<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
WELLPOINT HEALTH NETWORKS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
[WELLPOINT LOGO]
May 9, 1997
To our Shareholders:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of WellPoint Health Networks Inc. (the "Company") which will be held on June 10,
1997, at 10:00 a.m., at the Warner Center Marriott, 21850 Oxnard Street,
Woodland Hills, California 91367.
At the meeting, you will be asked to vote upon proposals to approve a
reincorporation in the State of Delaware (the "Reincorporation Proposal")
pursuant to which the Company will become a wholly owned subsidiary of WellPoint
Health Networks Inc., a Delaware corporation ("WellPoint Delaware") and
shareholders of the Company will become stockholders of WellPoint Delaware;
elect three Class I directors; approve an amendment to the Company's 1994 Stock
Option/Award Plan (the "Stock Option Plan") changing various provisions of the
Stock Option Plan; and ratify the selection of Coopers & Lybrand L.L.P. as the
Company's independent public accountants. Details of business to be conducted at
the Annual Meeting are given in the attached Notice of Annual Meeting and Proxy
Statement.
Please take this opportunity to participate in the affairs of the Company
by voting on the business to be presented at this meeting. Whether or not you
plan to attend the meeting, please sign, date, and return the enclosed proxy
promptly in the accompanying reply envelope. Returning the proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person for the matters acted upon at the meeting.
If you plan to attend the Annual Meeting and are a registered shareholder,
please bring the admission ticket which is attached to your proxy card. If your
shares are registered in the name of a bank or your broker, please bring your
bank or broker statement showing your beneficial ownership with you to the
Annual Meeting.
We look forward to your attendance at the Annual Meeting.
Sincerely,
Leonard D. Schaeffer
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
WELLPOINT HEALTH NETWORKS INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 10, 1997
The 1997 Annual Meeting of Shareholders of WellPoint Health Networks Inc.
(the "Company") will be held on Tuesday, June 10, 1997, at 10:00 a.m., local
time, at the Warner Center Marriott, located at 21850 Oxnard Street, Woodland
Hills, California 91367 to act on the following matters:
1. To elect three Class I directors of the Company to serve until the 2000
Annual Meeting or the election of their successors.
2. To vote upon a proposal to approve a reincorporation in the State of
Delaware (the "Reincorporation Proposal") pursuant to which the Company
will become a wholly owned subsidiary of WellPoint Health Networks Inc.,
a Delaware corporation ("WellPoint Delaware") and shareholders of the
Company will become stockholders of WellPoint Delaware.
3. To approve an amendment to the Company's 1994 Stock Option/Award Plan
(the "Stock Option Plan") which, among other things, establishes a
maximum of 5,000,000 shares of the Company's Common Stock that may be
issued under the Stock Option Plan.
4. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only shareholders of record at the close of business on May 7, 1997, are
entitled to notice of and to vote at the Annual Meeting. A complete list of the
shareholders entitled to vote at the meeting will be available for at least 10
days prior to the Annual Meeting at the Company's principal executive office
located at 21555 Oxnard Street, Woodland Hills, California 91367 for the
examination of any shareholders and will also be available for inspection at the
meeting.
By Order of the Board of Directors
Thomas C. Geiser
Executive Vice President, General
Counsel
and Secretary
Woodland Hills, California
May 9, 1997
YOUR VOTE IS IMPORTANT
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND IN PERSON. HOWEVER, TO
ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE
PREVIOUSLY RETURNED A PROXY.
<PAGE> 4
WELLPOINT HEALTH NETWORKS INC.
PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
WellPoint Health Networks Inc. (the "Company" or "WellPoint") for use at the
Annual Meeting of Shareholders to be held on June 10, 1997, at 10:00 a.m., local
time, or at any adjournment or postponement thereof, for the purposes set forth
in the foregoing Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the Warner Center Marriott located at 21850 Oxnard Street,
Woodland Hills, California 91367. The Company's principal executive office is
located at 21555 Oxnard Street, Woodland Hills, California 91367 and the
Company's telephone number is (818) 703-4000. This Proxy Statement and the proxy
card are being mailed to shareholders on or about May 9, 1997.
PROXIES
If any shareholder is unable to attend the Annual Meeting, such shareholder
may vote by proxy. The enclosed proxy is solicited by the Company's Board of
Directors (the "Board of Directors" or the "Board") and, when the proxy card is
returned properly completed, it will be voted as directed by the shareholder on
the proxy card. Shareholders are urged to specify their choices on the enclosed
proxy card. If a proxy card is signed and returned without choices specified, in
the absence of contrary instructions, the shares of Common Stock represented by
such proxy will be voted "FOR" Proposals, 1, 2, 3 and 4 and will be voted in the
proxy holders' discretion as to other matters that may properly come before the
Annual Meeting. Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before its use by (i) delivering to the
Company's principal executive office, 21555 Oxnard Street, Woodland Hills,
California 91367, Attention: Secretary, a written notice of revocation or duly
executed proxy bearing a later date, or (ii) attending the Annual Meeting and
voting in person.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation, in
person, by telephone or facsimile. The Company's transfer agent, ChaseMellon
Shareholder Services, L.L.C., will assist in the solicitation of proxies as part
of its transfer agent services to the Company. The fee for such services will be
approximately $7,500 plus reasonable expenses.
SHARE OWNERSHIP AND VOTING
Only holders of Common Stock of record at the close of business on May 7,
1997, the record date and time fixed by the Board of Directors, are entitled to
vote at the meeting. As of April 15, 1997, 69,609,709 shares of the Company's
Common Stock were issued and outstanding. Each shareholder is entitled to one
vote for each share of Common Stock held by such shareholder. A majority of the
shares of Common Stock will constitute a quorum for the transaction of business
at the Annual Meeting.
Each share of Common Stock outstanding on the record date is entitled to
vote. Except to the extent that shareholder withholds votes from the nominees,
the proxy holders named in the accompanying form of proxy, in their sole
discretion, will vote such proxy for the election of the nominees listed below
as directors of the Company.
An affirmative vote of a majority of the number of shares of Common Stock
outstanding on the record date is required to approve the Reincorporation
Proposal (as defined in "Proposal No. 2: Reincorporation in the State of
Delaware"). An affirmative vote of a majority of shares of Common Stock present
and voting at the meeting is required for approval of all other items being
submitted to the shareholders for their
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<PAGE> 5
consideration, other than the election of directors. Directors are elected by a
plurality of votes cast. An automated system administered by the Company's
transfer agent tabulates shareholder votes. Abstentions will be treated as the
equivalent of a negative vote for the purpose of determining whether a proposal
has been adopted and will have no effect for the purpose of determining whether
a director has been elected. As to the Reincorporation Proposal and the proposal
to amend the Stock Option Plan, the New York Stock Exchange Rules generally
require when shares are registered in street or nominee name that their member
brokers receive specific instruction from the beneficial owners in order to vote
on such a proposal. If a member broker indicates on the proxy that such broker
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to those matters.
The shares of Common Stock beneficially owned by the California HealthCare
Foundation (the "Foundation"), which as of April 15, 1997 owned 29,910,000
shares (or approximately 43.0% of the outstanding Common Stock), will be voted
in accordance with the terms of the existing voting agreement. See "Recent
Recapitalization."
Under the provisions of the Company's Salary Deferral Savings Program (the
"401(k) Plan"), approximately 197,333 shares (as of April 15, 1997) of Common
Stock of the Company held by Vanguard Fiduciary Trust Company, the trustee of
the 401(k) Plan, may be voted at the meeting pursuant to confidential
instructions from participating employees.
RECENT RECAPITALIZATION
On May 20, 1996, Blue Cross of California ("BCC") and the Company's
predecessor, WellPoint Health Networks Inc., a Delaware corporation ("Old
WellPoint"), concluded a recapitalization (the "Recapitalization") pursuant to
which, among other actions, Old WellPoint merged with and into BCC and the
surviving entity changed its name to WellPoint Health Networks Inc.
In connection with the Recapitalization, BCC relinquished its rights under
the Blue Cross License Agreement dated January 1, 1991, between Blue Cross of
California and the Blue Cross Blue Shield Association (the "BCBSA"). The BCBSA
and the Company entered into a License Agreement (the "License Agreement"),
pursuant to which the Company has become the exclusive licensee for the right to
use the Blue Cross name and related service marks in California and has become a
member of the BCBSA.
The License Agreement required that the Foundation enter into the Voting
Trust Agreement (the "Voting Trust Agreement"), pursuant to which the Foundation
deposited into a voting trust (the "Voting Trust") the number of shares of the
Company's Common Stock sufficient to reduce the Foundation's holdings outside
such Voting Trust to a level not in excess of 50% of the voting power of the
outstanding shares of the Company's Common Stock. The shares held by the trustee
under the Voting Trust Agreement (the "Voting Trust Shares") generally must be
voted (i) with respect to elections and removal of directors, calling of
shareholder meetings and amendment of the Company's Articles of Incorporation
and Bylaws, where such actions are opposed by the Board of Directors, to support
the position of the Board of Directors, (ii) with certain exceptions, on matters
requiring a vote of at least an absolute majority of all outstanding shares of
Common Stock, as the majority of non-Voting Trust Shares vote, and (iii) on all
other matters, including with respect to the reincorporation of the Company in
Delaware, in the identical proportion in favor of or in opposition to such
matters as non-Voting Trust Shares vote. In addition, the Voting Trust Agreement
requires that the Foundation, through sales (which may involve additional
exercises of its registration rights discussed below) or additional deposits
into the Voting Trust, reduce its holdings outside the Voting Trust to 20% and
5% of the outstanding Common Stock on and after three and five years,
respectively, from May 20, 1996. As a result of sales of its holdings of Common
Stock, as of April 15, 1997, no shares held by the Foundation were subject to
the provisions of the Voting Trust Agreement.
With respect to those shares held by the Foundation in excess of the
Ownership Limit (as such term is defined in the Company's Articles of
Incorporation) that are not subject to the Voting Trust Agreement, the
Foundation has also entered into the Voting Agreement. The Voting Agreement
provides, among other things, that the Foundation, during the period that it
continues to own in excess of the Ownership Limit, will vote all
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<PAGE> 6
shares of the Company's Common Stock owned by it in excess of 5% of the
outstanding shares (except those shares held pursuant to the Voting Trust
Agreement) in favor of each nominee to the Board of Directors of the Company, or
under certain circumstances, other subsets of the Board, all as set forth in the
Company's Bylaws. With respect to the removal of directors, calling of
shareholder meetings and amendment of the Company's Articles of Incorporation
and Bylaws, where such actions are opposed by the Board of Directors, the
Foundation has also agreed under the Voting Agreement to support the position of
the Board of Directors. The Foundation has further agreed to vote all of the
shares of the Company's Common Stock owned by it which are subject to the Voting
Agreement with respect to the reincorporation of the Company in Delaware in the
identical proportion in favor or in opposition as all shareholders other than
the Foundation vote. The Reincorporation Proposal to be presented at the Annual
Meeting does not fall within the terms of such provision of the Voting
Agreement. As of April 15, 1997, the number of shares of Common Stock subject to
the Voting Agreement was 26,433,651 (or approximately 38.0% of the outstanding
Common Stock).
In connection with the Recapitalization, the Company and the Foundation
also entered into the Registration Rights Agreement (the "Registration Rights
Agreement") with respect to the shares of the Company held by the Foundation.
The Registration Rights Agreement grants the Foundation (and certain transferees
of the shares covered by the Registration Rights Agreement) certain demand and
"piggyback" registration rights.
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<PAGE> 7
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
The Board of Directors proposes the election of the three Class I directors
at the Annual Meeting. The Company's Bylaws provide for nine directors. The
Board of Directors is divided into three classes, each serving three-year terms,
as provided in the Company's Amended and Restated Articles of Incorporation.
There are currently three Class I directors. Pursuant to previous agreements
with the California Department of Corporations (the "DOC"), Robert Knight served
as a Class I director until April 1, 1997. Effective as of April 1, 1997, the
remaining Board members elected Sheila P. Burke to serve as a Class I director.
The two Class II directors hold office until the 1998 Annual Meeting and the
three Class III directors hold office until the 1999 Annual Meeting. The three
Class I directors (including Ms. Burke) hold office until this Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the three Class I director nominees to the Board of Directors named
below. Ms. Sanders has served as a director of the Company since May 1996, and
Mr. Birk has served as a director of the Company since April 1993. If a nominee
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee designated by the proxy holders to
fill such vacancy. However, it is not expected that any nominee will be unable
or will decline to serve as a director. The term of office of each person
elected as a Class I director will continue until the 2000 Annual Meeting of
Shareholders or until the director's successor has been elected. Assuming
approval of the Reincorporation Proposal, the directors of the Company
(including any directors elected or re-elected at the Annual Meeting) will
become the directors of WellPoint Delaware at the Effective Time with the same
class designation and term of office.
NOMINEES FOR ELECTION AS DIRECTORS
The names of the nominees and certain biographical information about them
are set forth below:
ROGER E. BIRK, age 66, has been a director of the Company since April 1993.
Mr. Birk served as President of the Federal National Mortgage Association
("Fannie Mae") from 1987 to 1992 and as Chairman and Chief Executive Officer of
Merrill Lynch & Co., Inc. from 1982 to 1986. Mr. Birk serves as a director of
Penske Transportation, Fannie Mae, Mutual of America Capital Corp. and Golden
Bear Golf, Inc. Mr. Birk serves as the Chairperson of the Audit Committee of the
Board.
ELIZABETH A. SANDERS, age 51, has been a director of the Company since May
1996. Ms. Sanders has been a consultant to executive management and served as
Vice President and General Manager of Nordstrom, Inc. from 1978 to 1990. Ms.
Sanders is a founder of the National Bank of Southern California and was on its
board of directors from 1983 to 1990. She currently serves on the following
boards of directors: H. F. Ahmanson & Company, Wal-Mart Stores, Inc., Wolverine
Worldwide, Inc. and the Flagstar Companies, Inc. Ms. Sanders serves on the Audit
Committee of the Board.
SHEILA P. BURKE, age 46, became a director of the Company effective as of
April 1, 1997 upon the resignation of Robert T. Knight. Since December 1996, Ms.
Burke has been the Executive Dean of the John F. Kennedy School of Government,
Harvard University. Previously in 1996, Ms. Burke was a senior advisor to the
Dole for President Campaign. From 1986 until June 1996, Ms. Burke was the chief
of staff for the Office of the Republican Leader of the United States Senate.
Ms. Burke currently serves on the Board of Directors of Chubb Corp.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES SET FORTH ABOVE.
DIRECTORS OTHER THAN THE NOMINEES
The directors of the Company other than the nominees are as follows:
LEONARD D. SCHAEFFER, age 51, a Class III director, has been Chairman of
the Board of Directors and Chief Executive Officer of the Company since August
1992. From 1989 until May 1996, Mr. Schaeffer was also Chairman of the Board of
Directors and, from 1986, Chief Executive Officer of BCC. From 1982 to 1986, Mr.
Schaeffer served as President of Group Health, Inc., an HMO in the midwestern
United States. Prior to
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joining Group Health, Inc., Mr. Schaeffer was the Executive Vice President and
Chief Operating Officer of the Student Loan Marketing Association ("Sallie
Mae"), a financial institution that provides a secondary market for student
loans, from 1980 to 1981. From 1978 to 1980, Mr. Schaeffer was the Administrator
of the Health Care Financing Administration ("HCFA"). HCFA administers the
Federal Medicare, Medicaid and Peer Review Organization programs. Mr. Schaeffer
serves as a director for Allergan, Inc. and Metra Biosystems.
DAVID R. BANKS, age 60, a Class II director, has been a director of the
Company since April 1993. He has been Chairman and Chief Executive Officer of
Beverly Enterprises since September 1979. Beverly Enterprises operates health
care facilities in 34 states and the District of Columbia. Mr. Banks serves as a
director of Ralston Purina and Nationwide Health Properties. Mr. Banks serves on
the Nominating and Governance Committee and Compensation Committee of the Board
and is Chairperson of the Compensation Committee.
W. TOLIVER BESSON, age 52, a Class III director, has been a director of the
Company since May 1996, was an independent director of BCC from April 1994 until
May 1996 and prior to that served as an advisory director of BCC from 1989. He
has been a partner with the law firm of Paul, Hastings, Janofsky & Walker since
1978. He served on its national management committee from 1985 to 1990 and
served on the Board of Governors of the California State Bar from 1979 to 1980.
He currently serves as a member of the management committee of Cross Country
Ventures (a venture capital limited partnership). Pursuant to an agreement with
the DOC, Mr. Besson has effectively agreed not to serve as a director beyond
April 2003. Mr. Besson serves on the Audit Committee of the Board.
STEVEN L. DAVENPORT, age 64, a Class II director, has been a director of
the Company since May 1996, was an independent director of BCC from 1991 until
May 1996 and prior to that served as an advisory director of BCC from 1989. He
is retired. From 1980 to 1995, he was president of D/A Financial Group. Prior to
that he was Senior Vice President of Provident Mutual Life Insurance Company. He
currently serves on the board of directors of Tinsley Laboratories, Inc.
Pursuant to an agreement with the DOC, Mr. Davenport has effectively agreed not
to serve as a director beyond April 2002. Mr. Davenport serves on the
Compensation Committee of the Board.
JULIE A. HILL, age 50, a Class III director, has been a director of the
Company since March 1994. She has been President and Chief Executive Officer of
Costain Homes Inc. ("Costain") since January 1991, having joined Costain in 1988
as Vice President of Sales and Marketing. Costain is a division of London-based
Costain Group PLC and builds single-family detached residential communities. Ms.
Hill serves on the Compensation Committee and Nominating and Governance
Committee of the Board.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 12 meetings
(including regularly scheduled meetings and special meetings) during 1996.
During the same period, the Board of Directors acted several times by unanimous
written consent. During 1996, each of the directors attended or participated in
75% or more of the aggregate number of meetings of the Board of Directors and
committees of the Board on which the director served. The Board of Directors has
an Audit Committee, a Compensation Committee and a Nominating and Governance
Committee.
The Audit Committee, which consisted of Messrs. Banks and Birk and Ms. Hill
prior to the Recapitalization and Messrs. Besson and Birk and Ms. Sanders
thereafter, met two times during 1996. The Audit Committee reviews financial and
auditing issues of the Company, recommends engagement of the Company's
independent auditors, approves the services performed by the Company's
independent auditors and reviews the Company's accounting principles, its
internal control structure and policies and procedures. Mr. Birk is chairperson
of the Audit Committee.
The Compensation Committee, which consisted of Messrs. Banks and Birk and
Ms. Hill prior to the Recapitalization and Messrs. Banks and Davenport and Ms.
Hill thereafter, met four times during 1996. The Compensation Committee reviews
and makes recommendations to the Board concerning the Company's
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executive compensation policy, bonus plans and incentive option plans, and
approves the granting of stock options and awards to executive officers. Mr.
Banks is chairperson of the Compensation Committee.
The Nominating and Governance Committee, which consisted of Messrs. Banks,
Birk and Hill prior to the Recapitalization and Messrs. Knight and Banks and Ms.
Hill thereafter, did not meet during 1996. The Nominating and Governance
Committee recommends qualified candidates for election as directors of the
Company and generally reviews and makes recommendations to the Board concerning
governance issues. Pursuant to the terms of the License Agreement, until the
Foundation ceases to own voting capital stock of the Company in excess of the
limit specified in the Company's Articles of Incorporation, the Nominating and
Governance Committee will be composed of three directors, each of whom will be
an independent director. One of the members of the Nominating and Governance
Committee must be one of the directors (or their replacement) designated by BCC
prior to the Recapitalization. The BCC-designated directors are Ms. Burke and
Messrs. Besson and Davenport. Shareholders wishing to recommend candidates for
consideration by the Nominating and Governance Committee may do so by writing to
the Secretary of the Company at the Company's principal executive office, giving
the candidate's name, biographical affidavit and qualifications.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than ten percent of the Company's Common Stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the year ended December 31, 1996, the Company's officers, directors
and greater than ten percent beneficial owners complied with all applicable
filing requirements, except W. Toliver Besson, who reported one transaction in
1996 late, and D. Mark Weinberg, who reported two transactions in 1996 late.
COMPENSATION OF DIRECTORS
All non-employee directors of the Company are entitled to the following
compensation: (i) $23,000 per year paid in quarterly installments; and (ii)
$1,300 per Board meeting and $650 per committee meeting, with the chairperson of
the committee receiving $850 per committee meeting. Non-employee directors may
elect to defer receipt of a portion or all of their fees. Deferred amounts are
credited with interest quarterly.
On the last business day of the second quarter of each fiscal year of the
Company, continuing non-employee directors who have served for at least six full
calendar months automatically receive 333 shares of Common Stock (which has been
adjusted to reflect the change in the Company's Common Stock as a result of the
two-for-three share exchange occurring in connection with the Recapitalization)
pursuant to the Company's Stock Option Plan. If the amendment to the Stock
Option Plan presented as Proposal No. 3 at the Annual Meeting is approved by the
shareholders, this automatic annual grant will be increased to 800 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is composed of David
R. Banks, Stephen L. Davenport and Julie A. Hill. The Company's Compensation
Committee does not include any present or former officers or employees of the
Company or any of its subsidiaries.
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<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of April 15, 1997, by (a) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (b) the Chief
Executive Officer of the Company; (c) each of the four other most highly
compensated executive officers of the Company (determined for the year ended
December 31, 1996) (collectively, the "Named Executive Officers"); (d) each
director of the Company; and (e) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
TOTAL SHARES
NUMBER OF SHARES BENEFICIALLY AND
NUMBER OF SHARES PERCENT OF SUPPLEMENTALLY SUPPLEMENTALLY PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED(1) CLASS(2) OWNED OWNED OF CLASS
- -------------------------- --------------------- ---------- ---------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
California HealthCare
Foundation.............. 29,910,000(3) 43.0 % -- 29,910,000 43.0%
21560 Oxnard Street
Woodland Hills, CA 91367
Leonard D. Schaeffer...... 212,963(4) * 64,187(5) 277,150 *
D. Mark Weinberg.......... 142,268(6) * -- 142,268 *
Ronald A. Williams........ 139,885(7) * -- 139,885 *
Howard G. Phanstiel....... 82,763(8) * 2,054(9) 84,817 *
Thomas C. Geiser.......... 76,625(10) * 3,000(11) 79,625 *
David R. Banks............ 1,000(12) * -- 1,000 *
W. Toliver Besson......... 1,333(13) * -- 1,333 *
Roger E. Birk............. 10,335 * -- 10,335 *
Shelia P. Burke........... -- * -- -- *
Stephen L. Davenport...... 2,253(14) * -- 2,253 *
Julie A. Hill............. 548 * -- 548 *
Elizabeth A. Sanders...... -- * -- -- *
All executive officers and
directors as a group (13
persons)................ 669,973(15) 1.0 69,741(16) 739,714 1.1
</TABLE>
- ---------------
* Less than one percent.
(1) Except as indicated in footnotes to this table, the shareholders named in
this table are known to the Company to have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them, subject to community property laws where applicable. Shares
shown as beneficially owned by any person have been determined in
accordance with the requirements of Rule 13d-3 promulgated under the
Exchange Act.
(2) Calculation based on approximately 69,609,709 shares of Common Stock
outstanding as of April 15, 1997.
(3) As of April 15, 1997, 26,433,651 shares were held pursuant to the Voting
Agreement. This agreement contains provisions with respect to the voting of
shares subject to it on certain specified matters. See "Recent
Recapitalization."
(4) Includes 400 shares held in a Keogh account, 200 shares held in an IRA
account and 339 shares held in a 401(k) account for the benefit of Mr.
Schaeffer. Includes 206,081 shares subject to presently exercisable options
or options that become exercisable within 60 days.
(5) Represents deferred share units. The Company has agreed to issue such
shares to Mr. Schaeffer upon termination of his employment with the
Company. See "Executive Compensation and Other Information -- Employment
Contracts, Termination of Employment and Change in Control Arrangements --
Employment Agreement with Leonard D. Schaeffer."
8
<PAGE> 11
(6) Includes 3,100 shares held in a 401(k) account for the benefit of Mr.
Weinberg and 121,148 shares subject to presently exercisable options or
options that become exercisable within 60 days.
(7) Includes 59 shares held in a 401(k) account for the benefit of Mr. Williams
and 115,922 shares subject to presently exercisable options or options that
become exercisable within 60 days.
(8) Includes 4,000 shares held in a 401(k) account, 1,667 shares held in an IRA
account for the benefit of Mr. Phanstiel and 65,172 shares subject to
presently exercisable options or options that become exercisable within 60
days.
(9) Represents deferred rights to shares held in a deferred compensation
account for the benefit of Mr. Phanstiel.
(10) Includes 58 shares held in a 401(k) account for the benefit of Mr. Geiser,
64,173 shares subject to presently exercisable options or options that
become exercisable within 60 days and 1,500 shares with respect to a
restricted share right grant that vests on June 1, 1997.
(11) Represents a restricted share right grant made to Mr. Geiser that vests in
equal installments on June 1, 1998 and 1999.
(12) Includes 500 shares held in a Keogh account for the benefit of Mr. Banks.
(13) Includes 900 shares owned by the W. Toliver Besson Retirement Plan, of
which Mr. Besson is trustee. Includes 100 shares owned by Mr. Besson's
wife.
(14) Includes 920 shares owned by the Davenport Family Trust, of which Mr.
Davenport is trustee.
(15) Includes 572,496 shares subject to presently exercisable options or options
that become exercisable within 60 days and 1,500 shares with respect to a
restricted share right grant that vests on June 1, 1997.
(16) Includes a restricted share right grant of 500 shares made to an executive
officer in December 1996.
9
<PAGE> 12
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CERTAIN COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's Chief Executive Officer and each of the four other Named
Executive Officers for the years ended December 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------ ----------
OTHER ANNUAL SECURITIES LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION RESTRICTED UNDERLYING PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) STOCK($) OPTIONS(#) ($)(1) ($)(2)
- -------------------------- ---- --------- -------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard D. Schaeffer...... 1996 $744,524 $532,440 $ 12,908 -- 437,700 $5,475,049 $245,777
Chairman and Chief 1995 636,005 305,280 -- -- -- 136,913 93,818
Executive Officer(3) 1994 629,082 283,020 -- -- -- 806,756 96,368
D. Mark Weinberg.......... 1996 $456,285 $234,000 $206,987(4) -- 240,931 $1,976,199 $136,473
Executive Vice
President, 1995 407,075 157,538 172,490(4) -- -- 42,736 51,097
UNICARE Businesses 1994 395,134 173,414 -- -- -- 345,210 39,286
Ronald A. Williams........ 1996 $430,888 $238,743 $157,463(4) -- 230,511 $1,866,031 $134,256
Executive Vice
President, 1995 371,612 143,814 125,970(4) -- -- 39,043 47,741
Blue Cross of California 1994 360,710 165,572 -- -- -- 316,443 37,272
Businesses
Howard G. Phanstiel....... 1996 $358,077 $294,000(6) $ 30,000(9) -- 131,947 $1,042,658 $ 80,859
Executive Vice
President, 1995 350,000 148,000(7) 244,161(10) -- -- 10,288 18,366
Finance and Information 1994 22,885 100,000(8) 10,198(11) -- -- -- 1,030
Services(5)
Thomas C. Geiser.......... 1996 $321,002 $155,000 $ 35,989(12) $159,750(14) 128,348 $1,007,791 $ 63,085
Executive Vice
President, 1995 269,170 105,235 220,730(13) -- -- 27,963 20,965
General Counsel and 1994 255,508 126,438 -- -- -- 74,796 17,167
Secretary
</TABLE>
- ---------------
(1) For the year ended December 31, 1996, the amounts shown include the
following payments made in May 1996 upon completion of the Recapitalization
and termination of the Special Performance Units ("SPUs") and Performance
Units previously issued under the Company's 1994 Long Term Incentive Plan:
Leonard D. Schaeffer, $3,848,184; D. Mark Weinberg, $1,436,867; Ronald A.
