCBSA to take any actions or institute any
proceedings to prevent infringement, unfair competition or passing off by third
parties. Affiliate agrees to render to Plan and BCBSA, without charge, all
reasonable assistance in connection with any matter pertaining to the protection
of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Affiliate and Plan hereby agree to save, defend, indemnify and hold
BCBSA harmless from and against all claims, damages, liabilities and costs of
every kind, nature and description (except those arising solely as a result of
BCBSA's negligence) that may arise as a result of or related to Affiliate's
rendering of services under the Licensed Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license granted by
this Agreement shall remain in effect for a period of one (1) year and shall be
automatically extended for additional one (1) year periods unless terminated
pursuant to the provisions herein.
B. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that Plan ceases to be authorized to use the Licensed Marks and Name.
C. Notwithstanding any other provision of this Agreement, this
license to use the Licensed Marks and Name may be forthwith terminated by the
Plan or the affirmative vote of the majority of the Board of Directors of BCBSA
present and voting at a special meeting expressly called by BCBSA for the
purpose on ten (10) days written notice for: (1) failure to comply with any
applicable minimum capital or liquidity requirement under the quality control
standards of this Agreement; or (2) failure to comply with the "Organization and
Governance" quality control standard of this Agreement; or (3) impending
financial insolvency; or (4) for a Smaller Affiliate (as defined in Exhibit A),
failure to comply with any of the applicable requirements of Standards 2, 3, 4,
5 or 7 of attached Exhibit A; or (5) such other reason as is determined in good
faith immediately and irreparably to threaten the integrity and reputation of
BCBSA, the Plans, any other licensee including Affiliate and/or the Licensed
Marks and Name.
4
<PAGE> 5
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E)
herein, should Affiliate fail to comply with the provisions of this Agreement
and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent
efforts to complete the cure if such curing cannot reasonably be completed
within such thirty day period) BCBSA or the Plan shall have the right to issue a
notice that the Affiliate is in a state of noncompliance. If a state of
noncompliance as aforesaid is undisputed by the Affiliate or is found to exist
by a mandatory dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the Agreement or to issue a
notice of termination thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License pursuant to
Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to
mediation and mandatory dispute resolution. All other disputes between BCBSA,
the Plan and/or Affiliate shall be submitted promptly to mediation and mandatory
dispute resolution. The mandatory dispute resolution panel shall have authority
to issue orders for specific performance and assess monetary penalties. Except,
however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason
without the affirmative vote of a majority of the present and voting members of
the Board of Directors of BCBSA.
E. This Agreement and all of Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that:
(1) Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Affiliate
pursuant to paragraph 9 hereof, which are the royalties for this License
Agreement, are more than sixty (60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition
shall be filed by Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief, or (ii) an involuntary petition
or proceeding shall be filed against Affiliate seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy
laws of the United States or any other law governing insolvency or debtor relief
and such petition or proceeding is consented to or acquiesced in by Affiliate or
is not dismissed within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the Affiliate, or (iii)
an order for relief is entered against Affiliate in any case under the
bankruptcy laws of the United States, or Affiliate is adjudged bankrupt or
insolvent as those terms are defined in the Uniform Commercial Code as enacted
in the State of Illinois
5
<PAGE> 6
by any court of competent jurisdiction, or (iv) Affiliate makes a general
assignment of its assets for the benefit of creditors, or (v) the Department of
Insurance or other regulatory agency assumes control of Affiliate or delinquency
proceedings (voluntary or involuntary) are instituted, or (vi) an action is
brought by Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business, or (vii) an action is instituted
against Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is consented to or
acquiesced in by Affiliate or is not dismissed within sixty (60) days of the
date upon which the pleading or other document commencing the action is served
upon the Affiliate, or (viii) a trustee, interim trustee, receiver or other
custodian for any of Affiliate's property or business is appointed.
F. Upon termination of this Agreement for cause or otherwise,
Affiliate agrees that it shall immediately discontinue all use of the Licensed
Marks and Name, including any use in its trade name.
G. Upon termination of this Agreement, Affiliate shall
immediately notify all of its customers that it is no longer a licensee of BCBSA
and, if directed by the Association's Board of Directors, shall provide
instruction on how the customer can contact BCBSA or a designated licensee to
obtain further information on securing coverage. The notification required by
this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA
shall have the right to audit the terminated entity's books and records to
verify compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(b)
hereof, or in the event the Affiliate is a Larger Affiliate (as defined in
Exhibit A), upon termination of this Agreement, the provisions of Paragraph 7.G.
shall not apply and the following provisions shall apply:
(1) The Affiliate shall send a notice through the U.S. mails, with
first class postage affixed, to all individual and group customers, providers,
brokers and agents of products or services sold, marketed, underwritten or
administered by the Affiliate under the Licensed Marks and Name. The form and
content of the notice shall be specified by BCBSA and shall, at a minimum,
notify the recipient of the termination of the license, the consequences
thereof, and instructions for obtaining alternate products or services licensed
by BCBSA. This notice shall be mailed within 15 days after termination.
6
<PAGE> 7
(2) The Affiliate shall deliver to BCBSA within five days of a
request by BCBSA a listing of national accounts in which the Affiliate is
involved (in a control, participating or servicing capacity), identifying the
national account and the Affiliate's role therein.
(3) Unless the cause of termination is an event respecting BCBSA
stated in paragraph 15(a) or (b) of the Plan's license agreement with BCBSA to
use the Licensed Marks and Name, the Affiliate, the Plan, and any other Licensed
Controlled Affiliates of the Plan shall be jointly liable for payment to BCBSA
of an amount equal to $25 multiplied by the number of Licensed Enrollees of the
Affiliate; provided that if any other Plan is permitted by BCBSA to use marks or
names licensed by BCBSA in the Service Area established by this Agreement, the
payment shall be multiplied by a fraction, the numerator of which is the number
of Licensed Enrollees of the Affiliate, the Plan, and any other Licensed
Controlled Affiliates and the denominator of which is the total number of
Licensed Enrollees in the Service Area. Licensed Enrollee means each and every
person and covered dependent who is enrolled as an individual or member of a
group receiving products or services sold, marketed or administered under marks
or names licensed by BCBSA as determined at the earlier of (i) the end of the
last fiscal year of the terminated entity which ended prior to termination or
(ii) the fiscal year which ended before any transactions causing the termination
began. Notwithstanding the foregoing, the amount payable pursuant to this
subparagraph H. (3) shall be due only to the extent that, in BCBSA's opinion, it
does not cause the net worth of the Affiliate, the Plan or any other Licensed
Controlled Affiliates of the Plan to fall below 100% of the capital benchmark
formula, or its equivalent under any successor formula, as set forth in the
applicable financial responsibility standards established by BCBSA measured as
of the date of termination, and adjusted for the value of any transactions not
made in the ordinary course of business.
(4) BCBSA shall have the right to audit the books and records of
the Affiliate, the Plan, and any other Licensed Controlled Affiliates of the
Plan to verify compliance with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree
that the obligations are immediately enforceable in a court of competent
jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Affiliate, the
parties agree there is no adequate remedy at law and BCBSA is entitled to obtain
specific performance.
I. In the event the Affiliate is a Smaller Affiliate (as defined
in Exhibit A), the Affiliate agrees to be jointly liable for the amount
described in H.3. hereof upon termination of the BCBSA license agreement of any
Larger Affiliate of the Plan.
J. BCBSA shall be entitled to enjoin the Affiliate or any related
party in a court of competent jurisdiction from entry into any transaction which
would result in a termination of this Agreement unless the Plan's license from
BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d)
of the Plan's license agreement upon the required 6 month written notice.
K. BCBSA acknowledges that it is not the owner of assets of the
Affiliate.
7
<PAGE> 8
L. In the event that the Plan has more than 50 percent voting
control of the Affiliate under Paragraph 2(E)(2) above and is a Larger Affiliate
(as defined in Exhibit A), then the vote called for in Paragraphs 7(C) and 7(D)
above shall require the affirmative vote of three-fourths of the Blue Cross
Plans which are Regular Members of BCBSA and three-fourths of the total then
current weighted vote of all the Blue Cross Plans which are Regular Member Plans
of BCBSA.
8. DISPUTE RESOLUTION
The parties agree that any disputes between them or between or among
either of them and one or more Plans or Affiliates of Plans that use in any
manner the Blue Cross and Blue Shield Marks and Name are subject to the
Mediation and Mandatory Dispute Resolution process attached to and made a part
of Plan's License from BCBSA to use the Licensed Marks and Name as Exhibits 5,
5A and 5B as amended from time-to-time, which documents are incorporated herein
by reference as though fully set forth herein.
9. LICENSE FEE
Affiliate will pay to BCBSA a fee for this License determined pursuant
to the formula(s) set forth in Exhibit B.
10. JOINT VENTURE
Nothing contained in the Agreement shall be construed as creating a
joint venture, partnership, agency or employment relationship between Plan and
Affiliate or between either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to
the last known address of each other party, marked respectively to the attention
of its President and, if any, its General Counsel.
