<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NUMBER 1-14340
WELLPOINT HEALTH NETWORKS INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3760980
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
21555 OXNARD STREET, WOODLAND HILLS, CALIFORNIA 91367
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 703-4000
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT MAY 15, 1997
------------------- ---------------------------
<S> <C>
Common Stock, $0.0l par value 69,609,709 shares
</TABLE>
<PAGE> 2
WELLPOINT HEALTH NETWORKS INC.
FIRST QUARTER 1997 FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996.................................................................. 1
Consolidated Income Statements for the Three Months
Ended March 31, 1997 and 1996...................................................... 2
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1997.......................................... 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996......................................... 4
Notes to Consolidated Financial Statements.............................................. 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................................... 23
ITEM 5. Other Information...................................................................... 23
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 24
SIGNATURES ...............................................................................................33
</TABLE>
<PAGE> 3
ITEM 1. Financial Statements
WELLPOINT HEALTH NETWORKS INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except share data) March 31, December 31,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 577,284 $ 313,256
Investment securities, at market value 1,953,531 1,728,305
Receivables, net 536,642 401,300
Deferred tax assets 75,033 67,147
Other current assets 38,185 28,463
----------- -----------
Total Current Assets 3,180,675 2,538,471
Property and equipment, net 96,377 82,720
Intangible assets 694,145 552,279
Long-term investments 124,482 123,931
Deferred tax assets 57,651 57,830
Other non-current assets 50,526 50,311
----------- -----------
Total Assets $ 4,203,856 $ 3,405,542
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical claims payable $ 775,578 $ 667,540
Loss and loss adjustment expense reserves 102,940 102,152
Unearned premiums 201,852 160,036
Accounts payable and accrued expenses 323,313 251,480
Experience rated and other refunds 232,653 146,882
Income taxes payable 132,380 99,086
Other current liabilities 316,935 118,303
----------- -----------
Total Current Liabilities 2,085,651 1,545,479
Accrued postretirement benefits 62,189 61,086
Loss and loss adjustment expense reserves, non-current 140,067 131,079
Reserves for future policy benefits 337,443 104,508
Long-term debt 594,000 625,000
Other non-current liabilities 75,870 67,931
----------- -----------
Total Liabilities 3,295,220 2,535,083
Stockholders' Equity:
Preferred Stock - $0.01 par value, 50,000,000 shares
authorized, none issued and outstanding - -
Common Stock - $0.01 par value, 300,000,000 shares authorized, 66,604,255
and 66,526,985 issued and outstanding at March 31, 1997 and
December 31, 1996, respectively 666 665
Additional paid-in capital 764,943 761,879
Unrealized valuation adjustment (25,637) (9,994)
Retained earnings 168,664 117,909
----------- -----------
Total Stockholders' Equity 908,636 870,459
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,203,856 $ 3,405,542
=========== ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
1
<PAGE> 4
WELLPOINT HEALTH NETWORKS INC.
Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except earnings per share) Three Months Ended March 31,
----------------------------
1997 1996
---------- --------
<S> <C> <C>
Revenues:
Premium revenue $1,168,838 $763,284
Management services revenue 62,445 18,228
Investment income 40,349 36,070
---------- --------
1,271,632 817,582
Operating Expenses:
Health care services and other benefits 920,872 571,785
Selling expense 59,770 49,466
General and administrative expense 180,567 92,274
Nonrecurring costs 6,507 -
---------- --------
1,167,716 713,525
---------- --------
Operating Income 103,916 104,057
Interest expense 10,768 -
Other expense, net 7,869 3,012
---------- --------
Income before Provision for Income Taxes 85,279 101,045
Provision for income taxes 34,524 40,932
---------- --------
Net Income $ 50,755 $ 60,113
========== ========
Earnings Per Share $ 0.76 $ 0.91
========== ========
Weighted Average Number of
Shares Outstanding 66,544 66,367
========== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
2
<PAGE> 5
WELLPOINT HEALTH NETWORKS INC.
Consolidated Statement of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
(In thousands)
Common Stock Additional Unrealized
Preferred ------------------- Paid-in Valuation Retained
Stock Shares Amount Capital Adjustment Earnings Total
-------- ------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 $ - 66,527 $ 665 $761,879 $ (9,994) $117,909 $870,459
Net income 50,755 50,755
Stock issued under the
Company's stock option/award plan 77 1 3,064 3,065
Change in unrealized valuation
adjustment on investment
securities, net of tax (15,643) (15,643)
-------- ------- ------ -------- -------- -------- --------
Balance as of March 31, 1997 $ - 66,604 $ 666 $764,943 $(25,637) $168,664 $908,636
======== ======= ====== ======== ======== ======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
3
<PAGE> 6
WELLPOINT HEALTH NETWORKS INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,755 $ 60,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net of accretion 12,805 6,287
Gains on sales of assets, net (6,289) (5,778)
(Benefit) expense for deferred income taxes (566) 5,950
Amortization of deferred gain on sale of building (1,106) -
(Increase) decrease in certain assets, net of acquisitions:
Receivables, net (16,072) (8,230)
Other current assets 1,007 (4,289)
Other non-current assets (215) (23,689)
Increase (decrease) in certain liabilities, net of acquisitions:
Medical claims payable 23,603 (10,670)
Loss and loss adjustment expense reserves 9,776 15,380
Reserves for future policy benefits (12,106) -
Unearned premiums 7,313 4,023
Accounts payable and accrued expenses 17,039 (6,192)
Experience rated and other refunds (2,018) (6,842)
Due to parent - 8,334
Income taxes payable and other current liabilities 108,303 53,808
Accrued postretirement benefits 1,103 1,055
Other non-current liabilities 9,045 813
----------- -----------
Net cash provided by operating activities 202,377 90,073
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (1,295,324) (83,419)
Proceeds from investments sold 1,026,402 137,200
Proceeds from matured investments 25,510 3,357
Property and equipment purchased, net (10,296) (4,333)
Additional investment in subsidiaries (18,683) -
Purchase of subsidiaries, net of cash acquired 361,977 (297,735)
----------- -----------
Net cash provided by (used in) investing activities 89,586 (244,930)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 150,000 -
Repayment of long-term debt (181,000) -
Proceeds from issuance of stock 3,065 -
----------- -----------
Net cash used in financing activities (27,935) -
----------- -----------
Net increase (decrease) in cash and cash equivalents 264,028 (154,857)
Cash and cash equivalents at beginning of period 313,256 1,069,631
----------- -----------
Cash and cash equivalents at end of period $ 577,284 $ 914,774
=========== ===========
</TABLE>
See the accompanying notes to the consolidated financial statements.
4
<PAGE> 7
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
WellPoint Health Networks Inc. (the "Company" or "WellPoint"), one of the
nation's largest publicly traded managed health care companies, is
organized under the laws of California and holds the exclusive license for
the right to use the Blue Cross name and related service marks in
California. The Company has medical members in all 50 states and the
District of Columbia.
The Company offers a comprehensive array of managed care health plans to
the large employer markets and the individual, small group and senior
markets. These plans are marketed through health maintenance organizations
("HMOs"), preferred provider organizations ("PPOs"), point-of-service
("POS"), other hybrid plans and traditional indemnity products. The
Company's managed care plans incorporate a full range of financial
incentives and cost controls for both members and providers. The Company
also provides a broad array of specialty products, including pharmacy,
dental, life, integrated workers' compensation, preventive care,
disability, behavioral health, COBRA and flexible benefits account
administration. In addition, the Company provides underwriting, actuarial
service, network access, medical cost management, claims processing and
administrative services to self-funded employers. The Company serves the
health care needs of approximately 5.9 million medical members in HMOs,
PPOs, POS and management services plans and approximately 12.9 million
pharmacy members, 3.0 million dental members, 1.6 million life members and
1.1 million disability members as of March 31, 1997.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of WellPoint,
in the opinion of management, reflect all material adjustments (which are
of a normal recurring nature) necessary for the fair presentation of its
financial condition as of March 31, 1997, the results of its operations for
each of the three months ended March 31, 1997 and 1996, cash flows for each
of the three months ended March 31, 1997 and 1996, and the statement of
changes in stockholders' equity for the three months ended March 31, 1997.
The results of operations for the interim periods presented are not
necessarily indicative of the operating results for the full year.
5
<PAGE> 8
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS AND RECAPITALIZATION
Purchase of Group Benefits Operations of John Hancock Mutual Life Insurance
Company and Life & Health Benefits Management Division of Massachusetts
Mutual Life Insurance Company
On March 1, 1997, the Company completed its acquisition of certain portions
of the health and life related group benefits operations (the "GBO") of
John Hancock Mutual Life Insurance Company for approximately $89.7 million
in cash, subject to adjustment upon completion of a post-closing audit. The
GBO focuses on the large employer segment (employers with 5,000 or more
employees) and provides medical, life, dental, pharmacy as well as
disability services to some of the largest employers in the nation.
On March 31, 1996, the Company completed its acquisition of the Life and
Health Benefits Management Division ("MMHD") of Massachusetts Mutual Life
Insurance Company ("MassMutual"), which conducts business under the name
UNICARE Life & Health Insurance Company, through the acquisition of its
parent MassMutual Holding Company Two, Inc. The purchase price was $402.2
million which was funded with $340.2 million in cash and a Series A term
note for $62.0 million, of which $20.0 million was outstanding at March 31,
1997. The acquired MMHD operations provide medical services to members in
all 50 states, focusing on the mid-size employer market (groups of 251 to
5,000). In addition, the acquired MMHD operations also provide dental,
life, pharmacy and disability services.
The purchase method of accounting has been used to account for both of the
above acquisitions. The acquired operations are included in the Company's
results of operations from their respective date of acquisition. The excess
purchase price over net assets acquired was approximately $111.9 million
for the GBO and $251.0 million for MMHD and is being amortized on a
straight-line basis over 30 years for the GBO and 35 years for MMHD.