Williams, $1,364,112; Howard G. Phanstiel, $767,218; and Thomas C. Geiser,
$739,860. For Mr. Schaeffer, this amount was paid 50% in cash, with the
remaining 50% allocated to deferred share units which will be received by
Mr. Schaeffer upon termination of his employment. See "-- Employment
Contracts, Termination of Employment and Change in Control Arrangements."
For Messrs. Weinberg, Williams, Phanstiel and Geiser, these amounts were
paid 50% in cash and 50% in unrestricted Common Stock. These amounts
represented the existing value of such SPUs and Performance Units as of the
time of their termination, but did not constitute regular compensation
payments for 1996. See "Report of the Compensation Committee of the Board
of Directors." For the year ended December 31, 1996, the amounts shown also
include the following payments made under SPUs that matured on January 31,
1996: Leonard D. Schaeffer, $1,375,000; D. Mark Weinberg, $426,250; Ronald
A. Williams, $398,750; Howard G. Phanstiel, $220,000; and Thomas C. Geiser,
$206,250. For each year shown, the LTIP payouts also include payments
attributable to the three-year performance period ending in that year, but
that were made in the following year.
(2) For the year ended December 31, 1994, "All Other Compensation" includes the
following (i) contributions on behalf of Leonard D. Schaeffer, D. Mark
Weinberg, Ronald A. Williams and Thomas C. Geiser in the amount of $5,544,
$6,930, $6,930 and $6,930, respectively, to the 401(k) Plan to match 1994
pre-tax elective deferral contributions (included under Salary) made by
each to such plan, (ii) deferred compensation for Leonard D. Schaeffer, D.
Mark Weinberg, Ronald A. Williams, Howard G. Phanstiel and Thomas C. Geiser
of $64,489, $30,185, $26,378, $1,030 and $7,730, respectively, and (iii)
life insurance premiums paid on behalf of Leonard D. Schaeffer, D. Mark
Weinberg, Ronald A. Williams and Thomas C. Geiser in the amount of $26,335,
$2,171, $3,964 and
10
<PAGE> 13
$2,507, respectively. For the year ended December 31, 1995, "All Other
Compensation" includes the following: (i) contributions on behalf of
Leonard D. Schaeffer, D. Mark Weinberg, Ronald A. Williams, Howard G.
Phanstiel and Thomas C. Geiser in the amount of $5,544, $5,940, $5,940,
$5,315 and $5,940, respectively, to the 401(k) Plan to match 1995 pre-tax
elective deferral contributions (included under Salary) made by each to
such plan, (ii) deferred compensation for Leonard D. Schaeffer, D. Mark
Weinberg, Ronald A. Williams, Howard G. Phanstiel and Thomas C. Geiser of
$72,116, $43,606, $38,142, $10,435, and $12,978, respectively, and (iii)
life insurance premiums paid on behalf of Leonard D. Schaeffer, D. Mark
Weinberg, Ronald A. Williams, Howard G. Phanstiel and Thomas C. Geiser in
the amount of $16,158, $1,551, $3,659, $2,616, and $2,047, respectively.
For the year ended December 31, 1996, "All Other Compensation" includes the
following: (i) contributions on behalf of Leonard D. Schaeffer, D. Mark
Weinberg, Ronald A. Williams, Howard G. Phanstiel and Thomas C. Geiser in
the amount of $5,924, $6,750, $6,750, $6,750 and $4,774, respectively, to
the 401(k) Plan to match 1996 pre-tax elective deferral contributions
(included under Salary) made by each to such plan, (ii) deferred
compensation for Leonard D. Schaeffer, D. Mark Weinberg, Ronald A.
Williams, Howard G. Phanstiel and Thomas C. Geiser of $221,986, $126,277,
$117,388, $68,761 and $56,264, respectively, and (iii) life insurance
premiums paid on behalf of Leonard D. Schaeffer, D. Mark Weinberg, Ronald
A. Williams, Howard G. Phanstiel and Thomas C. Geiser in the amount of
$17,867, $3,446, $10,118, $5,348 and $2,047, respectively.
(3) Prior to May 20, 1996, Mr. Schaeffer also received compensation from BCC
for his services as Chief Executive Officer of BCC. For 1994, 1995 and such
period in 1996, amounts shown represent an allocation to the Company of the
amounts payable under Mr. Schaeffer's prior employment agreement with BCC
(which has been replaced by the employment agreement described in
"-- Employment Contracts, Termination of Employment and Change in Control
Arrangements -- Employment Agreement with Leonard D. Schaeffer") and are
based on the estimated time spent by Mr. Schaeffer on the Company's
affairs.
(4) Represents a retention bonus paid pursuant to a management retention
agreement. See "-- Employment Contracts, Termination of Employment and
Change in Control Arrangements -- Management Retention Agreements."
(5) Mr. Phanstiel joined the Company on December 1, 1994.
(6) Includes a $150,000 sign-on bonus paid to Mr. Phanstiel in 1996 and
conditioned, in part, on service in 1996.
(7) Includes a $50,000 sign-on bonus paid to Mr. Phanstiel in 1995 and
conditioned, in part, on service in 1995.
(8) Includes a $100,000 sign-on bonus paid to Mr. Phanstiel upon his joining
the Company.
(9) Represents forgiveness of $30,000 of a relocation loan.
(10) Represents forgiveness of $30,000 of a relocation loan and reimbursement
for relocation expenses.
(11) Represents reimbursement for relocation expenses.
(12) Includes forgiveness of $25,000 of a relocation loan.
(13) Represents a special relocation bonus of $50,000, forgiveness of a $50,000
relocation loan and reimbursement for relocation expenses.
(14) Represents a restricted share right grant of 4,500 shares that vests in
equal installments on June 1, 1997, 1998 and 1999. As of December 31, 1996,
the shares underlying this grant (none of which were vested) had a fair
market value of approximately $154,688, not accounting for vesting
restrictions. Dividends will not be paid on any shares prior to the lapsing
of vesting restrictions.
11
<PAGE> 14
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers during 1996. No stock
appreciation rights ("SARs") were granted in 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF
SHARES PERCENTAGE OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE EXPIRATION GRANT DATE
NAME GRANTED EMPLOYEES PRICE DATE PRESENT VALUE(1)
- --------------------------------------- ---------- ------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Leonard D. Schaeffer................... 24,066 0.8% $ 39.675 1/1/04 $ 394,435
300,825 9.6 39.675 1/5/05 4,930,432
112,809 3.6 39.675 3/4/06 1,848,906
D. Mark Weinberg....................... 19,997 0.6 39.675 1/1/04 $ 327,745
165,038 5.3 39.675 1/5/05 2,704,923
55,896 1.8 39.675 3/4/06 916,119
Ronald A. Williams..................... 19,987 0.6 39.675 1/1/04 $ 327,581
154,562 4.9 39.675 1/5/05 2,533,225
55,962 1.8 39.675 3/4/06 917,200
Howard G. Phanstiel.................... 10,417 0.3 39.675 1/1/04 $ 170,732
85,472 2.7 39.675 1/5/05 1,400,860
36,058 1.1 39.675 3/4/06 590,980
Thomas C. Geiser....................... 12,033 0.4 39.675 1/1/04 $ 197,217
80,217 2.6 39.675 1/5/05 1,314,733
36,098 1.1 39.675 3/4/06 591,636
</TABLE>
- ---------------
(1) Grant date present values were calculated using the Black-Scholes option
valuation model with the following assumptions:
<TABLE>
<S> <C>
Expected life of options................................................. Five years
Exercise price........................................................... $39.675
Volatility............................................................... 35.68%
Dividend yield........................................................... 0%
Risk-free interest rate.................................................. 6.40%
</TABLE>
The actual value, if any, which a Named Executive Officer may realize will
be based upon the difference between the market price of the Company's Common
Stock on the date of exercise and the exercise price. There is no assurance that
the actual realized value, if any, will be at or near the value estimated by the
Black-Scholes model.
The grants made to the Named Executive Officers in 1996 were made under the
Stock Option Plan. The majority of such awards were made in replacement of
terminated SPUs and Performance Units that had been granted prior to 1996. Prior
to the completion of the Recapitalization, the Company had not been permitted by
the DOC to implement the Stock Option Plan. A portion of the options granted in
1996 were exercisable as of the date of grant, with the remainder of the grants
vesting in varying amounts on January 1, January 5 and March 4, 1997, January 5
and March 4, 1998 and March 4, 1999 (or earlier, in full, upon the occurrence of
a change in control). See "Report of the Compensation Committee of the Board of
Directors."
12
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES
The following table sets forth certain information with respect to
exercises by the Named Executive Officers of stock options and SARs during 1996
and the value of all unexercised employee stock options and SARs as of December
31, 1996 held by the named executive officers. No SARs were granted in 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY OPTIONS/SARS
UNDERLYING AT
UNEXERCISED OPTIONS/SARS FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard D. Schaeffer........ 0 0 16,044 421,656 0 0
D. Mark Weinberg............ 0 0 13,331 227,600 0 0
Ronald A. Williams.......... 0 0 13,325 217,186 0 0
Howard G. Phanstiel......... 0 0 6,945 125,002 0 0
Thomas C. Geiser............ 0 0 8,022 120,326 0 0
</TABLE>
- ---------------
(1) The actual amount realized from unexercised options is dependent upon the
price of the Company's Common Stock at the time shares obtained upon
exercise of such options are sold and, as to unexercisable options, whether
restrictions upon exercise of such options lapse.
LONG-TERM INCENTIVE PLAN
Prior to completion of the Recapitalization and the implementation of the
Stock Option Plan, long-term incentive awards to the Named Executive Officers
were made under the 1994 Long-Term Incentive Plan. The Company's 1994 Long-Term
Incentive Plan provided for three types of awards: Value Units, Performance
Units and SPUs. Only Performance Units were granted in March 1996 to the
officers set forth below. Performance Units focused on building share value and
providing incentives based on the increase in the value of the Common Stock over
a three-year period. The Performance Units granted in March 1996 were
subsequently terminated in May 1996 upon completion of the Company's
Recapitalization and replaced by the option grants listed in the Summary
Compensation Table. The column "LTIP Payouts" in such table included the amounts
paid to such officers in 1996 attributable to the termination of such
Performance Units. Cash awards paid to the Named Executive Officers under the
Company's previous long-term incentive award program are reported in the Summary
Compensation Table for the last year of the award period; provided that, with
respect to Mr. Schaeffer, only the portion allocated to the Company has been
included.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR OTHER PERIOD
NAME NUMBER OF UNITS(1) UNTIL MATURATION OR PAYOUT
- --------------------------------------------------- ------------------ ---------------------------
<S> <C> <C>
Leonard D. Schaeffer............................... 150,000 3/4/97 - 3/4/99
D. Mark Weinberg................................... 70,000 3/4/97 - 3/4/99
Ronald A. Williams................................. 70,000 3/4/97 - 3/4/99
Howard G. Phanstiel................................ 45,000 3/4/97 - 3/4/99
Thomas C. Geiser................................... 45,000 3/4/97 - 3/4/99
</TABLE>
- ---------------
(1) Performance Units were cash awards vesting in three equal, annual
installments on March 4, 1997, 1998 and 1999. The awards provided for
payments based on the difference between (i) the "Base Price," which was
$33.63 with respect to such grants, and (ii) the fair market value of Common
Stock on the date the Performance Units were paid. Performance Units were
subject to accelerated vesting upon involuntary termination following a
change in control.
13
<PAGE> 16
PENSION PLANS
Pension Plan
The Company sponsors the WellPoint Health Networks Inc. (formerly Blue
Cross of California) Pension Accumulation Plan (the "Pension Plan"), a cash
balance plan that is designed to be a qualified defined benefit pension plan
under the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"). The benefit payable under the Pension Plan is generally equal to the
amount of annual annuity that could be purchased at age 65 (based on certain
actuarial assumptions) with the balance of an account that is credited with the
following amounts for each calendar year after 1986; (i) 3% of the participant's
compensation for that year, plus (ii) 1% of the participant's compensation for
that year, if the participant has at least 10 years of service, plus (iii) 1% of
the participant's compensation for that year if the participant has at least 20
years service, plus, (iv) interest on the balance of such account at a rate
equal to the 5-year Treasury Bill average yield for the immediately preceding
December (but not less than 2 1/2%). The Pension Plan became effective on
January 1, 1987 as a successor plan to the Non-Contributory Retirement Program
for Certain Employees of Blue Cross of California (the "Prior Plan"). Certain
participants in the Pension Plan are also eligible to receive retirement
benefits under the Prior Plan.
The Company also sponsors the Supplemental Pension Plan (the "Supplemental
Plan") of WellPoint Health Networks Inc. (formerly Blue Cross of California)
which provides additional benefits payable out of general corporate assets to
certain employees equal to the benefits these employees cannot receive under the
Pension Plan because of Internal Revenue Service limits on benefits and
restrictions on participation by highly compensated employees.
The estimated annual benefit payable upon retirement at age 65 under the
Pension Plan and the Supplemental Plan for named executive officers as of
December 31, 1996 based on service and compensation to such date and as
projected at age 65 is: Leonard D. Schaeffer, $38,868 and $74,858; D. Mark
Weinberg, $54,756 and $184,253; Ronald A. Williams $42,800 and $137,864; Howard
G. Phanstiel, $19,985 and $51,156; and Thomas C. Geiser, $27,170 and $65,636.
Mr. Schaeffer is also entitled to an additional annual annuity of $5,135 from
the Prior Plan.
Special Executive Retirement Plan
BCC established a Special Executive Retirement Plan ("SERP") with respect
to Mr. Schaeffer effective December 30, 1986. The SERP was amended and restated
effective January 1, 1993. The Company assumed the SERP upon completion of the
Recapitalization. The SERP provides that, within 30 days of his retirement, Mr.
Schaeffer will begin receiving an annual benefit equal to two-thirds of his then
current "Target Annual Compensation," reduced by the benefits provided by the
Pension Plan, the Prior Plan and Supplemental Plan described above. Target
Annual Compensation is defined as base salary plus target annual incentive. The
benefit will be reduced by 6 1/4% per year for retirement before age 60. The
earliest date a retirement benefit will be payable under the SERP is age 52.
This retirement benefit is to be paid in monthly installments for the greater of
Mr. Schaeffer's lifetime or a ten-year period, with payments, if any, made to
Mr. Schaeffer's designated beneficiary after Mr. Schaeffer's death. On Mr.
Schaeffer's death (or, if later, after retirement payments have been made for
ten years), the SERP provides for a survivor benefit to be paid to his spouse
for her lifetime equal to 50% of the benefit that he would receive. The SERP
also provides for a termination benefit payable on termination prior to age 52
as a lump sum that would be sufficient to fund his benefit if he were to retire
at age 65 (age 60 in the case of certain involuntary terminations) or, if
greater, a portion of the amount in the trust, attributable to benefits accrued
before 1993. The Company's obligations under the SERP are secured by a trust to
which the Company makes annual, irrevocable contributions. Based upon fiscal
1996 base salary and target annual incentive levels, the estimated annual
benefit payable to Mr. Schaeffer under the amended SERP upon retirement at age
65 is $787,806.
14
<PAGE> 17
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS
Employment Agreement with Leonard D. Schaeffer
In January 1997, Leonard D. Schaeffer, Chairman of the Board and Chief
Executive Officer, entered into an employment agreement with the Company which
covers a five-year period that expires in January 2002, but which will be
extended automatically on January 22 of each year for an additional year unless
the Board of Directors elects to cease such automatic extension. Under Mr.
Schaeffer's employment agreement, Mr. Schaeffer is entitled to receive an annual
base salary of not less than $850,000, which can be adjusted upward as
determined by the Board of Directors; provided, however, that the base salary in
each successive year may not be less than the base salary in the preceding year.
Mr. Schaeffer's base salary as of March 15, 1997 was $900,000.
The employment agreement with Mr. Schaeffer also provides that the Company
will provide long-term disability benefits that will maintain Mr. Schaeffer's
after-tax income at a level equal to his then current base salary for up to the
later of two years or until he reaches age 55 if he continues to be considered
disabled during such period.
In addition, Mr. Schaeffer's employment agreement provides that in the
event that he is constructively terminated or the Company terminates his
employment other than for cause, he will receive, in addition to payments under
the SERP described above, a lump sum payment equal to 2.99 times his then annual
base salary plus an amount equal to 2.99 times his then-current annual target
incentive compensation. Mr. Schaeffer's annual target incentive compensation for
1997 is $630,000. In the event of such termination, he will continue to receive
certain fringe benefits for 48 months. In addition, Mr. Schaeffer will be
entitled to a pro rata portion of any bonus pursuant to the Company's bonus
programs, and any options granted to Mr. Schaeffer on or after January 22, 1997
will immediately become exercisable. If the Company agrees to a change of
control, the employment agreement with Mr. Schaeffer provides that rights and
privileges under the agreement may not be affected. Mr. Schaeffer may elect to
terminate his employment with the Company upon 90 days' written notice to the
Company. In such event, Mr. Schaeffer will continue to receive his salary during
the 90-day notification period. In addition, Mr. Schaeffer will continue to
receive health, dental and life insurance and disability benefits for a
six-month period.
The above-described employment agreement with Mr. Schaeffer replaces
previous employment agreements with the Company's predecessor, Blue Cross of
California, and the Company. At the time of the execution of Mr. Schaeffer's
current employment agreement, the Company also agreed that Mr. Schaeffer will
receive 8,821 shares of the Company's Common Stock upon termination of Mr.
Schaeffer's employment with the Company for any reason. At the time of the
termination of outstanding SPUs and Performance Units in May 1996, the Company
granted Mr. Schaeffer deferred share rights with respect to 55,366 shares of the
Company's Common Stock, which will be issued to Mr. Schaeffer upon his
termination from the Company.
Management Retention Agreements
WellPoint previously entered into management retention agreements with D.
Mark Weinberg and Ronald A. Williams which provided incentives for them to
remain with the Company through April 1, 1997. The management retention
agreements provided for the payment of bonuses to Messrs. Weinberg and Williams
if they remained with WellPoint for two, three and four years following April 1,
1993 or if they were involuntarily terminated (without cause) or constructively
discharged before payment, as defined in the Company's Change in Control Plan,
described below. The bonus amounts payable to Mr. Weinberg for each respective
year would have been 50%, 60% and 75% of his current base salary, and the bonus
amounts payable to Mr. Williams for each respective year would have been 40%,
50% and 65% of his current base salary. The Company had the right to substitute
stock options in place of unpaid bonuses under these agreements.
15
<PAGE> 18
Officer Severance Agreements
D. Mark Weinberg and Ronald A. Williams have each entered into an officer
severance agreement with the Company that provides a lump sum payment, if either
is involuntarily terminated (other than for cause), equal to 24 months salary
and 200% of the previous fiscal year's target bonus, plus continuation for 24
months of health, dental, vision and life insurance premiums paid by the
Company.
Howard G. Phanstiel has entered into an officer severance agreement with
the Company that provides a lump sum payment, if his employment is involuntarily
terminated (other than for cause), equal to 12 months salary and 100% of the
previous fiscal year's target bonus, plus continuation for 12 months of health,
dental, vision and life insurance premiums paid by Company.
Thomas C. Geiser has entered into an officer severance agreement with the
Company that provides a lump sum payment, if he is involuntarily terminated
(other than for cause), equal to 18 months salary and 150% of the previous
fiscal year's target bonus, plus continuation for 18 months of health, dental,
vision and life insurance premiums paid by the Company.
Relocation Loans and Benefits
In connection with Thomas C. Geiser's purchase of a residence, the Company
made an interest-free loan of $125,000 to Mr. Geiser in 1995, forgivable in five
annual installments of $25,000, so long as he remains employed by the Company.
Should he terminate employment before the entire balance of the loan is
forgiven, the remaining unpaid, unforgiven balance would become due. Mr. Geiser
was also entitled to a relocation bonus of $50,000, paid in 1995.
In connection with Howard G. Phanstiel's relocation, the Company made an
interest-free loan of $150,000 to Mr. Phanstiel in 1994, forgivable in five
annual installments of $30,000, so long as he remains employed by the Company.
Should he terminate employment before the entire balance of the loan is
forgiven, the remaining unpaid, unforgiven balance would become due. Mr.
Phanstiel was also entitled to a special bonus, payable $100,000 in December
1994, $50,000 in March 1995 and $150,000 in March 1996.
Change in Control
The Company has adopted the WellPoint Health Networks Inc. Officer Change
in Control Plan ("Change in Control Plan") effective January 1, 1994 to provide
selected officers of WellPoint and affiliates controlled by WellPoint who are
notified of their participation by the CEO of WellPoint with benefits in the
event of a "Change in Control." The Change in Control Plan defines a Change in
Control as (i) a reduction in the Foundation's (or a qualifying successor's)
ownership of WellPoint to less than a majority of the outstanding voting
securities, if another person owns 30% or more of the combined voting power of
WellPoint's then-outstanding securities, (ii) a merger, consolidation,
liquidation, sale of stock or assets or other reorganization ("reorganization")
to which the Foundation or a qualifying successor is a party and as a
consequence of which the members of the Foundation's (or the qualifying
successor's) board of directors immediately before the reorganization or event
constitute less than two-thirds of the directors of such entity immediately
after the reorganization or event so long as the Foundation or the qualifying
successor continues to own 30% or more of the combined voting power of
WellPoint's then-outstanding securities, (iii) a reorganization to which the
Foundation, a qualifying successor or WellPoint is a party if, as a result
thereof, the members of WellPoint's directors immediately before the
reorganization will not constitute at least two-thirds of the directors of
WellPoint immediately after the reorganization or (iv) any other transaction,
acquisition of securities or other action or event that at least two-thirds of
the Foundation's (or a qualifying successor's) directors or at least a majority
of the independent directors of WellPoint determine will constitute a Change in
Control of BCC or WellPoint, respectively. However, the Compensation Committee
may determine that any such event will not be deemed a Change in Control for
purposes of the Change in Control Plan if it concludes that such event does not
pose a material risk to the operation of WellPoint's business.
Certain selected officers may be eligible to receive Change in Control Plan
severance benefits if an Affiliate (as defined in the Change in Control Plan)
involuntarily terminates (other than for cause) or
16
<PAGE> 19
constructively discharges the officer within 36 months after a Change in
Control. An officer is deemed constructively discharged for purposes of the
Change in Control Plan if, after a Change in Control, any Affiliate
significantly reduces the officer's duties, responsibilities, status, titles or
offices, reduces the officer's aggregate salary and target bonus by more than
10%, or requests the officer to relocate further than 35 miles from the
officer's place of employment. Severance payments will consist of a base amount
plus an outplacement benefit. The base amount is 2.00 to 2.75 times base salary
plus 2.00 to 2.75 times target annual bonus in effect for the officer's position
for an Executive Vice President, 1.75 to 2.50 times base salary plus 1.75 to
2.50 times target annual bonus for a Senior Vice President and 1.25 to 2.00
times base salary plus 1.25 to 2.00 times target annual bonus for a Vice
President. The outplacement benefit consists of outplacement services from a
firm selected by WellPoint for up to the cost of one month's base salary. The
severance benefit payable to any officer is reduced by the amount of any
retention benefit previously paid to the officer under the Change in Control
Plan. Mr. Weinberg, Mr. Williams, Mr. Phanstiel and Mr. Geiser participate in
the Change in Control Plan.
Certain selected officers will also be entitled to annual retention
payments for three years following a Change in Control (other than a change in
the directors of the Foundation or a qualifying successor), with such payments
to cease if the officer terminates employment other than by involuntary
termination (other than for cause) or constructive discharge. The amount of each
annual payment will be one-third of the amount of the severance payment
(excluding any outplacement benefit) that would be paid to such officer under
the Change in Control Plan upon involuntary termination or constructive
discharge. Mr. Weinberg, Mr. Williams, Mr. Phanstiel and Mr. Geiser are entitled
to annual retention payments.
Payments under the Change in Control Plan are reduced to the extent
necessary to ensure that those payments do not constitute excess parachute
payments within the meaning of Section 280G of the Internal Revenue Code.
An officer who is to receive other severance benefits from an Affiliate
will not receive benefits under the Change in Control Plan unless the other
severance benefit plan so provides or the officer waives benefits under the
other severance benefit plan. The Compensation Committee may amend or terminate
the Change in Control Plan at any time except that, after a change in control,
the plan may not be amended or terminated to reduce or eliminate benefits that
would otherwise be payable under the Change in Control Plan to those who were
participants on the date of the Change in Control.
17
<PAGE> 20
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under The Exchange
Act, except to the extent that WellPoint specifically incorporates this
information by reference and shall not otherwise be deemed filed under such
Acts.
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for determining the compensation of the executive officers of the
Company, including the Named Executive Officers. In making its determinations,
the Committee relies on input from Frederic W. Cook & Co., compensation
consultants, and reviews appropriate decisions with all non-employee directors
who constitute a majority of the full Board of Directors.
During 1996, three Committee meetings were held prior to the Company's
Recapitalization on May 21, and one meeting was held after the Recapitalization.
Committee members prior to the Recapitalization were Mr. Banks (chairman), Mr.
Birk and Ms. Hill ("old Committee"). Committee members after the
Recapitalization were Mr. Banks (chairman), Mr. Davenport and Ms. Hill ("new
Committee"). At the time of the Recapitalization, the old Committee made
recommendations to the new Committee and Board of Directors concerning the
assumption of current on-going compensation policies and plans, adoption of new
policies and plans and Recapitalization-related compensation actions concerning
executive officers. The new Committee and the Board acted on such items in their
respective areas of authority.
RECAPITALIZATION-RELATED ACTIONS
Executive officer compensation actions related to the Recapitalization are
significant because of certain factors relating to WellPoint's formation. After
the Company's initial public offering in 1994, its stockholders approved a
comprehensive stock incentive plan, the Stock Option Plan. The Committee
intended at that time to grant stock options under the Stock Option Plan, having
customary three-year vesting periods and ten-year terms. However, the DOC (which
is the Company's primary regulator) prohibited the Company's use of stock
options for employee compensation. This prohibition was not lifted until the
Recapitalization was completed. In order to offer competitive long-term
incentive opportunities and rewards for shareholder value creation, the Company
granted "performance units" in lieu of stock options during 1994, 1995 and prior
to the Recapitalization in 1996. Each performance unit entitled the recipient to
a cash payment for the price appreciation of a share of WellPoint Common Stock
above the market value at the time of grant for a specified period of time
(typically three years).
The shareholder-approved Stock Option Plan was implemented upon completion
of the Recapitalization in May 1996. Simultaneous with the implementation of the
Stock Option Plan, all then-outstanding performance units were terminated in
exchange for a payment based on their existing value, calculated as the excess
of WellPoint's then-current stock price above the applicable performance unit
grant price. The Committee determined that the appropriate measure of the
then-current stock price was $36.45, the volume weighted average trading price
of the Common Stock on May 20, 1996, the last trading day prior to the
Recapitalization. Individual payments were distributed 50% in cash in order to,
among other things, cover taxes, and 50% in WellPoint Common Stock to encourage
stock ownership among the Company's officers. The share component of Mr.
Schaeffer's payment was deferred until the termination of his employment with
the Company.