8
<PAGE> 9
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by a
writing executed by all parties hereto or by the vote of three-fourths of the
Plans and three-fourths of the total then current weighted vote of all the
Plans.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of
competent jurisdiction, such findings shall in no way affect the remaining
obligations of the parties hereunder and the court may substitute a lawful term
or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part
of Affiliate or any other licensee of any of the terms, covenants or conditions
of this Agreement shall constitute a waiver of any subsequent breach or default
in performance of said terms, covenants or conditions.
9
<PAGE> 10
THIS PAGE IS INTENTIONALLY BLANK.
10
<PAGE> 11
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience only and
shall have no bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License Agreement to
be executed and effective as of the date of last signature written below.
BLUE CROSS OF CALIFORNIA
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Date: August 1, 1997
WELLPOINT HEALTH NETWORKS INC.
By: /s/ LEONARD D. SCHAEFFER
------------------------------------
Leonard D. Schaeffer
Date: August 1, 1997
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ ROGER WILSON
------------------------------------
Date: August 4, 1997
----------------------------------
11
<PAGE> 12
EXHIBIT A
AFFILIATE LICENSE STANDARDS
March 1997
PREAMBLE
The standards for licensing affiliates are established by BCBSA and are subject
to change from time-to-time upon the affirmative vote of three-fourths (3/4) of
the Plans and three-fourths (3/4) of the total weighted vote. Each licensed Plan
is required to use a standard affiliate license form provided by BCBSA and to
cooperate fully in assuring that the licensed affiliate maintains compliance
with the license standards.
The Affiliate License provides a flexible vehicle to accommodate the potential
range of health and workers' compensation related products and services Plan
affiliates provide. The Affiliate License collapses former health affiliate
licenses (HCC, HMO, PPO, TPA, and IDS) into a single license using the following
business-based criteria to provide a framework for license standards:
- - Percent of affiliate controlled by parent: Greater than 50 percent or
50 percent?
- - Risk assumption: yes or no?
- - Medical care delivery: yes or no?
- - Importance of the affiliate to the parent: If the affiliate has health
or workers' compensation administration business, does such business
constitute 15 percent or more (referred to as a "larger" affiliate) of
the parent's and other licensed health subsidiaries' contract
enrollment?
12
<PAGE> 13
EXHIBIT A (CONTINUED)
For purposes of definition:
- - A "smaller affiliate:" (1) comprises less than fifteen percent (15%) of
Plan's and its licensed affiliates' total contract enrollment (as
reported on the BCBSA Quarterly Enrollment Report, excluding rider and
freestanding coverage, and treating an entity seeking licensure as
licensed);* or (2) underwrites the indemnity portion of workers'
compensation insurance and has total premium revenue less than 15
percent of the sponsoring Plan's net subscription revenue.
- - A "larger affiliate" comprises fifteen percent (15%) or more of Plan's
and its licensed affiliates' total contract enrollment (as reported on
the BCBSA Quarterly Enrollment Report, excluding rider and freestanding
coverage, and treating an entity seeking licensure as licensed.)*
Conversion to the new license shall be:
- - For smaller affiliates:
- immediately for new applicants, and
- January 1, 1996 for existing HMO, PPO, TPA and IDS licensees
under fifteen percent (15%).
- - For larger affiliates:
- immediately for new applicants,
- July 1, 1995 for existing health coverage carrier licensees,
and - June 1996, for all other currently licensed affiliates
presently at or over fifteen percent(15%).
Changes in affiliate status:
If ANY affiliate's status changes regarding: its Plan ownership level, its risk
acceptance or direct delivery of medical care, the affiliate shall notify BCBSA
within thirty (30) days of such occurrence in writing and come into compliance
with the applicable standards within six (6) months.
If a smaller affiliate's health and workers' compensation administration
business surpasses fifteen percent (15%) of the total contract enrollment of the
Plan and licensed affiliates, the affiliate shall:
13
<PAGE> 14
EXHIBIT A (CONTINUED)
1. Within thirty (30) days, notify BCBSA of this fact in writing,
including evidence that the affiliate meets the minimum liquidity and
capital (BCBSA Capital Benchmark and state-established minimum reserve)
requirements of the larger affiliate Financial Responsibility standard;
and
2. Within six (6) months after surpassing the fifteen percent (15%)
threshold, demonstrate compliance with all license requirements for a
larger affiliate.
If an affiliate that underwrites the indemnity portion of workers' compensation
insurance receives a change in rating or proposed change in rating, the
affiliate shall notify BCBSA within 30 days of notification by the external
rating agency.
- -----------
*For purposes of this calculation,
The numerator equals:
Applicant affiliate's contract enrollment, as defined in BCBSA's Quarterly
Enrollment Report (excluding rider and freestanding coverage).
The denominator equals:
Numerator PLUS Plan and all other licensed affiliates' contract enrollment, as
reported in BCBSA's Quarterly Enrollment Report (excluding rider and
freestanding coverage).
14
<PAGE> 15
EXHIBIT A (CONTINUED)
STANDARDS FOR LICENSED AFFILIATES
Each affiliate seeking licensure must answer all four questions. Depending on
the affiliate's answers, certain standards apply:
1. What percent of the affiliate is controlled by the parent Plan?
<TABLE>
<S> <C>
More than 50% 50%
Standard 1A, 4 Standard 1B, 4
</TABLE>
IN ADDITION,
2. Is risk being assumed?
<TABLE>
<CAPTION>
Yes No
<S> <C> <C> <C> <C>
Affiliate underwrites Affiliate comprises * Affiliate comprises ** Affiliate comprises * Affiliate comprises **
any indemnity portion 15% of total contract 15% of total contract 15% of total contract 15% of total contract
of workers' enrollment of Plan and enrollment of Plan and enrollment of Plan and enrollment of Plan and
compensation insurance its licensed its licensed its licensed its licensed
affiliates, and does affiliates, and does affiliates affiliates
Standards 7A7E not underwrite the not underwrite the
indemnity portion of indemnity portion of Standard 2 Standard 6H
workers' compensation workers' compensation (Guidelines 2.1,2.3)
insurance insurance
Standard 2 Standard 6H
Guidelines (2.1,2.2)
</TABLE>
IN ADDITION,
3. Is medical care being directly provided?
<TABLE>
<CAPTION>
Yes No
<S> <C>
Standard 3A Standard 3B
</TABLE>
IN ADDITION,
4. If the affiliate has health or workers' compensation administration business,
does such business comprise 15% or more of the total contract enrollment of Plan
and its licensed affiliates?
<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
Standards 6A6I Affiliate is a former Affiliate is not a former
primary licensee primary licensee
Standards 5,8,9 Standards 5,8
</TABLE>
* less than
** greater than or equal to
15
<PAGE> 16
EXHIBIT A (CONTINUED)
STANDARD 1 - ORGANIZATION AND GOVERNANCE
1A.) The Standard for more than 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that it is
controlled by a licensed Plan or Plans which have, directly or indirectly: 1)
more than 50% of the voting control of the affiliate; and 2) the legal ability
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the affiliate with which it does not
concur; and 3)
operational control of the affiliate.
1B.) The Standard for 50% Plan ownership is:
An affiliate shall be organized and operated in such a manner that a licensed
Plan or Plans have directly or indirectly:
1) not less than 50% of the voting control of the affiliate; and
2) the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of
the affiliate with which it does not concur; and
3) at least equal direct or indirect control over the operations of the
affiliate; and
4) sufficient authority so that changes in the following require the
approval of the Licensed Plan or Plans:
- geographic operating area of the affiliate
- the legal and trade names of the affiliate
- the types of activity in which the affiliate engages
- any action which would cause the affiliate to be in violation
of the Standards applicable to Licensure by BCBSA.
16
<PAGE> 17
EXHIBIT A (CONTINUED)
STANDARD 2 - FINANCIAL RESPONSIBILITY
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers. If a risk-assuming affiliate ceases operations for any reason, Blue
Cross and/or Blue Shield Plan coverage will be offered to all affiliate
subscribers without exclusions, limitations or conditions based on health
status. If a nonrisk-assuming affiliate ceases operations for any reason,
sponsoring Plan(s) will provide for services to its (their) customers.
STANDARD 3 - STATE LICENSURE/CERTIFICATION
3A.) The Standard for an affiliate that employs, owns or contracts on a
substantially exclusive basis for medical services is:
An affiliate shall maintain unimpaired licensure or certification for its
medical care providers to operate under applicable state laws.
3B.) The Standard for an affiliate that does not employ, own or contract on
a substantially exclusive basis for medical services is:
An affiliate shall maintain unimpaired licensure or certification to operate
under applicable state laws.
STANDARD 4 - CERTAIN DISCLOSURES
An affiliate shall make adequate disclosure in contracting with third parties
and in disseminating public statements of 1) the structure of the Blue Cross and
Blue Shield System; and 2) the independent nature of every licensee; and 3) the
affiliate's financial condition.
STANDARD 5 - REPORTS AND RECORDS FOR CERTAIN SMALLER AFFILIATES
For a smaller affiliate that does not underwrite the indemnity portion of
workers' compensation insurance, the Standard is:
An affiliate and/or its licensed Plan(s) shall furnish, on a timely and accurate
basis, reports and records relating to these Standards and the License
Agreements between BCBSA and affiliate.