Recapitalization and Purchase of BCC Commercial Operations
On May 20, 1996, the Company concluded a series of transactions
(collectively, the "Recapitalization") to recapitalize its publicly traded,
majority-owned subsidiary, WellPoint Health Networks Inc., a Delaware
corporation ("Old WellPoint"), pursuant to the Amended and Restated
Recapitalization Agreement dated as of March 31, 1995 (the "Amended
Recapitalization Agreement"), by and among Old WellPoint, the company
formerly known as Blue Cross of California ("BCC"), the California
6
<PAGE> 9
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS AND RECAPITALIZATION, CONTINUED
Recapitalization and Purchase of BCC Commercial Operations, Continued
HealthCare Foundation (the "Foundation") and the California Endowment (the
"Endowment"). In connection with the Recapitalization, (a) Old WellPoint
distributed an aggregate of $995.0 million by means of a special dividend
of $10.00 per share to the record holders of its Class A and Class B Common
Stock as of May 15, 1996, (b) BCC, the sole shareholder of Old WellPoint's
Class B Common Stock, donated its portion of such dividend ($800.0 million)
to the Endowment, (c) BCC donated its assets, other than the shares of the
Old WellPoint Class B Common Stock held by BCC and its commercial
operations (the "BCC Commercial Operations"), to the Foundation, (d) BCC
changed its status from a California nonprofit public benefit corporation
to a California for-profit business corporation, in conformity with the
terms and orders of the California Department of Corporations (the "DOC"),
immediately following which BCC issued to the Foundation 53,360,000 shares
of its common stock and (e) Old WellPoint merged with and into BCC (the
"Merger"), with the resulting entity changing its name to WellPoint Health
Networks Inc. In connection with the Merger, (i) each outstanding share of
Old WellPoint's Class A Common Stock was converted into 0.667 shares of the
Company's Common Stock, (ii) the outstanding shares of the Company's common
stock issued to the Foundation prior to the Merger were converted into
53,360,000 shares of the post-merger Company's Common Stock and a cash
payment of $235.0 million was made to the Foundation to reflect the value
of the BCC Commercial Operations and (iii) the outstanding shares of Old
WellPoint's Class B Common Stock were canceled. The BCC Commercial
Operations consisted of, among other things, the health care lines of
business conducted by BCC, substantially all agreements with health care
providers that provided services to enrollees of BCC and all of the cash
and securities of BCC on hand at the time of closing of the
Recapitalization. The Company and the Foundation subsequently amended the
terms of the Recapitalization to provide for the substitution by the
Company of $7.0 million in cash for the capital stock of certain entities
owning the real estate parcel surrounding the Company's headquarters
building.
The purchase method of accounting has been used to account for the
acquisition of the BCC Commercial Operations. The excess purchase price
over assets acquired was approximately $206.7 million and is being
amortized on a straight-line basis over 40 years.
By virtue of the Merger and the exchange of shares of Old WellPoint for
those of the Company, as of May 20, 1996 (the effective date of the
Merger), there were a total of 66,366,500 shares of the Company's Common
Stock outstanding, of which 53,360,000 shares (or approximately 80.4%) were
held beneficially by the Foundation.
7
<PAGE> 10
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITIONS AND RECAPITALIZATION, CONTINUED
Recapitalization and Purchase of BCC Commercial Operations, Continued
On November 21, 1996 and April 10, 1997 the Foundation sold approximately
15 million and 8.5 million shares, respectively, of the Company's Common
Stock through public offerings. Upon completion of the April 1997 offering,
the Foundation owned 29,910,000 shares (or approximately 43.0%) of the
outstanding shares.
In accordance with the requirements of APB Opinion No. 16, Business
Combinations, the following unaudited pro forma summary presents the
results of operations of WellPoint as if the acquisition of the BCC
Commercial Operations and the Recapitalization and the acquisitions of MMHD
and GBO had occurred as of the beginning of each period presented. The pro
forma adjustments include the results of operations for MMHD and GBO for
the period prior to their acquisitions, the BCC Commercial Operations for
the period prior to the Recapitalization, interest expense on long-term
debt incurred to fund the acquisitions and the Recapitalization,
amortization of intangible assets, foregone interest on the net cash used
for the acquisitions and a portion of the Recapitalization and the related
income tax effect from the beginning of each period presented through the
effective dates of the acquisitions. The pro forma financial information is
presented for informational purposes only and may not be indicative of the
results of operations as they would have been if WellPoint, MMHD, GBO and
the BCC Commercial Operations had been a single entity during the three
months ended March 31, 1997 and 1996, nor is it necessarily indicative of
the results of operations which may occur in the future. Pro forma earnings
per share for the three months ended March 31, 1997 and 1996 is calculated
based on 66.5 million and 66.4 million shares outstanding, respectively.
<TABLE>
<CAPTION>
Pro Forma - Three Months Ended
(In millions, except earnings per share) March 31, 1997 March 31, 1996
------------------------------------------------
<S> <C> <C>
Revenues $1,398,364 $1,337,112
Net Income 47,077 46,787
Earnings Per Share .71 .71
</TABLE>
8
<PAGE> 11
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. LONG-TERM DEBT
On March 17, 1997, the Company borrowed $150.0 million under its $200
million subordinated debt facility. The Company used these proceeds
to pay down its revolving credit facility in March 1997, in addition to
other paydowns on its revolving credit facility during the first quarter of
1997. As of March 31, 1997, $200 million was outstanding under the
Company's subordinated debt facility.
5. EARNINGS PER SHARE
Earnings per share is determined by dividing net income by the weighted
average number of shares outstanding during the period. The average number
of shares outstanding for the period ended March 31, 1996 has been
calculated based on the number of shares outstanding immediately following
the Recapitalization, to give effect to the two-for-three share exchange
that occurred as part of the Recapitalization. The weighted average number
of shares outstanding for the three months ended March 31, 1997 and 1996 is
66.5 million and 66.4 million shares, respectively. For the three months
ended March 31, 1997, common stock equivalents did not have a dilutive
effect on the weighted average number of shares outstanding. There were no
common stock equivalents for the three months ended March 31, 1996.
New Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." This
Statement is effective for financial statements issued for the period
ending after December 15, 1997; earlier application is not permitted. This
statement requires the computation and presentation of basic and diluted
earnings per share ("EPS"). Basic EPS will be computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding. Common stock equivalents are not considered in the
basic EPS. As the Company did not have any common stock equivalents until
May 20, 1996, and had no dilutive common stock equivalents from this date
through and including the first quarter ended March 1997, the Company's
basic and diluted EPS calculation for all periods through March 31, 1997
would be the same as the earnings per share amounts reflected in these
financial statements.
9
<PAGE> 12
WELLPOINT HEALTH NETWORKS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. CONTINGENCIES
From time to time, the Company and certain of its subsidiaries are parties
to various legal proceedings, many of which involve claims for coverage
encountered in the ordinary course of business. The Company, like HMOs and
health insurers generally, excludes certain health care services from
coverage under its HMO, PPO and other plans. The Company is, in its
ordinary course of business, subject to the claims of its members arising
out of decisions to restrict treatment or reimbursement for certain
services.
Certain of such legal proceedings are or may be covered under insurance
policies or indemnification agreements. Based upon information presently
available, management of the Company believes that the final outcome of all
such proceedings should not have a material adverse effect on the Company's
results of operations or financial condition.
7. SUBSEQUENT EVENTS
On April 10, 1997, the Company completed a public offering for the sale of
3 million shares of its common stock at $38.00 per share, for which the
Company received net proceeds of $110.1 million. As part of such public
offering, the Foundation sold 8.5 million shares of WellPoint common
stock, for which the Company received no proceeds. Under the terms of the
Company's $200 million subordinated debt facility, the Company was required
to use the proceeds of this offering to repay outstanding indebtedness
under this facility.
10
<PAGE> 13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including, but not limited to, those set forth under "Factors That May Affect
Future Results or Operations."
GENERAL
WellPoint Health Networks Inc. (the "Company" or "WellPoint") is one of the
nation's largest publicly traded managed health care companies, with
approximately 5.9 million medical members, 12.9 million pharmacy members, 3.0
million dental members, 1.1 million disability members, 642,000 behavioral
health members and 1.6 million life members as of March 31, 1997. The Company
offers a diversified mix of managed care products, including health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), point-of
service ("POSs") plans, other hybrid plans and traditional indemnity products.
The Company also offers a broad array of specialty products, including pharmacy,
dental, life, workers' compensation, preventive care, disability, behavioral
health, COBRA and flexible benefits account administration. In addition,
WellPoint offers managed care services for self-funded employers, including
claims processing, actuarial services, network access, medical cost management
and other administrative services.
On March 1, 1997, the Company completed its acquisition of certain portions of
the Group Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance
Company. The purchase price was $89.7 million, subject to adjustment upon
completion of a post-closing audit. The purchase method of accounting has been
used to account for the acquisition of the GBO. The GBO targets large employers
with 5,000 or more employees and currently provides benefits to approximately
1.3 million medical members, of which most are in health plans that are
self-funded by employers. The GBO offers indemnity and PPO plans and also
provides life, dental, pharmacy and disability coverage to a variety of employer
groups. Although most of the GBO business involves the provision of
administrative services to self-funded employers plans, the indemnity-based
portions of the GBO have experienced a higher overall loss ratio than the
Company's core business. The GBO has historically experienced a higher
administrative expense ratio than the Company due to its higher percentage of
management services business, which will contribute to an increase in the
Company's overall administrative expense ratio in future periods. The Company
expects to incur approximately $35.0 million of costs relating to this
acquisition during the remainder of 1997 and 1998, a portion of which is
expected to be reflected in the Company's results of operations. The Company
expects that it will experience material membership attrition of up to 30% of
the GBO members as it pursues its strategy of motivating traditional indemnity
health insurance members to select managed care products.
11
<PAGE> 14
GENERAL, CONTINUED
On March 31, 1996, the Company acquired the Life and Health Benefits Management
Division ("MMHD") of Massachusetts Mutual Life Insurance Company (the "MMHD
Acquisition"). The acquired MMHD operations focus on employers with 250 to 5000
employees and provide administrative services, PPO and indemnity insurance
products. During the remainder of 1997 and 1998, the Company expects to incur
approximately $10 million of additional costs related to the MMHD acquisition.
The Company expects that it will experience membership attrition of 10% or
greater of its acquired MMHD members as it pursues its strategy of motivating
members to select managed care products.
As a result of above acquisitions, the Company has significantly expanded its
operations outside of California. In order to implement the Company's regional
expansion strategy, the Company will need to develop satisfactory provider
network and information systems, which will require additional expenditures by
the Company. A portion of these expenditures will be reflected in the Company's
results of operations. During the first quarter of 1997, the Company's results
of operations include $6.5 million in non-recurring costs reflecting severance
and stay bonuses associated with the above acquisitions.
Prior to their acquisitions by WellPoint, each of MMHD, GBO and the BCC
Commercial Operations experienced a higher overall loss ratio than the Company.
Accordingly, as the Company continues to integrate these acquisitions, the
Company's overall loss ratio may increase. The Company intends to consider a
variety of measures aimed at controlling the respective loss ratios and reducing
the financial risk of these acquired businesses, including the imposition of
premium increases, changes in product design and membership attrition. There can
be no assurances that the Company will be able to take such measures or, if such
actions are taken, that they will be successful.