In addition to the cash and stock distributions for accumulated performance
unit appreciation through the time of the Recapitalization, stock options were
granted to individuals for the equivalent grant value of their terminated
performance units. The exercise price of these options was the May 20 weighted
average trading price, adjusted for the $10.00 per share special dividend and
three-for-two reverse share exchange occurring as part of the Recapitalization,
or $39.675 per share (($36.45 - $10) X 1.5). The term of these options was for
the remainder of ten years from the initial grant date of the applicable
terminated performance units, representing a continuation of what would have
been normal ten-year options if the Company had been allowed to grant stock
options prior to the Recapitalization.
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<PAGE> 21
Of the stock option grants included in the Summary Compensation Table, only
a portion are long-term incentive compensation awards attributable to 1996.
Furthermore, the cash and stock distributions for performance unit appreciation
up to the Recapitalization are included in the column entitled "LTIP Payments,"
although these values are attributable to pre-Recapitalization stock price
appreciation in performance units. They are not regular compensation payments
for 1996.
Option grants (exercisable at $39.675 per share) in 1996 that were
attributable to the replacement of pre-Recapitalization performance units grants
were calculated as follows for the Named Executive Officers:
<TABLE>
<CAPTION>
LEONARD D. D. MARK RONALD A. HOWARD G. THOMAS C.
SCHAEFFER WEINBERG WILLIAMS PHANSTIEL GEISER
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of Terminated Performance
Units............................. 582,000 301,667 288,333 164,667 160,000
Weighted Average Unit Grant Price... X $29.838 X $31.687 X $31.719 X $31.791 X $31.826
----------- ---------- ---------- ---------- ----------
Aggregate Threshold Amount.......... $17,365,716 $9,558,922 $9,145,634 $5,234,929 $5,092,160
(divided by) (divided by) (divided by) (divided by) (divided by)
Ending Share Price*................. 39.675 39.675 39.675 39.675 39.675
----------- ---------- ---------- ---------- ----------
Aggregate Number of Replacement
Options........................... 437,700 240,931 230,511 131,947 128,348
Attributable to 1996................ -112,809 -55,896 -55,962 -36,058 -36,098
----------- ---------- ---------- ---------- ----------
Attributable to Prior Years......... 324,891 185,035 174,549 95,889 92,250
</TABLE>
- ---------------
* As of May 20, 1996; after adjustment for $10.00 per share special dividend and
three-for-two reverse share exchange.
Amounts included in LTIP Payments for 1996 that were attributable to
distributions for performance unit values at the time of the Recapitalization
were calculated as follows:
<TABLE>
<CAPTION>
LEONARD D. D. MARK RONALD A. HOWARD G. THOMAS C.
SCHAEFFER WEINBERG WILLIAMS PHANSTIEL GEISER
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Distribution Price*................ $ 36.450 $ 36.450 $ 36.450 $ 36.450 $ 36.450
Weighted Average Unit Grant
Price............................ -29.838 -31.687 -31.719 -31.791 -31.826
----------- ---------- ---------- ---------- ----------
Appreciation per Unit.............. $ 6.612 $ 4.763 $ 4.731 $ 4.659 $ 4.624
Number of Units.................... X 582,000 X 301,667 X 288,333 X 164,667 X 160,000
----------- ---------- ---------- ---------- ----------
Distribution Value................. $ 3,848,184 $1,436,867 $1,364,112 $ 767,218 $ 739,860
Other 1996 LTIP Payments........... + 1,626,865 + 539,332 + 501,919 + 275,440 + 267,931
----------- ---------- ---------- ---------- ----------
Total 1996 LTIP Payments........... $ 5,475,049 $1,976,199 $1,866,031 $1,042,658 $1,007,791
</TABLE>
- ---------------
*May 20 weighted average trading price.
COMPENSATION PHILOSOPHY
The Company's executive compensation program reflects the philosophy that
executives' compensation rewards should be structured to closely align their
interests with those of the shareholders. The program emphasizes pay for
performance and stock-based incentives, and extends these concepts beyond the
executive officers to other employees in the interests of motivation, teamwork
and fairness. Annual return on shareholders' equity ("ROE") and earnings per
share ("EPS") growth are the measures of short-term success, and increase in
shareholder value (as shown by stock price appreciation) is the long-term
measure. Upon completion of the Recapitalization, the Company instituted
guidelines for Company stock ownership which are applicable to all officers.
Compensation surveys and external competitiveness are used as tests for
reasonableness, but corporate, business unit and individual performance are the
primary determinants of individual pay amounts. The competitive market is viewed
to be the Company's competitors in the managed care industry (which includes
some but not all of the companies that are included in the Peer Group described
under "Stock Performance"
19
<PAGE> 22
below) as well as companies in general industry of similar market value, size,
operating complexity and growth potential so that the Company can compete for
the best talent across different markets.
PROGRAM OVERVIEW
The elements of the Company's executive compensation program in 1996
consisted of base salaries, annual cash incentives (under the "Corporate
Incentive Plan" or "CIP"), cash "value units" outstanding from grants made
before 1996 and discontinued thereafter, and stock options granted upon
termination of cash performance units that had previously been used as a
cash-based substitute for stock options during the time that the Company was
prohibited by the DOC from implementing the Stock Option Plan. The mix of
compensation for executive officers is weighted more heavily toward
performance-based incentives rather than base salaries as position level
increases.
BASE SALARIES
Base salaries for the Named Executive Officers were set based upon the
competitive market and individual responsibilities, experience and performance.
In 1996, the Named Executive Officers received increases partly for merit, and
partly for market adjustments to recognize the Company's significantly increased
revenues from internal growth and major acquisitions. The Committee believes
that current base salaries for the Named Executive Officers generally are
between the competitive median and 75th percentile for comparable positions,
which is in accordance with the Company's pay-for-performance philosophy.
ANNUAL INCENTIVES
The CIP is a goal-driven plan where participants, including all of the
Named Executive Officers, have the opportunity to earn annual cash bonus awards
in relation to specified target award levels defined as percentages of base
salaries. Target awards correspond to 100% goal achievement. They are intended
to result in approximately median-to-75th-percentile total annual compensation
as compared to the competitive market when combined with WellPoint base
salaries. An award pool or fund is determined based on Company annual financial
performance and is allocated to individuals primarily to reward teamwork, and
secondarily to reward business-unit performance and individual accomplishments.
The allocation is discretionary as determined by the Committee, giving strong
consideration to the CEO's recommendations for positions other than his own.
Company financial performance is measured against an index ("Performance
Growth Index" or "PGI") established by the Committee at the start of the year,
combining equally weighted goals for annual pre-tax ROE and annual EPS growth.
The goals are based on internal business plan objectives. No awards are earned
unless a specified PGI threshold performance level is achieved. Overall, the
Company moderately exceeded its financial goals for 1996. There were also
significant strategic accomplishments during 1996 which included the completion
of the Recapitalization and the endowment of two new non-profit foundations in
connection therewith, the completion of the acquisition of the group health and
related life business of Massachusetts Mutual Life Insurance Company, the
signing of a definitive agreement to purchase the similar business unit of the
John Hancock Mutual Life Insurance Company, the successful completion of an
almost 15 million share public offering by one of the newly created foundations
and the development of a new corporate vision, mission and values statement.
VALUE UNITS
A portion of the LTIP Payments made in 1996 not attributable to
distributions for performance unit appreciation up to the Recapitalization was
for the cash payment of value units. These value units were granted at the
beginning of 1994, to be earned for continued employment and Company financial
performance through the end of 1996. Value unit payments were determined from a
pre-established formula for the three-year measurement period based on average
annual pre-tax profits (before extraordinary items) above a 10% average annual
return on capital.
No value units were granted after 1994, there are no further value units
outstanding, and no further value units granted are anticipated.
20
<PAGE> 23
STOCK OPTIONS AND PERFORMANCE UNITS
The Committee made stock options WellPoint's sole form of long-term
incentive award upon completion of the Recapitalization. As explained earlier,
outstanding performance units that had formerly been granted as a cash-based
substitute for stock options were terminated in exchange for their accumulated
appreciation through the time of the Recapitalization and replaced with stock
options with terms equal to the remainder of what would have been normal
ten-year option terms relating back to the original performance unit grant
dates. In addition, certain performance units matured in January 1996 and
payments thereunder were made before the Recapitalization and are included as
LTIP Payments in 1996.
The Recapitalization-related performance unit termination and option
replacement was a one-time event. No performance units were granted after the
Recapitalization, there are no further performance units outstanding, and no
future performance unit grants are anticipated. However, the Committee
anticipates that it will grant additional stock options in the future as an
on-going element of the executive compensation program.
Performance units that were granted in 1996 before the Recapitalization,
and then terminated upon completion of the Recapitalization, were based on grant
guidelines designed to approximate the present value of median competitive
annual long-term incentive compensation for comparable companies and positions.
Individual grants to the Named Executive Officers varied above and below the
guidelines based upon the Committee's evaluation of individual performance, past
grant history and other relevant factors. The Committee intends to use similar
competitive guidelines for determining stock option grants after 1996.
CEO COMPENSATION
Mr. Schaeffer's base salary was increased by approximately 7% in 1996. This
was for merit and to reflect WellPoint's substantial revenue growth. The
Committee believes that Mr. Schaeffer's salary is in the median-
to-75th-percentile range for comparable organizations. Mr. Schaeffer's annual
incentive bonus was $532,440 for 1996 performance, based on the Company
moderately exceeding its ROE and EPS growth goals for the year and his
leadership in accomplishing the major strategic objectives described earlier.
Performance units granted to Mr. Schaeffer in 1996 before the
Recapitalization were subsequently terminated and replaced with stock options
along with his performance units from grants made in 1994 and 1995, as discussed
earlier. The grants attributable to 1996 had an estimated present value in the
median-to-75th-percentile competitive range for comparable organizations. These
1996 grants represent 112,809 shares of Mr. Schaeffer's total 437,700 stock
options granted in 1996, with the remaining 324,891 shares representing grants
to replace terminated performance units outstanding from grants made in 1994 and
1995.
LTIP Payments received by Mr. Schaeffer included a one-time distribution of
$3,848,184 (paid 50% in cash and 50% in deferred share units which will be
received upon termination of Mr. Schaeffer's employment with the Company) for
the appreciation in his performance units up to the Recapitalization. He also
received $1,375,000 in cash for the payment of maturing performance units for
the Company's performance during the three-year period ending January 31, 1996
and $251,865 in cash for the payment of value units for Company's financial
performance from 1994 through 1996. Mr. Schaeffer has no further performance
units or value units outstanding, and no further grants of performance units or
value units are anticipated.
COMPLIANCE WITH SECTION 162(m)
Section 162(m) of the Internal Revenue Code ("Section 162(m)") generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to a Company's CEO and four other most highly compensated executive
officers. Qualifying performance-based compensation is not subject to the
deduction limit if Internal Revenue Code requirements are met. The Committee
believes that stock options granted under the Stock Option Plan at an exercise
price of 100% of the value of the underlying common stock will qualify as
performance-based compensation. However, the Committee determined not to qualify
annual cash compensation or other compensation as performance-based compensation
under Section 162(m), because to do so would require restricting the Committee's
discretion over the amount of such compensation in a manner the Committee feels
would not be beneficial to the Company. The Committee will make future
21
<PAGE> 24
determinations as to whether the qualify compensation as performance-based
compensation on a case-by-case basis, taking into account the cost of potential
loss of deductibility as one of the factors used in determining compensation.
For 1996, there was certain non-deductible compensation for WellPoint's
Named Executive Officers. This did not have a material financial impact on the
Company, particularly because a substantial portion of non-deductible payments
to Mr. Schaeffer, which accounted for most of the compensation involved, were
deferred.
The foregoing report has been furnished by the Compensation Committee of
the Board of Directors of WellPoint Health Networks Inc.
David R. Banks, Chairperson
Stephen L. Davenport
Julie A. Hill
22
<PAGE> 25
STOCK PERFORMANCE
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total shareholder returns of the
Standards & Poor's 500 stock index, a Peer Group(1) and a California-based Peer
Group(2). The comparison assumes the investment of $100 on January 27, 1993 (the
date the Common Stock of the Company's predecessor became registered under
Section 12 of the Exchange Act).
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) WellPoint HMO Index CA HMOs S&P 500
<S> <C> <C> <C> <C>
1/27/93 100.00 100.00 100.00 100.00
12/31/93 110.74 117.10 80.18 109.17
12/31/94 104.05 151.33 115.99 110.61
12/31/95 114.76 202.92 153.36 152.18
12/31/96 112.50 155.80 134.14 187.12
3/31/97 135.82 167.32 142.85 192.13
</TABLE>
- ---------------
(1) The Peer Group is comprised of the following publicly traded managed care
companies: Coventry Corp.; Foundation Health Corp.; Health Systems
International, Inc., Healthsource, Inc.; Humana, Inc.; Mid Atlantic Medical
Services, Inc.; Maxicare Health Plans, Inc.; Oxford Health Plans Inc.;
Physician Corp. America; Physicians Health Services, Inc.; PacifiCare Health
Systems, Inc.; Ramsay Health Care, Inc.; Sierra Health Services Inc.; United
American Healthcare Corp.; and United HealthCare Corp. The returns of each
company have been weighted according to their respective stock market
capitalization for purposes of arriving at a peer group average.
(2) The California-based Peer Group is a subset of the Peer Group, and is
comprised of the following California-based publicly traded managed care
companies: Foundation Health Corp.; Health Systems International, Inc.;
Maxicare Health Plans Inc.; and Pacificare Health Systems, Inc.
The following companies which were previously included in the Peer Group or
California-based Peer Group have been deleted because they were acquired or
otherwise ceased operations during the period covered by this graph: CareNetwork
Inc.; FHP International Corp.; Gencare Health Systems Inc.; Intergroup
HealthCare Corp.; TakeCare Inc.; and U.S. HealthCare Inc.
During the period from January 27, 1993 through the date of the
Recapitalization, the Company was subject to various DOC restrictions on the
conduct of its business, including a prohibition on the granting of stock
options or other stock-based compensation to its employees.
The stock performance graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this proxy statement into
any filing under the Securities Act of 1933 or under the Exchange Act, except to
the extent that WellPoint specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
23
<PAGE> 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Recapitalization of the Company in May 1996, BCC owned
approximately 80% of the outstanding capital stock of the Company. At the time
of the formation of the Company in 1992, BCC, the Company and certain of the
Company's subsidiaries entered into an administrative Services and Product
Marketing Agreement (the "Administrative Services Agreement"). Pursuant to the
Administrative Services Agreement, BCC provided office space and certain
administrative and support services, including computerized data processing and
management information systems, telecommunications systems and other management
services, to WellPoint. The expenses for these services were allocated to and
paid by the Company in an amount equal to the direct and indirect costs and
expenses incurred in furnishing the services. In addition, the Company provided
services to BCC which included health plan support services, financial
management services and certain provider contracting services, all of which are
reimbursed on a basis that approximated cost.
In 1996 prior to the Recapitalization, the Company incurred intercompany
charges of approximately $13,601,000 for services rendered by BCC pursuant to
the Administrative Services Agreement and BCC incurred intercompany charges of
approximately $3,931,000 for services rendered by WellPoint pursuant to the
Administrative Services Agreement.
As required by the DOC, prior to the Recapitalization, non-contract
provider services under the Company's and BCC's jointly marketed Prudent Buyer
and Medicare supplement products were required to be provided by BCC and
revenues attributable to such non-contract provider services were therefore not
included in the Company' financial statements. BCC recorded a portion of the
premium revenue for these products based on the estimated costs of providing
these non-contract provider health care services, plus an underwriting margin
equal to the greater of 2.0% or the average percentage of underwriting gain
among BCBSA member plans. Such aggregate premium revenue recognized by BCC
related to the non-contract provider services for these products for the period
from January 1, 1996 through May 20, 1996 was $59,300,000. Operating income
recognized by BCC on such non-contract provider services for these products for
the period from January 1, 1996 through May 20, 1996 year was estimated at
$1,200,000.
Mr. Besson is a partner in the law firm of Paul, Hastings, Janofsky &
Walker. Paul, Hastings, Janofsky & Walker was previously retained as counsel to
Ms. Elizabeth Sanders to advise her with respect to her designation as a
director of the Company. Pursuant to the engagement letter for such services,
WellPoint agreed to pay the fees and expenses relating to such representation.
Mr. Besson was not involved in, did not work on, and was not aware of any issues
on which advice was given to Ms. Sanders. In addition, Paul, Hastings, Janofsky
& Walker has been retained by the Company to advise it on a variety of other
matters. During 1996, approximately $60,855 was paid by WellPoint to such form
for legal fees and disbursements.
Pursuant to the requirements of the BCBSA pertaining to the issuance of the
new license to WellPoint covering the use of Blue Cross name and mark in
California, the Common Stock owned by the Foundation is subject to the terms of
the Voting Trust Agreement and the Voting Agreement. Pursuant to the Voting
Trust Agreement, the voting power of the Foundation is limited to less than 50%
of the voting power of WellPoint. WellPoint Common Stock owned by the Foundation
above such limit is required to be held in a voting trust and will be voted by
the voting trustee (i) with respect to elections and removal of directors,
calling of shareholder meetings and amendments of the WellPoint charter and
bylaws, to support the position of the Board of Directors, and (ii) with respect
to other matters generally to support the vote of the other shareholders. Shares
in excess of the ownership limit contemplated by the WellPoint charter
(currently set at up to, but not equal to or in excess of 5%) will be subject to
the Voting Agreement, which contains provisions similar to the Voting Trust
Agreement with respect to elections and removal of directors, calling of
shareholder meetings and amendment of WellPoint charter and bylaws. As of April
15, 1997, no shares of Common Stock held by the Foundation were subject to the
Voting Trust Agreement and 26,433,651 shares of Common Stock (or approximately
38.0% of the outstanding Common Stock) held by the Foundation were subject to
the Voting Agreement. See "Recent Recapitalization."
In connection with the Recapitalization, the Company and the Foundation
also entered into a Registration Rights Agreement. Under certain circumstances
and subject to certain limitations, the Registration Rights Agreement requires
WellPoint to effect under applicable securities laws and registration of shares
of WellPoint Common Stock held by the Foundation for sale to the public, as well
as permit the Foundation to participate in certain of such registrations which
WellPoint effects on its own initiative. The undertakings
24
<PAGE> 27
which the Foundation made to the DOC in order to secure the DOC's approval of
the Recapitalization include annual distribution of approximately 5% of the
value of its investment assets beginning in 1997. In order to fund such required
distributions, the Foundation might sell shares of WellPoint. In November 1996,
the Company effected a registration pursuant to which the Foundation sold
14,950,000 shares of WellPoint Common Stock to the public. In April 1997, the
Company effected a registration statement pursuant to which the Foundation sold
an additional 8,500,000 shares of WellPoint Common Stock to the public.
25
<PAGE> 28
PROPOSAL NO. 2:
REINCORPORATION IN THE STATE OF DELAWARE
SUMMARY OF REINCORPORATION PROPOSAL
The following is a summary of certain information contained elsewhere in
this Proxy Statement and is qualified in its entirety by the detailed
information contained elsewhere herein, the Appendices hereto and the documents
referred to herein, to which reference is made for a more complete discussion of
the matters summarized below.
GENERAL
WellPoint Delaware is a wholly owned subsidiary of the Company and was
organized under the laws of the State of Delaware in 1996. WellPoint Delaware
has one wholly owned subsidiary, WLP Acquisition Corp. ("Merger Subsidiary"),
organized solely for purposes of effecting the merger (the "Merger")
contemplated by the Reincorporation Proposal. As a result of the Merger, Merger
Subsidiary will be merged into the Company, Merger Subsidiary will disappear and
the Company will be the surviving entity and a wholly owned subsidiary of
WellPoint Delaware. Immediately following the Merger, the capital stock of
certain of the Company's subsidiaries will be transferred to WellPoint Delaware.
Upon the consummation of the Merger, shareholders of the Company will
become stockholders of WellPoint Delaware and each share of Company Common Stock
held by them will automatically convert into one share of Common Stock of
WellPoint Delaware. The directors of the Company (including any directors
elected at the Annual Meeting) will become the directors of New WellPoint with
the same class designation and term of office.
REASONS FOR REINCORPORATION IN DELAWARE
The formation of a new holding company structure as part of the
Reincorporation Proposal and other actions to be taken concurrently will allow
the Company to significantly reduce capital requirements currently imposed
because the Company is licensed as a health care service plan under the
California Knox-Keene Health Care Service Plan Act of 1975, as amended (the
"Knox-Keene Act"), and as an independent licensee of the BCBSA. In addition, by
reincorporating in the State of Delaware, the Company will be able to take
advantage of Delaware corporation laws, which are more conducive to the
operational needs and independence of corporations domiciled in that state.
These laws include the ability to eliminate the liability of directors for
certain breaches of their fiduciary duty. See "Reasons for Formation of Delaware
Holding Company -- Reduction in Capital Requirements" and "-- Delaware
Corporation Law" and "Certain Differences Between California and Delaware
Corporation Laws."
CONTINUATION OF PROVISIONS POTENTIALLY RESTRICTING CHANGES IN CONTROL
WellPoint Delaware's Certificate of Incorporation and Bylaws will include
various features that may render more difficult certain unsolicited or hostile
attempts to take over WellPoint Delaware. These provisions are essentially
identical to provisions in the Company's Articles of Incorporation and Bylaws.
Although certain of these features are intended to ensure that stockholders of
WellPoint Delaware receive a fair price for their shares by encouraging any
person who might seek to acquire control of WellPoint Delaware first to consult
with WellPoint Delaware's Board of Directors and to negotiate the terms of any
tender offer or proposed business combination, they may also discourage hostile
takeover attempts or tender offers for control of WellPoint Delaware that might
be approved by many or even a majority of WellPoint Delaware's stockholders.
Certain of the provisions have also been included at the insistence of the BCBSA
in order to prevent the takeover of a BCBSA licensee. See "Reincorporation
Proposal -- General," "Reasons for Formation of Delaware Holding
Company -- Continuation of Provisions Potentially Restricting Changes in
Control," "Possible Disadvantages of the Reincorporation in Delaware" and
"Significant Differences Between California and Delaware Corporation Laws."
26
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VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the number of shares
of Common Stock outstanding on the record date is required to approve the
Reincorporation Proposal.
REGULATORY AND OTHER APPROVALS
Prior to the consummation of the Merger, the Company will need to obtain
the consent of the DOC, which regulates the Company pursuant to the Knox-Keene
Act. It will also have to obtain the consent of the California Department of
Insurance to the change in the ultimate ownership of its subsidiaries UNICARE
Insurance Company, BC Life & Health Insurance Company and Comprehensive
Integrated Marketing Services, Inc. and will have to obtain the approval of both
the California Department of Insurance and the Delaware Department of Insurance
to the transfer of the ultimate ownership of UNICARE Life & Health Insurance
Company. In addition, the Company may need to seek the approval of the
Department of Insurance in certain other states in which the Company and its
subsidiaries operate. The Company intends to request these approvals as
expeditiously as possible and will seek to secure the required approvals prior
to the Annual Meeting. The Company also intends to request the consent to
assignment of its existing senior and subordinated credit facilities to
WellPoint Delaware. The Company anticipates that most, if not all, of the
Company's employee benefit and compensation plans will be assumed by WellPoint
Delaware.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors of the Company believes that the Reincorporation
Proposal is in the best interests of the Company's shareholders and unanimously
recommends a vote in favor of the proposal. See "Reincorporation Proposal."
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code. Assuming the Merger qualifies as
a reorganization, no gain or loss will be recognized by the shareholders of the
Company upon the conversion of the shares of Company Common Stock into shares of
WellPoint Delaware Common Stock, and the basis of the shares of WellPoint
Delaware Common Stock received by the shareholders of the Company will be the
same as the basis of the shares of Company Common Stock held by such
shareholders immediately prior to the Merger. Shareholders should consult their
own tax advisors regarding the Federal, state, local and foreign tax
consequences of the Merger. See "Certain Federal Income Tax Considerations."
EXCHANGE OF SHARE CERTIFICATES
After the Merger, each outstanding certificate representing a share or
shares of Common Stock will continue to represent the same number of shares of
WellPoint Delaware. It will not be necessary for shareholders of the Company to
exchange their existing stock certificates for stock certificates of WellPoint
Delaware. See "Reincorporation Proposal -- General."
REINCORPORATION PROPOSAL
GENERAL
The Board of Directors of the Company believes that the best interests of
the Company and its shareholders will be served by the Merger. The Company has
caused WellPoint Delaware to be organized as a Delaware corporation. Immediately
prior to the Merger, WellPoint Delaware will have no assets or liabilities
except (i) a nominal amount of cash paid in by the Company for shares of Common
Stock of the WellPoint Delaware, and (ii) the stock of the Merger Subsidiary,
having no assets or liabilities other than a nominal amount of cash.
Pursuant to the proposed Agreement and Plan of Reorganization which is
attached hereto as Appendix C (the "Reorganization Agreement"), when the Merger
becomes effective (the "Effective Time"), Merger Subsidiary will be merged into
the Company, Merger Subsidiary will disappear and the Company will survive the
Merger and become a wholly owned subsidiary of WellPoint Delaware. Each
outstanding share of Company Common Stock will be converted into one share of
WellPoint Delaware Common Stock. As a result of the Merger, the shareholders of
the Company will become stockholders of WellPoint Delaware and their
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rights will become subject to the Certificate of Incorporation and Bylaws of
WellPoint Delaware, which will be substantially in the forms of Appendices A and
B hereto. Following the Merger, WellPoint Delaware will be the holding company
for the Company. It is expected that upon completion of the Merger, the Company,
as the surviving entity, will change its name to Blue Cross of California.
Immediately following the Merger, one or more of the Company's wholly owned
subsidiaries, Blue Cross of California, WellPoint Dental Plan and WellPoint
Pharmacy Plan, may be merged with and into the Company. This action would be
taken to simplify the resulting corporate structure of WellPoint Delaware and
the Company. In addition, immediately following the Merger, the capital stock of
certain of the Company's subsidiaries will be transferred to Wellpoint Delaware.
The directors of the Company at the Effective Time will become the
directors of WellPoint Delaware, with the same class designations as with the
Company. In addition, at the Effective Time or thereafter, it is anticipated
that WellPoint Delaware will assume the Company's obligations under the Stock
Option Plan as well as various other agreements or plans of the Company,
including the Employee Stock Option Plan, Employee Stock Purchase Plan and
senior and subordinated credit agreements. It is also expected that the
Company's current license agreement with the BCBSA will be terminated, and a new
license agreement between WellPoint Delaware and the BCBSA, having substantially
the same terms, will become effective. Alternatively, the Company's existing
license agreement will be assigned to WellPoint Delaware. Certain of the
Company's agreements with the Foundation will also be assumed by WellPoint
Delaware or substantially identical new agreements will be executed.
The Certificate of Incorporation and Bylaws of WellPoint Delaware include
various features, substantially similar to corresponding provisions in the
Company's Articles of Incorporation and Bylaws, that may render attempts to take
over WellPoint Delaware more difficult. The Board believes that such attempts
would disrupt WellPoint Delaware, divert the attention of WellPoint Delaware's
directors, officers and employees and adversely affect WellPoint Delaware's
operations. These features include, among other things, the ownership and
transfer restrictions on the Common Stock of WellPoint Delaware, the
establishment of a classified Board of Directors with staggered terms of office,
the requirement of a supermajority vote of stockholders to approve certain
changes to the Certificate of Incorporation and Bylaws, the elimination of
cumulative voting of shares for directors and the elimination of the right of
stockholders (other than stockholders owning 10% or more of the Company's
outstanding voting stock) to call special stockholders' meetings or to act by
written consent. These matters are described more fully below and in Appendices
A and B hereto.