17
<PAGE> 18
EXHIBIT A (CONTINUED)
STANDARD 6 - OTHER STANDARDS FOR LARGER AFFILIATES
Standards 6(A) - (I) that follow apply to larger affiliates.
Standard 6(A): Board of Directors
An affiliate Governing Board shall act in the interest of its Corporation in
providing cost-effective health care services to its customers. An affiliate
shall maintain a governing Board, which shall control the affiliate, composed of
a majority of persons other than providers of health care services, who shall be
known as public members. A public member shall not be an employee of or have a
financial interest in a health care provider, nor be a member of a profession
which provides health care services.
Standard 6(B): Responsiveness to Customers
An affiliate shall be operated in a manner responsive to customer needs and
requirements.
Standard 6(C): Participation in National Programs
An affiliate shall effectively and efficiently participate in each national
program as from time to time may be adopted by the Member Plans for the purposes
of providing portability of membership between the licensees and ease of claims
processing for customers receiving benefits outside of the affiliate's Service
Area.
Such programs are applicable to licensees, and include:
A. Transfer Program;
B. National Account Equalization Program;
C. BlueCard Program;
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EXHIBIT A (CONTINUED)
D. Inter-Plan Teleprocessing System (ITS); and
E. Inter-Plan Data Reporting (IPDR) Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs listed in
Standard 6C: Participation in National Programs, an affiliate shall take such
action as required to ensure its financial performance in programs and contracts
of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response Process
An affiliate shall cooperate with BCBSA's Board of Directors and its Plan
Performance and Financial Standards Committee in the administration of the Plan
Performance Response Process and in addressing affiliate performance problems
identified thereunder.
Standard 6(F): Independent Financial Rating
An affiliate shall obtain a rating of its financial strength from an independent
rating agency approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Best Efforts
During each year, an affiliate shall use its best efforts in the designated
Service Area to promote and build the value of the Blue Cross Mark.
Standard 6(H): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
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EXHIBIT A (CONTINUED)
Standard 6(I): Reports and Records
An affiliate shall furnish to BCBSA on a timely and accurate basis reports and
records relating to compliance with these Standards and the License Agreements
between BCBSA and affiliate. Such reports and records are the following:
A) BCBSA Affiliate Licensure Information Request; and
B) Biennial trade name and service mark usage material, including
disclosure material; and
C) Changes in the ownership and governance of the affiliate, including
changes in its charter, articles of incorporation, or bylaws, changes
in an affiliate's Board composition, or changes in the identity of the
affiliate's Principal Officers, and changes in risk acceptance,
contract growth, or direct delivery of medical care; and
D) Quarterly Financial Report including the Capital Benchmark Worksheet,
Annual Financial Forecast, Annual Certified Audit Report, Insurance
Department Examination Report, Annual Statement filed with State
Insurance Department (with all attachments); and
E) Quarterly Utilization Report, Quarterly Enrollment Report, Cost
Containment Report, NMIS Quarterly Report.
Standard 6(J): Control by Unlicensed Entities Prohibited
No affiliate shall cause or permit an unlicensed entity to obtain control of the
affiliate or to acquire a substantial portion of its assets related to
licensable services.
STANDARD 7 - OTHER STANDARDS FOR RISK-ASSUMING WORKERS' COMPENSATION AFFILIATES
Standards 7(A) - (E) that follow apply to affiliates that underwrite the
indemnity portion of workers' compensation insurance.
20
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EXHIBIT A (CONTINUED)
Standard 7 (A): Financial Responsibility
An affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its
customers.
Standard 7(B): Reports and Records
An affiliate shall furnish, on a timely and accurate basis, reports and records
relating to compliance with these Standards and the License Agreements between
BCBSA and the affiliate. Such reports and records are the following:
A. BCBSA Affiliate Licensure Information Request; and
B. Biennial trade name and service mark usage materials, including
disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as filed with the State
Insurance Department (with all attachments), Annual NAIC's Risk-Based
Capital Worksheets for Property and Casualty Insurers, and Annual
Financial Forecast; and
D. Quarterly Financial Report, Quarterly Estimated Risk-Based Capital for
Property and Casualty Insurers, Insurance Department Examination
Report, and Quarterly NMIS Report (for licensed health business only);
and
E. Notification of all changes and proposed changes to independent ratings
within 30 days of receipt and submission of a copy of all rating
reports; and
F. Changes in the ownership and governance of the affiliate including
changes in its charter, articles of incorporation, or bylaws, changes
in an affiliate's Board composition, Plan control, state license
status, operating area, the affiliate's Principal Officers or direct
delivery of medical care.
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EXHIBIT A (CONTINUED)
Standard 7(C): Loss Prevention
An affiliate shall apply loss prevention protocol to both new and existing
business.
Standard 7(D): Claims Administration
An affiliate shall maintain an effective claims administration process that
includes all the necessary functions to assure prompt and proper resolution of
medical and indemnity claims.
Standard 7(E): Disability and Provider Management
An affiliate shall arrange for the provision of appropriate and necessary
medical and rehabilitative services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
STANDARD 8 - COOPERATION WITH AFFILIATE LICENSE PERFORMANCE RESPONSE PROCESS
PROTOCOL
An affiliate and its Sponsoring Plan(s) shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards Committee in the
administration of the Affiliate License Performance Response Process Protocol
(ALPRPP) and in addressing affiliate compliance problems identified thereunder.
STANDARD 9 - PARTICIPATION IN NATIONAL PROGRAMS BY SMALLER AFFILIATES
A smaller affiliate for which this standard applies pursuant to the Preamble
section of Exhibit A of the Affiliate License Agreement shall effectively and
efficiently participate in certain national programs from time to time as may be
adopted by Member Plans for the purposes of providing ease of claims processing
for customers receiving benefits outside of the affiliate's service area and be
subject to certain relevant financial and reporting requirements.
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EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
AFFILIATE LICENSE AGREEMENT
Affiliate will pay BCBSA a fee for this license in accordance with the following
formula:
FOR RISK PRODUCTS:
For affiliates not underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to its pro rata share of each sponsoring Plan's dues payable to
BCBSA computed with the addition of the affiliate's subscription revenue and
contracts arising from products using the marks. The payment by each sponsoring
Plan of its dues to BCBSA, including that portion described in this paragraph,
will satisfy the requirement of this paragraph, and no separate payment will be
necessary.
For affiliates underwriting the indemnity portion of workers' compensation
insurance:
An amount equal to 0.35 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus, an annual fee of $5,000 per license
for an affiliate subject to Standard 7.
FOR NONRISK PRODUCTS:
An amount equal to 0.24 percent of the gross revenue per annum of affiliate
arising from products using the marks; plus:
1) An annual fee of $5,000 per license for an affiliate subject to
Standard 6.
2) An annual fee of $2,000 per license for all other affiliates.
The foregoing shall be reduced by one-half where both a BLUE CROSS(R) and BLUE
SHIELD(R) License are issued to the same affiliate. In the event that any
license period is greater or less than one (1) year, any amounts due shall be
prorated. Royalties under this formula will be calculated, billed and paid in
arrears.
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<PAGE> 1
EXHIBIT 99.10
BLUE CROSS
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
This agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and BC Life & Health Insurance Company ("Controlled Affiliate"), a
controlled affiliate of the Blue Cross Plan(s), known as WellPoint Health
Networks Inc. ("Plan").
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the latter be
entitled to use the BLUE CROSS and BLUE CROSS Design service marks (collectively
the "Licensed Marks") as service marks and be entitled to use the term BLUE
CROSS in a trade name ("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby
grants to the Controlled Affiliate the exclusive right to use the licensed Marks
and Names in connection with and only in connection with those life insurance
and related services authorized by applicable state law, other than health care
plans and related services (as defined in the Plan's License Agreements with
BCBSA) which services are not separately licensed to Controlled Affiliate by
BCBSA, in the Service Area served by the Plan, except that BCBSA reserves the
right to use the Licensed Marks and Name in said Service Area, and except to the
extent that said Service Area may overlap the area or areas served by one or
more other licensed Blue Cross Plans as of the date of this License as to which
overlapping areas the rights hereby granted are non-exclusive as to such other
Plan or Plans and their respective Licensed Controlled Affiliates only.
Controlled Affiliate cannot use the Licensed Marks or Name outside the Service
Area or, anything in any other license to Controlled Affiliate not withstanding,
in its legal or trade name.
1
<PAGE> 2
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name
only in relation to the sale, marketing and rendering of authorized products and
further agrees to be bound by the conditions regarding quality control shown in
Exhibit A as it may be amended by BCBSA from time-to-time.
B. Controlled Affiliate agrees that Plan and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method
of Controlled Affiliate's rendering of service and use of the Licensed Marks and
Name.
C. Controlled Affiliate agrees that it will provide on an annual
basis (or more often if reasonably required by Plan or by BCBSA) a report to
Plan and BCBSA demonstrating Controlled Affiliate's compliance with the
requirements of this Agreement including but not limited to the quality control
provisions of Exhibit A.