In recent periods, the Company has gained increased membership in its
California large group and Medicaid businesses. The Company's overall loss
ratio may increase as the Company expands these businesses, both of which have
generally higher loss ratios than the Company's individual and small group
business.
RESULTS OF OPERATIONS
WellPoint's revenues are generated from premiums earned for health care and
specialty services provided to its members, fees for administrative services,
including claims processing and access to provider networks for self-insured
employers, and investment income. WellPoint's operating expenses include health
care services and other benefits expenses, consisting primarily of payments for
physicians, hospitals and other providers for health care and specialty products
claims; selling expenses for broker and agent commissions; general and
administrative expenses; interest expense; and income taxes.
12
<PAGE> 15
RESULTS OF OPERATIONS, CONTINUED
The Company's consolidated results of operations for the quarter ended March 31,
1997 include the results of MMHD and the BCC Commercial Operations for the
entire period and the GBO results from March 1, 1997, the effective date of
acquisition. For the three months ended March 31, 1996, the results of
operations do not include any of the above acquisitions as their acquisition
dates were as of March 31, 1996 or later.
The following table sets forth selected operating ratios. The loss ratio for
health care services and other benefits is shown as a percentage of premium
revenue. All other ratios are shown as a percentage of premium revenue and
management services revenue combined.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----- -----
<S> <C> <C>
Operating Revenues:
Premium revenue ratio 94.9% 97.7%
Management services revenue ratio 5.1 2.3
----- -----
100.0 100.0
Operating Expenses:
Health care services and other
benefits loss ratio 78.8 74.9
Selling expense ratio 4.9 6.3
General and administrative expense ratio 14.7 11.8
</TABLE>
13
<PAGE> 16
MEMBERSHIP
The following table sets forth membership data and the percent change in
membership:
<TABLE>
<CAPTION>
MEDICAL MEMBERSHIP: As of March 31,
----------------------
Percent
GEOGRAPHY 1997(a) 1996(a) Change
--------- --------- ---------
<S> <C> <C> <C>
CALIFORNIA
Group Services:
HMO 722,137 627,385 15.1%
PPO and Other 1,330,542 941,830 41.3%
--------- ---------
Total 2,052,679 1,569,215 30.8%
--------- ---------
Individual, Small Group and Senior:
HMO 280,528 228,726 22.6%
PPO and Other 1,204,322 1,166,920 3.2%
--------- ---------
Total 1,484,850 1,395,646 6.3%
--------- ---------
Medi-Cal HMO Programs 180,112 44,695 302.9%
--------- ---------
Total California Medical Membership(b) 3,717,641 3,009,556 23.5%
--------- ---------
TEXAS
Group Services 207,650 72,380 186.9%
Individual, Small Group and Senior 37,610 2,506 358.9%
--------- ---------
Total 245,260 80,575 204.4%
--------- ---------
OTHER STATES
Group Services 1,949,076 835,508 133.3%
Individual, Small Group and Senior 2,749 1,181 132.8%
--------- ---------
Total 1,951,825 836,689 133.3%
--------- ---------
TOTAL MEDICAL MEMBERSHIP(c)(d) 5,914,726 3,926,820 50.6%
========= =========
NETWORKS(e)
Proprietary Networks 3,551,467 2,833,620 25.3%
Other Networks 1,281,056 708,674 80.8%
Non-Network 1,082,203 384,526 181.4%
--------- ---------
TOTAL MEDICAL MEMBERSHIP 5,914,726 3,926,820 50.6%
========= =========
</TABLE>
(a) As the MMHD Acquisition was completed as of March 31, 1996, membership data
for MMHD is reflected in both 1997 and 1996.
(b) As of March 31, 1997, total BCC Commercial Operations medical membership was
approximately 269,000, all of which were California members. The majority of
these members are included in Group services.
(c) Medical membership includes 2.3 million and 1.1 million management services
members as of March 31, 1997 and 1996, respectively, of which those
management services members outside of California were 1.6 million and
495,000, respectively, as of March 31, 1997 and 1996.
(d) As of March 31, 1997, total GBO medical membership was approximately
1,300,000, of which approximately 43,000 were California members and
approximately 1,257,000 were outside of California members.
(e) Proprietary networks consist of California, Texas and other WellPoint
developed networks. Other networks consist of third-party networks and
networks owned by the Company as a result of its recent acquisitions that
incorporate provider discounts and some basic managed care elements.
Non-network consists of fee-for-service and percentage-of-billed-charges
members.
14
<PAGE> 17
MEMBERSHIP, CONTINUED
<TABLE>
<CAPTION>
As of March 31,
-----------------------
Percent
1997 1996 Change
--------- --------- ---------
<S> <C> <C> <C>
SPECIALTY MEMBERSHIP:
Pharmacy 12,891,280 11,445,589 12.6%
Dental 3,040,748 1,488,106 104.3%
Life 1,633,586 1,215,490 34.4%
Disability 1,135,231 208,250 445.1%
Behavioral Health 642,467 437,428 46.9%
</TABLE>
The specialty membership as of March 31, 1997 includes the acquired GBO
operations, which had approximately 0.3 million pharmacy members, 1.5 million
dental members, 0.9 million life members and 1.0 million disability members as
of March 31, 1997.
COMPARISON OF RESULTS FOR THE FIRST QUARTER 1997 TO THE FIRST QUARTER 1996
Premium revenue increased 53.1% to $1,168.8 million for the quarter ended March
31, 1997 from $763.3 million for the quarter ended March 31, 1996. Premium
revenue of $162.8 million, $39.8 million and $92.2 million was attributable to
MMHD, GBO and the BCC Commercial Operations, respectively. Also contributing to
increased premium revenue in 1997 was an 11% increase in medical membership,
excluding management services members and the acquired members of MMHD, GBO and
the BCC Commercial Operations. In addition, an increase in premium revenue
resulted from modest increases in the premiums per member in the individual and
senior markets.
Management services revenue increased $44.2 million to $62.4 million for the
quarter ended March 31, 1997 from $18.2 million for the quarter ended March 31,
1996. The increase was primarily due to $20.1 million, $18.0 million and $2.1
million of management services revenue from MMHD, GBO and the BCC Commercial
Operations, respectively. Also contributing to the increase was a significant
increase in the California large group market management services membership
and increases in pharmacy clinical fees and claims processing fees.
Investment income increased to $40.3 million for the quarter ended March 31,
1997 compared to $36.1 million for the quarter ended March 31, 1996. The
increase in interest and dividend income was primarily due to increased interest
income on the portfolios of acquired businesses and slightly higher yields in
1997 over 1996, offset by the foregone interest from cash and investments used
to finance the MMHD, GBO and BCC Commercial Operations acquisitions, the
Recapitalization, and cash used for repayment of indebtedness under the
Company's senior credit facility.
15
<PAGE> 18
COMPARISON OF RESULTS FOR THE QUARTER ENDED MARCH 31, 1997 TO THE QUARTER ENDED
MARCH 31, 1996, CONTINUED
Health care services and other benefits expense increased 61.1% to $920.9
million for the quarter ended March 31, 1997 from $571.8 million for the quarter
ended March 31, 1996. Of the $349.1 million increase, $133.9 million, $40.9
million and $86.8 million were attributable to MMHD, GBO and the BCC Commercial
Operations, respectively. Excluding MMHD, GBO and the BCC Commercial Operations,
increased health care services expense also resulted from medical membership
growth.
The loss ratio for the quarter ended March 31, 1997 increased to 78.8% compared
to 74.9% for the quarter ended March 31, 1996, primarily due to the incremental
effect of the MMHD and the GBO acquisitions and the BCC Commercial Operations on
the Company's overall results. The acquired MMHD and GBO operations and the BCC
Commercial Operations have traditionally experienced a higher loss ratio than
the Company. Excluding the acquisitions of the MMHD and GBO operations and the
BCC Commercial Operations, the loss ratio would have been 75.5% for the quarter
ended March 31, 1997. Also contributing to the increase in loss ratio was an
increase in the loss and loss adjustment expense reserves related to the
Company's workers compensation business.
Selling expense consists of commissions paid to outside brokers and agents
representing the Company. Selling expense for the quarter ended March 31, 1997
increased 20.8% to $59.8 million compared to $49.5 million for the quarter ended
March 31, 1996, corresponding with continued overall premium revenue growth and
an additional $5.7 million in selling expense attributable to MMHD and the GBO
operations. The selling expense ratio for the quarter ended March 31, 1997
decreased to 4.9% from 6.3% for the quarter ended March 31, 1996, largely due to
the acquisition of MMHD and GBO, each of which has a lower selling expense ratio
than the Company's existing business, and the BCC Commercial Operations, which
has no selling expense. Excluding the acquisitions, the selling expense ratio
would have been 5.9% for the quarter ended March 31, 1997, as a result of a
significant increase in Medicaid revenues which had no associated selling
expense.
General and administrative expense for the quarter ended March 31, 1997
increased 95.6% to $180.6 million for the quarter ended March 31, 1997 from
$92.3 million for the quarter ended March 31, 1996. Of the $88.2 million
increase, $37.6 million, $20.7 million and $3.8 million resulted from the MMHD
and the GBO acquisition and the BCC Commercial Operations, respectively. The
administrative expense ratio increased to 14.7% for the quarter ended March 31,
1997 compared to 11.8% for the quarter ended March 31, 1996, primarily due to
the increased administrative expense associated with the Company's continued
investment in national expansion, including network development costs, Medicaid
business and the MMHD and GBO acquisitions. MMHD and GBO have historically had
higher administrative expense ratios than the Company's traditional
California-based businesses due to their higher percentage of management
services business. The above increases were partially offset by the BCC
Commercial Operations' lower administrative expense ratio. Excluding the MMHD,
GBO and the BCC Commercial Operations acquisitions, the administrative expense
ratio would have been 13.2% for the quarter ended March 31, 1997.
16
<PAGE> 19
COMPARISON OF RESULTS FOR THE QUARTER ENDED MARCH 31, 1997 TO THE QUARTER ENDED
MARCH 31, 1996, CONTINUED
Interest expense was $10.8 million for the quarter ended March 31, 1997. The
Company had no interest expense for the quarter ended March 31, 1996. The
interest expense in 1997 related to the Company's long-term indebtedness, of
which $594.0 million was outstanding at March 31, 1997. The weighted average
interest rate for all debt for the quarter ended March 31, 1997 was 7.2%.