Approval of the Reincorporation Proposal would also afford the directors of
the Company, all of whom would become directors of WellPoint Delaware upon
consummation of the Merger, protection against certain liability for monetary
damages arising out of certain breaches of their fiduciary duties as directors,
as described more fully below and in Appendices A and B.
The Certificate of Incorporation of WellPoint Delaware provides for an
authorized capital of 300,000,000 shares of Common Stock, $.01 par value, and
50,000,000 shares of Preferred Stock, $.01 par value, which is the same that the
Company currently has. After approval of the Reincorporation Proposal, the Board
of Directors, without further stockholder approval, would have the authority to
issue the additional authorized shares of Common Stock, from time to time, at
prices the Board deems appropriate. The Board would also be authorized to issue
such series and classes of Preferred Stock with such terms (including dividend
and interest rates, conversion prices, voting rights, redemption prices,
maturity dates and similar matters) as the Board deems appropriate. Such
provisions will allow WellPoint Delaware the flexibility to sell Common Stock,
securities convertible into Common Stock and Preferred Stock to finance
operations and future expansion. THE REINCORPORATION PROPOSAL, ALONG WITH THE
OTHER CONTEMPLATED ACTIONS DISCUSSED HEREIN, CONSTITUTE ONE PROPOSAL FOR
SHAREHOLDER APPROVAL. A VOTE FOR THE REINCORPORATION PROPOSAL WILL ALSO
CONSTITUTE A VOTE FOR THE REORGANIZATION AGREEMENT PERTAINING TO THE
REINCORPORATION PROPOSAL AND ALL OF THE PROVISIONS OF THE WELLPOINT DELAWARE
CERTIFICATE OF INCORPORATION AND BYLAWS. A VOTE FOR THE REINCORPORATION PROPOSAL
WILL ALSO BE DEEMED A VOTE FOR THE ASSUMPTION BY WELLPOINT DELAWARE OF THE STOCK
OPTION PLAN AND VARIOUS OTHER AGREEMENTS AND PLANS TO WHICH THE COMPANY IS A
PARTY.
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After the Merger, each outstanding certificate representing a share or
shares of the Company Common Stock will represent the same number of shares of
WellPoint Delaware. THUS, IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF THE
COMPANY TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF
WELLPOINT DELAWARE.
In accordance with California law, the affirmative vote of the holders of
at least a majority of the outstanding shares of the Company's Common Stock is
required for approval of the Reincorporation Proposal, including approval of the
principal terms of the Reorganization Agreement, and the other terms of the
proposed Merger. The Reincorporation Proposal was approved by the Company's
Board of Directors at its meeting held on April 15, 1997.
ACCORDINGLY, THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE REINCORPORATION
PROPOSAL.
The discussion contained herein is qualified in its entirety by, and should
be read in conjunction with, the Certificate of Incorporation and the Bylaws of
WellPoint Delaware and the Reorganization Agreement, copies of which are
attached hereto as Appendices A, B and C, respectively.
NO CHANGE IN THE BUSINESS OR PHYSICAL LOCATION OF THE COMPANY
The establishment of a Delaware holding company will cause the shareholders
of the Company to become stockholders of a company with a different legal
domicile and will effect certain other changes of a legal nature, the most
significant of which are described in this Proxy Statement. However, the
proposed establishment of a holding company will not result in any change in the
business, management, location of the principal executive offices, assets,
liabilities or net worth of the Company (other than due to the costs of the
transaction).
RIGHTS OF DISSENTING SHAREHOLDERS
Dissenters' rights are not available to shareholders of the Company with
respect to the proposed Merger.
REASONS FOR FORMATION OF DELAWARE HOLDING COMPANY
REDUCTION OF CAPITAL REQUIREMENTS
As a result of actions taken in connection with the Recapitalization, the
Company currently holds a license as a "health care service plan" under the
Knox-Keene Act and a primary license to use the Blue Cross name and mark in the
state of California pursuant to the License Agreement between the Company and
BCBSA. The Company is required to maintain minimum tangible net equity ("TNE")
by the DOC and is required to meet minimum capital requirements prescribed by
the BCBSA. In measuring its capital for the BCBSA, the Company is required by
the BCBSA to use the method prescribed by the DOC regulations. 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 of capital can result in termination of
the License Agreement. As of December 31, 1996, the Company's TNE (and thus its
capital for purposes of the BCBSA) was approximately $388 million and the
Minimum BCBSA Capital was approximately $364 million. The Company's required TNE
for DOC purposes was approximately $17 million as of such date. When computing
its TNE for DOC purposes, the Company must exclude goodwill amounts on the books
of certain of its wholly owned subsidiaries.
In order to address an anticipated shortfall in the Company's capital under
the BCBSA requirements (which increased as of December 31, 1996), in November
1996 the Company entered into a $200 million subordinated debt facility (the
"Subordinated Term Loan Agreement"). The DOC regulations permit the Company to
include in TNE the amount of any indebtedness which is subordinated to the
Company's obligation to maintain the DOC's required TNE. The Company's
borrowings under the Subordinated Term Loan Agreement have been subordinated in
a fashion that the Company believes is acceptable to the DOC to include such
borrowings in its TNE. In December 1996 and March 1997, the Company drew down
the entire $200 million available under the Subordinated Term Loan Agreement.
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Upon approval of the Reincorporation Proposal and the completion of the
Merger, it is expected that WellPoint Delaware will enter into a new primary
License Agreement with the BCBSA (the "WellPoint Delaware License Agreement," or
the existing license agreement will be assigned to WellPoint Delaware). The
Company will continue to be licensed under the Knox-Keene Act. Because the
Knox-Keene license and primary BCBSA license will then be held by separate legal
entities, WellPoint Delaware's Minimum BCBSA Capital will thereafter be computed
without exclusion of goodwill amounts on the books of the Company's current
wholly owned subsidiaries. If the Reincorporation Proposal (and other actions to
be taken concurrently therewith) had been completed as of December 31, 1996,
WellPoint Delaware's capital for BCBSA purposes on a pro forma basis would have
been approximately $897 million and its Minimum BCBSA Capital on a pro forma
basis would have been approximately $428 million as of such date.
The approval of the Reincorporation Proposal and the completion of the
Merger, by allowing WellPoint Delaware to become the primary licensee of the
BCBSA while the Company will remain licensed by the DOC, along with other
actions to be taken concurrently, will lessen the anomalous capital requirements
currently imposed upon the Company that resulted, in part, in the Company's need
to borrow under the Subordinated Term Loan Agreement.
DELAWARE CORPORATION LAW
The State of Delaware is generally recognized as the leader in adopting,
construing and implementing comprehensive corporation laws that are conducive to
the operational needs and independence of corporations domiciled in that state.
The corporation law of Delaware is widely regarded as the most extensive and
well-defined body of corporate law in the United States. Both the legislature
and the courts in Delaware have demonstrated an ability and a willingness to act
quickly and effectively to meet changing business needs. The Delaware judiciary
has acquired considerable expertise in dealing with complex corporate issues.
Moreover, the Delaware courts have repeatedly shown their willingness to
accelerate the resolution of such complex corporate legal issues within the
limited time available to meet the needs of parties engaged in corporate
litigation. It is anticipated that the Delaware General Corporation Law (the
"DGCL") will continue to be interpreted and construed in significant court
decisions, thus lending predictability to WellPoint Delaware's corporate legal
affairs.
Furthermore, certain of the proposed provisions of the WellPoint Delaware
Certificate of Incorporation including the limitation of directors liability for
certain breaches of fiduciary duty are permitted under Delaware law, but are not
permitted under California law. See "Certain Differences Between California and
Delaware Corporation Laws."
CONTINUATION OF PROVISIONS POTENTIALLY RESTRICTING CHANGES IN CONTROL
Certain of the provisions of the WellPoint Delaware Certificate of
Incorporation (which are essentially identical to provisions in the Company's
Articles of Incorporation) are intended to reduce WellPoint Delaware's
vulnerability to unsolicited or hostile attempts to obtain control of WellPoint
Delaware and to increase the likelihood that stockholders will receive a fair
price for their shares in transactions relating to such attempts. Certain of the
provisions have also been included at the insistence of the BCBSA in order to
prevent the takeover of a BCBSA licensee. The Board of Directors does not know
of any pending or contemplated attempt by any outsider to acquire control of the
Company, but is aware that other companies and their shareholders have been
subjected to various tactics that would be contrary to the best interests of the
Company and its shareholders. For example, outsiders frequently accumulate
substantial stock positions in public corporations in order to force a merger or
other business combination in which certain of the corporation's shareholders
receive less valuable consideration for their shares than other shareholders or
to force the corporation itself to repurchase the outsider's block at a premium.
Such a premium is often obtained through express or implied threats of
disruptive tactics. In some instances, the accumulation of stock is a prelude to
a proposal to restructure the corporation or to sell all or a portion of its
assets to repay debt incurred by the outsider to purchase the shares. In many
cases, such persons have sought representation on the corporation's board of
directors in order to increase the likelihood that their proposals will be
implemented. If the corporation resists these efforts to obtain representation
or declines to repurchase their stock at a premium,
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such persons may commence proxy contests to try to elect themselves or their
nominees to the board of directors to replace directors elected by other
shareholders or even to replace the entire board.
The suddenness of a tender or exchange offer or other hostile attempt to
acquire control of the Company may often deprive the shareholders of an adequate
opportunity to evaluate the merits of the proposed transaction. Shareholders may
be tempted or encouraged to act hastily without adequate evaluation of available
alternatives that may maximize the value of their investments. Forming a
considered judgment with respect to such a proposal requires, among other
things, an assessment of its fairness, an analysis of its tax implications for
shareholders and the corporation, and consideration of the impact of the
transaction on the corporation, its shareholders, employees and others. Takeover
bids that have not been approved by the Board of Directors may be timed to take
advantage of temporarily depressed stock prices or designed to foreclose or
minimize the possibility of more favorable competing bids. In addition, such
bids may involve the acquisition of only a controlling interest in the
corporation's stock without affording all shareholders the opportunity to sell
on the same terms. If the buyer does not acquire all outstanding shares through
the initial transaction, the remaining shareholders may find the value of their
investment reduced by the adoption of corporate policies and practices
significantly different from those upon which they based their investment
decision. There is no guarantee that in any subsequent transaction the remaining
shareholders will receive a fair price for their shares or a price that is equal
to the price paid to obtain control. It must be noted, of course, that
shareholders could still be subject to similar problems, uncertainties and time
pressures with respect to such a proposal approved by the Board of Directors,
but the Board believes such problems are more likely to be alleviated if such a
proposal is first reviewed and evaluated by the Board of Directors.
Certain of the provisions of WellPoint Delaware's Certificate of
Incorporation are likely to encourage any person who might seek to acquire
control of WellPoint Delaware first to consult with WellPoint Delaware's Board
of Directors and to negotiate the terms of any tender offer or proposed business
combination. The Board believes that, for the protection of WellPoint Delaware's
stockholders, any proposed acquisition of control of WellPoint Delaware, and any
proposed business combination in which WellPoint Delaware might be involved,
should be thoroughly studied by WellPoint Delaware's Board of Directors to
assure that such transaction would be in the best interests of WellPoint
Delaware and its stockholders and that all of WellPoint Delaware's stockholders
be treated fairly. However, in determining the advisability of such provisions,
shareholders should consider that these provisions may, in certain circumstances
described below, frustrate the ability of holders of a majority of the
outstanding shares of WellPoint Delaware Common Stock to effect certain
corporate transactions.
As noted above, the Reincorporation Proposal is not being proposed in
response to any present attempt known to the Board of Directors to acquire
control of the Company, to obtain representation on the Company's Board of
Directors or take significant corporate action. Rather, the Board of Directors
believes that the Reincorporation Proposal is in the best interests of the
Company and its shareholders and should be adopted for their protection. Certain
possible detriments of these provisions are discussed below under "Possible
Disadvantages" below.
The Board of Directors does not have any current plans to propose
amendments to WellPoint Delaware's charter documents that may have
"antitakeover" implications, other than as described in this Proxy Statement.
POSSIBLE DISADVANTAGES OF THE REINCORPORATION IN DELAWARE
The limitations on director liability resulting from approval of the
Reincorporation Proposal could have the effect of excusing one or more directors
from personal monetary liability for damages under circumstances where a
shareholder believes that such liability is warranted. The Board of Directors
believes, however, that this possibility is outweighed by the importance of
being able to attract and retain qualified directors who might otherwise be
unwilling to serve because of the risks of liability involved.
To the extent either Section 203 of the DGCL, which restricts certain
business combinations, or certain provisions of the Certificate of Incorporation
are effective in discouraging any takeover attempts, they will be to the
advantage of stockholders only to the extent any enhanced power of the Board of
Directors is used wisely and for the benefit of all stockholders. Also, approval
of the Reincorporation Proposal could discourage or frustrate future attempts
(for example, by means of tender offers for, or open market purchases of,
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WellPoint Delaware Common Stock) to acquire control of WellPoint Delaware that
are not approved by a majority of the Board of Directors, but which the holders
of a majority of outstanding shares may believe to be in their best interests.
See "Certain Differences Between California and Delaware Corporation Laws --
Shareholder Approval of Certain Business Combinations."
In addition, because tender offers are often made at a substantial premium
above market price, and as large purchases made in the open market often result
in temporary increases in the market price of such shares, stockholders might
not be afforded the opportunity to sell their shares at such premium prices if
the proposed Certificate of Incorporation should discourage such tender offers
or open market purchases. The Certificate of Incorporation could also delay or
frustrate the assumption of control by a holder of a large block of the
Company's shares or a change in the composition of the incumbent Board of
Directors, even if many stockholders considered such actions to be beneficial.
Furthermore, adoption of the Certificate of Incorporation will not necessarily
ensure or guarantee that stockholders will receive a price for their shares in
connection with the acquisition of WellPoint Delaware that reflects the value of
such shares, or that the price received will be fair or equitable, although in
the opinion of the Board of Directors the likelihood that the price will reflect
such value and be fair and equitable will be increased by adoption of the
Certification of Incorporation.
A classified Board of Directors makes it more difficult for stockholders
who do not approve of the policies of the Board to elect a majority of the
members. In addition, the three-year term for incumbent directors may make
directors less responsive to the desires of individual stockholders. Both of
these provisions are contained in the Company's current Articles of
Incorporation.
DESCRIPTION OF WELLPOINT DELAWARE
CERTIFICATE OF INCORPORATION AND BYLAWS
The following is a summary of the WellPoint Delaware Certificate of
Incorporation (the "WellPoint Delaware Certificate") and the Bylaws of WellPoint
Delaware (the "WellPoint Delaware Bylaws") and is qualified in its entirety by
reference to the complete text of the WellPoint Delaware Certificate, as set
forth in Appendix A hereto, and the WellPoint Delaware Bylaws, as set forth in
Appendix B hereto. Other than differences which arise due to the application of
the DGCL as opposed to the California Corporations Code (the "CCC"), the
provisions in the WellPoint Delaware Certificate and the WellPoint Delaware
Bylaws are substantially the same as those contained in the Company's current
Articles of Incorporation and Bylaws. See "Certain Differences Between
California and Delaware Corporation Laws." Many of these provisions were
specifically adopted as integral parts of the Recapitalization and resulted from
negotiations involving the Company, BCC, the DOC, the BCBSA and their respective
advisors.
Authorized Stock. The WellPoint Delaware Certificate provides that
WellPoint Delaware is authorized to issue 350,000,000 shares of stock,
consisting of 300,000,000 shares of WellPoint Delaware Common Stock, par value
$.01 per share, and 50,000,000 shares of preferred stock, par value $.01 per
share ("WellPoint Delaware Preferred Stock"). Shares of WellPoint Delaware
Preferred Stock may be issued in one or more series. See "Description of
WellPoint Delaware Securities."
Classified Board. The WellPoint Delaware Certificate and the WellPoint
Delaware Bylaws provide for the Board of Directors of WellPoint Delaware to be
divided into three classes, each class to serve (after an interim period) for
staggered three-year terms (the "Classified Board Provision"). Each class will
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that annual meeting will be elected for a three-year term.
Special Meetings of Stockholders. The WellPoint Delaware Certificate and
the WellPoint Delaware Bylaws prohibit the taking of stockholder action by
written consent without a meeting. The WellPoint Delaware Certificate provides
that a special meeting of the stockholders of WellPoint Delaware may be called
at any time only by the Chairman of the Board, the President, a majority of the
members of the Board of Directors or holders of shares entitled to cast not less
than 10% of the votes at the meeting.
Committees of the Board of Directors. The WellPoint Delaware Bylaws
provide that any executive committee established by the Board of Directors
shall, during the "Initial Period," have at least one member who is a BCC
Designee and a majority of members who are WellPoint Designees. "Initial Period"
is defined
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in the WellPoint Delaware Bylaws to be the period commencing on May 20, 1996 and
ending on the date on which the Foundation and its affiliates, when taken
together, cease to "Beneficially Own" Capital Stock in excess of the "Ownership
Limit" (as such terms are defined in the WellPoint Delaware Certificate). See
"-- Ownership Limit." The WellPoint Delaware Bylaws define "BCC Designee" as
each of W. Toliver Besson, Stephen L. Davenport and Sheila P. Burke, or a direct
or indirect replacement thereof. "WellPoint Designee" is defined as each of
Leonard D. Schaeffer, David R. Banks, Roger E. Birk, Julie A. Hill and Elizabeth
E. Sanders, or a direct or indirect replacement thereof.
The WellPoint Delaware Bylaws further provide that there will be a
Nominating Committee of the Board of Directors of WellPoint Delaware, which will
consist of three directors, at least one of whom will be a BCC Designee and a
majority of whom are non-BCC Designees. The Nominating Committee will continue
in existence at least until the end of the Initial Period. So long as it remains
in existence, the Nominating Committee has power, acting by majority vote, to
nominate persons to serve as directors of WellPoint Delaware, subject (i) to any
rights of stockholders under law to nominate persons to serve as directors, (ii)
in the case of a person nominated as a replacement for a BCC Designee, the BCC
Designee members of the Nominating Committee will have a veto vote, (iii) in the
case of a person nominated as a replacement for any WellPoint Designee on the
Board, the Nominating Committee will not nominate such a person if a majority of
the WellPoint Designee members of the Nominating Committee oppose such
nomination and (iv) to any contractual obligations of WellPoint Delaware. So
long as the Nominating Committee remains in existence, if the Nominating
Committee is unable to nominate a candidate for WellPoint Delaware's Board of
Directors as set forth above, nominations will be made by the Board of
Directors, in the case of replacing a BCC Designee, by vote of a majority of the
remaining BCC Designees or, in the case of replacing a WellPoint Designee, by
vote of a majority of the remaining WellPoint Designees.
Number of Directors; Removal; Filling Vacancies. The WellPoint Delaware
Certificate provides that the Board of Directors will consist of not less than
nine nor more than seventeen directors, the exact number to be determined in
accordance with the WellPoint Delaware Bylaws. The WellPoint Delaware Bylaws
provide that, until the expiration of the Initial Period, the Board of Directors
of WellPoint Delaware will consist of nine members.
The WellPoint Delaware Certificate provides that directors of WellPoint
Delaware may be removed, with or without cause, by the affirmative vote of the
holders of a majority of the voting power of the shares of WellPoint Delaware's
capital stock entitled to vote at an election of directors. However, a director
may not be removed without cause if the votes cast against removal of the
director would be sufficient to elect the director if voted cumulatively
(without regard to whether shares may otherwise be voted cumulatively) at an
election at which the same total number of votes were cast and either the number
of directors elected at the most recent annual meeting of the stockholders, or
if greater, the number of directors for whom removal is being sought, were then
being elected.
The WellPoint Delaware Bylaws provide that, in the case of any vacancy on
the Board of Directors or in the case of any newly created directorship, a
director elected to fill such vacancy or newly created directorship will be
elected by a vote of not less than a majority of the directors of WellPoint
Delaware then in office from a list of one or more persons proposed by the
Nominating Committee. During the Initial Period, in the case of replacing or
filling a vacancy of a BCC Designee, the vote of not less than a majority of the
remaining BCC Designees is required and, in the case of replacing or filling a
vacancy of a WellPoint Designee, the vote of not less than a majority of the
remaining WellPoint Designees is required. Stockholders may elect a director at
any time to fill any vacancy not filled by the directors. These provisions could
prevent a stockholder from obtaining majority representation on the Board of
Directors by enlarging the Board and filling the new directorships with its own
nominees.
Officers. The WellPoint Delaware Bylaws provide that the officers of
WellPoint Delaware will be a Chairman of the Board, a President (who shall be
the chief operating officer of WellPoint Delaware and, unless such title is
assigned to the Chairman of the Board, shall also be the chief executive officer
of WellPoint Delaware), a Secretary, a Chief Financial Officer and any other
officers appointed by the Board of Directors.
Amendment of Certain Provisions of the WellPoint Delaware
Certificate. Pursuant to the DGCL, amendment of a company's certificate of
incorporation may be adopted if approved by the board of directors
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and the majority of the outstanding shares entitled to vote. The WellPoint
Delaware Certificate requires the greater of two-thirds or seven of the
directors then in office for the Board of Directors to approve any amendment of
the WellPoint Delaware Certificate. The WellPoint Delaware Certificate further
requires the affirmative vote of the holders of at least 75% of each class of
the shares of voting stock represented and voting at a duly held meeting of
stockholders at which a quorum is present, voting by class, to amend certain
provisions of the WellPoint Delaware Certificate, including the provisions
concerning (i) the number of directors, (ii) the Classified Board Provision,
(iii) the filling of vacancies on the Board of Directors, (iv) the power of
directors to amend the WellPoint Delaware Certificate, (v) the prohibition on
stockholder action by written consent, (vi) the Ownership and Transfer
Restrictions (as defined in "-- Restrictions on Ownership and Transfer" below),
(vii) the prohibition on cumulative voting by stockholders and (viii) the
requirement for supermajority stockholder approval to amend such provisions.
However, no amendment of the WellPoint Delaware Certificate will be effective
unless approved by the affirmative vote of a majority of the outstanding shares
of voting stock entitled to vote. In addition, the requirement for supermajority
stockholder approval will not apply to any amendment to the Ownership and
Transfer Restrictions to conform such provision to a change to the terms of the
WellPoint Delaware License Agreement or to any amendment to the Ownership and
Transfer Restrictions required or permitted by the BCBSA. Furthermore, the
provisions of the WellPoint Delaware Certificate described in the last two
sentences of this paragraph will become ineffective and of no further force and
effect in the event that the WellPoint Delaware License Agreement is terminated
and WellPoint Delaware and the BCBSA do not enter into a replacement license
agreement.
Amendment of Certain Provisions of the WellPoint Delaware Bylaws. Pursuant
to the DGCL, bylaws may generally be adopted, amended or repealed either by
approval of the majority of the outstanding shares entitled to vote or, if
provided in a company's certificate of incorporation, by approval of the board
of directors. The WellPoint Delaware Certificate further requires approval of
the greater of at least two-thirds or seven of the directors then in office for
the Board of Directors to approve and authorize (a) the amendment of certain
bylaws, including the bylaws concerning (i) the number, qualification and
election of directors, (ii) the filling of vacancies on the Board of Directors,
and (iii) the committees of the Board of Directors, including the Nominating
Committee, and; (b) the amendment of a bylaw concerning the adoption by the
Board of rules and regulations not inconsistent with the WellPoint Delaware
Certificate.
Loans to Officers. The WellPoint Delaware Bylaws provide that the Board
alone may approve the making of any loan of money or property to, or the
guarantee by WellPoint Delaware of an obligation of, any officer (whether or not
a director) of WellPoint Delaware, or an employee benefit plan authorizing such
a loan or guaranty to an officer, by a vote sufficient, without counting the
vote of any interested director or director, if the board determines that such a
loan or guaranty or plan may reasonably be expected to benefit WellPoint
Delaware.
Liability of Directors; Indemnification of Directors and Officers. The
WellPoint Delaware Certificate provides that the liability of the directors of
WellPoint Delaware for monetary damages will be eliminated to the fullest extent
permissible under Delaware law except for (i) breaches of the duty of loyalty;
(ii) acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law; (iii) the payment of unlawful dividends or unlawful
stock repurchases or redemptions; or (iv) transactions in which a director
received an improper personal benefit.
The effect of these provisions is to eliminate the rights of WellPoint
Delaware and its stockholders (through stockholders' derivative suits on behalf
of WellPoint Delaware) to recover monetary damages against a director for a
breach of fiduciary duty of care as a director (including breaches resulting
from negligent or grossly negligent behavior) except in certain limited
situations. These provisions do not limit or eliminate the rights of WellPoint
Delaware or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. These
provisions will not alter the liability of directors under federal securities
laws.
The WellPoint Delaware Bylaws provide that WellPoint Delaware will
indemnify each present and former director and officer of WellPoint Delaware and
the Company and each of their respective subsidiaries, as such companies existed
prior to the Effective Time, and such agents of WellPoint Delaware as the Board
of Directors shall determine, to the fullest extent permitted by Delaware law.
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Restrictions on Ownership and Transfer. The WellPoint Delaware Certificate
provides that no person may "Beneficially Own" (as defined below) shares of
voting stock in excess of the Ownership Limit.
Subject to certain exceptions, the Ownership Limit is the number of shares
of voting stock one share lower than the number of shares of voting stock which
would represent 5% of the Voting Power (as defined below). In the event
WellPoint Delaware and BCBSA agree in writing, through an amendment to the
WellPoint Delaware License Agreement or otherwise, that an Ownership Limit of a
higher percentage than that prescribed above will apply, then the Ownership
Limit will be as specified in such written agreement. In the event any
particular person Beneficially Owns shares of voting stock in excess of the
Ownership Limit which would apply were it not for this provision (the "Regular
Limit"), such ownership will not be deemed to exceed the Ownership Limit
provided that (i) such person does not at any time Beneficially Own shares of
voting stock in excess of the Regular Limit plus 1% and (ii) within thirty (30)
days of the time when the particular person becomes aware of the fact that the
Regular Limit has been exceeded, the particular person reduces such person's
Beneficial Ownership below the Regular Limit.
The WellPoint Delaware Certificate defines "Voting Power." The percentage
of the voting power attributable to the shares of voting stock Beneficially
Owned by any particular person is equal to the percentage of all votes which
could be cast in any election of any director which could be accounted for by
the shares of voting stock Beneficially Owned by that particular person. If, in
connection with an election for any particular position on the Board, shares in
different classes or series are entitled to be voted together for purposes of
such election, then in determining the number of "all votes which could be cast"
in the election for that particular position for purposes of the preceding
sentence, the number shall be equal to the number of votes which could be cast
in the election for that particular position if all shares entitled to be voted
in such election (regardless of series or class) were in fact voted in such
election. If WellPoint Delaware issues any series or class of shares for which
positions on the Board are reserved or otherwise issues shares which have voting
rights which can arise or vary based upon terms governing that class or series,
then the percentage of the voting power represented by the shares of voting
stock Beneficially Owned by any particular person will be the highest percentage
of the total votes which could be accounted for by those shares in any election
of any director.
Such provisions are sometimes referred to in this Proxy Statement as the
"Ownership and Transfer Restrictions." Any Transfer (as defined below) that, if
effective, would result in any person Beneficially Owning shares of voting stock
in excess of the Ownership Limit will be void as to the purported Transfer of
that number of shares that would otherwise be Beneficially Owned in excess of
the Ownership Limit, the intended transferee will acquire no rights in such
shares except as provided below and such number of shares will be deemed
transferred to an escrow agent (the "Share Escrow Agent") as set forth below.