D. As used herein, a Controlled Affiliate is defined as an entity
organized and operated in such a manner that it is subject to the bona fide
control of a Plan or Plans. Absent written approval by BCBSA of an alternative
method of control, bona fide control shall mean the legal authority, directly or
indirectly through wholly-owned subsidiaries: (a) to select members of the
Controlled Affiliate's governing body having not less than 51% voting control
thereof; (b) to exercise operational control with respect to the governance
thereof; and (c) to prevent any change in its articles of incorporation, bylaws
or other governing documents deemed inappropriate. In addition, a Plan or Plans
shall own at least 51% of any for-profit Controlled Affiliate. If the Controlled
Affiliate is a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items (a) and (c) above, proxies
representing 51% of the votes at any meeting of the policyholders and shall
demonstrate that there is no reason to believe this such proxies shall be
revoked by sufficient policyholders to reduce such percentage below 51%.
3. SERVICE MARK USE
Controlled Affiliate shall at all times make proper service mark use of
the Licensed Marks, including but not limited to use of such symbols or words as
BCBSA shall specify to protect the Licensed Marks, and shall comply with such
rules (applicable to all Controlled Affiliates licensed to use the Marks)
relative to service mark use, as are issued from time-to-time by BCBSA. If there
is any public reference to the affiliation between the Plan and the Controlled
Affiliate, all of the Controlled Affiliate's licensed services in the Service
Area of the Plan shall be rendered under the Licensed Marks. Controlled
Affiliate recognizes and agrees that all use of the Licensed Marks by Controlled
Affiliate shall inure to the benefit of BCBSA.
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<PAGE> 3
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer, hypothecate, sell,
encumber or mortgage, by operation of law or otherwise, the rights granted
hereunder and any such act shall be voidable at the option of Plan or BCBSA.
This Agreement and all rights and duties hereunder are personal to Controlled
Affiliate.
5. INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and BCBSA of any
suspected acts of infringement, unfair competition or passing off which may
occur in relation to the Licensed Marks. Controlled Affiliate shall not be
entitled to require Plan or BCBSA to take any actions or institute any
proceedings to prevent infringement, unfair competition or passing off by third
parties. Controlled Affiliate agrees to render to Plan and BCBSA, free of
charge, all reasonable assistance in connection with any matter pertaining to
the protection of the Licensed Marks by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend, indemnify and hold
Plan and BCBSA harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description which may arise as a result of
Controlled Affiliate's rendering of services under the Licensed Marks.
7. LICENSE TERM
The license granted by this Agreement shall remain in effect for a
period of one (1) year and shall be automatically extended for additional one
(1) year periods, unless one of the parties hereto notifies the other party of
the termination hereof at least sixty (60) days prior to expiration of any
license period, or unless otherwise terminated pursuant to the provisions
herein.
This Agreement may be terminated by the Plan or by BCBSA for cause at
any time provided that Controlled Affiliate has been given a reasonable
opportunity to cure and shall not effect such a cure within thirty (30) days of
receiving written notice of the intent to terminate (or commence a cure within
such thirty day period and continue diligent efforts to complete the cure if
such curing cannot reasonably be completed within such thirty day period). By
way of example and not for purposes of limitation, Controlled Affiliate's
failure to abide by the quality control provisions of Paragraph 2, above, shall
be considered a proper ground for cancellation of this Agreement.
3
<PAGE> 4
This Agreement and all of Controlled Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the
event that:
A. Controlled Affiliate shall no longer comply with Standard No. 1
(Organization and Governance) of Exhibit A or, following an opportunity to
cure, with the remaining quality control provisions of Exhibit A, as it may
be amended from time-to-time; or
B. Plan ceases to be authorized to use the Licensed Marks; or
C. Appropriate dues for Controlled Affiliate pursuant to item 8
hereof, which are the royalties for this License Agreement are more than sixty
(60) days in arrears to BCBSA.
Upon termination of this Agreement for cause or otherwise, Controlled
Affiliate agrees that it shall immediately discontinue all use of the Licensed
Marks including any use in its trade name.
In the event of any disagreement between Plan and BCBSA as to whether
grounds exist for termination or as to any other term or condition hereof, the
decision of BCBSA shall control, subject to provisions for mediation or
mandatory dispute resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled Affiliate shall
immediately notify all of its customers that it is no longer a licensee of the
Blue Cross and Blue Shield Association and provide instruction on how the
customer can contact the Blue Cross and Blue Shield Association or a designated
licensee to obtain further information on securing coverage. The written
notification required by this paragraph shall be in writing and in a form
approved by the Association. The Association shall have the right to audit the
terminated entity's books and records to verify compliance with this paragraph.
4
<PAGE> 5
8. DUES
Controlled Affiliate will pay to BCBSA a fee for this license in
accordance with the following formula:
-- An annual fee of five thousand dollars ($5,000) per license,
plus
-- .05 percent of gross revenue per annum of Licensee arising from
group products using the Marks, plus
-- .5 percent of gross revenue per annum of Licensee arising from
individual products using the Marks.
The foregoing percentages shall be reduced by one-half in cases where
both a BLUE CROSS(R) and BLUE SHIELD(R) License are issued to the same
entity. In the event that any License period is greater or less than
one (1) year, any amounts due shall be prorated. Royalties under this
formula will be calculated, billed and paid in arrears.
Plan will promptly and timely transmit to BCBSA all dues owed by
Controlled Affiliate as determined by the above formula and if Plan shall fail
to do so, Controlled Affiliate shall pay such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a
joint venture, partnership, agency or employment relationship between Plan and
Controlled Affiliate or between either and BCBSA.
5
<PAGE> 6
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to
the last known address of each other party, marked respectively to the attention
of its President and, if any, its General Counsel.
11. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by a
writing executed by all parties.
12. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of
competent jurisdiction, such finding shall in no way effect the remaining
obligations of the parties hereunder and the court may substitute a lawful term
or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
13. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part
of the Controlled Affiliate or any other licensee of any of the terms, covenants
or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this License Agreement to
be executed, effective as of the date of last signature written below.
BC LIFE & HEALTH INSURANCE COMPANY
BY: /s/ LEONARD D. SCHAEFFER
-----------------------------------------------
Leonard D. Schaeffer
DATE: August 1, 1997
WELLPOINT HEALTH NETWORKS INC.
BY: /s/ LEONARD D. SCHAEFFER
-----------------------------------------------
Leonard D. Schaeffer
DATE: August 1, 1997
BLUE CROSS AND BLUE SHIELD ASSOCIATION
BY: /s/ ROGER WILSON
-----------------------------------------------
DATE: August 4, 1997
---------------------------------------------
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<PAGE> 8
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
PREAMBLE
The standards for licensing Life Insurance Companies (Life and Health Insurance
companies, as defined by state statute) are established by BCBSA and are subject
to change from time-to-time upon the affirmative vote of three-fourths (3/4) of
the Plans and three-fourths (3/4) of the total weighted vote of all Plans. Each
Licensed Plan is required to use a standard controlled affiliate license form
provided by BCBSA and to cooperate fully in assuring that the Licensed Life
Insurance Company maintains compliance with the License Standards.
An organization meeting the following Standards shall be eligible for a license
to use the Licensed Marks within the service area of its sponsoring Licensed
Plan to the extent and the manner authorized under the Controlled Affiliate
License applicable to Life Insurance Companies and the principal License to the
Plan.
STANDARD 1 - ORGANIZATION AND GOVERNANCE
The LIC shall be organized and operated in such a manner that it is controlled
by a licensed Plan or Plans which have, directly or indirectly: 1) not less than
51% of the voting control of the LIC; and 2) the legal ability to prevent any
change in the articles of incorporation, bylaws or other establishing or
governing documents of the LIC with which it does not concur; and 3) operational
control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s) shall have and
maintain, in lieu of the requirements of items 1 and 2 above, proxies
representing at least 51% of the votes at any policyholder meeting and shall
demonstrate that there is no reason to believe such proxies shall be revoked by
sufficient policyholders to reduce such percentage below 51%.
STANDARD 2 - STATE LICENSURE
The LIC must maintain unimpaired licensure or certificate of authority to
operate under applicable state laws as a life and health insurance company in
each state in which the LIC does business.
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<PAGE> 9
EXHIBIT A (CONTINUED)
STANDARD 3 - RECORDS AND EXAMINATION
The LIC and its sponsoring licensed Plan(s) shall maintain and furnish, on a
timely and accurate basis, such records and reports regarding the LIC as may be
required in order to establish compliance with the License Agreement. The LIC
and its sponsoring licensed Plan(s) shall permit BCBSA to examine the affairs of
the LIC and shall agree that BCBSA's Board may submit a written report to the
chief executive officer(s) and the Board(s) of Directors of the sponsoring
Plan(s).
STANDARD 4 - MEDIATION
The LIC and its sponsoring Plan(s) shall agree to use the then-current BCBSA
mediation and mandatory dispute resolution processes, in lieu of a legal action
between or among another licensed controlled affiliate, a licensed Plan or
BCBSA.