WellPoint's net income for the quarter ended March 31, 1997 was $50.8 million,
or $0.76 per share, compared to $60.1 million, or $0.91 per share, for the
quarter ended March 31, 1996. Earnings per share for the quarters ended March
31, 1997 and 1996 are based on 66.5 million shares and 66.4 million shares,
respectively. For the quarter ended March 31, 1996, the number of shares used
for the earnings per share computation represents the number of shares
outstanding immediately following the Recapitalization. The number of shares
outstanding prior to the Recapitalization were adjusted to reflect the
two-for-three share exchange that occurred in connection with the
Recapitalization. Earnings per share is determined by dividing net income by the
weighted average number of common shares outstanding.
FINANCIAL CONDITION
The Company's consolidated assets increased by $798.3 million to $4,203.9
million as of March 31, 1997. This represents a 23.4% increase from $3,405.5
million as of December 31, 1996 and resulted primarily from the GBO acquisition
as well as cash flows generated from operations. Cash and investments were $2.5
billion as of March 31, 1997, or 63.2% of total assets.
As of March 31, 1997, $594.0 million was outstanding under the Company's
long-term debt facilities, incurred primarily for payment of a special dividend
to the stockholders of Old WellPoint in connection with the Recapitalization and
the MMHD Acquisition. The Company had no long-term borrowings outstanding as of
March 31, 1996, other than the Series A term note and other amounts due to Mass
Mutual incurred in connection with the MMHD Acquisition on March 31, 1996.
Equity totaled $908.6 million as of March 31, 1997, an increase of $38.2 million
from December 31, 1996. The increase resulted primarily from net income of $50.8
million for the first quarter of 1997 and $3.0 million in additional capital
from stock issuances under the Company's stock option/award plan, offset by the
change of $15.6 million in unrealized valuation adjustment on investment
securities, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are premiums and management services
revenues received and investment income. The primary uses of cash include health
care claims and other benefits, capitation payments, income taxes, repayment of
long-term debt, interest expense, broker and agent commissions and
administrative expenses. In addition, to the foregoing, prospective uses of cash
will include costs of provider network and systems development, costs associated
with the integration of acquired businesses and capital expenditures. The
Company receives
17
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
premium revenue in advance of anticipated claims for related health care
services and other benefits. The Company's investment policies are designed to
provide liquidity, preserve capital and maximize yield. Cash and investment
balances maintained by the Company are sufficient to meet applicable regulatory
financial stability and net worth requirements. As of March 31, 1997, the
Company's investment portfolio consisted primarily of fixed maturity securities
(which are primarily rated "A" or better by rating agencies) and equity
securities.
Net cash flow provided by operating activities was $188.9 million for the first
quarter of 1997, compared with $90.1 million for the first quarter of 1996. The
1997 increase in positive cash flow from operations primarily resulted from a
$56.7 million increase in income taxes payable and increases in liabilities
associated with the MMHD acquired business.
Net cash flow provided by investing activities for the first quarter of 1997
totaled $103.0 million, compared with net cash flow used by investing activities
of $244.9 million for the first quarter of 1996. The cash provided in 1997 was
attributable primarily to the proceeds from investments sold and matured of
$1,051.9 million offset by the purchase of investments for $1,295.3 million.
The Company also acquired net cash of $362.0 million in connection with the GBO
acquisition.
Net cash used by financing activities totaled $27.9 million for the first
quarter of 1997. There were no financing activities for the first quarter of
1996. Borrowings and repayments on long-term debt totaled $150.0 million and
$181.0 million, respectively, for the first quarter of 1997.
In connection with the Recapitalization, the Company entered into a $1.25
billion unsecured revolving credit facility. In April 1997, the Company amended
its credit facility to decrease the maximum amount which could be borrowed to
$1.0 billion. Borrowings under the credit facility bear interest at rates
determined by reference to the bank's base rate or to the London Interbank
Offered Rate ("LIBOR") plus a margin determined by reference to the Company's
leverage ratio or the then-current rating of the Company's unsecured long-term
debt by specified rating agencies. Borrowings under the credit facility are made
on a committed basis or pursuant to an auction-bid process. The credit facility
expires as of May 15, 2002, although it may be extended for an additional
one-year period under certain circumstances. The credit agreement requires the
Company to maintain certain financial ratios and contains restrictive covenants,
including restrictions on the occurrence of additional indebtedness and the
granting of certain liens, limitations on acquisitions and investments and
limitations on changes in control. The total amount outstanding under the credit
facility was $374 million as of March 31, 1997. The weighted average interest
rate for the quarter ended March 31, 1997 was 7.2%.
In order to limit its exposure to interest rate increases, in August 1996 the
Company entered into a swap agreement for a notional amount of $100.0 million
bearing a fixed interest rate of 6.45% and having a maturity date of August 17,
1999. In September 1996, the Company entered into two additional swap agreements
for notional amounts of $150.0 million each, bearing fixed interest rates of
6.99% and 7.05%, respectively, and having maturity dates of October 17, 2003 and
October 17, 2006, respectively.
18
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
The Company is required to maintain minimum tangible net equity ("TNE") by the
Company's primary regulator, the California Department of Corporations (the
"DOC"), and is required to meet minimum capital requirements prescribed by the
BlueCross BlueShield Association (the "BCBSA"). In measuring capital for the
BCBSA, the Company is required to compute its capital using the same method
prescribed by the DOC. The failure to meet a specified level (the "Minimum BCBSA
Capital") of the BCBSA's base capital requirement can subject the Company to
certain corrective actions, while the failure to meet a lower specified level
can result in termination of the Company's license agreement with the BCBSA. The
Minimum BCBSA Capital requirement, which is more restrictive than the DOC
requirement, increased as of December 31, 1996. As of March 31, 1997, the
Company's TNE (which is also its capital for BCBSA purposes) was approximately
$436.0 million and its Minimum BCBSA Capital was approximately $363.5 million.
As of such date, its required TNE for DOC purposes was approximately $19.3
million.
In order to address an anticipated shortfall in the Company's capital as a
result of the increased BCBSA capital requirement, in November 1996, the Company
entered into a subordinated term loan agreement with a bank for a two-year
unsecured subordinated term loan facility (the "Subordinated Credit Agreement")
of $200.0 million, which could only be drawn down through March 17, 1997. On
December 30, 1996, the Company borrowed $50.0 million, of which approximately
$24.0 million was required in order to meet the increased BCBSA capital
requirements. The DOC regulations permit the Company to include in TNE (and thus
in computing capital for BCBSA purposes) any indebtedness subordinated to the
Company's obligation to maintain the DOC's required minimum TNE. In March 1997,
the Company incurred $150 million in additional indebtedness under the
Subordinated Credit Agreement to comply with the capital requirements as a
result of the GBO acquisition. The Company repaid outstanding indebtedness under
its revolving credit facility with such borrowing. Borrowings under the
Subordinated Credit Agreement bear interest at interest rates determined by
reference to the bank's base rate or to LIBOR plus a margin determined by
reference to the Company's leverage ratio or the then-current rating of the
Company's unsecured long-term debt by specified rating agencies. The applicable
margin will increase with respect to any borrowings outstanding as of July 1,
1997. Interest is paid quarterly. Quarterly principal amortization payments will
be due beginning March 31, 1998, and all remaining outstanding borrowings under
the Subordinated Credit Agreement will become due on March 31, 1998. The
Subordinated Credit Agreement requires compliance with certain financial ratio
and other requirements similar to those in the Company's revolving credit
facility; however, the repayment of borrowings has been subordinated to the
Company's requirements to maintain the required minimum TNE under DOC
regulations. The Subordinated Credit Agreement also requires that the proceeds
of certain sales of capital stock or subordinated debt issued by the Company be
used to repay outstanding amounts under the Subordinated Credit Agreement.
On April 10, 1997, the Company completed a public offering of 3 million shares
of its common stock, receiving net proceeds of $110.1 million which were used to
pay down outstanding indebtedness under the Subordinated Credit Agreement.
Additionally, as part of this offering, the
19
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Foundation (See Note 3 to the Quarterly Financial Statements) sold 8.5 million
shares of WellPoint common stock for which the Company received no proceeds.
In July 1996, the Company filed a registration statement relating to the
issuance of $1.0 billion of senior or subordinated unsecured indebtedness. As of
March 31, 1997, no indebtedness had been issued pursuant to this registration
statement.
The Company believes that cash flow generated by operations, its cash and
investment balances, its existing revolving credit facility and its debt
registration statement will be sufficient to fund continuing operations and
expected capital requirements for the foreseeable future.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Certain statements contained herein, such as statements concerning potential or
future loss ratios, expected membership attrition as the Company continues to
integrate its recently acquired operations and other statements regarding
matters that are not historical facts, are forward-looking statements (as such
term is defined in the Securities Exchange Act of 1934). Such statements involve
a number of risks and uncertainties that may cause actual results to differ from
those projected. Factors that can cause actual results to differ materially
include, but are not limited to, those discussed below and those discussed from
time to time in the Company's various filings with the Securities and Exchange
Commission, including the Company's Annual Report on Form 10-K.
As part of the Company's business strategy, the Company has recently acquired
substantial operations in new geographic markets. These businesses, which
include substantial indemnity-based insurance operations, have experienced
varying profitability or losses in recent periods. While the integration of
these businesses into the Company has begun, there can be no assurances
regarding the ultimate success of the Company's integration efforts or regarding
the ability of the Company to maintain or improve the results of operations of
these businesses as the Company pursues its strategy of motivating the acquired
members to select managed care products. In order to implement this strategy,
the Company will, among other things, need to develop satisfactory provider
networks and information systems, which will require considerable expenditures
by the Company in addition to the costs associated with the integration of these
acquisitions. A portion of these expenditures will be reflected in the Company's
results of operations. The Company's results of operations could be adversely
affected in the event that the Company fails to develop such provider networks
and information systems or is otherwise unable to implement fully its expansion
strategy.
The Company's operations are subject to substantial regulation by Federal, state
and local agencies in all jurisdiction in which the Company now operates. Many
of these agencies have increased their scrutiny of managed health care companies
in recent periods. Future regulatory actions by any such agencies may have a
material adverse affect on the Company's business. In addition, numerous
proposals related to health care reform are being considered at the Federal and
state levels. Many of these proposals relate to mandated coverage or benefits
with respect to specified illnesses or procedures. There can be no assurance
that compliance with recently enacted or future legislation will not have a
material adverse affect on WellPoint's claims expense, its financial condition
or results of operations.