The WellPoint Delaware Certificate provides that a person will be deemed
the "Beneficial Owner" of and will be deemed to "Beneficially Own" (subject to
certain exclusions) any voting stock of WellPoint Delaware: (1) in which such
person then has a direct or indirect beneficial ownership interest; (2) in which
such person has the right to acquire any direct or indirect beneficial ownership
interest pursuant to any option or other agreement (either immediately or only
after the passage of time or the occurrence of any contingency); (3) which such
person shall have the right to vote; (4) in which such person holds any other
interest which would count in determining whether such person would be required
to file a Schedule 13D; or (5) which is Beneficially Owned (under the concepts
provided in the preceding clauses) by any affiliate or associate of the
particular person or by any other person with whom the particular person or any
such affiliate or associate has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities and other than
pursuant to the Registration Rights Agreement between the Company and the
Foundation relating to the acquisition, holding, voting or disposing of any
securities of WellPoint Delaware).
If there is a purported Transfer or other change in the capital structure
of WellPoint Delaware such that any person would Beneficially Own shares of
voting stock in excess of the Ownership Limit (a "Purported Owner"), then, upon
such Transfer or change in capital structure, such shares in excess of the
Ownership Limit will be "Excess Shares" for purposes of the WellPoint Delaware
Certificate. However, in the event that any person becomes a Purported Owner as
a result of Beneficial Ownership of shares of voting stock of one
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person being aggregated with another person, then the number of Excess Shares
subject to the Ownership and Transfer Restrictions will be allocated pro rata
among each Purported Owner in proportion to each person's total Beneficial
Ownership. Upon the occurrence of any event that would cause any person to
exceed the Ownership Limit (including, without limitation, the expiration of a
voting trust, without being renewed on substantially similar terms, that
entitled such person to an exemption from the Ownership Limit), all shares of
voting stock Beneficially Owned by such person in excess of the Ownership Limit
will also be Excess Shares, such person will be deemed the Purported Owner of
such Excess Shares and such person's rights in such Excess Shares will be as
prescribed below. If WellPoint Delaware at any time determines that a Transfer
has taken place in violation of the Ownership and Transfer Restrictions or that
a Purported Owner intends to acquire or has attempted to acquire Beneficial
Ownership of any share of voting stock in violation of the Ownership and
Transfer Restrictions, WellPoint Delaware will take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer, including,
without limitation, refusing to give effect to such Transfer on the books of
WellPoint Delaware or instituting proceedings to enjoin or rescind such
Transfer. Pursuant to the WellPoint Delaware Certificate, each certificate for
voting stock will at or after the Effective Time bear a legend with respect to
the Ownership and Transfer Restrictions. "Transfer" is defined in the WellPoint
Delaware Certificate as any sale, transfer, gift, hypothecation, pledge,
assignment, devise or other disposition of voting stock (including (i) the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of such stock or (ii) the sale, transfer, assignment or other
disposition of any securities or rights convertible into or exchangeable for
such stock), whether voluntary or involuntary, whether of record, constructively
or beneficially and whether by operation of law or otherwise.
The WellPoint Delaware Certificate provides that, upon the occurrence of a
Transfer or an event that results in Excess Shares pursuant thereto, such Excess
Shares will automatically be transferred immediately to the Share Escrow Agent,
which Excess Shares, subject to the provisions of the WellPoint Delaware
Certificate, will be held by the Share Escrow Agent until such time as the
Excess Shares are transferred to a person whose acquisition thereof will not
violate the Ownership Limit (a "Permitted Transferee"). WellPoint Delaware will
take all actions as it deems necessary to give effect to such transfer to the
Share Escrow Agent. The Purported Owner will have no rights in such Excess
Shares except as provided below.
The Share Escrow Agent, as record holder of Excess Shares, will be entitled
to receive all dividends and distributions as may be declared by the Board of
Directors on the class of such stock that is deemed Excess Shares (the "Excess
Share Dividends") and will hold the Excess Share Dividends until disbursed in
accordance with the provisions described below. The Purported Owner, with
respect to Excess Shares purported to be Beneficially Owned by such Purported
Owner prior to such time that WellPoint Delaware determines that such shares are
Excess Shares, will repay to the Share Escrow Agent the amount of any Excess
Share Dividends received by it that (i) are attributable to any Excess Shares
and (ii) the record date of which is on or after the date that such shares
become Excess Shares. WellPoint Delaware will take all measures that it
determines reasonably necessary to recover the amount of any Excess Share
Dividends paid to a Purported Owner, including, if necessary, withholding any
portion of future dividends or distributions payable on shares of stock
Beneficially Owned by any person who, but for the Ownership and Transfer
Restrictions, would Beneficially Own the Excess Shares, and, as soon as
practicable following WellPoint Delaware's receipt or withholding thereof, will
pay over to the Share Escrow Agent for the benefit of the Purported Owner the
dividends so received or withheld, as the case may be.
The WellPoint Delaware Certificate also provides that, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, WellPoint Delaware, each Share Escrow Agent will
be entitled to receive, ratably with each other holder of voting stock of the
same class or series, that portion of the assets of WellPoint Delaware that is
available for distribution to the holders of such class or series of stock. The
Share Escrow Agent will distribute to the Purported Owner the amounts received
upon such liquidation, dissolution or winding up or distribution in accordance
with the provisions described below.
The Share Escrow Agent will be entitled to vote all Excess Shares and will
be instructed by WellPoint Delaware to vote, consent or assent the Excess Shares
as follows: (i) if the matter concerned is the election of directors, the Share
Escrow Agent will vote, consent or assent the whole number of Excess Shares held
by the
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Share Escrow Agent for each director by multiplying the number of votes held by
the Share Escrow Agent by a fraction, the numerator of which is the number of
votes cast by stockholders other than the Share Escrow Agent for the director
and the denominator of which is the number of votes cast by stockholders other
than the Share Escrow Agent that could have been cast in the election of the
director and are present in person or by proxy at the meeting; (ii) where the
matter under the DGCL or the WellPoint Delaware Certificate or the WellPoint
Delaware Bylaws requires at least an absolute majority of all outstanding shares
of WellPoint Delaware Common Stock in order to be effected, then the Share
Escrow Agent will vote, assent or consent all of such Excess Shares in favor of
or in opposition to such matter as the majority of all votes cast by
stockholders other than the Share Escrow Agent are cast; and (iii) on all other
matters, the Share Escrow Agent will at all times vote, assent or consent all of
such shares in the identical proportion in favor of or in opposition to such
matter as the votes cast by stockholders other than the Share Escrow Agent are
cast.
Pursuant to the WellPoint Delaware Certificate, in an orderly fashion so as
not to materially adversely affect the price of WellPoint Delaware Common Stock
on the New York Stock Exchange (the "NYSE") or, if WellPoint Delaware Common
Stock is not listed on the NYSE, on the exchange or other principal market on
which WellPoint Delaware Common Stock is traded, the Share Escrow Agent will
sell or cause the sale of the Excess Shares at such time or times as the Share
Escrow Agent deems appropriate. The Share Escrow Agent will have the power to
convey to the purchaser of any Excess Shares sold by the Share Escrow Agent
ownership of the Excess Shares free of any interest of the Purported Owner of
such Excess Shares and free of any other adverse interest arising through the
Purported Owner. Once the Excess Shares are acquired by one or more Permitted
Transferees, whether from a Purported Owner or the Share Escrow Agent, such
shares will cease to be Excess Shares and the Permitted Transferees will have
and will be entitled to exercise all rights incident to ownership of such Excess
Shares. Pursuant to the WellPoint Delaware Certificate, neither WellPoint
Delaware, the Share Escrow Agent nor any other person will have any liability to
a Purported Owner or any other person by reason of any action or inaction of
WellPoint Delaware or the Share Escrow Agent taken in a good faith belief that
such was within the scope of authority under the WellPoint Delaware Certificate,
by reason of any decision with respect to the sale of Excess Shares or by any
other action in connection with the Ownership and Transfer Restrictions which
does not constitute gross negligence or willful misconduct, including without
limitation failure to take actions which would have produced higher proceeds on
disposition of Excess Shares. The Share Escrow Agent will not be deemed to be a
fiduciary or agent of any Purported Owner.
The proceeds from the sale of the Excess Shares to a Permitted Transferee
and any Excess Share Dividends will be distributed as follows: (i) first, to the
Share Escrow Agent for any costs and expenses incurred in respect of its
administration of the Excess Shares that have not theretofore been reimbursed by
WellPoint Delaware; (ii) second, to WellPoint Delaware for all costs and
expenses incurred by WellPoint Delaware in connection with the appointment of
the Share Escrow Agent, the payment of fees to the Share Escrow Agent with
respect to the services provided by the Share Escrow Agent in respect of the
escrow and all funds expended by WellPoint Delaware to reimburse the Share
Escrow Agent for costs and expenses incurred by the Share Escrow Agent in
respect of its administration of the Excess Shares and for all fees,
disbursements and expenses incurred by the Share Escrow Agent in connection with
the sale of the Excess Shares; and (iii) third, the remainder thereof to the
Purported Owner or the person who was the holder of record before the shares
were transferred to the Share Escrow Agent (depending on who shall at such time
be entitled to any economic interest in such Excess Shares), except, if the
Share Escrow Agent has any question regarding the existence of a security
interest or interest adverse to the Purported Owner with respect to Excess
Shares, the Share Escrow Agent will not be obligated to disburse proceeds for
such Excess Shares until the Share Escrow Agent is provided with such evidence
as the Share Escrow Agent deems necessary to determine who is entitled to such
proceeds.
The Ownership and Transfer Restrictions will not be applicable with respect
to any outstanding shares of Capital Stock of WellPoint Delaware owned by the
Foundation which were (i) issued by WellPoint Delaware in exchange for "Original
Shares" (such shares of Capital Stock of WellPoint Delaware being referred to as
"Exchange Shares"), or (ii) acquired by the Foundation with respect to Exchange
Shares as a result of a stock dividend, stock split, conversion,
recapitalization, exchange of shares or the like, so long as such Capital Stock
of WellPoint Delaware shall be Beneficially Owned by the Foundation or an
affiliate of the Foundation
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or by a trustee for the account of the Foundation or affiliate of the
Foundation. "Original Shares" means shares of capital stock of the Company owned
by the Foundation which were outstanding on May 20, 1996, and shares of the
Company acquired by the Foundation with respect to such shares after such time
as a result of a stock dividend, stock split, conversion, recapitalization,
exchange of shares or the like. All (1) Exchange Shares and such other shares of
Capital Stock of WellPoint Delaware received by the Foundation or affiliate of
the Foundation or by a trustee for the account of the Foundation or affiliate of
the Foundation as a result of a stock dividend, stock split, conversion,
recapitalization, exchange of shares or the like relating to such Exchange
Shares will be aggregated with (2) any other shares of Capital Stock of
WellPoint Delaware for which the Foundation or affiliate or trustee of the
Foundation becomes a Beneficial Owner, including shares of Capital Stock of
WellPoint Delaware issued in exchange for shares of the Company which were not
Original Shares (all such shares referred to in the immediately preceding clause
(2) being defined as "After Acquired Shares"), in determining if such After
Acquired Shares are Excess Shares. Upon the transfer of any Beneficial Ownership
interest in any Exchange Shares and such other shares of Capital Stock of
WellPoint Delaware received by the Foundation or affiliate of the Foundation or
by a trustee for the account of the Foundation or affiliate of the Foundation as
a result of a stock dividend, stock split, conversion, recapitalization,
exchange of shares or the like relating to such Exchange Shares, from the
Foundation or affiliate or trustee thereof to any unaffiliated transferee, that
Capital Stock of WellPoint Delaware will become fully subject to this Article
VII from and at all times after such transfer.
Any Exchange Shares and such other shares of Capital Stock of WellPoint
Delaware received by the Foundation or affiliate of the Foundation or by a
trustee for the account of the Foundation or affiliate of the Foundation as a
result of a stock dividend, stock split, conversion, recapitalization, exchange
of shares or the like relating to such Exchange Shares will automatically become
subject to the Ownership and Transfer Restrictions upon transfer to any
affiliate or trustee of the Foundation, unless such affiliate or trustee is
subject to a binding obligation to vote such shares in the manner prescribed by
the terms of the Voting Agreement or Voting Trust Agreement (as such agreements
or replacements thereof may be in effect from time to time), whichever is
applicable, entered into by the Foundation with respect to Original Shares
subject to such agreement. For purposes of this provision, neither The
California Endowment nor any of its successors in interest or affiliates will be
deemed to be an affiliate of the Foundation.
The Ownership and Transfer Restrictions will become ineffective and of no
further force and effect in the event that the WellPoint Delaware License
Agreement is terminated.
Pursuant to the WellPoint Delaware Certificate, WellPoint Delaware has the
power to interpret the Ownership and Transfer Restrictions and, in the absence
of manifest error, any interpretation by the Board of Directors of WellPoint
Delaware will be binding. In making any such interpretation, the Board of
Directors of WellPoint Delaware is required to consider its obligations to the
BCBSA, wherever relevant.
DESCRIPTION OF WELLPOINT DELAWARE SECURITIES
COMMON STOCK
The WellPoint Delaware Certificate will authorize 300,000,000 shares of
WellPoint Delaware Common Stock. At the Effective Time, by virtue of the
consummation of the Merger, based on the capitalization of the Company as of
April 15, 1997, there will be approximately 69,609,709 shares of WellPoint
Delaware Common Stock outstanding.
Every holder of WellPoint Delaware Common Stock is entitled to one vote per
share on all matters to be voted on by the stockholders of WellPoint Delaware.
Subject to the prior rights of holders of WellPoint Delaware Preferred Stock,
holders of WellPoint Delaware Common Stock are entitled to receive dividends and
other distributions in cash, stock or property of WellPoint Delaware as may be
declared thereon from time to time by the Board of Directors of WellPoint
Delaware out of assets or funds of WellPoint Delaware legally available
therefor, and to share ratably in the assets of WellPoint Delaware legally
available for distribution to the stockholders in the event of liquidation or
dissolution. WellPoint Delaware Common Stock has no preemptive rights and no
subscription or redemption privileges. WellPoint Delaware Common Stock does not
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have cumulative voting rights. All the outstanding shares of WellPoint Delaware
Common Stock are fully paid and not liable for further call or assessment.
PREFERRED STOCK
No shares of WellPoint Delaware Preferred Stock will be issued or
outstanding immediately following the Effective Time. The Board of Directors of
WellPoint Delaware is authorized to issue from time to time in one or more
series, and to fix the rights, preferences, privileges and restrictions of any
series of WellPoint Delaware Preferred Stock and the number or shares
constituting such series and the designation thereof. WellPoint Delaware has no
present plan to issue any shares of WellPoint Delaware Preferred Stock.
Depending upon the rights of WellPoint Delaware Preferred Stock, the
issuance of WellPoint Delaware Preferred Stock could have an adverse effect on
holders of WellPoint Delaware Common Stock by delaying or preventing a change in
control of WellPoint Delaware, making removal of the present management of
WellPoint Delaware more difficult or resulting in restrictions upon the payment
of dividends and other distributions to the holders of WellPoint Delaware Common
Stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The WellPoint Delaware Certificate contains restrictions on the ownership
and transfer of voting stock of WellPoint Delaware. See "Description of
WellPoint Delaware Certificate of Incorporation and Bylaws -- Restrictions on
Ownership and Transfer."
CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND DELAWARE CORPORATION LAWS
The Company is incorporated in the State of California and the rights of
its shareholders are governed by the CCC. At the Effective Time, WellPoint
Delaware will be incorporated in the State of Delaware, shareholders of the
Company will become stockholders of WellPoint Delaware and the rights of
WellPoint Delaware stockholders will be governed by the DGCL. While stockholder
rights under DGCL differ in many respects from shareholder rights under the CCC,
WellPoint Delaware's Certificate and Bylaws will include various features,
essentially identical to provisions in the Company's current charter documents,
which may have the effect of rendering more difficult certain unsolicited
attempts to take over WellPoint Delaware. These features are intended to ensure
that stockholders of WellPoint Delaware receive a fair price for their shares by
encouraging any person who might seek to acquire control of WellPoint Delaware
first to consult with WellPoint Delaware's Board of Directors and to negotiate
the terms of any tender offer or proposed business combination, but may also
discourage hostile takeover attempts or tender offers for control of WellPoint
Delaware that might be approved by many or even a majority of WellPoint Delaware
stockholders. Certain of these provisions have been included at the insistence
of the BCBSA in order to preserve diversity of ownership of BCBSA licensees. The
retention of these charter provisions will have the effect of reducing the
differences between the rights of shareholders under the CCC from those of
stockholders under the DGCL. Certain of the significant differences that could
materially affect the rights of WellPoint shareholders are discussed below.
SIZE OF THE BOARD OF DIRECTORS
Under California law, although changes in the number of directors or
changing from a fixed to a variable board or vice versa may only be adopted by
the approval of a majority of the outstanding voting shares, the Board of
Directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if the stated range has been
approved by the shareholders. In setting the range the maximum number of
directors must equal one less than the minimum number times two. The Company's
Articles of Incorporation provide that the Board of Directors of the Company
will consist of not less than nine nor more than seventeen members, the exact
number of which will be as specified in the Company's Bylaws. The Company's
Bylaws provide that, until the expiration of the Initial Period, the Board of
Directors of the Company will consist of nine members. Such bylaw may under the
Company's Articles of Incorporation be amended by approval of the greater of
two-thirds of the directors of the Company then in office or seven directors. As
a result, the Board of Directors of the Company could amend the Bylaws to change
the size of the Board of Directors.
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Delaware law permits the board of directors of a Delaware corporation to
change the authorized number of directors by amendment to the corporation's
bylaws or in the manner provided in the bylaws unless the number of directors is
fixed in the corporation's certificate of incorporation, in which case a change
in the number of directors may be made only by amendment to the certificate of
incorporation. The WellPoint Delaware Certificate and Bylaws contain essentially
identical provisions with respect to the size of the Board of Directors as are
in the Company's Articles of Incorporation and Bylaws.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may then cast all such votes for a single
nominee or may allocate among as many nominees as the shareholder may choose.
Without cumulative voting, the holder of a majority of shares present at an
annual meeting or any special meeting held to elect directors would have the
power to elect all of the directors to be elect at the meeting, and no nominee
could be elected without the support of a majority of the shares voting at such
meeting.
Under California law, cumulative voting is an absolute right for the shares
of all corporations unless such corporation (i)(a) has outstanding shares listed
on the New York Stock Exchange or the American Stock Exchange or (b) outstanding
securities qualified for trading on The Nasdaq Stock Market's National Market if
the corporation has at least 800 holders of its equity securities, and (ii) such
corporation's articles of incorporation or bylaws specifically eliminate
cumulative voting. The Company's Articles of Incorporation eliminates cumulative
voting in accordance with California law.
Under Delaware law, cumulative voting in the election of directors is not
mandatory. While Delaware corporations may include in their certificate of
incorporation a provision allowing for such cumulative voting rights, the
WellPoint Delaware Certificate does not provide for cumulative voting.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one for which a certain number, but not all, of the
directors are elected on a voting basis each year. California law permits
certain qualifying corporations to provide for a Board of Directors divided into
as many as three classes. Under the CCC, if a classified board is divided into
two classes, the authorized number of directors must be at least six; if a
classified board is divided into three classes, the authorized number of
directors must be at least nine. The size of the classes must be as even as
possible, and any change in number of classes must be approved by the
shareholders. The Company's Articles of Incorporation and the Bylaws provide
that the Company's Board of Directors will be divided into three classes. A
classified board makes changes in the composition of the board of directors more
difficult, and thus a potential change in control of a corporation a lengthier
and more difficult process.
Delaware law permits, but does not require, a classified board of
directors, divided into as many as three classes with no requirements that the
classes be as even in size as possible. The WellPoint Delaware Certificate
provides for the respective company's board of directors to be divided into
three classes with any change in the number of directors to be apportioned among
the classes so the number of directors in each class is as nearly equal as
possible.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
Under California law, a special meeting of shareholders may be called by
the board of directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than 10% of the votes at such meeting or such
additional persons as are authorized by the articles of incorporation or the
bylaws. The Company's Articles of Incorporation and Bylaws provide that a
special meeting of shareholders may be called by both those persons so
designated in the CCC.
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The WellPoint Delaware Bylaws provide that
special meetings may be called by the President or Board of Directors and will
be called upon the written request of one or more stockholders who hold in the
aggregate at least 10% of the shares of capital stock entitled to vote.
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SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (including Delaware but not
including California) have adopted special laws designed to make certain kinds
of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
three years following the date that such person becomes an interested
stockholder unless certain requirements (as described below) are met. With
certain exceptions, an interested stockholder is a person or entity who or which
owns 15% or more of the corporation's outstanding voting stock (including, with
certain exceptions, any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions to the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to 10% or more of the
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); any transaction involving the
corporation or a subsidiary which has the effect of increasing the interested
stockholder's ownership of the stock (including securities convertible into such
stock) of the corporation or subsidiary; or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the time at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the time such person becomes an interested
stockholder, the board approves the business combination and it is also approved
at a stockholder meeting by 66 2/3% of the outstanding voting stock not owned by
the interested stockholder. Section 203 does not apply if the business
combination is proposed prior to the consummation or abandonment of and
subsequent to the earlier of the public announcement or a 20-day notice required
under Section 203 of the proposed transaction which (i) constitutes certain (x)
mergers or consolidations, (y) sales or other transfers of assets having an
aggregate market value equal to 50% or more of the aggregate market value of all
of the assets of the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation or (z)
proposed tender or exchange offers for 50% or more of the corporation's
outstanding voting stock; (ii) is with or by a person who was either not an
interested stockholder during the last three years or who became an interested
stockholder with the approval of the corporation's Board of Directors or during
such time as Section 203 did not apply to the corporation because the
corporation had elected (as described below) to not have Section 203 apply to
it; and (iii) is approved or not opposed by a majority of the board members
elected prior to any person becoming an interested stockholder during the
previous three years (or their chosen successors).
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by a majority of the shares
entitled to vote and may not be further amended by the board of directors. Such
an
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amendment is not effective until 12 months following its adoption. WellPoint has
not elected in its charter documents not to be governed by Section 203, and
therefore, Section 203 will apply to WellPoint Delaware.
While containing no comparable restrictions on business combinations, the
CCC sets forth certain requirements for a tender offer, proposed reorganization
or proposal for the sale of assets by an "interested party" (defined as a party
to the transaction who (i) controls or is an officer or director of the
corporation or (ii) is a person or entity in which an officer or director of the
corporation controls or has a material financial interest). Specifically, the
CCC requires the delivery (to the shareholders or the board of directors, as the
case may be) of a written, affirmative fairness opinion regarding the
consideration offered by the "interested party" and affords shareholders certain
rights to reject "interested party" proposals when certain later proposals are
offered. Upon completion of the Reincorporation, the stockholders of WellPoint
Delaware will no longer be entitled to such protections under the CCC.
FAIR PRICE PROVISION
California law provides that, except in certain circumstances, when a
tender offer or a proposal for a reorganization or for a sale of assets is made
by an interested party (generally a party to the transaction that controls or is
controlled by the target corporation or its officers or directors or is an
entity in which an executive officer or director of the target corporation has a
material financial interest), an affirmative opinion in writing as to the
fairness of the consideration to be paid to the shareholders must be delivered
to the shareholders or, if no shareholder vote is required, to the board of
directors. Furthermore, if a tender of shares or a vote or a written consent is
sought pursuant to an interested party's proposal and a later tender offer or
written proposal for a reorganization or sale of assets that would require a
vote of shareholders is made by another party at least 10 days prior to the date
for acceptance of the tendered shares or the vote or notice of shareholder
approval of the interested party's proposal, the shareholders must be informed
of the later proposal and be afforded a reasonable opportunity to withdraw any
votes, consent or proxy, or to withdraw any tendered shares given in connection
with the earlier proposal.
Other than Section 203, neither the DGCL nor the WellPoint Delaware
Certificate contains a provision similar to the one described above. Therefore,
former shareholders of the Company who become stockholders of WellPoint will no
longer be entitled to such an affirmative opinion or an opportunity to consider
such other proposal.
REMOVAL OF DIRECTORS
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
The Company's Articles of Incorporation and Bylaws provide that any director or
the entire Board of Directors may be removed with or without cause in accordance
with California law.
Under Delaware law, a director of a corporation with a classified Board of
Directors may be removed only for cause, unless the certificate of incorporation
otherwise provides. The WellPoint Delaware Certificate provides for removal of
directors, with or without cause, by the affirmative vote of the holders of a
majority of the voting power of the shares of WellPoint Delaware's capital stock
then entitled to vote at an election of directors. WellPoint Delaware will have
a classified board of directors. However, a director may not be removed without
cause if the votes cast against removal of the director would be sufficient to
elect the director if voted cumulatively (without regard to whether shares may
otherwise be voted cumulatively) at an election at which the same total number
of votes were cast and either the number of directors elected at the most recent
annual meeting of the stockholders, or if greater, the number of directors for
whom removal is being sought, were then being elected. The WellPoint Delaware
Certificate preserves the process of director removal as it exists under current
California law.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law, unless otherwise provided in the articles or bylaws,
any vacancy on the board of directors other than one created by removal of a
director may be filled by the board. If the number of directors
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then in office is less than a quorum, a vacancy may be filled by the unanimous
written consent of the directors then in office, by the affirmative vote of a
majority of the directors then in office at a properly noticed meeting or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by a corporation's shareholders. The
Company's Articles of Incorporation provide that, in the case of any vacancy on
the Board of Directors or in the case of any newly created directorship, a
director elected to fill such vacancy or newly created directorship will be
elected by a vote of not less than a majority of the directors of the Company in
office from a list of one or more persons proposed by the Nominating Committee.
During the Initial Period, in the case of replacing or filling a vacancy of a
BCC Designee, the vote of not less than a majority of the remaining BCC
Designees is required and in the case of replacing or filling a vacancy of a
WellPoint Designee, the vote of not less than a majority of the remaining
WellPoint Designees is required. The Company Bylaws provide that shareholders
may elect a director at any time to fill any vacancy not filled by the
directors. These provisions could prevent a shareholder from obtaining majority
representation on the Board of Directors by enlarging the Board and filling the
new directorships with its own nominees. The CCC further provides that if, after
the filling of any vacancy by the directors, the directors then in office who
have been elected by the shareholders are less than a majority of the directors
then in office, then any holder or holders of 5% percent or more of the
outstanding voting shares may call a special meeting of shareholders or cause a
court to order such a meeting, to elect the entire board.
Under Delaware law, vacancies may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in the
certificate of incorporation or bylaws. The WellPoint Delaware Bylaws contain an
essentially identical provision with respect to the filling of vacancies on the
Board of Directors as is in the Company's Bylaws. The DGCL provides that if, at
the time of filling any vacancy the directors then in office constitute less
than a majority of the board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any holder or
holders of at least ten percent of the total number of the shares at the time
outstanding having the right to vote for directors, summarily order a special
election be held to fill any such vacancy or to replace directors chosen by the
board to fill such vacancies.
LOANS TO OFFICERS AND EMPLOYEES
Under California law, any loan to or guaranty for the benefit of a director
or officer, including pursuant to an employee benefit plan, of the corporation
requires approval of holders of a majority of the outstanding shares of the
corporation entitled to be voted on such action. In addition, under Section 315
of the CCC, the board of any corporation with 100 or more shareholders of record
and a bylaw provision (approved by the outstanding shares) authorizing the board
of directors alone to approve loans to or guaranties on behalf of an officer
(whether or not such officer is a director), or employee benefit plans
authorizing such loans or guaranties, may alone approve such loans, guaranties
or employee benefit plans without counting the vote of any interested director,
if the board determines that any such loan, guaranty or plan may reasonably be
expected to benefit the corporation. The Company's Bylaws contain such a
provision.