STANDARD 5 - FINANCIAL RESPONSIBILITY
The LIC shall maintain adequate financial resources to protect its customers and
meet its business obligations.
STANDARD 6 - COOPERATION WITH AFFILIATE LICENSE PERFORMANCE RESPONSE PROCESS
PROTOCOL
The LIC and its Sponsoring Plan(s) shall cooperate with BCBSA's Board of
Directors and its Plan Performance and Financial Standards Committee in the
administration of the Affiliate License Performance Response Process Protocol
(ALPRPP) and in addressing LIC compliance problems identified thereunder.
9
<PAGE> 1
EXHIBIT 99.11
FOURTH AMENDMENT TO
CREDIT AGREEMENT AND CONSENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this "Fourth
Amendment") dated as of July 21, 1997 is entered into by and among WELLPOINT
HEALTH NETWORKS INC., a California corporation ("WellPoint California"),
WELLPOINT HEALTH NETWORKS, INC., a Delaware corporation ("WellPoint Delaware;"
as used herein, the term "Company" refers to WellPoint California before the
Reincorporation Date (as hereafter defined) and WellPoint Delaware thereafter),
each of the financial institutions that is a signatory hereto (the "Banks"),
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative and
bid agent for the Banks (in such capacity, the "Administrative Agent"),
NATIONSBANK OF TEXAS, N.A., as syndication agent for the Banks (in such
capacity, the "Syndication Agent"), and CHASE MANHATTAN BANK, as documentation
agent for the Banks (in such capacity the "Documentation Agent") and amends that
certain Credit Agreement dated as of May 15, 1996 among the Company, the Banks,
the Administrative Agent, Syndication Agent and the Documentation Agent, as
amended by a First Amendment to Credit Agreement dated as of June 28, 1996, a
Second Amendment to Credit Agreement dated as of April 21, 1997 and a Third
Amendment to Credit Agreement dated as of April 21, 1997 (as so amended, the
"Agreement").
RECITALS
A. WellPoint California has advised the Agents and the Banks that it
has organized WellPoint Delaware under the laws of the State of Delaware as a
wholly-owned Subsidiary of WellPoint California. Wellpoint Delaware has
organized a wholly-owned Subsidiary, WLP Acquisition Corp. ("Merger Subsidiary")
solely for purposes of effecting the transactions described below.
B. By letter dated April 18, 1997 WellPoint California requested the
Agents and the Banks to consent to (i) the merger of Merger Subsidiary into
WellPoint California, pursuant to which Merger Subsidiary will disappear and
WellPoint California will be the surviving entity and a wholly-owned Subsidiary
of Wellpoint Delaware (the "Reincorporation"), (ii) the concurrent assignment of
WellPoint California's obligations under the Loan Documents to, and the
assumption of WellPoint California's obligations under the Loan Documents by,
WellPoint Delaware (the "Loan Documents Assignment") and (iii) the potential
merger of Blue Cross of California, WellPoint Dental Plan and WellPoint Pharmacy
Plan with and into WellPoint California, and the transfer of the capital stock
of certain of WellPoint California's direct and indirect wholly-owned
Subsidiaries to WellPoint Delaware or its direct and indirect wholly-owned
Subsidiaries (the
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"Reorganization"). Certain portions of the Reorganization may be consummated
before or after the Reincorporation and Loan Document Assignment, but all
transactions relating to the Reorganization shall be consummated within 30 days
of the Reincorporation Date. WellPoint California has also requested that the
Agents and the Banks waive and amend certain sections of the Agreement to permit
the Reincorporation, Loan Document Assignment and the Reorganization and to
reflect the new structure thereafter. The Reincorporation and the Reorganization
are more fully described in WellPoint California's letter and a final proxy
statement dated May 9, 1997 (the "May 1997 Proxy").
C. In requesting these consents, WellPoint California has made
certain representations to the Agents and the Banks. WellPoint California has
represented that, upon the concurrent consummation of the Reincorporation and
the Loan Documents Assignment as contemplated herein, at all times the borrower
under the Agreement-- whether WellPoint California before the Reincorporation or
WellPoint Delaware thereafter -- will directly or indirectly continuously own
the interests in all Subsidiaries, or the assets of such Subsidiaries, which
WellPoint California or its Subsidiaries now own. WellPoint California has also
represented that, after giving effect to these transactions, neither Wellpoint
Delaware nor any of its Subsidiaries will be party to or be bound by the terms
of any agreement or instrument (other than pursuant to any Loan Document) that
prohibits, restrains or imposes materially adverse conditions on the payment of
dividends, except as already set forth in Section 6.23 of the Agreement.
D. Separately, WellPoint California notified the Administrative Agent
of the existence of a Mediation Agreement and Parental Guarantee dated May 15,
1996, a form of which is attached hereto as Exhibit A (the "Parental
Guarantee"). WellPoint California has requested the Agents and the Banks to (i)
waive any Events of Default that may have occurred under the Agreement by reason
of the Parental Guarantee through the date hereof and (ii) to amend the
Agreement to expressly permit the Parental Guarantee, and any replacements
thereof required in connection with the Reincorporation and Reorganization, from
and after the date hereof.
E. In addition, WellPoint California has requested certain amendments
to the Agreement relating to Bid Loans to give the Company more flexibility.
F. The Banks and the Agents are willing to agree to WellPoint
California's requests as set forth above on the terms and conditions set forth
herein.
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<PAGE> 3
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Terms. All terms used herein shall have the same meanings as in
the Agreement unless otherwise defined herein. All references to the Agreement
shall mean the Agreement as hereby amended.
2. Consents; Loan Document Assignment; Waivers. Subject to the timely
satisfaction of the Applicable Conditions relating to each Applicable
Transaction (as such terms are defined in Section 6 below):
2.1 Consent to Reincorporation and Loan Document Assignment. The
Agents and the Banks hereby consent to the Reincorporation and the concurrent
Loan Document Assignment pursuant to Section 11.07 of the Agreement. Effective
as of the date the Reincorporation is consummated (the "Reincorporation Date"),
WellPoint California hereby assigns to WellPoint Delaware, and WellPoint
Delaware hereby agrees to assume and perform, each and every covenant,
agreement, right and obligation of WellPoint California under or in connection
with the Agreement, the Notes and other Loan Documents. From and after the
Reincorporation Date, all references to the "Company" under the Loan Documents
shall be deemed references to WellPoint Delaware for all purposes as fully as
though it had originally signed each Loan Document. From and after the
Reincorporation Date, the Agents and the Banks hereby agree that WellPoint
California shall be released from each and every obligation under the Agreement,
shall have no further liability hereunder to the extent such obligations have
been assumed by WellPoint Delaware, and shall no longer be a party to any Loan
Document.
2.2 Consent to Reorganization; Related Waivers. The Agents and the
Banks hereby consent to the Reorganization, or any portion thereof, and agree
that consummation of the Reorganization, or any part thereof, shall not be
deemed a violation of Sections 7.04(a), 8.03, 8.04 (with respect to transfers in
connection with the Reorganization by and among WellPoint California, WellPoint
Delaware and their respective Subsidiaries), 8.06, 8.12, 8.13 (to the extent
that such transfers by and among WellPoint California, WellPoint Delaware and
their respective Subsidiaries are accomplished by means of Restricted Payments),
9.01(d) (as such subsection refers to other Sections of the Agreement which are
waived in this sentence) and 9.01(m) (to the extent such transfers would be a
default thereunder) of the Agreement. Except to the limited extent necessary to
permit the Reorganization, such Sections shall
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<PAGE> 4
remain in full force and effect before and after the Reorganization.
2.3 Waiver re Parental Guarantee. The Agents and the Banks hereby
waive any Events of Default that may have occurred under the Agreement by reason
of the existence of the Parental Guarantee through the date hereof, including
without limitation, under Sections 8.02, 8.06, 8.12, 9.01(b) and 9.01(d) of the
Agreement.
2.4 Consents and Waivers Specific. The consents and waivers contained
in this Section 2 are specific in time and in intent and do not constitute, nor
should they be construed as, a consent to any other action or waiver of any
other right, power or privilege under the Loan Documents, or under any
agreement, contract, indenture, document or instrument mentioned in the Loan
Documents; nor do they preclude any exercise thereof or the exercise of any
other right, power or privilege, nor shall any future consent to any action or
waiver of any right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned in the Loan
Documents, constitute a consent to any other action or waiver of any other
default of the same or of any other term or provision.
3. Amendments to Agreement. The Agents and the Banks hereby agree
that the Agreement is amended as follows:
3.1 Subject to the timely satisfaction of the Applicable Conditions
relating to the Reincorporation, all references to the "Company" shall be
deemed, effective as of the Reincorporation Date, to be references to WellPoint
Delaware. The first paragraph of the Agreement shall be amended by deleting "a
California corporation" and inserting "a Delaware corporation" in lieu thereof.
3.2 Clause (b) of the definition of "Interest Period" in Section 1.01
of the Agreement is hereby amended by deleting "(or, if approved by the Bank
making such Bid Loan, ninth or twelfth month thereafter)" and inserting "(or
such other longer or shorter interest period of any length as the Company may
request in a Competitive Bid Request and any Bank submitting a Competitive Bid
in response thereto may agree)."