20
<PAGE> 23
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, CONTINUED
The Company's future results will depend in large part on accurately predicting
health care costs and upon the Company's ability to control future health care
costs through underwriting criteria, utilization management and negotiation of
favorable provider contracts. Changes in utilization rates, demographic
characteristics, health care practices, inflation, new technologies, clusters of
high-cost, the regulatory environment and numerous other factors are beyond the
control of any health plan and may adversely affect the Company's ability to
predict and control health care costs and claims, as well as the Company's
financial condition or results of operations. Additionally, the Company faces
competitive pressure to contain premium prices. Fiscal concerns regarding the
continued viability of government sponsored programs such as Medicare and
Medicaid may cause decreasing reimbursement rates for these programs. Any
limitation on the Company's ability to increase or maintain its premium levels
may adversely affect the Company's financial condition or results of operations.
Managed care organizations, both inside and outside California, operate in a
highly competitive environment that has undergone significant change in recent
periods as a result of business consolidations, new strategic alliances,
aggressive marketing practices by competitors and other market pressures.
Additional increases in competition could adversely affect the Company's
financial condition or results of operations.
The Company's two primary products ([a] managed care products and [b] management
services products, including specialty managed care services) are marketed
through two internal business units which are organized on a geographic basis,
Blue Cross of California and UNICARE. The geographic business units are divided
further into individual and small group businesses versus larger employers
because of the distinctive differences in the focus needed in targeting each of
these markets. The combined cost ratios (medical costs and expenses) for the
small group and individual businesses and the large group business vary due
primarily to differing product mix between the managed care and management
services products and different distribution costs. A greater percentage of
small group and individual membership is comprised of higher risk managed care
products, which tend to be more profitable than the lower risk managed care and
management services products as a result of higher deductibles and co-payments
and increased profit margins generally associated with increased underwriting
risks. The group services membership is comprised primarily of capitated managed
care products and management services products which result in lower margins as
a result of the lower level underwriting risk related to the capitated products
and the non-risk nature of the management services products. However, over the
past three years, margin erosion has been greater in the individual and small
group business than in the large group business primarily as a result of slower
growth in membership, product mix change and greater competitive pressure on
premium increases. The spread between the profitability of the individual and
small group business and large group business in California was 8.4% and 10.4%
for the quarter ended March 31, 1997 and 1996, respectively.
21
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 5. Other Information
See Note 3 - Acquisitions and Recapitalization.
22
<PAGE> 25
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
2.01 Amended and Restated Recapitalization Agreement dated as
of March 31, 1995 by and among the Registrant, Blue Cross
of California, Western Health Partnerships and Western
Foundation for Health Improvements, incorporated by
reference to Exhibit 2.1 of Registrant's Form S-4 dated
April 8, 1996
2.02 Purchase and Sale Agreement, dated as of January 5, 1996,
by and among the Registrant and Massachusetts Mutual Life
Insurance Company, incorporated by reference to Exhibit
2.1 of Registrant's 8-K dated January 5, 1996
2.03 Purchase and Sale Agreement, dated as of October 10,
1996, by and between the Registrant and John Hancock
Mutual Life Insurance Company ("John Hancock"),
incorporated by reference to Exhibit 2.1 of Registrant's
Current Report on Form 8-K dated October 9, 1996
3.01 Amended and Restated Articles of Incorporation of the
Registrant, incorporated by reference to Exhibit 3.1 of
Registrant's Form 8-K dated May 20, 1996
3.02 Bylaws of the Registrant, incorporated by reference to
Exhibit 3.2 of Registrant's Form 8-K dated May 20, 1996
3.03 Agreement of Merger dated as of May 20, 1996 by and among
the Registrant, WellPoint Health Networks Inc., a
Delaware corporation, Western Health Partnerships and
Western Foundation for Health Improvement, incorporated
by reference to Exhibit 3.3 of Registrant's Form 8-K
dated May 20, 1996
4.01 Specimen of common stock certificate of WellPoint Health
Networks Inc., incorporated by reference to Exhibit 4.4
of Registrant's Registration Statement on Form S-3,
Registration No. 33-14885
9.01 Voting Trust Agreement dated as of May 20, 1996, by and
between the Registrant, Western Health Partnerships and
Wilmington Trust Company, incorporated by reference to
Exhibit 99.2 of Registrant's Form 8-K dated May 20, 1996
10.01 Line of Business Assignment and Assumption Agreement
dated as of February 1, 1993 among the Registrant, its
subsidiaries and BCC, incorporated by reference to
exhibit 10.01 of Registrant's Form 10-K for the fiscal
year ended December 31, 1992
</TABLE>
23
<PAGE> 26
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.02 Administrative Services and Product Marketing Agreement
dated as of February 1, 1993 among the Registrant, its
subsidiaries and BCC, incorporated by reference to
Exhibit 10.02 of Registrant's Form 10-K for the fiscal
year ended December 31, 1992
10.03 Master Subscriber Agreements dated as of January 27,
1993, between the Registrant's subsidiaries and BCC,
incorporate by reference to Exhibit 10.03 of Registrant's
Form 10-K for the fiscal year ended December 31, 1992
10.04 Tax Allocation Agreement dated as of February 1, 1993,
among the Registrant, its subsidiaries and BCC and its
subsidiaries, incorporated by reference to Exhibit 10.04
of Registrant's Form 10-K for the fiscal year ended
December 31, 1992
10.05 Office Space Lease for Oakland, CA offices, dated
December 10, 1985, between BCC and Webster Street
Partners, Ltd., incorporated by reference to Exhibit
10.06 of the Registrant's Form S-1 Registration Statement
No. 33-54898
10.06 Office Space Lease for Westlake, CA offices, dated
October 29, 1986, between BCC and Westlake Business Park,
Ltd., incorporated by reference to Exhibit 10.07 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.07 Administrative Agreement, dated as of June 1, 1988,
between BCC and INSURx, Inc., incorporated by reference
to Exhibit 10.08 of the Registrant's Form S-1
Registration Statement No. 33-54898
10.08 Undertakings dated January 7, 1993 by BCC, the Registrant
and the Registrant's subsidiaries to the California
Department of Corporations, incorporated by reference to
Exhibit 10.24 of Registrant's Form S-1 Registration
Statement No. 33-54898
10.09 Office Space Lease for Newbury Park, CA offices, dated
January 13, 1993, between BCC and Metropolitan Life
Insurance Company, incorporated by reference to Exhibit
10.12 of Registrant's Form 10-K for the fiscal year ended
December 31, 1992
10.10 Office Space Lease for Calabasas, CA offices, dated
August 26, 1992, between BCC and Lost Hills Office
Partners, First Amendment to Office Lease between Lost
Hills Office Partners and BCC, dated November 1, 1992,
and Subordination, Non-Disturbance and Attornment
Agreement, dated January 7, 1993, between BCC and DAG
Management, incorporated by reference to Exhibit 10.13 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
</TABLE>
24
<PAGE> 27
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.11 WellPoint Health Networks Inc. Officer Change in Control
Plan, incorporated by reference to Exhibit 10.14 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.12 Supplemental Pension Plan of Blue Cross of California,
incorporated by reference to Exhibit 10.15 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.13 Blue Cross of California Deferred Compensation Plan,
incorporated by reference to Exhibit 10.13 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.14 Form of Supplemental Life and Disability Insurance
Policy, incorporated by reference to Exhibit 10.14 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.15 Special Executive Retirement Plan dated as of March 29,
1993 among BCC, the Registrant and Leonard D. Schaeffer,
incorporated by reference to Exhibit 10.19 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.16 Form of Indemnification Agreement between the Registrant
and its Directors and Officers, incorporated by reference
to Exhibit 10.17 of the Registrant's Form S-1
Registration Statement No. 33-54898
10.17 Officer Severance Agreement, dated as of July 1, 1993,
between the Registrant and Thomas C. Geiser, incorporated
by reference to Exhibit 10.24 of Registrant's Form 10-K
for the fiscal year ended December 31, 1993
10.18 First Amendment to Special Executive Retirement Plan
dated as of March 29, 1993, among BCC, the Registrant and
Leonard D. Schaeffer (Exhibit 10.19), effective January
1, 1993, incorporated by reference to Exhibit 10.25 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.19 Executive Benefiting You Highlights Brochure,
incorporated by reference to Exhibit 10.29 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.20 WellPoint Health Networks Inc. Officer Change in Control
Plan as amended January 5, 1995, incorporated by
reference to Exhibit 10.33 of Registrant's Form 10-K for
the fiscal year ended December 31, 1994
</TABLE>
25
<PAGE> 28
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.21 Form of Officer Severance Agreement of the Registrant,
incorporated by reference to Exhibit 10.32 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.22 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and Ronald A. Williams,
amended and restated effective as of January 5, 1995,
incorporated by reference to Exhibit 10.35 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.23 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and D. Mark Weinberg,
amended and restated effective as of January 5, 1995,
incorporated by reference to Exhibit 10.36 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.24 Amendment to Administrative Services and Product
Marketing Agreement dated as of February 1, 1993 among
the Registrant, its subsidiaries and BCC (Exhibit 10.02),
amended as of January 1, 1995, incorporated by reference
to Exhibit 10.39 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.25 Amendment to Administrative Services and Product
Marketing Agreement dated as of February 1, 1993, among
the Registrant, its subsidiaries and BCC (Exhibit 10.02),
amended as of February 1, 1995, incorporated by reference
to Exhibit 10.40 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.26 Agreement of Purchase and Sale and Escrow Instructions,
dated as of December 16, 1994, between Registrant and
Pardee Construction Company, incorporated by reference to
Exhibit 10.41 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.27 Credit Agreement, dated as of October 19, 1994, among the
Registrant, Bank of America, National Trust and Savings
Association, Chemical Bank and Other Financial
Institutions, incorporated by reference to Exhibit 10.43
of Registrant's Form 10-K for the fiscal year ended
December 31, 1994
10.28 First Amendment to Credit Agreement, dated as of March 7,
1995, among the Registrant, Bank of America National
Trust and Savings Association, and other Financial
Institutions, incorporated by reference to Exhibit 10.44
of Registrant's Form 10-K for the fiscal year ended
December 31, 1994
10.29 Orders Approving Notice of Material Modification and
Undertakings dated September 7, 1995, by BCC, the
Registrant and the Registrant's subsidiaries to the
California Department of Corporations, incorporated by
reference to Exhibit 10.47 of Registrant's Form 10-Q for
the quarter ended September 30, 1995
</TABLE>
26
<PAGE> 29
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.30 Second Amendment to Credit Agreement, dated as of October
16, 1995, among the Registrant, Bank of America National
Trust and Savings Association and other Financial
Institutions, incorporated by reference to Exhibit 10.48
of Registrant's Form 10-Q for the quarter ended September
30, 1995
10.31 WellPoint Health Networks Inc. Stock Option/Award Plan,
incorporated by reference to Exhibit 10.45 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.32 Lease Agreement, dated as of January 1, 1996, by and
between TA/Warner Center Associates II, L.P., and the
Registrant (supersedes Exhibit 10.05 and Exhibit 10.42),
incorporated by reference to Exhibit 10.46 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.33 Letter, dated November 13, 1995, from the Registrant to