Under Delaware law, a corporation may make loans to guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be expected to
benefit the corporation. The Wellpoint Delaware Bylaws contain an essentially
identical provision with respect to loans to officers as is in the Company's
Bylaws.
INDEMNIFICATION
California and Delaware have similar laws with respect to indemnification
by a corporation of its officers, directors, employees and other agents. There
are nonetheless certain differences between the laws of the two states with
respect to indemnification.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made when a person is adjudged liable to the corporation
in the performance of that person's duty to the corporation and its
shareholders, unless a court determines such person is entitled to indemnity for
expenses, and then such indemnification may be made only
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to the extent that such court shall determine, and (b) no indemnification may be
made without court approval in respect of amounts paid in settling or otherwise
disposing of an action or expenses incurred in defending an action which is
settled or otherwise disposed of without court approval.
Indemnification is permitted by California law only for acts taken by the
person seeking indemnification in good faith and believed by such person to be
in the best interests of the corporation and its shareholders and with respect
to a criminal proceeding, which such person had no reasonable cause to believe
his conduct was unlawful, as determined by a majority vote of a quorum of
disinterested directors, independent legal counsel in a written opinion (if a
quorum of disinterested directors is not obtainable), a majority vote of a
quorum of the shareholders (excluding shares owned by the indemnified party), or
the court handling the action. Under California law, indemnification is required
when the individual has successfully defended the action on the merits.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by the CCC. The
Company's Articles of Incorporation and Bylaws include such a provision and
provide for indemnification of directors and officers to the fullest extent
permitted under California law.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a majority vote of disinterested directors, even though less
than a quorum, or if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or by the
stockholders, that the person seeking indemnification acted in good faith and in
a manner such person reasonably believed to be in or (in contrast to California
law) not opposed to the best interests of the corporation and, with respect to a
criminal proceeding, which such person had no reasonable cause to believe his
conduct was unlawful. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged liable
to the corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
The Company has entered into an indemnification agreements with its
directors and certain of its officers. Both California and Delaware law state
that the indemnification provided by statute shall not be deemed exclusive any
other rights under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise. The indemnification agreements entered into by the
Company with its officers and directors will be assumed by WellPoint Delaware
upon completion of the Reincorporation.
LIMITATION OF LIABILITY
The laws of both California and Delaware permit corporations to adopt a
provision in their articles of incorporation eliminating, with certain
exceptions, the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty as
a director.
California law does not permit the elimination of monetary liability where
such liability is based on (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders; (f) contracts or transactions
between the corporation and the director is a director or has a financial
interest; and (g) liability for improper distributions, loans or guarantees. The
Company's Articles of Incorporation eliminate the liability of directors to the
Company to the fullest extent permissible under California law.
The WellPoint Delaware Certificate eliminates the liability of directors to
the Company and its stockholders to the fullest extent permitted under Delaware
law. Under Delaware law, a corporation may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) transactions from
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which the director received an improper personal benefit. Such limitation of
liability provision also may not limit a director's liability for violation of,
or otherwise relieve a corporation or its directors from the necessity of
complying with federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
INSPECTION OF SHAREHOLDERS' LIST
Both California and Delaware law generally provide that any stockholder,
upon written demand, has the right to inspect and copy the corporation's
stockholder list for a purpose reasonably related to such person's interest as a
stockholder. In addition, California law provides that a shareholder or
shareholders holding at least five percent in the aggregate of the outstanding
voting shares of a corporation or who hold at least one percent of those voting
shares and have filed a Schedule 14A with the Securities and Exchange Commission
have an absolute right to inspect and copy the corporation's shareholder list or
obtain such a list from the corporation's transfer agent. The DGCL does not
provide a similar absolute right of inspection for specified stockholders.
DIVIDENDS AND REPURCHASES OF SHARES
California law dispenses with the concepts of par value of shares as well
as statutory definitions of capital and surplus. The concepts of par value,
capital and surplus are retained under Delaware law.
Under California law, a corporation may not make any distribution
(including dividends, whether in cash or other property, and repurchases or
redemptions of its shares) unless either the corporation's retained earnings
immediately prior to the proposed distribution equal or exceed the amount of the
proposed distribution or, immediately after giving effect to such distribution,
the corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1.25 times
its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be a least equal
to its current liabilities (or 1.25 times its current liabilities if the average
earnings before interest expense and taxes on income for the preceding two
fiscal years was less than the average interest expense for such years).
Delaware law permits a corporation to declare and pay dividends out of
statutory surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
To date, the Company has not paid cash dividends on its capital stock
(other than an extraordinary dividend of $10.00 per share in connection with the
Recapitalization) and it does not anticipate the payment of any dividend in the
foreseeable future.
SHAREHOLDER VOTING
Both California and Delaware law generally require that a majority of the
stockholders of both acquiring and target corporations approve statutory
mergers. Delaware law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation of such surviving corporation; (b) each
share of stock of the surviving corporation outstanding before the merger is to
be an identical outstanding or treasury share after the merger; and (c) the
number of shares (or securities convertible into such shares) to be issued by
the surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger.
California law contains a similar exception to its voting requirements for
reorganizations where a corporation, or its shareholders immediately before the
reorganization, or both, will own immediately after the reorganization equity
securities constituting more than five-sixths of the voting power (assuming the
conversion of convertible equity securities) of the surviving or acquiring
corporation or its parent entity.
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Both California and Delaware law also generally require that a sale of all
or substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
Delaware law generally does not require class voting, except for amendments
to the certificate of incorporation that change the number of authorized shares
or the par value of shares of a specific class or that adversely affect such
class of shares.
In contrast, with certain exceptions, California law also requires that
mergers, reorganizations, and similar transactions be approved by a majority
vote of each class of shares outstanding.
California law also generally requires that holders of nonredeemable common
shares receive nonredeemable common shares in a merger of the corporation where
one of the constituent corporations or its parent owns more than 50% of the
voting power of the other constituent corporation unless all of the holders of
such common shares consent to the transaction. This provision of California law
may have the effect of making a "cash-out" merger by a majority shareholder
(owning less than 90% of the outstanding shares of each class) more difficult to
accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 does provide some protection
against stockholders being treated unequally in a business combination.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, contracts or transactions between a
corporation and one or more of its directors or between a corporation and any
other entity in which one or more of its directors are directors or have a
financial interest, are not void or voidable because of such interest or because
such director is present at a meeting of the board which authorized or approved
the contract or transaction, provided that certain conditions, including
obtaining the required approval and fulfilling the requirements of good faith
and full disclosures, are met. With certain exceptions, the conditions are
similar under California and Delaware law. Under California and Delaware law,
either (a) the shareholders or the board of directors must approve any such
contract or transaction in good faith after full disclosure of the material
facts (and, in the case of board approval other than for a common directorship,
California law requires that the contract or transaction must also be "just and
reasonable" to the corporation), or (b) the contract or transaction must have
been "fair" (in Delaware) or, in the case of a common directorship (in
California), "just and reasonable" as to the corporation at the time it was
approved. California law explicitly places the burden of proof of the just and
reasonable nature of the contract or transaction on the interested director in
the case of contracts or transactions not approved by the board of directors or
shareholders as provided above. Under Delaware law, if board approval is sought,
the contract or transaction must be approved by a majority of the disinterested
directors (even though less than a majority of a quorum). Under California law,
if shareholder approval is sought, the interested director is not entitled to
vote his or her shares at a shareholder meeting with respect to any action
regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Therefore, under California law, the Board of Directors of the Company may not
be able to approve certain transactions that could be approved by a majority of
disinterested directors of a Delaware corporation, although less than a majority
of a quorum, because the number of interested directors prevents the existence
of a disinterested majority of a quorum required by California law. The Company
is not aware of any plans to propose any transaction involving directors of
WellPoint Delaware that could not be so approved under California law but could
be so approved under Delaware law.
STOCKHOLDER DERIVATIVE SUITS
Under Delaware law, a person may only bring a derivative action on behalf
of the corporation if the person was a stockholder of the corporation at the
time of the transaction in question or his or her stock thereafter devolved upon
him or her by operation of law. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
criteria are met. California law also provides that the corporation or the
defendant in a derivative suit may, under certain circumstances, make a motion
to the court for an order
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requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding provision.
DISSENTERS' AND APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, generally do not have
appraisal rights unless the holders of at least 5% of the class of outstanding
shares assert such appraisal rights. In any reorganization in which one
corporation or the shareholders of one corporation own more than five-sixths of
the voting power of the surviving or acquiring corporation, shareholders are
generally denied dissenters' rights under California law. In addition,
California law denies appraisal rights in connection with the exchange of shares
similar to that occurring in the Reincorporation or with respect to any shares
not voted against a transaction that would otherwise trigger dissenters' rights.
Under Delaware law appraisal rights are not available to stockholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or are held of record by more than 2,000 holders if
the stockholders receive shares of the surviving corporation or shares of any
other corporation which are similarly listed or dispersed, and the stockholders
do not receive any other property in exchange for their shares except cash for
fractional shares. Appraisal rights are also unavailable under Delaware law to
stockholders of a corporation surviving a merger if, as a result of certain
specified circumstances, no vote of those stockholders is required to approve
the merger.
DISSOLUTION
Under Delaware law, a dissolution must be approved (i) by the board of
directors and by holders of a majority of the corporation's outstanding voting
stock or (ii) if no action of the directors is taken, by all of the stockholders
entitled to vote thereon. Under California law, a corporation may elect to wind
up and dissolve by the vote of shareholders holding shares representing 50% or
more of the voting power. In addition, under California law, any corporation
which comes within one of the following descriptions may elect by approval of
the board to wind up and dissolve: (a) as to which an order for relief under
Chapter 7 of the federal bankruptcy law has been entered, (b) that has disposed
of all of its assets and has not conducted any business for a period of five
years preceding the adoption of the resolution to dissolve the corporation or
(c) that has issued no shares.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The reincorporation provided for in the Merger Agreement is intended to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. Assuming the Merger qualifies as a reorganization, no
gain or loss will be recognized to the shareholders of the Company upon the
conversion of shares of Company Common Stock into shares of WellPoint Delaware
Common Stock in the Merger, and no gain or loss will be recognized by the
Company or WellPoint Delaware. Each former holder of Company Common Stock will
have the same basis in the WellPoint Delaware Common Stock received by such
holder pursuant to the Merger as such holder has in the Company Common Stock
held by such holder at the time of consummation of the Merger. Each
shareholder's holding period with respect to WellPoint Delaware Common Stock
will include the period during which such holder held the corresponding Company
Common Stock, provided the Company Common Stock was held by such holder as a
capital asset at the time of the Merger.
The Company has not obtained a ruling from the Internal Revenue Service
with respect to the consequences of the Merger. However, the Company will
receive an opinion of its counsel, Brobeck, Phleger
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& Harrison LLP, that the Merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. This opinion will be
subject to certain assumptions and qualifications and will be based upon the
accuracy of representations made by the Company, WellPoint Delaware and the
Foundation.
A successful challenge by the Internal Revenue Service to the tax-free
status of the Merger would result in a shareholder recognizing gain or loss with
respect to each share of Company Common Stock exchanged in the Merger equal to
the difference between the shareholder's basis in such share and the fair market
value, as of the time of the Merger, of WellPoint Delaware Common Stock received
in exchange therefor. In such event, a shareholder's aggregate basis in the
shares of WellPoint Delaware Common Stock received in the exchange would equal
their fair market value on such date, and the shareholder's holding period for
such shares would not include the period during which the shareholder held the
Company Common Stock.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF THE LAWS OF
ANY STATE OR OTHER JURISDICTION.
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PROPOSAL NO. 3:
AMENDMENT TO 1994 STOCK OPTION/AWARD PLAN
GENERAL
At the 1994 Annual Meeting, the Company's stockholders approved the Stock
Option Plan. The Stock Option Plan was assumed by the Company upon the
consummation of the Recapitalization. However, due to the three-for-two reverse
share exchange that occurred in the Recapitalization, the number of authorized
shares under the Stock Option Plan was decreased. At the 1997 Annual Meeting,
shareholders will be asked to approve an amended and restated Stock Option Plan
(the "Amended Plan") designed to address this reduction in authorized shares as
well as to effect other changes described below.
The amendments included in the Amended Plan include amendments to eliminate
the automatic annual increase in the aggregate number of shares of Common Stock
available under the Stock Option Plan; to limit the term of the Stock Option
Plan to five years after the 1997 Annual Meeting; to increase the maximum number
of shares that may be issued under the Stock Option Plan, under incentive stock
options and to a single individual; to authorize awards to consultants and
independent contractors who provide services to the Company and its affiliates;
to authorize the transfer of awards to certain family members and family trusts;
and to eliminate or modify certain restrictions, including restrictions on
amendments to the Stock Option Plan, as permitted by recent amendments to Rule
16b-3 issued by the Securities and Exchange Commission under Section 16(b) of
the Exchange Act.
If shareholder approval of the Amended Plan is not obtained, awards under
the Stock Option Plan will continue to be granted in accordance with the Stock
Option Plan provisions in effect before the Board adopted the Amended Plan,
except as noted below.
The description of the Amended Plan contained below is qualified in its
entirety by reference to the entire provisions of the Amended Plan, which is
attached as Appendix D to this Proxy Statement. As of April 15, 1997,
approximately 430 employees (including officers and directors and the seven
non-employee directors) were eligible to participate in the Stock Option Plan.
Assuming approval at the Annual Meeting of the Reincorporation Proposal,
WellPoint Delaware will assume the Stock Option Plan at or after the Effective
Time.
PURPOSE
The purpose of the Stock Option Plan is to enable the Company to offer
options, restricted stock, performance shares, performance units, phantom stock,
and automatic stock appreciation rights to key employees and officers of the
Company or of an affiliate of the Company linked to the Company by a 50% or
greater chain of ownership. Under the Amended Plan, but not the original Stock
Option Plan, consultants and independent contractors that provide services to
the Company or an affiliate will also be eligible to receive such discretionary
grants. In addition, the Stock Option Plan provides for automatic stock grants
to non-employee ("Independent") members of the Board.
ADMINISTRATION
The Stock Option Plan is administered by a committee or committees
("Committee") appointed by the Board, consisting of two or more members of the
Board. In establishing the composition of the Committee, the Board will
consider, but is not bound by compliance with Rule 16b-3 and Section 162(m) of
the Internal Revenue Code. Before amendment, the Stock Option Plan required that
administration of the Stock Option Plan with respect to officers subject to
Section 16(b) be performed by a committee of directors who qualified as
"disinterested persons" within the meaning of then-existing Rule 16b-3. The term
"disinterested person," as well as the requirement that the Stock Option Plan be
administered by such persons, was eliminated from Rule 16b-3 in 1996. Amended
Rule 16b-3 provides several alternative means of exempting transactions under
the Stock Option Plan from short-swing trading liability provisions of Section
16, including but not limited to administration by a committee that satisfies
certain requirements as to composition.
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The Committee is generally authorized to construe and interpret the Stock
Option Plan, to select eligible individuals for Stock Option Plan participation,
and to specify the terms of awards under the Stock Option Plan.
The Company will pay all costs of administration of the Stock Option Plan.
Cash proceeds received from the issuance of awards under the Stock Option Plan
will be used for general corporate purposes.
SHARES AND TERMS
Stock subject to awards granted under the Stock Option Plan is the
Company's authorized but unissued or reacquired Common Stock. Initially, the
shareholders approved for issuance under the Stock Option Plan 2.6 million
shares of Common Stock, subject to adjustments for certain changes in
capitalization, and provided that on the first day of the fiscal year beginning
in 1996, the aggregate number of shares of Common Stock issuable under the Stock
Option Plan would be increased by 1.3% of the Company's Common Equivalent Shares
(as defined below) outstanding as of December 31 of the preceding fiscal year.
(The "Company's Common Equivalent Shares" are the total number of shares of
Common Stock issuable upon conversion or exercise of outstanding warrants,
options and convertible securities.) The maximum number was reduced by one-third
to reflect the three-for-two reverse share exchange that occurred as part of the
Recapitalization.
The Board of Directors believes that the number of shares of Common Stock
for which awards may be granted are insufficient to meet the Company's needs in
order to attract and retain qualified personnel, notwithstanding the annual
increase in the available number of shares. This is particularly so in the near
future, in view of the number of options granted to replace long-term incentive
awards made before the Company was authorized to implement the Stock Option
Plan. See "Report of the Compensation Committee of the Board of Directors." The
Amended Plan increases the authorized number of shares to five million shares,
subject to future adjustments for certain changes in capital structure, but also
eliminates the automatic annual increase in shares for fiscal years after 1997.
If the Amended Plan were not approved, awards would continue to be made in
accordance with the original limit on the number of shares that may be issued
under the Stock Option Plan, subject to adjustments for changes in
capitalization and the automatic annual increase in the maximum number of shares
that may be issued under the Stock Option Plan. However, the maximum number of
shares issuable under the Stock Option Plan would be increased (up to
approximately 475,000 shares) to the extent that such increase might be
necessary to permit full exercise or settlement of awards made by the Committee
through April 18, 1997. It is highly unlikely that such increase in the
aggregate share limit would be necessary, since if the Amended Plan were not
approved by the shareholders, automatic annual increases in the maximum number
of shares would continue under the current Stock Option Plan provisions and the
January 1998 increase would be sufficient to cover all outstanding awards, many
of which are not exercisable until after 1997.
The Amended Plan also increases the maximum number of shares that may be
subject to incentive stock options from 1,733,333 shares (reduced by one-third
from 2.6 million to reflect the three-for-two reverse share exchange that
occurred in the Recapitalization) to five million shares, subject to future
adjustment for certain changes in capitalization.
Subject to such limits, regulatory approvals and shareholder approvals as
the Committee determines to be necessary, Common Stock issuable under the Stock
Option Plan may include the stock of an affiliate, a subsidiary, or a joint
venture in which the Company is a participant.
To the extent that an option expires or is terminated, or is canceled or
forfeited for any reason (other than surrendered for a cash appreciation
payment) without having been exercised in full, any remaining shares allocable
to the unexercised portion of such option shall again become available for
subsequent grants under the Stock Option Plan. To the extent that a share right
or share unit expires or is terminated, or is canceled or forfeited for any
reason without being paid in cash or shares of the Company's Common Stock, any
remaining shares allocable to the unpaid portion of such share right or share
unit shall become available again for subsequent grants under the Stock Option
Plan. Under the Amended Plan, but not the original Stock Option Plan, unvested
shares that have been issued but forfeited or repurchased by the Company
pursuant to its forfeiture and repurchase rights under the Stock Option Plan
shall be available for the grant of new awards
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under the Stock Option Plan. Shares attributable to the payment of a share unit
in cash, and the payment of cash or a cash appreciation distribution upon the
surrender or exercise of a stock option, or the payment of cash in lieu of
shares under a restricted share or a share right will not be available for
subsequent grants under the Stock Option Plan.
The market value of the Company's Common Stock as reported on the New York
Stock Exchange as of April 15, 1997, was $38.00 per share.
The Stock Option Plan, as originally approved by the shareholders, provided
that no individual may receive awards with respect to greater than 750,000
shares during any five-year period. By virtue of the share exchange occurring as
part of the Recapitalization, this maximum was reduced to 500,000 shares. The
Board of Directors believes that this limitation will not allow the Company to
make grants to the Company's Chief Executive Officer and other key executives on
a competitive basis. Therefore, the Amended Plan provides for an increase to
1,000,000 shares of the maximum number of shares subject to awards that can be
granted to any individual under the Stock Option Plan. This increase will
continue to apply even if the Amended Plan is not approved by shareholders.
AWARDS
The recipients of awards under the Stock Option Plan, the number of shares
subject to those awards, and the terms, conditions and restrictions of those
awards will be determined in the sole discretion of the Committee, subject to
the limitations set forth below, and may vary from award to award.
Stock Options
The Committee may grant incentive stock options, which satisfy the
requirements of Section 422 of the Internal Revenue Code, or non-statutory
options, which are not intended to satisfy the requirements of Section 422 of
the Internal Revenue Code. Incentive stock options may only be granted to
employees.
The exercise price of an option will be determined by the Committee. In no
event, however, will the exercise price of an incentive stock option be less
than 100% of the fair market value (as defined in the Stock Option Plan) of the
option shares on the date of the grant of the option. The duration of an option
may not exceed 10 years. The exercise price will generally be payable in full in
cash or, in the Committee's discretion, in previously owned shares held for the
requisite period to avoid a charge to earnings or, under certain conditions, by
the proceeds of a same-day sale of the award shares.
Restricted Stock, Performance Shares, Phantom Stock and Performance Units
The Committee may provide award holders with an election, or require award
holders to receive, a percentage of the total value of restricted stock or
performance shares in cash, subject to such terms, conditions and restrictions
as the Committee may specify. The Committee will also determine whether any
consideration is to be received by the Company or its affiliates with regard to
the awards described below.
a. Restricted Stock
Restricted stock is Common Stock, the retention and transfer of which is
subject to terms and conditions determined by the Committee. At the time the
restricted stock award is made, the Committee will establish a restriction
period applicable to the award. Generally, the recipient of the award will enjoy
all shareholder rights (including dividends) during the restriction period,
except that a breach of the terms and conditions of the award will result in a
forfeiture of the award.
b. Performance Shares
A performance share consists of the holder's right, subject to terms,
conditions and restrictions (including, but not limited to performance
standards) established by the Committee, to receive shares of Common Stock.
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c. Phantom Stock
Phantom stock consists of the holder's right to receive an amount in cash
equal to the fair market value of Common Stock on a valuation date, including if
determined by the Committee, a cash dividend equivalent. The Committee will
determine the terms and conditions of such a payment.
d. Performance Units
A performance unit is the right to receive cash, subject to such terms,
conditions and restrictions (including, but not limited to, performance
standards) as the Committee may determine.
AUTOMATIC STOCK GRANTS TO NON-EMPLOYEE DIRECTORS
As adopted by the shareholders at the 1994 Annual Meeting the Stock Option
Plan provided for automatic annual grants of 500 shares to the Company's
non-employee directors on the last business day of the second quarter of each
fiscal year of the Company after 1995. By virtue of the share exchange occurring
as part of the Recapitalization, this amount has been reduced to 333 shares. The
Amended Plan provides for the restoration of the 500 share annual grant to
non-employee directors as originally provided for in the Stock Option Plan for
the 1996 grant and increases the automatic grant for future years to 800 shares.
The additional 167 shares for the 1996 grant have been deferred until, and
conditioned upon, shareholder approval.
ADJUSTMENTS
If there is a change in the Common Stock due to a change in the corporate
or capital structure of the issuer of the Common Stock, the Committee will make
appropriate adjustments to the maximum number and class of shares subject to the
Stock Option Plan, to the maximum number and class of shares issuable under
incentive stock options, to the maximum number and class of shares issuable to
one individual and to the number and class of shares and price per share of
Common Stock subject to outstanding awards. The Committee's determination will
be conclusive.
ASSIGNMENT
The Amended Plan would permit the assignment of awards to members of the
recipient's immediate family or a family trust. Otherwise, awards under the
Stock Option Plan may not be assigned or transferred during the lifetime of the
award holder.
CORPORATE TRANSACTIONS
In the event of an agreement to dispose of all or substantially all of the
assets or outstanding capital stock of the Company by means of a sale, merger,
reorganization, or liquidation, awards under the Stock Option Plan will
terminate unless assumed pursuant to a written agreement by the successor
corporation, or a parent or subsidiary of the successor corporation.
TAX WITHHOLDING
The Committee may, in its discretion and on such terms and conditions as it
deems appropriate, require or permit award holders to elect to have a portion of
the shares of Common Stock otherwise issuable to them under the Stock Option
Plan withheld in satisfaction of federal, state and local employment and income
taxes incurred in connection with the acquisition of those shares. Award holders
may also be granted the right to deliver previously acquired shares of Common
Stock held for the requisite period to avoid a charge to earnings in
satisfaction of these taxes. The withheld or delivered shares will be valued at
fair market value on the applicable determination date for the taxes.
TERM OF STOCK OPTION PLAN
As originally adopted, the Stock Option Plan would continue indefinitely.
The Board of Directors believes that it is in the best interests of the Company
and its shareholders to limit the Stock Option Plan to a five-year term from the
time of the 1997 Annual Meeting, especially in light of the other changes that
are being proposed with the amendment to the Stock Option Plan. Therefore, the
Amended Plan provides that the
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Stock Option Plan no further awards be made under the plan after June 10, 2002,
the date five years after the 1997 Annual Meeting of Shareholders.
AMENDMENT OR TERMINATION
The Amended Plan provides that the Board may amend, suspend or discontinue
the Stock Option Plan at any time, provided that without shareholder approval,
the Board may not make any change with respect to which the Board determines
that shareholder approval is required by applicable law or regulatory standards.
Before its amendment, as proposed, the Stock Option Plan also contained the
following restrictions, which were required by Rule 16b-3 before its amendment
in 1996: the automatic option grant provisions of the Stock Option Plan could
not be amended more frequently than once every six months unless necessary to
comply with the Code, and the Board could not, without shareholder approval, (1)
materially modify the requirements for eligibility and participation in the
Stock Option Plan or (2) materially increase the number of shares which may be
subject to awards granted under the Stock Option Plan (except as provided
above).
To the extent not inconsistent with the Stock Option Plan, the Committee
may modify or waive the terms of any outstanding award, provided that no
modification or waiver may adversely affect a holder's rights without the
holder's consent.
NEW PLAN BENEFITS
Generally, future awards under the Stock Option Plan are discretionary so
that it is impossible to determine who will receive awards and in what amounts
in the event the Amended Plan is approved. However, an increase in annual
automatic option grants to each non-employee director from 333 to 800 (500 for
1996) would occur if the Amended Plan is approved.
If the Amended Plan were not approved in its entirety, the Stock Option
Plan would generally continue in accordance with its terms as they existed
before the Board adopted the Amended Plan, including continuation of the annual
increase in the maximum number of shares that may be issued under the Stock
Option Plan. However, the maximum number of shares with respect to which awards
may be made to a single individual would be increased to 1 million shares and
the maximum number of shares issuable under the Stock Option Plan in the
aggregate, would be increased (up to approximately 475,000 shares) to the extent
that such increase might be necessary to permit full exercise or settlement of
awards made by the Committee through April 18, 1997. It is highly unlikely that
such increase in the aggregate share limit would be necessary, since if the
Amended Plan were not approved by the shareholders, automatic annual increases
in the maximum number of shares would continue under the current Stock Option
Plan provisions and the January 1998 increase would be sufficient to cover all
outstanding awards, many of which are not exercisable until after 1997.
The following table contains information on stock options and other awards
granted under the Stock Option Plan for the period May 20, 1996 (the date of the
Recapitalization and the implementation of the Stock Option Plan) through April
15, 1997.