3.3 Section 1.01 of the Agreement is hereby amended by inserting the
following new definitions in proper alphabetical order:
"'Loan Documents Assignment' means the assignment,
concurrent with the Reincorporation, of WellPoint California's
obligations under the Loan Documents to, and
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<PAGE> 5
the assumption of WellPoint California's obligations under the Loan
Documents by, WellPoint Delaware, as more fully described in a letter
dated April 18, 1997 from WellPoint California to the Administrative
Agent and in a final proxy statement of WellPoint California dated
May 9, 1997."
"'Parental Guarantee' means the Mediation Agreement and
Parental Guarantee dated May 15, 1996 executed and delivered by
WellPoint California and CaliforniaCare Health Plans, and any
subsequent guaranties having similar provisions that do not broaden
the scope of the obligations of the Company or any of its
Subsidiaries, that may be required to be given by the Company in
connection with the Reincorporation, a copy of which such subsequent
guaranties shall be promptly delivered to the Administrative Agent."
"'Reincorporation' means (i) the merger of WLP Acquisition
Corp., a Delaware corporation, into WellPoint California, pursuant to
which WLP Acquisition Corp., will disappear and WellPoint California
will be the surviving entity and a wholly-owned subsidiary of
Wellpoint Delaware.
"'WellPoint California' means WellPoint Health Networks,
Inc., a California corporation."
"'WellPoint Delaware' means WellPoint Health Networks,
Inc., a Delaware corporation."
3.4 Section 8.02 of the Agreement is hereby amended by deleting "and"
at the end of subsection (e), deleting the period at the end of subsection (f)
and inserting "; and" in lieu thereof, and inserting a new subsection (g) as
follows:
"(g) Indebtedness under the Parental Guarantee."
3.5 Section 8.12 of the Agreement is hereby amended by deleting "and"
at the end of subsection (i), deleting the period at the end of subsection (i)
and inserting "; and" in lieu thereof, and inserting a new subsection (k) as
follows:
"(k) the Parental Guarantee."
3.6 Subject to the timely satisfaction of the Applicable Conditions
relating to each Applicable Transaction, Schedules 6.20, 6.21 and 8.02 to the
Agreement shall be amended and restated, effective as of the date such
Applicable Transaction is completed, in the form of Schedules 6.20, 6.21 and
8.02, respectively, delivered pursuant to Section 6.2(e) of this Fourth
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<PAGE> 6
Amendment. Such revised schedules shall be modified solely to reflect the
Reincorporation, the Loan Documents Assignment and/or the Reorganization, as the
case may be, and shall be in form and substance satisfactory to the
Administrative Agent and the Banks.
3.7 Line 13 under "Fixed Charge Coverage Ratio" in Attachment 1 to
Exhibit F (Compliance Certificate) to the Agreement is amended and restated in
its entirety as follows:
"13. Minimum Fixed Charge Coverage:
For fiscal quarter ending
December 31, 1996 3.00 to 1
For fiscal quarters ending
March 31, 1997, June 30, 1997,
September 30, 1997 and December 31, 1997 2.75 to 1
Thereafter 3.00 to 1"
4. Representations and Warranties. WellPoint California and WellPoint
Delaware jointly and severally represent and warrant to the Banks and the Agents
that, on and as of the date hereof, and after giving effect to this Fourth
Amendment:
4.1 Authorization. The execution, delivery and performance of this
Fourth Amendment have been duly authorized by all necessary corporate action by
WellPoint California and WellPoint Delaware and this Fourth Amendment has been
duly executed and delivered by WellPoint California and WellPoint Delaware.
4.2 Binding Obligation. This Fourth Amendment is the legal, valid and
binding obligation of WellPoint California and WellPoint Delaware, enforceable
against WellPoint California and WellPoint Delaware, in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
4.3 No Legal Obstacle to Amendment. The execution, delivery and
performance of this Fourth Amendment will not (a) contravene the terms of
WellPoint California's and WellPoint Delaware's articles or certificate of
incorporation, by-laws or other organization document; (b) conflict with or
result in any breach or contravention of, or the creation of any Lien under, any
document evidencing any Contractual Obligation to which WellPoint California or
WellPoint Delaware is a party or any order, injunction, writ or decree of any
Governmental Authority to which WellPoint California, WellPoint Delaware or
their respective Property is subject; or (c) violate any Governmental Rules
where such violation would reasonably be expected to have a Material Adverse
Effect. Other than as contemplated in
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<PAGE> 7
connection with the Reorganization or referred to in Section 6.2 of this Fourth
Amendment, no approval, consent, exemption, authorization of other action by, or
notice to, or filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by WellPoint
California or WellPoint Delaware of this Fourth Amendment, or the transactions
contemplated thereby.
4.4 Incorporation of Certain Representations. The representations and
warranties of WellPoint California set forth in Article VI of the Agreement are
true and correct in all respects on and as of the date hereof as though made on
and as of the date hereof, except (a) to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date, and (b) that the Recapitalization itself
shall not be deemed to have a Material Adverse Effect for purposes of the
representations and warranties in Sections 6.11(b) and (c) of the Agreement.
4.5 Reincorporation/Reorganization Documents. Attached hereto as
Schedule 4.5 is a complete and correct list of the voting agreement, the voting
trust agreement, the registration rights agreement and all other material
consents, documents, agreements, opinions and instruments, including amendments
thereto, relating to the Reincorporation and the Reorganization (the
"Reincorporation/Reorganization Documents").
4.6 Default. After giving effect to this Fourth Amendment, no Default
or Event of Default under the Agreement shall have occurred and be continuing.
4.7 Ownership of Assets. At all times during and after the
consummation of the Reincorporation, the Reorganization and the Loan Documents
Assignment, the entity liable as the borrower under the Agreement will directly
or indirectly own the interests in all Subsidiaries, and the assets of such
subsidiaries, which WellPoint California and its Subsidiaries owned immediately
prior to the commencement of the Reincorporation and Loan Document Assignment.
5. Conditions, Effectiveness. The effectiveness of this Fourth
Amendment shall be subject to the compliance by WellPoint California and
WellPoint Delaware with its agreements herein contained, and to the delivery of
the following to the Administrative Agent in form and substance satisfactory to
the Administrative Agent:
5.1 Corporate Resolutions. A copy of a resolution or resolutions
passed by the Board of Directors of WellPoint California and WellPoint Delaware,
certified by the Secretary or
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<PAGE> 8
an Assistant Secretary of WellPoint California and WellPoint Delaware,
respectively, as being in full force and effect on the date hereof, authorizing
the amendments to the Agreement herein provided for and the execution, delivery
and performance of this Fourth Amendment and any note or other instrument or
agreement required hereunder.
5.2 Authorized Signatories. A certificate, signed by the Secretary or
an Assistant Secretary of WellPoint California and WellPoint Delaware dated as
of the date hereof, as to the incumbency of the person or persons authorized to
execute and deliver this Fourth Amendment and any instrument or agreement
required hereunder on behalf of WellPoint California and WellPoint Delaware,
respectively.
5.3 Other Evidence. Such other evidence with respect to WellPoint
California, WellPoint Delaware or any other person as any Bank may reasonably
request in connection with this Fourth Amendment and the compliance with the
conditions set forth herein.
6. Conditions Precedent to Consent to Reincorporation or
Reorganization. The consent of the Agents and the Banks to any transactions
included as part of the Reincorporation, the Reorganization and the Loan
Documents Assignment (each an "Applicable Transaction") is subject to
satisfaction of the following conditions precedent applicable to such Applicable
Transaction on or before the date all of the actions constituting such
Applicable Transaction are completed, unless all of the Banks, in their sole and
absolute discretion, shall agree otherwise (the conditions applicable to any
particular Applicable Transaction being referred to herein as the "Applicable
Conditions"):
6.1 Reincorporation/Reorganization Documents. The
Reincorporation/Reorganization Documents shall be in form and substance
satisfactory to the Administrative Agent and the Majority Banks, with no
material amendments to the forms of any such documents previously delivered to
the Administrative Agent not consented to by the Majority Banks.
6.2 Delivery of Documents. The Administrative Agent shall have
received all of the following on or before the Reincorporation Date in form and
substance satisfactory to the Administrative Agent in sufficient copies for each
Bank:
(a) Organization Documents. With respect to WellPoint
Delaware and any other material Subsidiary thereof being formed in
connection with the Reincorporation or the Reorganization: (i) the
articles or
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<PAGE> 9
certificate of incorporation of such Persons, certified by the
Secretary of State of its incorporation, and the bylaws of such
Persons, certified by the Secretary or Assistant Secretary of such
Persons; and (ii) a good standing certificate for such Persons from
the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation dated as of a recent date.
(b) Reincorporation/Reorganization Documents. True,
correct and complete copies of the Reincorporation/ Reorganization
Documents in substantially final form.