Ronald A. Williams regarding severance benefits, together
with underlying Officer Severance Agreement, incorporated
by reference to Exhibit 10.47 of Registrant's Form 10-K
for the fiscal year ended December 31, 1995
10.34 Letter, dated November 13, 1995, from the Registrant to D.
Mark Weinberg regarding severance benefits, together with
underlying Officer Severance Agreement, incorporated by
reference to Exhibit 10.48 of Registrant's Form 10-K for
the fiscal year ended December 31, 1995
10.35 Letter, dated November 13, 1995, from the Registrant to
Thomas C. Geiser regarding severance benefits,
incorporated by reference to Exhibit 10.49 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.36 Amended and Restated Undertakings dated March 5, 1996, by
BCC, the Registrant and the Registrant's Subsidiaries to
the California Department of Corporations, incorporated
by reference to Exhibit 99.1 of the Registrant's Current
Report on Form 8-K dated March 5, 1996
10.37 Senior Series A Term Note dated March 31, 1996, between
the Registrant and Massachusetts Mutual Life Insurance
Company, incorporated by reference to Exhibit 10.53 of
the Registrant's Form 10-Q for the Quarter ended March
31, 1996
10.38 Voting Agreement dated as of May 8, 1996, by and among
the Registrant and Western Health Partnerships,
incorporated by reference to Exhibit 99.3 of
Registrant's Form 8-K dated May 20, 1996
</TABLE>
27
<PAGE> 30
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.39 Share Escrow Agent Agreement dated as of May 20, 1996, by
and between the Registrant and U.S. Trust Company of
California, N.A., incorporated by reference to Exhibit
99.4 of Registrant's Form 8-K dated May 20, 1996
10.40 Registration Rights Agreement dated as of May 20, 1996,
by and between the Registrant and Western Health
Partnerships, incorporated by reference to Exhibit 99.5
of Registrant's Form 8-K dated May 20, 1996
10.41 Blue Cross License Agreement effective as of May 20,
1996, by and among the Blue Cross and Blue Shield
Association and the Registrant (supersedes Exhibit
10.09), incorporated by reference to Exhibit 99.6 of
Registrant's Form 8-K dated May 20, 1996
10.42 California Blue Cross License Addendum effective as of
May 20, 1996, by and between the Blue Cross and Blue
Shield Association and the Registrant, incorporated by
reference to Exhibit 99.7 of Registrant's Form 8-K dated
May 20, 1996
10.43 Blue Cross Affiliated License Agreement effective as of
May 20, 1996, by and between the Blue Cross and Blue
Shield Association and CaliforniaCare Health Plans,
incorporated by reference to Exhibit 99.8 of Registrant's
Form 8-K dated May 20, 1996
10.44 Indemnification Agreement dated as of May 17, 1996, by
and among the Registrant, WellPoint Health Networks
Inc., a Delaware corporation, and Western Health
Partnerships, incorporated by reference to Exhibit
99.9 of Registrant's Form 8-K dated May 20, 1996
10.45 Credit Agreement dated as of May 15, 1996, by and among
the Registrant, 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, incorporated by reference to Exhibit 99.10
of Registrant's Form 8-K dated May 20, 1996
10.46 WellPoint Health Networks Inc. Employee Stock Option
Plan, incorporated by reference to the Registrant's
Registration Statement on Form S-8 (Registration No.
333-05111)
10.47 WellPoint Health Networks Inc. Employee Stock Purchase
Plan, incorporated by reference to the Registrant's
Registration Statement on Form S-8 (Registration No.
333-05111)
10.48 Amendment No. 1 dated as of June 28, 1996, to the
Registrant's Credit Agreement dated as of May 15, 1996,
incorporated by reference to Exhibit 10.65 of
Registrant's Form 10-Q for the quarter ended September
30, 1996
</TABLE>
28
<PAGE> 31
(a) Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.49 Subordinated Term Loan Agreement dated as of November 21,
1996, by and among the Registrant, Bank of America and
the other parties named therein, incorporated by
reference to Exhibit 99.1 to the Registrant's Current
Report on Form 8-K filed December 12, 1996
10.50 Employment Agreement dated as of January 22, 1997, by and
between the Registrant and Leonard D. Schaeffer
10.51 Modification Agreement dated as of November 26, 1996 by
and between the Registrant California HealthCare
Foundation
10.52 Coinsurance Agreement dated as of March 1, 1997 between
John Hancock and UNICARE Life & Health Insurance Company
("UNICARE"), incorporated by reference to Exhibit 99.2 of
Registrant's Current Report on Form 8-K filed March 14,
1997
10.53 Administration Agreement dated as of March 1, 1997
between John Hancock and UNICARE, incorporated by
reference to Exhibit 99.3 of Registrant's Current Report
on Form 8-K filed March 14, 1997
10.54 Amendment No. 1 dated as of February 11, 1997 to
Registrant's Subordinated Term Loan Agreement dated as of
November 21, 1996
10.55 Blue Cross Affiliate License Agreement by and between BC
Life & Health Insurance Company and the BCBSA
10.54 Blue Cross Affiliate License Agreement Applicable to Life
Insurance Companies by and between BC Life & Health
Insurance Company and the BCBSA
10.55 Second Amendment dated as of April 21, 1997 to
Registrant's Credit Agreement dated as of May 15, 1996
10.56 Third Amendment dated as of April 21, 1997 to
Registrant's Credit Agreement dated as of May 15, 1996
10.57 Second Amendment dated as of April 21, 1997 to
Registrant's Subordinated Term Loan Agreement dated as
of November 21, 1996
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On January 2, 1997, the Company filed a Current Report on Form 8-K
dated December 19, 1996 which reported that CaliforniaCare had been
awarded a one-year accreditation by the National Committee of Quality
Assurance ("NCQA"). The Company also
29
<PAGE> 32
(b) Reports on Form 8-K (continued)
reported that, on December 30, 1996, CaliforniaCare had agreed to a
dismissal of its lawsuit previously filed in the United States District
Court for the District of Columbia against NCQA.
A current report on Form 8-K was filed on March 14, 1997, which
reported that the Company had completed the acquisition of the Group
Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance
Company on March 1, 1997.
An Amendment No. 1 on Form 8-K/A was filed on May 14, 1997, which
provided audited historical financial statements for the GBO as of
and for the year ended December 31, 1996 and unaudited pro forma
financial statements for the Company as of and for the year ended
December 31, 1996.
30
<PAGE> 33
SIGNATURES
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 thereunto duly authorized.
WELLPOINT HEALTH NETWORKS INC.
Registrant
Date: May 15, 1997 By: \s\ LEONARD D. SCHAEFFER
---------------------------------------
Leonard D. Schaeffer
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 15, 1997 By: \s\ HOWARD G. PHANSTIEL
---------------------------------------
Howard G. Phanstiel
Executive Vice President
Finance and Information Services
Date: May 15, 1997 By: \s\ S. LOUISE MCCRARY
---------------------------------------
S. Louise McCrary
Vice President and
Chief Accounting Officer
31
<PAGE> 1
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment")
dated as of April 21, 1997 is entered into by and among WELLPOINT HEALTH
NETWORKS INC., a California corporation (the "Company"), 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 (as so amended, the
"Agreement").
RECITALS
A. Pursuant to Section 2.05(a) of the Agreement, the Company has
notified the Agent that it desires to reduce the Aggregate Commitment from
$1,250,000,000 to $1,000,000,000.
B. The Company has requested that the minimum Fixed Charge Coverage
Ratio be reduced as set forth herein during the periods indicated herein.
C. The Company has requested that any disclosure of confidential
information by any Bank to its Affiliates be solely for purposes related to the
Loan Documents.
D. The Banks and the Agents are willing to amend and waive
provisions of the Agreement to permit the foregoing, all on the terms and
conditions set forth herein.
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.
- 1 -
<PAGE> 2
All references to the Agreement shall mean the Agreement as hereby amended.
2. Reduction in Aggregate Commitment. Pursuant to the Company's
notice pursuant to Section 2.05(a) of the Agreement, the Banks and the Agents
hereby acknowledge that, effective as of date hereof, the Aggregate Commitment
is reduced to $1,000,000,000, and such reduction is applied to each Bank's
Commitment in accordance with its Pro Rata Share. The Company agrees to pay
all accrued Facility Fees on the portion of the Aggregate Commitment so reduced
on the date hereof.
3. Amendments to Agreement. The Agents and the Banks hereby agree
that the Agreement is amended as follows:
3.1 The definition of "Aggregate Commitment" in Section 1.01 of the
Agreement is amended and restated in its entirety as follows:
"'Aggregate Commitment' means the combined Commitments of the
Banks, in the amount of $1,000,000,000, as such amount may be reduced
from time to time pursuant to this Agreement."
3.2 Section 8.09 of the Agreement is amended and restated in its
entirety as follows:
"8.09 Fixed Charge Coverage Ratio. As of the end of each
fiscal quarter, the Company shall not permit its Fixed Charge
Coverage Ratio to be less than (a) 3.00 to 1 for the fiscal quarter
ending December 31, 1996, (b) 2.75 to 1 for the fiscal quarters
ending March 31, 1997, June 30, 1997, September 30, 1997 and December
31, 1997, and (c) 3.00 to 1 for each fiscal quarter ending
thereafter."
3.3 The last sentence in Section 11.08(e) of the Agreement is
amended by inserting the following after "(a) any Affiliate of such Bank:"
"in connection with enforcing or administering the Loan Documents"
3.5 Schedule 2.01 to the Agreement is amended and restated in its
entirety in the form of Schedule 2.01 to this Second Amendment.
3.6 The computation of "Leverage Ratio" in Attachment 1 to Exhibit F
to the Agreement (Compliance Certificate) is
- 2 -
<PAGE> 3
amended and restated in its entirety in the form of Attachment 1 hereto.
4. Representations and Warranties. The Company represents and
warrants to the Banks and the Agents that, on and as of the date hereof, and
after giving effect to this Second Amendment:
4.1 Authorization. The execution, delivery and performance of this
Second Amendment have been duly authorized by all necessary corporate action by
the Company and this Second Amendment has been duly executed and delivered by
the Company.
4.2 Binding Obligation. This Second Amendment is the legal, valid
and binding obligation of the Company, enforceable against the Company 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 Second Amendment will not (a) contravene the terms of the
Company's articles 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
the Company is a party or any order, injunction, writ or decree of any
Governmental Authority to which the Company or its Property is subject; or (c)
violate any Governmental Rules where such violation would reasonably be
expected to have a Material Adverse Effect. 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 the Company of this Second Amendment, or
the transactions contemplated thereby.