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STOCK OPTIONS AND OTHER AWARDS GRANTED UNDER THE STOCK OPTION PLAN
<TABLE>
<CAPTION>
OTHER COMMON
STOCK OR
NUMBER OF SHARES RESTRICTED
RECEIVED ON SHARE
NUMBER OF SHARES AVERAGE EXERCISE CONVERSION OF RIGHT
NAME AND POSITION SUBJECT TO OPTIONS (#) PRICE OF OPTIONS ($) PERFORMANCE UNITS AWARDS
- ----------------------------- ---------------------- -------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Leonard D. Schaeffer......... 637,700 37.68 --(1) --
D. Mark Weinberg............. 340,931 37.81 20,672 --
Ronald A. Williams........... 330,511 37.95 19,626 --
Howard G. Phanstiel.......... 181,947 37.92 11,037 --
Thomas C. Geiser............. 203,348 37.32 10,644 4,500
Current executive officers as
a group (six persons)...... 1,714,837 37.64 61,979 5,000
Non-executive Director group
(seven persons)............ -- -- -- 3,000
All employees, including all
current officers who are
not executive officers, as
a group (321 employees).... 3,586,267 36.80 115,800 11,956
</TABLE>
- ---------------
(1) The Company has also agreed to issue Mr. Schaeffer an aggregate of 64,187
shares upon termination of his employment with the Company. See "Executive
Compensation and Other Information -- Employment Contracts, Termination of
Employment and Change in Control Arrangements -- Employment Agreement with
Leonard D. Schaeffer."
FEDERAL INCOME TAX CONSEQUENCES
The following is only a summary of the federal income taxation consequences
to the participant and the Company with respect to the awards under the Stock
Option Plan. Reference should be made to the applicable provisions of the
Internal Revenue Code. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any city, state
or foreign country in which the participant may reside.
Options
The Company will be entitled to a business expense deduction equal to the
ordinary income recognized by an award holder on exercise of a non-statutory
stock option. The ordinary income recognized will generally equal the excess of
the fair market value of the purchased shares on the date of recognition over
the exercise price. Generally, the date of recognition will be the date the
option is exercised or, if later, the first date shares acquired on exercise are
not subject to a substantial risk of forfeiture.
The Company will also be entitled to a business expense deduction equal to
the ordinary income recognized by an award holder due to a "disqualifying
disposition" of stock acquired pursuant to an incentive stock option. A
disqualifying disposition occurs if an award holder disposes of the acquired
shares within two years of the date of the option grant, or within one year of
the date the shares are acquired by the award holder. In the case of a
disqualifying disposition, the award holder will generally recognize ordinary
income in the year of disposition, in an amount equal to the amount of ordinary
income the award holder would have recognized from the exercise of the option
had the option been a non-statutory stock option at the time of exercise. If no
disqualifying disposition is made of shares acquired under an incentive stock
option, any gain on the subsequent sale of those shares will constitute
long-term capital gains and the Company will not be entitled to any deduction
with respect to such shares. For purposes of the alternative minimum tax, an
award holder will incur alternative minimum taxable income upon exercise of an
incentive stock option in an amount of ordinary income that the optionee would
have recognized had the incentive stock option been a non-statutory stock
option.
To the extent that the aggregate fair market value (determined as of the
respective date or dates of grant) of shares with respect to which options that
would otherwise be incentive stock options are exercisable for the
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first time by any individual during any calendar year exceeds $100,000, such
options will be treated as non-statutory stock options.
If cash is paid under the automatic stock appreciation rights provisions of
the Stock Option Plan, the recipient will recognize ordinary income in an amount
equal to the net cash received. The Company is entitled to a deduction equal to
the amount of ordinary income recognized by an award holder in connection with
the automatic stock appreciation right.
Restricted Stock
An award holder receiving restricted stock recognizes ordinary income with
respect to such stock at the time the restrictions lapse or, if the holder so
elects, at the time of receipt of the stock. The amount of ordinary income is
the fair market value of the stock at the applicable time, less any
consideration paid by the award holder for the stock. The Company will be
entitled to deduct from its taxable income an amount equal to the ordinary
income recognized by the award holder in the year so recognized by the award
holder. Dividends paid with respect to restricted stock will be taxable
compensation income to the award holder and the Company will be entitled to a
corresponding deduction, unless the award holder elects to be taxed on such
stock at the time of receipt, in which case the award holder would recognize
taxable dividend income upon receipt of the dividends and the Company would not
be entitled to any corresponding deduction with respect to such dividends.
Performance Shares
An award holder who is granted performance shares under the Stock Option
Plan would recognize no taxable income by reason of such grant. However, when
the conditions precedent to the issuance of shares pursuant to such performance
shares are satisfied, the award holder would recognize ordinary income equal to
the fair market value on the date of issuance of the shares less any
consideration paid by the award holder. Any gain or loss recognized upon the
subsequent disposition of the issued shares will normally be a capital gain or
loss. The gain or loss will be long-term if the shares are held for more than
one year. Any cash dividend equivalent paid to holders of performance shares is
ordinary income. The Company will be entitled to deduct from its taxable income
an amount equal to the award holder's ordinary income recognized pursuant to the
issuance of shares under the award, in the year recognized by the award holder.
Phantom Stock
An award holder who has been granted a phantom stock award will not realize
taxable income at the time of grant, and the Company will not be entitled to a
deduction at such time. Whether a phantom stock award is paid in cash or in
shares of Common Stock, the award holder will have ordinary income and the
Company will have a corresponding deduction when the award is paid. The measure
of such income and deduction will be the fair market value of the shares at the
time the phantom stock award is paid out.
Performance Units
An award holder who has been granted a performance unit award will realize
ordinary income and the Company will have a corresponding deduction when the
award is paid, in the amount paid.
Special Deduction Limits
If an award is accelerated as a result of a change in control of the
Company, all or a portion of the value of the award at that time may be a
parachute payment for purposes of the Internal Revenue Code's excess parachute
provisions. Those provisions generally provide that if parachute payments exceed
three times an award holder's average compensation for the five tax years
preceding the change in control, the Company loses its deduction and the
recipient is subject to a 20% excise tax for the amount of the parachute
payments in excess of one times such average compensation.
Section 162(m) limits federal income tax deductions for compensation paid
to the Company's Chief Executive Officer and the four other most highly
compensated officers of a public company to $1 million per year, but contains an
exception for performance-based compensation that satisfies certain conditions.
The Company believes that options granted to an individual with an option price
at 100% or more of fair market
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value of the underlying shares pursuant to the Stock Option Plan will qualify
for the performance based-compensation exception to the deduction limit to the
extent that such individual does not receive awards under the Stock Option Plan
for more than 500,000 shares. However, there can be no assurance that the awards
will so qualify.
ACCOUNTING TREATMENT
The following is a summary of certain accounting consequences of awards
under generally accepted accounting principles. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS No. 123"). This
standard defines a fair value based method of accounting for stock-based
employee compensation plans; however, it also allows an entity to continue to
measure compensation cost for those plans using the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Under the
fair value based method, compensation cost is measured at the grant date based
on the fair value of the award and is recognized over the service period, which
is usually the vesting period. Under Opinion 25, compensation cost is recognized
based on the difference, if any, between the market price of the stock and the
amount an employee must pay to acquire the stock. The Company has elected to
continue accounting for compensation cost arising from its stock-based
compensation plans under the Opinion 25 approach, which serves as a basis for
the following description.
An option granted with an exercise price less than the fair market value of
the option shares on the date of grant will give rise to compensation expense
equal to the difference between the fair market value of the shares on the date
of grant and the exercise price. The expense will be accrued as the optionee
vests in the option or the shares purchasable under the option. Option grants at
100% of fair market value will not result in any charge to the Company's
earnings.
The grant of restricted stock or share rights will generally result in
compensation expense equal to the market value of the underlying shares of
Common Stock on the date of grant (less any consideration paid therefor). This
expense will generally be amortized over the term of the vesting of such awards,
but the expense may be subject to periodic adjustment depending on performance
criteria. The expense may be amortized or the recognition and measurement of the
expense may be delayed until the performance criteria are attained or are likely
to be attained.
Generally, the fair market value of a share unit on the date of grant (less
any consideration paid therefor) will be accrued as an expense and, at the end
of each fiscal quarter thereafter, the amount (if any) by which the fair market
value of the unit has increased or decreased from the amount previously accrued
will be recorded as an adjustment to compensation expense. In the case of
certain vesting or performance criteria, the expense may be amortized or the
recognition and measurement of the expense may be delayed until the performance
criteria are attained or are likely to be attained.
The number of outstanding options, restricted stock and share rights will
be a factor in determining earnings per share on a fully diluted basis.
For fiscal years beginning with the Company's 1996 fiscal year, FAS No. 123
requires the Company to disclose, in footnotes to the Company's financial
statements, the impact the options and other awards granted under the Stock
Option Plan would have had on the Company's reported earnings were the fair
value of those awards treated as compensation expense.
VOTE REQUIRED FOR APPROVAL OF THE AMENDED WELLPOINT 1994 STOCK OPTION/AWARD PLAN
The affirmative vote of a majority of the shares of Common Stock
represented and voting at the Annual Meeting is necessary to approve the Amended
Plan. The Board believes that Amended Plan is in the best interests of the
Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
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PROPOSAL NO. 4:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. served as the Company's independent
public accountants for the fiscal year ended December 31, 1996. The Board of
Directors has selected that firm to continue in this capacity for the current
fiscal year. Ratification by the shareholders will be sought by the Board of
Directors for the selection of Coopers & Lybrand L.L.P. as independent public
accountants to audit the accounts and records of the Company for the fiscal year
ended December 31, 1997, and to perform other appropriate services.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL
TO RATIFY COOPERS & LYBRAND L.L.P. AS INDEPENDENT PUBLIC ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
A representative of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting to respond to appropriate questions and to make a statement if the
representatives so desires.
OTHER MATTERS
The Company knows of no other matters to be submitted to this meeting. If
any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals to be presented by shareholders of the Company at the 1998 Annual
Meeting must be received by the Company at its principal executive office at
21555 Oxnard Street, Woodland Hills, California 91367 no later than January 9,
1998. Such proposals may be included in next year's Proxy Statement if they
comply with certain rules and regulations promulgated by the Securities and
Exchange Commission.
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY SHAREHOLDER, UPON WRITTEN OR
ORAL REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1996, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, WELLPOINT
HEALTH NETWORKS INC., 21555 OXNARD STREET, WOODLAND HILLS, CALIFORNIA 91367. THE
COMPANY'S TELEPHONE NUMBER IS (818) 703-4000.
By Order of the Board of Directors
Thomas C. Geiser
Executive Vice President, General
Counsel and Secretary
Dated: May 9, 1997
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APPENDIX A
RESTATED
CERTIFICATE OF INCORPORATION
OF
WELLPOINT HEALTH NETWORKS INC.
(PURSUANT TO SECTION 245)
The undersigned, LEONARD D. SCHAEFFER and THOMAS C. GEISER, hereby certify
that:
ONE: They are the Chief Executive Officer and Secretary, respectively, of
WellPoint Health Networks Inc. (the "Corporation"). WellPoint Health Networks
Inc. was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on August 29, 1996.
TWO: Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of this Corporation.
THREE: The Certificate of Incorporation of the Corporation is hereby
restated and amended to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (hereinafter called the "Corporation") is
WellPoint Health Networks Inc.
ARTICLE II
PURPOSE
SECTION 1. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware ("DGCL").
ARTICLE III
AUTHORIZED CAPITAL STOCK
SECTION 1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is three hundred and fifty million
(350,000,000) shares as follows: (a) three hundred million (300,000,000) shares
of Common Stock, $.01 par value per share ("Common Stock"), and (b) fifty
million (50,000,000) shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
SECTION 2. The rights, preferences, privileges and restrictions of the
classes of stock of the Corporation and the express grant of authority to the
Board of Directors to fix by resolution the rights, preferences, privileges and
restrictions relating to the classes of stock of the Corporation which are not
fixed by this Restated Certificate of Incorporation, are as follows:
COMMON STOCK
A. DIVIDENDS.
Subject to any other provisions of this Restated Certificate of
Incorporation, as amended from time to time, holders of Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation as may be declared thereon from time to time by the
Board of Directors
A-1
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of the Corporation (the "Board of Directors") out of assets or funds of the
Corporation legally available therefor.
B. VOTING.
(i) At every meeting of the stockholders, every holder of Common Stock
shall be entitled to one (1) vote in person or by proxy for each share of Common
Stock standing in his or her name on the transfer books of the Corporation.
(ii) The provisions of this Article III of this Restated Certificate of
Incorporation shall not be modified, revised, altered or amended, repealed or
rescinded, in whole or in part, without the affirmative vote of the holders of a
majority of the shares of Common Stock.
PREFERRED STOCK
The Board of Directors is authorized to provide, by resolution, for the
issuance of one or more series of Preferred Stock out of the unissued shares of
Preferred Stock and the Board of Directors is authorized to determine the
designation and to fix the number of shares of each series. Except as may be
required by law, the shares in any series of Preferred stock need not be
identical to any other series of Preferred Stock or any other class.
The Board of Directors of the Corporation is further authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, and to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series of Preferred Stock subsequent to
the issue of shares of that series.
ARTICLE IV
BOARD OF DIRECTORS
AND STOCKHOLDER MEETINGS
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
SECTION 1. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors consisting of not less than nine
nor more than seventeen directors, the exact number of directors to be
determined in accordance with the Bylaws of the Corporation. The directors shall
be divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. At each annual
meeting of stockholders beginning in 1998, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
SECTION 2. In the case of any vacancy on the Board of Directors, including
any vacancy created by the removal of a director, or in the case of any newly
created directorship, a director elected to fill the vacancy or the newly
created directorship for the unexpired portion of the term being filled shall be
elected pursuant to the procedures set forth in the Bylaws of the Corporation.
The director elected to fill a vacancy shall hold office for the unexpired term
in respect of which the vacancy occurred and until his successor shall be
elected and shall qualify or until his or her earlier death, resignation or
removal.
SECTION 3. Any director or the entire Board of Directors may be removed,
with or without cause, by the affirmative vote of the holders of a majority of
the voting power of the shares of the Corporation's stock
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entitled to vote at an election of directors. However, a director may not be
removed without cause if the votes cast against removal of the director would be
sufficient to elect the director if voted cumulatively (without regard to
whether shares may otherwise be voted cumulatively) at an election at which the
same total number of votes were cast and either the number of directors elected
at the most recent annual meeting of the stockholders, or if greater, the number
of directors for whom removal is being sought, were then being elected.
SECTION 4. Whenever the holders of any series of Preferred Stock issued by
the Corporation or of any other securities of the Corporation shall have the
right, voting separately by series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation applicable thereto.
SECTION 5. Election of Directors need not be by ballot unless a
stockholder demands election by ballot at the meeting and before the voting
begins or unless the Bylaws so require.
SECTION 6. The Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change, add to or repeal (collectively,
"Change") the Bylaws of the Corporation.
SECTION 7. Meetings of the stockholders of the Corporation for any purpose
or purposes may be held within or without the State of Delaware, as the Bylaws
may provide.
SECTION 8. No action required or permitted to be taken at any annual or
special meeting of stockholders of the Corporation may be taken by written
consent without a meeting of such stockholders.
SECTION 9. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, a majority of the members of the Board of Directors or the holders of
shares entitled to cast not less than 10% of the votes at the meeting. Such
special meeting may not be called by any other person or persons or in any other
manner.
SECTION 10. The approval of the greater of at least two-thirds or seven of
the directors of the Corporation then in office shall be required for the Board
of Directors to approve and authorize any of the following:
(a) any amendment to this Restated Certificate of Incorporation of the
Corporation; and
(b) the amendment of Sections 8 and 10 of Article II, Sections 2, 3
and 14 of Article III, Sections 1 and 2 of Article IV, and Sections 6 and 7
of Article V of the Bylaws of the Corporation.
ARTICLE V
INDEMNIFICATION
SECTION 1. Other than in the case of an action by, or in the right of, the
Corporation, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or an officer of the
Corporation or of a Predecessor Corporation, against expenses (including, but
not limited to, attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding to the fullest extent and in the manner set
forth in and permitted by the DGCL and any other applicable law, as from time to
time in effect. To the maximum extent permitted by the DGCL, the Corporation
shall advance expenses (including attorneys' fees) incurred by any person
indemnified hereunder in defending any civil, criminal, administrative or
investigative action, suit or proceeding upon an undertaking by or on behalf of
such person to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Corporation. Such rights of
indemnification and advancement of expenses shall not be deemed to be exclusive
of any other rights to which such director or officer may be entitled apart from
the foregoing provisions. The foregoing provisions of this Section 1 shall be
deemed to be a contract between the Corporation (or any Predecessor Corporation)
and each director and officer who serves in such capacity at any time while this
Section 1 and the relevant provisions of the DGCL and other applicable law, if
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any, are in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing, with respect to any state of facts then or
theretofore existing, or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts. For purposes hereof "Predecessor Corporation" shall mean WellPoint
Health Networks Inc., a California corporation ("WellPoint California").
SECTION 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceedings whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was an employee or
agent of the Corporation (or a Predecessor Corporation), or is or was serving at
the request of the Corporation (or a Predecessor Corporation), as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including, but not limited to,
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding to
the extent and in the manner set forth in and permitted by the DGCL and any
other applicable law as from time to time in effect. Such right of
indemnification shall not be deemed to be exclusive of any other rights to which
any such person may be entitled apart from the foregoing provisions.
ARTICLE VI
LIABILITY FOR BREACH OF FIDUCIARY DUTY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, iii) under Section 174 of the Delaware General Corporation
Law, or iv) for any transaction from which the Director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a Director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article VI by the stockholders of the Corporation shall not adversely
affect any right or protection of a Director of the Corporation existing at the
time of such repeal or modification.
ARTICLE VII
RESTRICTION ON TRANSFER
SECTION 1. No Person (as defined in Section 14 below) shall Beneficially
Own (as defined in Section 14 below) shares of Capital Stock (as defined in
Section 14 below) in excess of the Ownership Limit (as defined in Section 14
below). Any Transfer (as defined in Section 14 below) that, if effective, would
result in any Person Beneficially Owning Capital Stock in excess of the
Ownership Limit shall result in such intended transferee acquiring no rights in
such shares of Capital Stock (other than those rights expressly granted in this
Article VII) and such number of shares of Capital Stock shall be deemed
transferred to the Share Escrow Agent (as defined in Section 14 below) as set
forth in this Article VII.
SECTION 2. If, notwithstanding any other provisions of this Article VII,
there is a purported Transfer or other change in the capital structure of the
Corporation such that any Person would Beneficially Own shares of Capital Stock
in excess of the Ownership Limit (a "Purported Owner"), then, upon such Transfer
or change in capital structure, such shares of Capital Stock in excess of the
Ownership Limit shall be Excess Shares for purposes of this Article VII;
provided, however, that in the event that any Person becomes a Purported Owner
as a result of Beneficial Ownership of Capital Stock of one Person being
aggregated with another Person, then the number of Excess Shares subject to this
Article VII shall be allocated pro rata among each Purported Owner in proportion
to each Person's total Beneficial Ownership (without regard to any aggregation
with another Person pursuant to Section 14(b)(4) or (5) of this Article VII).
Upon the occurrence of any event that would cause any Person to exceed the
Ownership Limit (including without limitation the expiration of a voting trust,
without being renewed on substantially similar terms, that entitled
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such Person to an exemption from the Ownership Limit), all shares of Capital
Stock Beneficially Owned by such Person in excess of the Ownership Limit shall
also be Excess Shares for purposes of this Article VII, such Person shall be
deemed the Purported Owner of such Excess Shares and such Person's rights in
such Excess Shares shall be as prescribed in this Article VII. Excess Shares
shall not constitute a separate class of Capital Stock.
SECTION 3. If the Corporation at any time determines that a Transfer has
taken place in violation of Section 1 of this Article VII or that a Purported
Owner intends to acquire or has attempted to acquire Beneficial Ownership of any
shares of Capital Stock in violation of Section 1 of this Article VII, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer, including, without limitation, refusing
to give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin or rescind such Transfer; provided, however, that any
purported Transfers in violation of Section 1 of this Article VII shall
automatically result in all shares of Capital Stock in excess of the Ownership
Limit being deemed Excess Shares. Notwithstanding the foregoing, nothing
contained in this Article VII shall limit the authority of the Corporation to
take such other action as it deems necessary or advisable to protect the
Corporation and the interests of its stockholders.
SECTION 4. Any Purported Owner who acquires or attempts to acquire shares
of Capital Stock in violation of Section l of this Article VII, or any Purported
Owner who is a transferee such that any shares of Capital Stock are deemed
Excess Shares under Section 2 of this Article VII, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request.
SECTION 5. Each certificate for Capital Stock issued by the Corporation
shall bear the following legend:
The shares of stock represented by this certificate are subject
to restrictions on ownership and transfer. No Person shall
Beneficially Own shares of Capital Stock in excess of the Ownership
Limit (as defined in Article VII, Section 14 of the Restated
Certificate of Incorporation of the Corporation). Subject to certain
limited specific exemptions, Beneficial Ownership of 5% or more of the
outstanding shares of any class of Capital Stock will exceed the
Ownership Limit. These provisions have been designed to ensure that
the Corporation will not violate the terms of the License Agreement
between the Corporation and the Blue Cross and Blue Shield Association
(the "BCBSA"). The Corporation maintains at its principal executive
office a copy of the applicable requirements of the BCBSA relating to
such restrictions on ownership and transfer, as such requirements may
be amended from time to time, which are open to inspection by the
stockholders, at all reasonable times during office hours. Any Person
who attempts to beneficially own shares in violation of this
limitation must immediately notify the Corporation. All capitalized
terms in this legend have the meanings ascribed to them in the
Corporation's Restated Certificate of Incorporation, as the same may
be amended from time to time, a copy of which, including the
restrictions on ownership and transfer, will be sent without charge to
each stockholder who so requests. Upon the occurrence of any event
that would cause any Person to exceed the Ownership Limit (including
without limitation the expiration of a voting trust that entitled such
Person to an exemption from the Ownership Limit), all shares of
Capital Stock Beneficially Owned by such Person in excess of the
Ownership Limit will automatically be deemed Excess Shares and be
transferred immediately to the Share Escrow Agent and be subject to
the provisions of the Corporation's Restated Certificate of
Incorporation and the Share Escrow Agent Agreement, a copy of which
the Corporation maintains at its principal executive office. The
foregoing summary of the restrictions on ownership and transfer is
qualified in its entirety by reference to the Corporation's Restated
Certificate of Incorporation.
SECTION 6. Upon the occurrence of a Transfer or an event that results in
Excess Shares pursuant to Section 2 of this Article VII, such Excess Shares
shall automatically be transferred immediately to the Share Escrow Agent, which
Excess Shares, subject to the provisions of this Article VII, shall be held by
the Share Escrow Agent until such time as the Excess Shares are transferred to a
Person whose acquisition thereof will not violate the Ownership Limit (a
"Permitted Transferee") and the Share Escrow Agent shall be authorized
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to execute any and all documents sufficient to transfer title to any Permitted
Transferee, even in the absence of receipt of certificate(s) representing Excess
Shares. The Corporation shall take such actions as it deems necessary to give
effect to such transfer to the Share Escrow Agent, including by issuing a stop
transfer order to the Corporation's transfer agent with respect to any attempted
transfer by the Purported Owner or its nominee of any Excess Shares and by
giving effect, or by instructing the Corporation's transfer agent to give
effect, to such transfer to a Permitted Transferee on the books of the
Corporation. Excess Shares so held shall be issued and outstanding shares of
Capital Stock. The Purported Owner shall have no rights in such Excess Shares
except as provided in Sections 7, 8, and 11 of this Article VII and the
administration of the Excess Shares escrow shall be governed by the terms of a
Share Escrow Agent Agreement.
SECTION 7. The Share Escrow Agent, as record holder of Excess Shares,
shall be entitled to receive all dividends and distributions as may be declared
by the Board of Directors with respect to Excess Shares (the "Excess Share
Dividends") and shall hold the Excess Share Dividends until disbursed in
accordance with the provisions of Section 11 following. The Purported Owner,
with respect to Excess Shares purported to be Beneficially Owned by such
Purported Owner prior to such time that the Corporation determines that such
shares are Excess Shares, shall repay to the Share Escrow Agent the amount of
any Excess Share Dividends received by it that (i) are attributable to any
Excess Shares and (ii) the record date of which is on or after the date that
such shares become Excess Shares. The Corporation shall take all measures that
it determines reasonably necessary to recover the amount of any Excess Share
Dividends paid to a Purported Owner, including, if necessary, withholding any
portion of future dividends or distributions payable on shares of Capital Stock
Beneficially Owned by any Purported Owner (including on shares which fall below
the Ownership Limit as well as on Excess Shares), and, as soon as practicable
following the Corporation's receipt or withholding thereof, shall pay over to
the Share Escrow Agent the dividends so received or withheld, as the case may
be.
SECTION 8. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of, or any distribution of the assets of, the
Corporation, the Share Escrow Agent shall be entitled to receive, ratably with
each other holder of Capital Stock of the same class or series, that portion of
the assets of the Corporation that is available for distribution to the holders
of such class or series of Capital Stock. The Share Escrow Agent shall
distribute to the Purported Owner the amounts received upon such liquidations,
dissolution or winding up or distribution in accordance with the provisions of
Section 11 of this Article VII.
SECTION 9. The Share Escrow Agent shall be entitled to vote all Excess
Shares. The Share Escrow Agent shall be instructed by the Corporation to vote,
consent or assent the Excess Shares as follows: (i) if the matter concerned is
the election of directors, the Share Escrow Agent shall vote, consent or assent
the whole number of Excess Shares held by the Share Escrow Agent for each
director by multiplying the number of votes held in escrow by a fraction, the
numerator of which is the number of Nonaffiliated Votes cast for the director
and the denominator of which is the number of Nonaffiliated Votes that could
have been cast in the election of the director and are present in person or by
proxy at the meeting; (ii) where the matter under the DGCL or this Restated
Certificate of Incorporation or the Bylaws of the Corporation requires at least
an absolute majority of all outstanding shares of Common Stock in order to be
effected, then the Share Escrow Agent shall vote, assent or consent all of such
Excess Shares in favor of or in opposition to such matter as the majority of all
Nonaffiliated Votes are cast; and (iii) on all other matters, the Share Escrow
Agent shall at all times vote, assent or consent all of such shares in the
identical proportion in favor of or in opposition to such matter as
Nonaffiliated Votes are cast. If any calculation of votes under the preceding
sentence would require a fractional vote, the Share Escrow Agent shall vote the
next lower number of whole Excess Shares. The Share Escrow Agent shall use all
reasonable commercial efforts to ensure, with respect to Excess Shares, that
such Excess Shares are counted as being present for the purposes of any quorum
required for stockholder action of the Corporation and to vote as set forth
above. For purposes of this Restated Certificate of Incorporation,
"Nonaffiliated Votes" shall mean the votes cast by stockholders other than any
Share Escrow Agent with respect to Excess Shares.
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SECTION 10.
(a) In an orderly fashion so as not to materially adversely affect the
price of Common Stock on the New York Stock Exchange or, if Common Stock is not
listed on the New York Stock Exchange, on the exchange or other principal market
on which Common Stock is traded, the Share Escrow Agent shall sell or cause the
sale of Excess Shares at such time or times as the Share Escrow Agent determines
to be appropriate. The Share Escrow Agent shall have the right to take such
actions as the Share Escrow Agent deems appropriate to seek to restrict sale of
the shares to Permitted Transferees.
(b) The Share Escrow Agent shall have the power to convey to the purchaser
of any Excess Shares sold by the Share Escrow Agent ownership of the Excess
Shares free of any interest of the Purported Owner of those Excess Shares and
free of any other adverse interest arising through the Purported Owner.
(c) Upon acquisition by any Permitted Transferee of any Excess Shares sold
by the Share Escrow Agent or the Purported Owner, such shares shall upon such
sale cease to be Excess Shares and shall become regular shares of Capital Stock
in the class to which the Excess Shares belong, and the purchaser of such shares
shall acquire such shares free of any claims of the Share Escrow Agent or the
Purported Owner.