(c) Officer's Certificates. A certificate signed by
Responsible Officers of both WellPoint California and WellPoint
Delaware certifying, representing and warranting that the matters set
forth in Section 6.3 of this Fourth Amendment are true and correct in
all respects on and as of the date of such certificate and were or
will be true and correct as of the date of each Applicable
Transaction as though made on and as of such date.
(d) Debt Ratings. Evidence of the Debt Ratings after
giving effect to the Reincorporation and Reorganization.
(e) Amended Schedules. Amended and restated Schedules
6.20, 6.21 and 8.02 to the Agreement which give effect to the
Reincorporation and Reorganization, which schedules shall be in
compliance with Section 3.6 of this Fourth Amendment.
(f) Opinion of Counsel. Opinions of Brobeck, Phleger &
Harrison LLP and Thomas C. Geiser, Esq., Executive Vice President,
General Counsel and Secretary of WellPoint Delaware and addressed to
the Administrative Agent and the Banks covering (i) the due
organization, incorporation and qualification of WellPoint Delaware,
and (ii) such matters as the Administrative Agent and the Banks may
reasonably request with respect to the Reincorporation, the
Reorganization, the Loan Document Assignment and this Fourth
Amendment.
6.3 Certain Matters. After giving effect to the Reincorporation and
the Reorganization, or any portion thereof:
(a) the representations and warranties of the Company contained in
Article VI of the Agreement are true and correct with respect to WellPoint
Delaware in all respects as though made on and as of such dates, including
without limitation Section 6.23 of the Agreement (No Impairment of Subsidiaries'
Ability to Pay Dividends), except (i) to the extent such representations and
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<PAGE> 10
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date, (ii) to the extent such representations and
warranties are modified by the schedules delivered pursuant to Section 6.2(e))
and (iii) that the Recapitalization itself shall not be deemed to have a
Material Adverse Effect for purposes of the representations and warranties in
Sections 6.11(b) and (c) of the Agreement;
(b) the Company directly or indirectly has continuously owned, owns
and will own the interests in all Subsidiaries, or the assets of such
Subsidiaries, which WellPoint California owned directly or indirectly prior to
the Reincorporation or Reorganization;
(c) each Applicable Transaction was completed in all material
respects in accordance with the May 1997 Proxy and WellPoint California's letter
dated April 18, 1997, and all conditions set forth in the
Reincorporation/Reorganization Documents relevant to such Applicable Transaction
were satisfied in the manner set forth therein without any waiver or
modification of any material term or condition thereto not consented to by the
Agents and the Banks and, to such Responsible Officer's knowledge, no person is
in default under any Reincorporation/Reorganization Document;
(d) all material consents, approvals, licenses and/or authorizations
from the California Department of Corporations, the California and Delaware
departments of insurance, the Blue Cross Blue Shield Association ("BCBSA") and
any Governmental Authority or other Person necessary or advisable to complete
each Applicable Transaction were obtained on or before the date of such
Applicable Transaction, and all of such consents, approvals, licenses and/or
authorizations remain in full force and effect;
(e) if and as required for any Applicable Transaction, the approval
by the shareholders of the Company in accordance with the terms of the Company's
articles of incorporation and bylaws was obtained on or prior to the date of
such Applicable Transaction;
(f) the Company and each HMO Subsidiary are in compliance in all
material respects with the requirements of all applicable HMO Regulations and
all other applicable Governmental Rules on a proforma basis as of the date of
such Applicable Transaction;
(g) no legal or arbitral proceedings are pending or, to the knowledge
of the Company, threatened by or before any Governmental Authority with respect
to any Applicable Transaction that seeks to enjoin, restrict or prevent any
Applicable Transaction or otherwise to impose materially adverse conditions
- 10 -
<PAGE> 11
upon any Applicable Transaction or upon the Company and its Subsidiaries after
consummation thereof;
(h) no Default or Event of Default has occurred and is continuing or
will result therefrom, including without limitation Section 8.15 of the
Agreement (No Impairment of Subsidiaries' Ability to Pay Dividends); and
(i) all Applicable Transactions relating to the Reorganization shall
have been consummated within 30 days of the Reincorporation Date.
6.4 Effectiveness of Third Amendment to Subordinated Term Loan
Agreement and Consent. If the Subordinated Term Loan Agreement dated as of
November 21, 1996, among the Company, the banks party thereto and Bank of
America National Trust and Savings Association, as the administrative agent, is
still in effect, a Third Amendment thereto consenting to the Reincorporation and
Reorganization and waiving and amending sections of such agreement in
substantially the same form as this Fourth Amendment shall have become, or
concurrently therewith is becoming, effective.
6.5 Officer's Certificate re Completion. Promptly following the
completion of the last Applicable Transaction, the Company shall deliver to the
Administrative Agent a certificate of a Responsible Officer:
(a) certifying, representing and warranting that the matters set
forth in Section 6.3 of this Fourth Amendment are true and correct in all
respects on and as of the date of such certificate as though made on and as of
such date; and
(b) describing all Applicable Transactions that were completed and
the timing thereof.
6.6 Pro Forma Financials; Compliance Certificate; Final Documents.
Within 30 days after delivery of the notice referred to in Section 6.5 above,
the Company shall deliver to the Administrative Agent a certificate of a
Responsible Officer attaching:
(a) Pro forma financial consolidating statements of the Company as of
December 31, 1996 giving effect to the Reincorporation and Reorganization;
(b) A Compliance Certificate as of December 31, 1996 signed by a
Responsible Officer substantially in the form of Exhibit F to the Agreement
demonstrating compliance with the financial covenants by the Company on a pro
forma basis after giving effect to the Reincorporation and Reorganization; and
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<PAGE> 12
(c) Copies of the final, executed Reincorporation/ Reorganization
Documents, together with any amendments thereto in effect at that date.
6.7 Other Evidence. Such other evidence with respect to the
Reincorporation, Reorganization, WellPoint Delaware or any other person as any
Bank may reasonably request.
7. Miscellaneous.
7.1 Effectiveness of Agreement. Except as hereby expressly amended,
the Agreement and each other Loan Document shall each remain in full force and
effect, and are hereby ratified and confirmed in all respects on and as of the
date hereof.
7.2 No Waiver. This Fourth Amendment is specific in time and in
intent and does not constitute, nor should it be construed as, a waiver of any
other right, power or privilege under the Loan Documents, or under any
agreement, contract, indenture, document or instrument mentioned in the Loan
Documents; nor does it preclude any exercise thereof or the exercise of any
other right, power or privilege, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Loan Documents, constitute a
waiver of any other default of the same or of any other term or provision.
7.3 Counterparts; All Banks. This Fourth Amendment may be executed in
any number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This Fourth Amendment shall
become as of the date hereof upon WellPoint California, WellPoint Delaware, all
Banks and the Agents having signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to the Administrative
Agent.
7.4 Jurisdiction. This Fourth Amendment shall be governed by and
construed under the laws of the State of California.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.,
a California corporation
By: /s/ HOWARD G. PHANSTIEL
-------------------------------------
Name: Howard G. Phanstiel
-----------------------------------
Title: Executive Vice President
----------------------------------
WELLPOINT HEALTH NETWORKS INC.,
a Delaware corporation
By: /s/ HOWARD G. PHANSTIEL
-------------------------------------
Name: Howard G. Phanstiel
-----------------------------------
Title: Executive Vice President
----------------------------------
[OTHER SIGNATURE LINES OMITTED]
(Signatures continue)
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<PAGE> 14
EXHIBIT A TO FOURTH AMENDMENT
MEDIATION AGREEMENT
AND
PARENTAL GUARANTEE
The undersigned Primary Licensee and Affiliate Licensee hereby agree to use the
Blue Cross and Blue Shield Association Board-established mediation and mandatory
dispute resolution processes in lieu of legal action between or among another
controlled affiliate, a licensed Plan or Blue Cross and Blue Shield Association.
The undersigned Primary Licensee also certifies that it guarantees to the full
extent of its assets, all of the contractual and financial obligations of the
Affiliate Licensee to its customers.
/s/ Leonard D. Schaeffer 5/15/96
- ------------------------------ --------
Leonard D. Schaeffer Date
Chief Executive Officer of
WellPoint Health Networks Inc.
/s/ Leonard D. Schaeffer 5/15/96
- ------------------------------ --------
Leonard D. Schaeffer Date
Chairman, Board of Directors
CaliforniaCare Health Plans
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<PAGE> 15
SCHEDULE 4.5
REINCORPORATION/REORGANIZATION DOCUMENTS
1. Amended and Restated Voting Agreement by and among WellPoint
Health Networks Inc., a California corporation ("WellPoint California"),
WellPoint Health Networks Inc., a Delaware corporation ("WellPoint Delaware"),
and California HealthCare Foundation (the "Foundation").
2. Amended and Restated Voting Trust Agreement by and among
Wilmington Trust Co. and the Foundation.
3. Amended and Restated Registration Rights Agreement by and among
WellPoint California, WellPoint Delaware and U.S. Trust Company of California,
NA.
4. Amended and Restated Share Escrow Agent Agreement by and among
WellPoint California, WellPoint Delaware and the Foundation.