4.4 Incorporation of Certain Representations. The representations
and warranties of the Company 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 representations and
warranties in Sections 6.11(b) and (c) shall be deemed to exclude any Material
Adverse Effect that may have occurred solely as a result of the
Recapitalization.
4.5 Default. No Default or Event of Default under the Agreement has
occurred and is continuing.
- 3 -
<PAGE> 4
5. Conditions, Effectiveness. The effectiveness of this Second
Amendment shall be subject to the compliance by the Company 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 on or
prior to the date that this Second Amendment becomes effective (the "Second
Amendment Effective Date"):
5.1 Corporate Resolutions. A copy of a resolution or resolutions
passed by the Board of Directors of the Company, certified by the Secretary or
an Assistant Secretary of the Company 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 Second 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 the Company dated as of the date hereof, as to the
incumbency of the person or persons authorized to execute and deliver this
Second Amendment and any instrument or agreement required hereunder on behalf
of the Company.
5.3 Accrued Facility Fees. All accrued Facility Fees on the
$250,000,000 reduction in the Aggregate Commitment contemplated by this Second
Amendment to, but not including the Second Amendment Effective Date.
5.4 Amendment Fee. An amendment fee of $100,000 for the benefit of
the Banks in accordance with their respective Pro Rata Shares.
5.5 Effectiveness of Second Amendment to Subordinated Term Loan
Agreement. The Second Amendment dated as of even date herewith to 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, amending the minimum fixed charge
coverage ratio set forth therein in the same manner as the minimum Fixed Charge
Coverage Ratio is amended in Section 4.4 of this Second Amendment, shall have
become, or concurrently herewith is becoming, effective.
5.6 Other Evidence. Such other evidence with respect to the Company
or any other person as any Bank may reasonably request in connection with this
Second Amendment and the compliance with the conditions set forth herein.
- 4 -
<PAGE> 5
6. Miscellaneous.
6.1 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.
6.2 Waivers. This Second 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.
6.3 Counterparts; Majority Banks. This Second 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
Second Amendment shall not become effective until the Company, the Majority
Banks and the Agents shall have signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to the Administrative
Agent.
6.4 Jurisdiction. This Second Amendment shall be governed by and
construed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
By: /s/ Howard G. Phanatiel
----------------------------------------
Name: Howard G. Phanatiel
--------------------------------------
Title: Executive Vice President
-------------------------------------
(Signatures continue)
- 5 -
<PAGE> 6
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By:________________________________________
Christine Cordi
Vice President
NATIONSBANK OF TEXAS, N.A., as
Syndication Agent and as a Bank
By:________________________________________
Elizabeth C. Gould
Vice President
CHASE MANHATTAN BANK, as
Documentation Agent and as a Bank
By:________________________________________
Dawn Lee Lum
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By:________________________________________
Pam Holloway-Dobson
Vice President
ABN AMRO BANK N.V.
Los Angeles International Branch,
as a Bank and as a Co-Agent
By:________________________________________
Name:
Title:
By:________________________________________
Name:
Title:
(Signatures continue)
- 6 -
<PAGE> 7
THE BANK OF NEW YORK,
as a Bank and as a Co-Agent
By: _______________________________________
Lisa Y. Brown
Vice President
THE BANK OF NOVA SCOTIA,
as a Bank and as a Co-Agent
By: _______________________________________
Name: Alan W. Pendergast
Title: Relationship Manager
BANQUE NATIONALE DE PARIS,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
DEUTSCHE BANK AG
New York Branch and/or
Cayman Islands Branch,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
(Signatures continue)
- 7 -
<PAGE> 8
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as a Bank and as a Co-Agent
By: ______________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
as a Bank and as a Co-Agent
By: ______________________________________
Name:
Title:
BANCA DI ROMA
By: ______________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: ______________________________________
Name:
Title:
KREDIETBANK NV
By: ______________________________________
Name:
Title:
(Signatures continue)
- 8 -
<PAGE> 9
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND" NEW YORK BRANCH
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By: _______________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
THE SANWA BANK, LIMITED
By: _______________________________________
Name:
Title:
(Signatures continue)
- 9 -
<PAGE> 10
THE SUMITOMO BANK, LIMITED
By: _______________________________________
Name:
Title:
SWISS BANK CORPORATION
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
BANK OF MONTREAL
By: _______________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: _______________________________________
Name:
Title:
CIBC INC.
By: _______________________________________
Name:
Title:
(Signatures continue)
- 10 -
<PAGE> 11
CREDIT LYONNAIS
New York Branch
By: _______________________________________
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
Los Angeles Agency
By: _______________________________________
Name:
Title:
FLEET NATIONAL BANK
By: _______________________________________
Name:
Title:
THE FUJI BANK, LIMITED
By: _______________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LTD.
Los Angeles Agency
By: _______________________________________
Name:
Title:
MELLON BANK, N.A.
By: _______________________________________
Name:
Title:
- 11 -
<PAGE> 12
SCHEDULE 2.01
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
----- ---------- --------
<S> <C> <C>
Bank of America National Trust
and Savings Association $ 76,000,000 7.6%
NationsBank of Texas, N.A. 68,000,000 6.8%
Chase Manhattan Bank 58,000,000 5.8%
ABN AMRO Bank N.V. 50,000,000 5.0%
The Bank of New York 50,000,000 5.0%
The Bank of Nova Scotia 50,000,000 5.0%
Banque National de Paris 50,000,000 5.0%
Deutsche Bank AG 50,000,000 5.0%
The Long-Term Credit Bank
of Japan, Ltd. 50,000,000 5.0%
Morgan Guaranty Trust Company
of New York 50,000,000 5.0%
Credit Lyonnais 28,000,000 2.8%
The Dai-Ichi Kangyo Bank 28,000,000 2.8%
The First National Bank of Chicago 28,000,000 2.8%
Fleet National Bank 28,000,000 2.8%
The Fuji Bank, Limited 28,000,000 2.8%
The Industrial Bank of Japan, Ltd. 28,000,000 2.8%
Mellon Bank, N.A. 28,000,000 2.8%
Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A.
"Rabobank Nederland" New York Branch 28,000,000 2.8%
The Sanwa Bank Limited 28,000,000 2.8%
The Sumitomo Bank, Limited 28,000,000 2.8%
Union Bank of California, N.A. 28,000,000 2.8%
Banca di Roma 20,000,000 2.0%
Bank of Montreal 20,000,000 2.0%
Bankers Trust Company 20,000,000 2.0%
CIBC Inc. 20,000,000 2.0%
Credit Suisse First Boston 20,000,000 2.0%
Kredietbank NV 20,000,000 2.0%
Swiss Bank Corporation 20,000,000 2.0%
-------------- -----
TOTAL $1,000,000,000 100.0%
</TABLE>
- 1 -
<PAGE> 13
ATTACHMENT 1
LEVERAGE RATIO
<TABLE>
<S> <C> <C>
1. Indebtedness: $__________
2. Operating Lease expense,
multiplied by eight: $__________
3. Contingent Obligations re
Funded Debt of Others: $__________
4. Funded Debt Total (Lines: 1 + 2 + 3): $__________
A B
Acquired
EBITDAR EBITDAR
-------- -------
5. Consolidated pre-tax net
income (exclusive of extra
ordinary gains or losses): $__________ $__________
6. Interest Expense: $__________ $__________
7. Amortization: $__________ $__________
8. Depreciation: $__________ $__________
9. Operating Lease expense: $__________ $__________
10. Pre-tax non-cash Restructuring
charges (up to $__________50,000,000): $__________
11. Acquired EBITDAR (Lines 5A+6A+7A+8A+9A): $__________
12. EBITDAR (Lines 5B+6B+7B+8B+9B+10B): $__________
13. Acquired EBITDAR and EBITDAR
(Lines 11 + 12): $__________
14. Leverage Ratio (Line 4 / Line 13): ____ to 1.00
15. Maximum Leverage Ratio:
For the period from January 1,
1997 through December 31, 1997: 2.25 to 1.00
Thereafter: 2.00 to 1.00
</TABLE>
- 1 -
<PAGE> 1
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment")
dated as of April 21, 1997 is entered into by and among WELLPOINT HEALTH
NETWORKS INC., a California corporation (the "Company"), 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 and a Second Amendment
to Credit Agreement dated as of April 21, 1997 (as so amended, the
"Agreement").
RECITALS
A. Pursuant to Section 2.11 of the Agreement, the Company has
requested that the Maturity Date be extended to May 15, 2002. In connection
therewith, the parties desire to clarify a portion of Section 2.11.
B. The Banks and the Agents are willing to consent to the foregoing
and to so amend the Agreement, all on the terms and conditions set forth
herein.
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. Extension of Maturity Date. Pursuant to the Company's request
pursuant to Section 2.11 of the Agreement, by signing below all Banks and the
Agents hereby consent to the Maturity Date being extended to May 15, 2002, and,
accordingly, the Maturity Date is hereby extended, with no further actions,
consents or notices required under Section 2.11 of the Agreement or otherwise.
For purposes of this extension only and this Third Amendment, the 15 Business
Day response time set forth in Section 2.11 of the Agreement shall not be
applicable.
- 1 -
<PAGE> 2
3. Amendments to Agreement. The Agents and the Banks hereby agree
that the Agreement is amended as follows:
3.1 The definition of "Maturity Date" in Section 1.01 of the
Agreement is amended by deleting "May 15, 2001" and inserting May 15, 2002" in
lieu thereof.
3.2 Section 2.11 of the Agreement is amended and restated in its
entirety as follows:
"2.11 Optional Extension of Commitments. The Company may
request the Banks to extend the Maturity Date for a period of one
year by delivering a written request for such extension to the
Administrative Agent on or before the 30th day (but no more than 60
days) prior to any anniversary of the Effective Date. Such extension
shall require the consent of Banks holding at least ninety percent of
the Commitments at the time of such request and, prior to such
extension becoming effective, shall also require the consent of all
the Banks not replaced pursuant to Section 4.08. Each Bank shall
respond in writing to the Company's request for extension by
providing written notice of its acceptance or rejection of such
request to the Administrative Agent within 15 Business Days after the
date on which such written request was transmitted by the Company.
Any Bank not responding within such period shall be deemed to have
rejected such request for extension. In the event any Bank rejects
or is deemed to have rejected a request for extension pursuant to
this Section 2.11, the replacement of any such Bank and extension of
the Commitments, if any, shall be governed by Section 4.08. The
Maturity Date may only be extended once pursuant to this Section 2.11
and shall in no event be extended to a date which is after the
seventh anniversary of the Effective Date."