5. Blue Cross License Agreement by and between the Blue Cross Blue
Shield Association (the "BCBSA") and WellPoint Delaware.
6. California Blue Cross License Addendum by and between the BCBSA,
WellPoint Delaware and Blue Cross of California.
7. Blue Cross Affiliate License Agreement by and between the BCBSA
and Blue Cross of California.
8. Blue Cross Affiliate License Agreement by and between the BCBSA
and BC Life & Health Insurance Company ("BC Life").
9. Blue Cross Controlled Affiliate License Agreement Applicable to
Life Insurance Companies by and between the BCBSA and BC Life.
10. Order of the California Department of Corporations approving the
Notices of Material Modification filed April 15, 1997 by WellPoint California,
Blue Cross of California, WellPoint Pharmacy Plan and WellPoint Dental Plan.
11. Approval by Department of Insurance of the State of Delaware to
change in direct and indirect ownership of UNICARE Life & Health Insurance
Company.
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<PAGE> 16
12. Approval of Department of Insurance of the State of California to
change in direct and indirect ownership of BC Life & Health Insurance Company
and UNICARE Insurance Company.
13. Approval of Department of Insurance of the State of Texas to
change in direct and indirect ownership of UNICARE of Texas Health Plans, Inc.
14. Certificate of Ownership of WellPoint Health Networks Inc.
effecting the short-form merger of Blue Cross of California, WellPoint Dental
Plan and WellPoint Pharmacy Plan into WellPoint California.
15. Approval of formation of new Delaware holding company structure
by shareholders of WellPoint Health Networks Inc., a California corporation.
16. Approval by Blue Cross Shield Association of assignment of
various license agreements.
17. Undertakings dated as of July 31, 1997 made by WellPoint
Delaware, WellPoint California Services, Inc. and Blue Cross of California to
the California Department of Corporations.
18. Agreement and Plan of Reorganization dated as of July 22, 1997
by and among WellPoint Delaware, WellPoint Health Networks Inc., a California
corporation, and WLP Acquisition Corp., and the Agreement of Merger dated as of
such date between such parties.
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<PAGE> 1
Exhibit 99.12
UNDERTAKINGS
WELLPOINT HEALTH NETWORKS INC., a Delaware corporation ("WellPoint"), WELLPOINT
CALIFORNIA SERVICES, INC., a California corporation, and BLUE CROSS OF
CALIFORNIA, a California corporation ("BCC") (together, the "Parties"), hereby
undertake to the California Department of Corporations ("Department") as
follows with regard to certain of their obligations under the Knox-Keene Health
Care Service Plan Act of 1975, as amended ("Act"), and the regulations
promulgated thereunder ("Rules"), it being acknowledged that these Undertakings
restate and consolidate in a single document certain Undertakings to the
Department dated January 7, 1993 and March 5, 1996:
1. The Parties undertake that the previous Undertakings that they have
entered into with the Department, dated January 7, 1993 (at Section II.11
thereof), amended on September 7, 1995 and reaffirmed on March 5, 1996,
with regard to inter-company payments shall be amended and restated to
provide as follows:
Except as permitted by this Undertaking, the Parties undertake not to
make payments or distributions of either cash or property to or on behalf
of WellPoint or any affiliate of WellPoint, either in the form of
dividends, payments intended to service indebtedness of WellPoint or any
affiliate of WellPoint or otherwise ("WellPoint Payments") without the
prior approval of the Department. This Undertaking shall not restrict or
limit BCC from making the following WellPoint Payments:
(a) Any payments by BCC to WellPoint or any affiliate of WellPoint
which are permitted under the terms of the Administrative Services
Agreement approved by the Department and to which WellPoint and
BCC are parties; and
(b) Any payments by BCC to WellPoint or any affiliate of WellPoint
which are permitted under the terms of any tax sharing or tax
allocation agreement entered into between BCC and WellPoint and/or
any affiliate of WellPoint and approved by the Department.
This Undertaking shall not restrict or limit BCC from making any
WellPoint Payments in addition to the WellPoint Payments permitted to be
paid by BCC pursuant to this Undertaking, when and to the extent that the
tangible net equity of BCC, as defined in and calculated under the Act
and the Rules ("TNE"), after giving effect to the WellPoint Payment,
would equal at least the greater of (i) 100% of the minimum TNE
required under the Act and the Rules as of the date of this Undertaking,
or such greater level of TNE as may be required by future amendment of
the Act and Rules, or (ii) the applicable minimum level of TNE as set
forth in Rule 1300.84.3(d)(1).
1
<PAGE> 2
2. The Parties undertake that whenever the prior approval of the Department
is required under the Undertaking in paragraph 1 hereof, such prior
approval should be sought by the filing of a Notice of Material
Modification pursuant to Section 1352(b) of the Act.
3. The Parties undertake that the previous Undertakings that have been
entered into with the Department, dated September 5, 1995 and amended and
restated on March 5, 1996, with regard to certain actions of the Blue
Cross Blue Shield Association ("BCBSA") and certain matters relating to
indebtedness, shall be amended and restated to provide as follows:
(a) Acknowledging that certain of the terms and conditions set forth
in the documents memorializing the transactions which are the
subject of Undertakings to the Department dated September 5, 1995,
and amended and restated on March 5, 1996, reflect compliance with
the rules and regulations of the BCBSA, WellPoint undertakes to
review on a periodic basis and report to its Board of Directors
changes in the current rules and regulations of the BCBSA regarding
for-profit licensees of the BCBSA, waivers to such rules and
regulations which may be granted by the BCBSA and license addenda
of which WellPoint becomes aware which are entered into between
BCBSA and other for-profit licensees of BCBSA (together, "BCBSA
Changes"). If the Board of Directors of WellPoint concludes, in its
discretion consistent with its fiduciary duties to its
stockholders, that adoption of particular BCBSA Changes would be in
the best interests of WellPoint and its stockholders, taking into
account, among other things, the potential effect of the particular
BCBSA Changes upon WellPoint stockholder value, then WellPoint
undertakes to use commercially reasonable efforts to seek to amend
the License Addendum or such other instruments governing the
license between WellPoint and the BCBSA to incorporate such of the
BCBSA Changes as may be deemed appropriate by the Board of
Directors of WellPoint in its discretion consistent with its
fiduciary duties to its stockholders.
(b) WellPoint undertakes to the Department that any loan agreement or
loan agreements ("Loan Agreements") entered into by it will not
include any provisions (i) calling for the pledge of the stock of
any entity licensed under the Act ("Act Licensee"), (ii) calling
for the pledge of any assets of any Act Licensee or (iii) calling
for any guarantee of WellPoint indebtedness by any Act Licensee.
BCC undertakes to the Department that the terms of the Loan
Agreements will not be at variance with the terms of this
Undertaking and that it will advise the parties to the Loan
Agreements that paragraph 1 of these Undertakings provides for
limitations on certain payments which may be made by the Act
Licensees in the event those payments adversely affect defined
levels of the Act Licensees' tangible net equity, as defined in the
Act and as specifically provided in paragraph 1 of these
Undertakings.
2
<PAGE> 3
(c) WellPoint undertakes to file with the Department, at least five
days prior to their execution, copies of any Loan Agreements and
shall file executed versions thereafter.
4. BCC undertakes to submit to the Department combining financial statements
with WellPoint on an annual and quarterly basis.
5. The Parties undertake to comply with the terms of the Administrative
Services Agreements filed with the Department as part of the Notices of
Material Modification on April 28, 1997, as amended, including the
provisions thereof prohibiting the removal of BCC's books and records
from the State of California without the Department's permission.
6. BCC, formerly named WellPoint Health Networks Inc., is the surviving
entity of a merger (the "Merger") between BCC, Blue Cross of California,
a California corporation ("Old Blue Cross"), WellPoint Dental Plan and
WellPoint Pharmacy Plan. Such Merger has been effected through the filing
of a Certificate of Ownership as specified under Section 1110 of the
California Corporations Code with the California Secretary of State. The
Parties undertake to file promptly after the date hereof with the
Department the Amended and Restated Articles of Incorporation and Bylaws
of BCC and the Certificate of Ownership. Such Restated Articles and
Certificate of Ownership shall be certified by the California Secretary
of State and the Bylaws shall be certified by the Secretary or an
Assistant Secretary of BCC.
7. BCC, as the surviving entity under the Merger, undertakes to demonstrate
to the Department's satisfaction the adequate resolution of, or take the
necessary corrective actions to address, the concerns that may be raised
by the Department in connection with the medical survey audits of Old
Blue Cross, WellPoint Dental Plan and WellPoint Pharmacy Plan pending as
of the time of the Merger.
Date: July 31, 1997
WELLPOINT HEALTH NETWORKS, INC.
/s/ Thomas C. Geiser
- ----------------------------------
By: Thomas C. Geiser
WELLPOINT CALIFORNIA SERVICES, INC.
/s/ Thomas C. Geiser
- ----------------------------------
By: Thomas C. Geiser
BLUE CROSS OF CALIFORNIA
/s/ Thomas C. Geiser
- ----------------------------------
By: Thomas C. Geiser
3