4. Representations and Warranties. The Company represents and
warrants to the Banks and the Agents that, on and as of the date hereof, and
after giving effect to this Third Amendment:
4.1 Authorization. The execution, delivery and performance of this
Third Amendment have been duly authorized by all necessary corporate action by
the Company and this Third Amendment has been duly executed and delivered by
the Company.
4.2 Binding Obligation. This Third Amendment is the legal, valid
and binding obligation of the Company, enforceable
- 2 -
<PAGE> 3
against the Company 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 Third Amendment will not (a) contravene the terms of the
Company's articles 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
the Company is a party or any order, injunction, writ or decree of any
Governmental Authority to which the Company or its Property is subject; or (c)
violate any Governmental Rules where such violation would reasonably be
expected to have a Material Adverse Effect. 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 the Company of this Third Amendment, or
the transactions contemplated thereby.
4.4 Incorporation of Certain Representations. The representations
and warranties of the Company 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 representations and
warranties in Sections 6.11(b) and (c) shall be deemed to exclude any Material
Adverse Effect that may have occurred solely as a result of the
Recapitalization.
4.5 Default. No Default or Event of Default under the Agreement has
occurred and is continuing.
5. Conditions, Effectiveness. The effectiveness of this Third
Amendment shall be subject to the compliance by the Company 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 the Company, certified by the Secretary or
an Assistant Secretary of the Company 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 Third Amendment and any
note or other instrument or agreement required hereunder.
- 3 -
<PAGE> 4
5.2 Authorized Signatories. A certificate, signed by the Secretary
or an Assistant Secretary of the Company dated as of the date hereof, as to the
incumbency of the person or persons authorized to execute and deliver this
Third Amendment and any instrument or agreement required hereunder on behalf of
the Company.
5.3 Other Evidence. Such other evidence with respect to the Company
or any other person as any Bank may reasonably request in connection with this
Third Amendment and the compliance with the conditions set forth herein.
6. Miscellaneous.
6.1 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.
6.2 Waivers. This Third 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.
6.3 Counterparts; All Banks. This Third 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 Third Amendment
shall not become effective until the Company, all Banks and the Agents shall
have signed a copy hereof, whether the same or counterparts, and the same shall
have been delivered to the Administrative Agent.
6.4 Jurisdiction. This Third Amendment shall be governed by and
construed under the laws of the State of California.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
By: /s/ Howard G. Phanstiel
-----------------------------------------
Name: Howard G. Phanstiel
---------------------------------------
Title: Executive Vice President
--------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By: _______________________________________
Christine Cordi
Vice President
NATIONSBANK OF TEXAS, N.A., as
Syndication Agent and as a Bank
By: _______________________________________
Elizabeth C. Gould
Vice President
CHASE MANHATTAN BANK, as
Documentation Agent and as a Bank
By: _______________________________________
Dawn Lee Lum
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: _______________________________________
Pam Holloway-Dobson
Vice President
(Signatures continue)
- 5 -
<PAGE> 6
ABN AMRO BANK N.V.
Los Angeles International Branch,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
THE BANK OF NEW YORK,
as a Bank and as a Co-Agent
By: _______________________________________
Lisa Y. Brown
Vice President
THE BANK OF NOVA SCOTIA,
as a Bank and as a Co-Agent
By: _______________________________________
Name: Alan W. Pendergast
Title: Relationship Manager
BANQUE NATIONALE DE PARIS,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
(Signatures continue)
- 6 -
<PAGE> 7
DEUTSCHE BANK AG
New York Branch and/or
Cayman Islands Branch,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
as a Bank and as a Co-Agent
By: _______________________________________
Name:
Title:
BANCA DI ROMA
By: _______________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: _______________________________________
Name:
Title:
(Signatures continue)
- 7 -
<PAGE> 8
KREDIETBANK NV
By: _______________________________________
Name:
Title:
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND" NEW YORK BRANCH
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By: _______________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
THE SANWA BANK, LIMITED
By: _______________________________________
Name:
Title:
(Signatures continue)
- 8 -
<PAGE> 9
THE SUMITOMO BANK, LIMITED
By: _______________________________________
Name:
Title:
SWISS BANK CORPORATION
By: _______________________________________
Name:
Title:
By: _______________________________________
Name:
Title:
BANK OF MONTREAL
By: _______________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: _______________________________________
Name:
Title:
CIBC INC.
By: _______________________________________
Name:
Title:
(Signatures continue)
- 9 -
<PAGE> 10
CREDIT LYONNAIS
New York Branch
By: _______________________________________
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
Los Angeles Agency
By: _______________________________________
Name:
Title:
FLEET NATIONAL BANK
By: _______________________________________
Name:
Title:
THE FUJI BANK, LIMITED
By: _______________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LTD.
Los Angeles Agency
By: _______________________________________
Name:
Title:
MELLON BANK, N.A.
By: _______________________________________
Name:
Title:
- 10 -
<PAGE> 1
SECOND AMENDMENT TO
SUBORDINATED TERM LOAN AGREEMENT
THIS SECOND AMENDMENT TO SUBORDINATED TERM LOAN AGREEMENT (this
"Second Amendment") dated as of April 21, 1997 is entered into by and among
WELLPOINT HEALTH NETWORKS INC., a California corporation (the "Company"), each
of the financial institutions that is a signatory hereto (the "Banks"), and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent
for the Banks (the "Administrative Agent") and amends that certain Subordinated
Term Loan Agreement dated as of November 21, 1996 among the Company, the Banks
and the Administrative Agent, as amended by a First Amendment to Subordinated
Term Loan Agreement dated as of February 10, 1997 (as so amended, the
"Agreement").
RECITAL
The Company has requested that the minimum Fixed Charge Coverage
Ratio be reduced as set forth herein during the periods indicated herein, and
the Banks and the Administrative Agent are willing to so amend the Agreement on
the terms and conditions set forth herein.
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. Amendment to Agreement. Section 7.09 of the Agreement is
amended and restated in its entirety as follows:
"7.09 Fixed Charge Coverage Ratio. As of the end of each
fiscal quarter, the Company shall not permit its Fixed Charge
Coverage Ratio to be less than (a) 3.00 to 1 for the fiscal quarter
ending December 31, 1996, (b) 2.75 to 1 for the fiscal quarters
ending March 31, 1997, June 30, 1997, September 30, 1997 and December
31, 1997, and (c) 3.00 to 1 for each fiscal quarter ending
thereafter."
- 1 -
<PAGE> 2
3. Representations and Warranties. The Company represents and
warrants to the Banks and the Administrative Agent that, on and as of the date
hereof, and after giving effect to this Second Amendment:
3.1 Authorization. The execution, delivery and performance of this
Second Amendment have been duly authorized by all necessary corporate action by
the Company and this Second Amendment has been duly executed and delivered by
the Company.
3.2 Binding Obligation. This Second Amendment is the legal, valid
and binding obligation of the Company, enforceable against the Company 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.
3.3 No Legal Obstacle to Amendment. The execution, delivery and
performance of this Second Amendment will not (a) contravene the terms of the
Company's articles 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
the Company is a party or any order, injunction, writ or decree of any
Governmental Authority to which the Company or its Property is subject; or (c)
violate any Governmental Rules where such violation would reasonably be
expected to have a Material Adverse Effect. 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 the Company of this Second Amendment, or
the transactions contemplated thereby.
3.4 Incorporation of Certain Representations. The representations
and warranties of the Company set forth in Article V 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 as to such representations made as of an earlier
specified date shall be deemed to exclude any Material Adverse Effect that may
have occurred solely as a result of the Recapitalization.
3.5 Default. No Default or Event of Default under the Agreement has
occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this Second
Amendment shall be subject to the compliance by the Company with its agreements
herein contained, and to the delivery
- 2 -
<PAGE> 3
of the following to the Administrative Agent in form and substance satisfactory
to the Administrative Agent:
4.1 Authorized Signatories. A certificate, signed by the Secretary
or an Assistant Secretary of the Company dated as of the date hereof as to the
incumbency of the person or persons authorized to execute and deliver this
Second Amendment and any instrument or agreement required hereunder on behalf
of the Company.
4.2 Effectiveness of Second Amendment to Senior Bank Agreement. The
Second Amendment dated as of even date herewith to the Senior Bank Agreement
shall have become, or concurrently herewith is becoming, effective.
4.3 Other Evidence. Such other evidence with respect to the Company
or any other person as the Administrative Agent or any Bank may reasonably
request in connection with this Second Amendment and the compliance with the
conditions set forth herein.
5. Miscellaneous.
5.1 Condition Subsequent- Corporate Resolutions. At the first
meeting of the Board of the Directors of the Company following the
effectiveness of this Second Amendment, the Board of Directors shall adopt
resolutions expressly authorizing the execution, delivery and performance of
all prior and future amendments to the Agreement which are executed by officers
of the Company authorized to do so in such resolutions, and the Company shall
promptly deliver such resolutions to the Agent, certified by the Secretary or
an Assistant Secretary of the Company.
5.2 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.
5.3 Waivers. This Second 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
- 3 -
<PAGE> 4
or instrument mentioned in the Loan Documents, constitute a waiver of any other
default of the same or of any other term or provision.
5.4 Counterparts. This Second 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 Second Amendment shall
not become effective until the Company, the Majority Banks and the
Administrative Agent shall have signed a copy hereof, whether the same or
counterparts, and the same shall have been delivered to the Administrative
Agent.
5.5 Jurisdiction. This Second Amendment shall be governed by and
construed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered as of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
By: /s/ Howard G. Phanstiel
----------------------------------------
Name: Howard G. Phanstiel
--------------------------------------
Title: Executive Vice President
-------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as
Administrative Agent
By: _______________________________________
Christine Cordi
Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Bank
By: _______________________________________
Pam Holloway-Dobson
Vice President
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
PRESENTED IN THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 577,284
<SECURITIES> 1,953,531
<RECEIVABLES> 536,642
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,180,675
<PP&E> 96,377
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,203,856
<CURRENT-LIABILITIES> 2,085,651
<BONDS> 594,000
0
0
<COMMON> 666
<OTHER-SE> 907,970
<TOTAL-LIABILITY-AND-EQUITY> 4,203,856
<SALES> 0
<TOTAL-REVENUES> 1,271,632
<CGS> 0
<TOTAL-COSTS> 920,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,768
<INCOME-PRETAX> 85,279
<INCOME-TAX> 34,524
<INCOME-CONTINUING> 50,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,755
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.76
</TABLE>