(d) To the extent permitted by law, none of the Corporation, the Share
Escrow Agent or anyone else shall have any liability to the Purported Owner or
anyone else by reason of any action or inaction the Corporation or the Share
Escrow Agent shall take which either shall in good faith believe to be within
the scope of its authority under this Article VII or by reason of any decision
as to when or how to sell any Excess Shares or by reason of any other action or
inaction in connection with activities under this Article VII which docs not
constitute gross negligence or willful misconduct. Without limiting by
implication the scope of the preceding sentence, to the extent permitted by law,
(a) neither the Share Escrow Agent nor the Corporation shall have any liability
on grounds that either failed to take actions which would have produced higher
proceeds for any of the Excess Shares or by reason of the manner or timing for
any disposition of any Excess Shares and (b) the Share Escrow Agent shall not be
deemed to be a fiduciary or Agent of any Purported Owner.
SECTION 11. The proceeds from the sale of the Excess Shares to a Permitted
Transferee and any Excess Share Dividends shall be distributed as follows: (i)
first, to the Share Escrow Agent for any costs and expenses incurred in respect
of its administration of the Excess Shares that have not theretofore been
reimbursed by the Corporation; (ii) second, to the Corporation for all costs and
expenses incurred by the Corporation in connection with the appointment of the
Share Escrow Agent, the payment of fees to the Share Escrow Agent with respect
to the services provided by the Share Escrow Agent in respect of the escrow and
all funds expended by the Corporation to reimburse the Share Escrow Agent for
costs and expenses incurred by the Share Escrow Agent in respect of its
administration of the Excess Shares and for all fees, disbursements and expenses
incurred by the Share Escrow Agent in connection with the sale of the Excess
Shares; and (iii) third, the remainder thereof (as the case may be) to the
Purported Owner or the Person who was the holder of record before the shares
were transferred to the Share Escrow Agent (depending on who shall at such time
be entitled to any economic interest in the Excess Shares); provided, however,
if the Share Escrow Agent shall have any questions as to whether any security
interest or other interest adverse to the Purported Owner shall have existed
with respect to any Excess Shares, the Share Escrow Agent shall not be obligated
to disburse proceeds for those shares until the Share Escrow Agent is provided
with such evidence as the Share Escrow Agent shall deem necessary to determine
the parties who shall be entitled such proceeds.
SECTION 12. Subject to Section 13 of this Article VII, nothing contained
in this Article VII or in any other provision of this Restated Certificate of
Incorporation shall limit the authority of the Corporation to take such other
action as it deems necessary or advisable to protect the Corporation and the
interests of its stockholders.
SECTION 13. Nothing in this Restated Certificate of Incorporation shall
preclude the settlement of any transactions entered into through the facilities
of the New York Stock Exchange or any other exchange or through the means of any
automated quotation system now or hereafter in effect.
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SECTION 14. The following definitions shall apply with respect to this
Article VII:
(a) "affiliate" and "associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended or supplemented (the "Exchange Act")
at the time as of which the term shall be applied and any other federal law
which BCBSA shall reasonably judge to have replaced or supplemented the coverage
of the Exchange Act as in effect at May 20, 1996.
(b) Except as is provided in (c) of this Section 14, a Person shall be
deemed to "Beneficially Own," be the "Beneficial Owner" of or have "Beneficial
Ownership" of any Capital Stock:
(1) in which such Person shall then have a direct or indirect
beneficial ownership interest;
(2) in which such Person shall have the right to acquire any direct or
indirect beneficial ownership interest pursuant to any option or other
agreement (either immediately or after the passage of time or the
occurrence of any contingency);
(3) which such Person shall have the right to vote;
(4) in which such Person shall hold any other interest which would
count in determining whether such Person would be required to file a
Schedule 13D; or
(5) which shall be Beneficially Owned (under the concepts provided in
the preceding clauses) by any affiliate or associate of the particular
Person or by any other Person with whom the particular Person or any such
affiliate or associate has any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of securities and
other than pursuant to that certain Registration Rights Agreement between
the Corporation and Western Health Partnerships dated as of May 20, 1996
relating to the acquisition, holding, voting or disposing of any securities
of the Corporation).
(c) The following provisions are included to clarify (b) above:
(1) A Person shall not be deemed to Beneficially Own, be the
Beneficial Owner of, or have Beneficial Ownership of Capital Stock by
reason of possessing the right to vote if (i) such right arises solely from
a revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act, and
(ii) such Person is not the Purported Owner of any Excess Shares, is not
named as holding a beneficial ownership interest in any Capital Stock in
any filing on Schedule 13D and is not an affiliate or associate of any such
Purported Owner or named Person.
(2) A member of a national securities exchange or a registered
depositary shall not be deemed to Beneficially Own, be the Beneficial Owner
of or have Beneficial Ownership of Capital Stock held directly or
indirectly by it on behalf of another Person (and not for its own account)
solely because such member or depositary is the record holder of such
Capital Stock, and (in the case of such member), pursuant to the rules of
such exchange, such member may direct the vote of such Capital Stock
without instruction on matters which are uncontested and do not affect
substantially the rights or privileges of the holders of the Capital Stock
to be voted but is otherwise precluded by the rules of such exchange from
voting such Capital Stock without instruction on either contested matters
or matters that may affect substantially the rights or the privileges of
the holders of such Capital Stock to be voted.
(3) A Person who in the ordinary course of business is a pledgee of
Capital Stock under a written pledge agreement shall not be deemed to
Beneficially Own, be the Beneficial Owner of or have Beneficial Ownership
of such pledged Capital Stock solely by reason of such pledge until the
pledgee has taken all formal steps which are necessary to declare a default
or has otherwise acquired the power to vote or to direct to vote such
pledged Capital Stock, provided that;
(i) the pledge agreement is bona fide and was not entered into with
the purpose nor with the effect of changing or influencing the control
of the Corporation, nor in connection with any
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transaction having such purpose or effect, including any transaction
subject to Rule 13d-3(b) promulgated under the Exchange Act; and
(ii) the pledge agreement does not grant to the pledgee the right
to vote or to direct the vote of the pledged securities prior to the
time the pledgee has taken all formal steps which are necessary to
declare a default.
(4) A Person engaged in business as an underwriter or a placement
agent for securities who enters into an agreement to acquire or acquires
Capital Stock solely by reason of its participation in good faith and in
the ordinary course of its business in the capacity of underwriter or
placement agent in any underwriting or agent representation registered
under the Securities Act of 1933, as amended and in effect at May 20, 1996
(the "Securities Act"), a bona fide private placement, a resale under Rule
144A promulgated under the Securities Act or in any foreign or other
offering exempt from the registration requirements under the Securities Act
shall not be deemed to Beneficially Own, be the Beneficial Owner of or have
Beneficial Ownership of such securities until the expiration of forty (40)
days after the date of such acquisition so long as (i) such Person does not
vote such Capital Stock during such period and (ii) such participation is
not with the purpose or with the effect of changing or influencing control
of the Corporation, nor in connection with or facilitating any transaction
having such purpose or effect, including any transaction subject to Rule
13d-3(b) promulgated under the Exchange Act.
(5) If the Corporation shall sell shares in a transaction not
involving any public offering, then each purchaser in such offering shall
be deemed to obtain Beneficial Ownership in such offering of the shares
purchased by such purchaser, but no particular purchaser shall be deemed to
Beneficially Own or have acquired Beneficial Ownership or be the Beneficial
Owner in such offering of shares purchased by any other purchaser solely by
reason of the fact that all such purchasers are parties to customary
agreements relating to the purchase of equity securities directly from the
Corporation in a transaction not involving a public offering, provided
that:
(i) all the purchasers are persons specified in Rule
13d-1(b)(1)(ii) promulgated under the Exchange Act;
(ii) the purchase is in the ordinary course of each purchaser's
business and not with the purpose nor with the effect of changing or
influencing control of the Corporation, nor in connection with or as a
participant in any transaction having such purpose or effect, including
any transaction subject to Rule 13d-3(b) promulgated under the Exchange
Act;
(iii) there is no agreement among or between any purchasers to act
together with respect to the Corporation or its securities except for
the purpose of facilitating the specific purchase involved; and
(iv) the only actions among or between any purchasers with respect
to the Corporation or its securities subsequent to the closing date of
the nonpublic offering are those which are necessary to conclude
ministerial matters directly related to the completion of the offer or
sale of the securities sold in such offering.
(6) The Share Escrow Agent shall not be deemed to be the Beneficial
Owner of any Excess Shares held by such Share Escrow Agent pursuant to a
Share Escrow Agent Agreement, nor shall any such Excess Shares be
aggregated with any other share of Capital Stock held by affiliates or
associates of such Share Escrow Agent.
(d) "Capital Stock" shall mean shares (or any other basic unit) of any
class or series of any voting security which the Corporation may at any time
issue or be authorized to issue, that entitles the holder thereof to vote on any
election, but not necessarily all elections, of directors. To the extent that
classes or series of Capital Stock vote together in the election of directors
with equal votes per share, they shall be treated as a single class of Capital
Stock for the purpose of computing the relevant Ownership Limit or the right to
amend this Restated Certificate of Incorporation.
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(e) "License Agreement" shall mean the license agreement between the
Corporation and the BCBSA, including any and all addenda thereto, now in effect
and, as it may be amended, modified, superseded and/or replaced from time to
time, with respect to, among other things, the "Blue Cross" name and mark.
(f) "Ownership Limit" shall mean the following:
(1) Except as otherwise expressly provided in this Subsection (f) and
subject to Section 15(a), the Ownership Limit shall be that number of
shares of Capital Stock one share lower than the number of shares of
Capital Stock which would represent 5% of the Voting Power.
(2) In the event the Corporation and BCBSA shall agree in writing,
through an amendment of the License Agreement or otherwise, that an
Ownership Limit of a higher percentage than that prescribed in clause (1)
shall apply, then the Ownership Limit shall be as specified in such written
agreement.
(3) In the event any particular Person shall Beneficially Own shares
of Capital Stock in excess of the Ownership Limit which would apply were it
not for this clause (3) (the "Regular Limit"), such ownership shall not be
deemed to exceed the Ownership Limit provided that (i) such Person shall
not at any time Beneficially Own shares of Capital Stock in excess of the
Regular Limit plus 1% and (ii) within thirty (30) days of the time when the
particular Person becomes aware of the fact that the regular Limit has been
exceeded, the particular Person reduces such Person's Beneficial Ownership
below the Regular Limit.
(g) "Person" shall mean any individual, firm, partnership, corporation,
trust, association, joint venture or other entity, and shall include any
successor (by merger or otherwise) of any such entity.
(h) "Schedule 13D" means a report on Schedule 13D under Regulation 13D of
the Exchange Act as in effect at May 20, 1996 and any report which may be
required in the future under any requirements which BCBSA shall reasonably judge
to have any of the purposes served by Schedule 13D as in effect at May 20, 1996.
(i) "Share Escrow Agent" shall mean the Person appointed by the Corporation
to act as escrow agent with respect to some or all of the Excess Shares.
(j) "Transfer" shall mean any sale, transfer, gift, hypothecation, pledge,
assignment, devise or other disposition of Capital Stock (including (i) the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of Capital Stock or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for Capital Stock), whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or otherwise.
(k) "Voting Power." The percentage of the voting power attributable to the
shares of Capital Stock Beneficially Owned by any particular Person shall be
equal to the percentage of all votes which could be cast in any election of any
director which could be accounted for by the shares of Capital Stock
Beneficially Owned by that particular Person. If in connection with an election
for any particular position on the Board, shares in different classes or series
are entitled to be voted together for purposes of such election, then in
determining the number of "all votes which could be cast" in the election for
that particular position for purposes of the preceding sentence, the number
shall be equal to the number of votes which could be cast in the election for
that particular position if all shares entitled to be voted in such election
(regardless of series or class) were in fact voted in such election. If the
Corporation shall issue any series or class of shares for which positions on the
Board are reserved or shall otherwise issue shares which have voting rights
which can arise or vary based upon terms governing that class or series, then
the percentage of the voting power represented by the shares of Capital Stock
Beneficially Owned by any particular Person shall be the highest percentage of
the total votes which could be accounted for by those shares in any election of
any director.
SECTION 15. (a) This Article VII shall not be applicable with respect to
any outstanding shares of Capital Stock of the Corporation owned by the
California HealthCare Foundation (the "Foundation") which were (i) issued by the
Corporation in exchange for "Original Shares" (such shares of Capital Stock
being referred to as "Exchange Shares") or (ii) acquired by the Foundation with
respect to Exchange Shares as a result of a stock dividend, stock split,
conversion, recapitalization, exchange of shares or the like, so long as
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such Capital Stock of this Corporation shall be Beneficially Owned by the
Foundation or an affiliate of the Foundation or by a trustee for the account of
the Foundation or affiliate of the Foundation. "Original Shares" means shares of
capital stock of WellPoint California owned by the Foundation which were
outstanding on May 20, 1996, and shares of WellPoint California acquired by the
Foundation with respect to such shares after such time as a result of a stock
dividend, stock split, conversion, recapitalization, exchange of shares or the
like. All (1) Exchange Shares and such other shares of Capital Stock received by
the Foundation or affiliate of the Foundation or by a trustee for the account of
the Foundation or affiliate of the Foundation as a result of a stock dividend,
stock split, conversion, recapitalization, exchange of shares or the like
relating to such Exchange Shares shall be aggregated with (2) any other shares
of Capital Stock for which the Foundation or affiliate or trustee of the
Foundation becomes a Beneficial Owner, including shares of Capital Stock issued
in exchange for shares of WellPoint California which were not Original Shares
(all such shares referred to in the immediately preceding clause (2) being
defined as "After Acquired Shares"), in determining if such After Acquired
Shares are Excess Shares. Upon the transfer of any Beneficial Ownership interest
in any Exchange Shares and such other shares of Capital Stock received by the
Foundation or affiliate of the Foundation or by a trustee for the account of the
Foundation or affiliate of the Foundation as a result of a stock dividend, stock
split, conversion, recapitalization, exchange of shares or the like relating to
such Exchange Shares, from the Foundation or affiliate or trustee thereof to any
unaffiliated transferee, that Capital Stock shall become fully subject to this
Article VII from and at all times after such transfer.
Any Exchange Shares and such other shares of Capital Stock received by the
Foundation or affiliate of the Foundation or by a trustee for the account of the
Foundation or affiliate of the Foundation as a result of a stock dividend, stock
split, conversion, recapitalization, exchange of shares or the like relating to
such Exchange Shares shall automatically become subject to this Article VII upon
transfer to any affiliate or trustee of the Foundation, unless such affiliate or
trustee is subject to a binding obligation to vote such shares in the manner
prescribed by the terms of the Voting Agreement dated May 20, 1996 or Voting
Trust Agreement dated May 8, 1996 (as such agreements or replacements thereof
may be in effect from time to time), whichever is applicable, entered into by
the Foundation with respect to Original Shares subject to such agreement. For
purposes of this Section 15(a), neither The California Endowment nor any of its
successors in interest or affiliates shall be deemed to be an affiliate of the
Foundation.
(b) This Article VII shall become ineffective and of no further force and
effect in the event that the Corporation ceases to be subject to any License
Agreement.
(c) Subject to (a) and (b) above, the Board of Directors of the Corporation
has the power to interpret this Article VII and, in the absence of manifest
error, any interpretation by the Board of Directors of the Corporation shall be
binding; provided, however, that in making any such interpretation, the Board of
Directors of the Corporation shall consider the Corporation's obligations to the
BCBSA, wherever relevant.
ARTICLE VIII
NO PREFERENTIAL RIGHTS
No stockholder of the Corporation shall, by reason of his, her or its
holding shares of any class, have any preemptive or preferential rights to
purchase or subscribe to any shares of the Corporation now or hereafter to be
authorized, or any notes, debentures, bonds or other securities convertible into
or carrying options or warrants to purchase shares of any class now or hereafter
to be authorized (whether or not the issuance of any such shares or such notes,
debentures, bonds or other securities would adversely affect the dividend or
voting rights of such stockholder) other than such rights, if any, as the Board
of Directors in its discretion from time to time may grant and at such price as
the Board of Directors may fix; and the Board of Directors may issue shares of
the Corporation or any notes, debentures, bonds or other securities, convertible
into or carrying options or warrants to purchase shares without offering any
such shares, either in whole or in part, to the existing stockholders.
ARTICLE IX
NO CUMULATIVE VOTING
Stockholders are not entitled to cumulate votes at any election of
directors.
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ARTICLE X
BOOKS AND RECORDS
The books and records of the Corporation may be kept (subject to any
provision contained in the statutes) at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.
ARTICLE XI
RIGHT TO AMEND RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right to Change any provision contained in
this Restated Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation; provided, however, that subject to the
powers and rights provided for herein with respect to Preferred Stock issued by
the Corporation, if any, but not withstanding anything else contained in this
Restated Certificate of Incorporation to the contrary, (a) the affirmative vote
of the holders of at least seventy-five percent (75%) of each class of the
shares of Capital Stock, represented and voting at a duly held meeting of
stockholders of the Corporation at which a quorum is present, voting by class,
shall be required to Change Sections 1, 2, 6, 7 and 9 of Article IV, Article
VII, Article IX or this Article XI; (b) no amendment of this Restated
Certificate of Incorporation as described in the preceding clause (a) shall be
effective unless approved by the affirmative vote of a majority of the
outstanding shares of Capital Stock entitled to vote, (c) the provisions of
clause (a) above shall not apply to any amendment to Article VII to conform
Article VII to a change to the terms of the License Agreement or to any
amendment to Article VII required or permitted by the BCBSA (whether or not
constituting a change to the terms of the License Agreement) and (d) the
provisions of clauses (a), (b) and (c) above shall become ineffective and of no
further force and effect in the event that the Corporation ceases to be subject
to any License Agreement.
FOUR: The foregoing amendment and restatement of the Certificate of
Incorporation was duly adopted in accordance with Sections 242 and 245 of the
Delaware General Corporation Law.
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APPENDIX B
BYLAWS OF WELLPOINT HEALTH NETWORKS INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE
The Board of Directors shall fix the location of the principal executive
office of the Corporation at any place within or outside the State of Delaware.
If the principal executive office is located outside this state, and the
Corporation has one or more business offices in this state, the Board of
Directors shall fix and designate a principal business office in the State of
Delaware.
SECTION 2. OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places within or outside the State of Delaware as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the Board of Directors. In the absence of any
such designation by the Board of Directors, stockholders' meetings shall be held
at the principal executive office of the Corporation.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the stockholders for the election of directors and
for the transaction of such other business as may properly come before such
meeting shall be held on the second Tuesday of May each year at 10:00 A.M., if
not a legal holiday under the laws of the place where such meeting is to be
held, and if a legal holiday, then on the next succeeding day not a legal
holiday under the laws of that place, or on such other date and at such hour as
may be fixed from time to time by the Board of Directors.
SECTION 3. SPECIAL MEETINGS
Subject to the rights of holders of any class or series of stock having a
preference over the Corporation's common stock (the "Common Stock"), a special
meeting of the stockholders may be called at any time by a majority of the
entire Board of Directors, the Chairman of the Board, the President or the
holders of shares entitled to cast not less than 10% of the votes at the
meeting.
If a special meeting is called by any person or persons other than the
Board of Directors, the Chairman of the Board or the President, the request
shall be in writing, specifying the time of such meeting and the general nature
of the business proposed to be transacted, and shall be delivered personally or
sent by registered mail or by telegraphic or other facsimile transmission to the
Chairman of the Board, the President, any Vice President, or the Secretary of
the Corporation.
SECTION 4. NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 5 of this Article II not less than 10 nor more than 60
days before the date of the meeting. The notice shall specify the place, date
and hour of the meeting and (i) in the case of a special meeting, the general
nature of the business to be transacted, and no other business may be transacted
or (ii) in the case of the annual meeting, those matters which the Board of
Directors, at the time of giving the notice, intends to present for action by
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the stockholders. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the Board of Directors for election.
If action is proposed to be taken at any meeting for approval of (i)
amendment of the Certificate of Incorporation, pursuant to Section 242 of the
Delaware General Corporation Law (the "DGCL"), (ii) a merger or consolidation of
the Corporation, pursuant to Subchapter IX of the DGCL, or (iii) a voluntary
dissolution of the Corporation, pursuant to Subchapter X of the DGCL; the notice
shall also state the general nature of that proposal.
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of stockholders shall be given either personally or
by first-class mail or telegraphic or other written communication, charges
prepaid, addressed to the stockholder at the address of that stockholder
appearing on the books of the Corporation or given by the stockholder to the
Corporation for the purpose of notice. If no such address appears on the
Corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by first-class mail or telegraphic or other written
communication to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county in which that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the Corporation is returned to the Corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, all
future notices or reports shall be deemed to have been duly given without
further mailing if such notices or reports shall be available to the stockholder
on written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of such notice
or report to other stockholders.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting shall be executed by the Secretary, Assistant Secretary,
or any transfer agent of the Corporation giving the notice, and shall be filed
and maintained in the minute book of the Corporation.
SECTION 6. QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote at any meeting of stockholders shall constitute a quorum
(unless reduced by an amendment to the Certificate of Incorporation of the
Corporation, but in any case no fewer than one-third of the shares entitled to
vote) for the transaction of business. The stockholders present at a duly called
or held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
SECTION 7. ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting, except
as provided in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or unless the
adjournment is for more than 30 days from the date set for the original meeting,
in which case the Board of Directors shall set a new record date. Notice of any
such adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 4
and 5 of this Article II. At any adjourned meeting the Corporation may transact
any business which might have been transacted at the original meeting.
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SECTION 8. VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 11 of this Article II,
subject to the provisions of Section 217 of the DGCL (relating to voting shares
held by a fiduciary, pledges or in joint ownership). The stockholders' vote may
be by voice vote (unless required by law or determined by a majority of the
Board of Directors to be unadvisable) or by ballot; provided, however, that any
election for directors must be by ballot if demanded by any stockholder before
the voting has begun. Any stockholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, but, if the stockholder fails to specify the number of shares
which such stockholder is voting affirmatively, it will be conclusively presumed
that the stockholder's approving vote is with respect to all shares that such
stockholder is entitled to vote. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
any matter (other than the election of directors) shall be the act of the
stockholders, unless the vote of a greater number or voting by classes is
required under applicable law or by the Certificate of Incorporation.
At a stockholders' meeting at which directors are to be elected, no
stockholder shall be entitled to cumulate votes.
At any meeting of stockholders at which shares of Common Stock are voted
that are held of record by the trustee pursuant to the Voting Trust Agreement
(the "Foundation Voting Trust") effective as of May 20, 1996 by and between
California HealthCare Foundation and Wilmington Trust Company, as trustee (the
"Foundation Trust Shares") (or any successor agreement thereto) or held by the
Share Escrow Agent pursuant to Article VII of the Corporation's Certificate of
Incorporation ("Excess Shares"), the polls at such meeting shall be
conditionally closed following such time as stockholders have cast their votes
either by proxy or by ballot. Thereafter, following a preliminary tabulation of
the votes cast at such meeting, the polls shall be reopened solely for the
purpose of permitting the Foundation Trust Shares, and any Excess Shares
pursuant to Article VII of the Corporation's Certificate of Incorporation, if
any, to be voted in accordance with the Foundation Voting Trust, or Article VII
of the Corporation's Certificate of Incorporation, as the case may be.
SECTION 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS
The transactions of any meeting of the stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote thereat, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify either the business to be transacted or the purpose of any
annual or special meeting of stockholders. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
SECTION 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Notwithstanding anything contained in these Bylaws to the contrary, no
action required or permitted to be taken at any meeting of stockholders of the
Corporation may be taken by written consent without a meeting of stockholders.
SECTION 11. RECORD DATE FOR STOCKHOLDER NOTICE AND VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote, the Board of Directors may fix, in advance, a record date,
which shall not be more than 60 days nor less than 10 days before the date of
any such meeting, and in this event only stockholders of record on the date so
fixed are entitled to
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notice and to vote, notwithstanding any transfer of any shares on the books of
the Corporation after the record date, except as otherwise provided in the DGCL.
If the Board of Directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
SECTION 12. PROXIES
Every person entitled to vote for directors or on any other matter shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the stockholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic
transmission, or otherwise) by the stockholder or the stockholder's attorney in
fact. A validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the person executing it,
before the vote pursuant to that proxy, by a writing delivered to the
Corporation stating that the proxy is revoked, or by a subsequent proxy executed
by, or attendance at the meeting and voting in person by, the person executing
the proxy; or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the Corporation before the vote pursuant to that proxy
is counted; provided, however, that no proxy shall be valid after the expiration
of three (3) years from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212 of the DGCL.
SECTION 13. INSPECTORS OF ELECTION
Before any meeting of stockholders, the Board of Directors shall appoint a
person other than nominees for office, directors or stockholders to act as
inspectors of election at the meeting or its adjournment. If any person
appointed as inspector fails to appear or fails or refuses to act, the chairman
of the meeting shall appoint a person to fill that vacancy.
The inspector shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes or ballots;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS
Subject to the provisions of the DGCL and any limitations in the
Corporation's Certificate of Incorporation relating to action required to be
approved by the stockholders or by the outstanding shares, the
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business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
Corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation, and with these Bylaws; fix
their compensation; and require from them security for faithful service.
(b) Change the registered office in the State of Delaware from one
location to another; cause the Corporation to be qualified to do business
in any other state, territory, dependency, or country and conduct business
within or outside the State of Delaware; and designate any place within or
outside the State of Delaware for the holding of any stockholders' meeting,
or meetings, including annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the Corporation on
any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities cancelled, or tangible or intangible
property actually received.
(e) Borrow money and incur indebtedness on behalf of the Corporation,
and cause to be executed and delivered for the Corporation's purposes, in
the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations, and other evidences of debt and
securities.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS
Until the expiration of the Initial Period, the Board of Directors shall
consist of nine (9) members. For purposes hereof, "Initial Period" shall mean
the period commencing as of May 20, 1996 and ending upon the date on which
California HealthCare Foundation and its affiliates, when taken together, cease
to Beneficially Own Capital Stock (as defined in Section 14(d) of Article VII of
the Corporation's Certificate of Incorporation) in excess of the Ownership Limit
(as defined in Section 14(f) of Article VII of the Corporation's Certificate of
Incorporation).
Each of the directors of the Corporation shall hold office for the term for
which he or she is elected and until (i) his or her successor has been elected
and qualified or (ii) his or her earlier death, resignation or removal. The
directors of the Corporation shall be classified, with respect to the time for
which they hold office, into three classes as nearly equal in number as
possible: Class I, consisting of Roger E. Birk, Elizabeth A. Sanders and Sheila
P. Burke, whose term expires at the annual meeting of stockholders held in 2000,
and Class II, consisting of David R. Banks and Stephen L. Davenport, whose term
expires at the annual meeting of stockholders held in 1998 and Class III,
consisting of Julie A. Hill, W. Toliver Besson and Leonard D. Schaeffer, whose
term expires at the annual meeting of stockholders held in 1999, with each class
to hold office until its successors are elected and qualified. If the number of
directors is changed by the Board of Directors, then any newly created
directorships or any decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal as possible; provided, that no
decrease in the number of directors shall shorten the term of any incumbent
director. At each annual meeting of the stockholders, subject to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Directors need not be stockholders. In any election of directors, the
persons receiving a plurality of the votes cast, up to the number of directors
to be elected in such election, shall be deemed to be elected.
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SECTION 3. VACANCIES
In the case of any vacancy on the Board of Directors or in the case of any
newly created directorship, a director elected to fill the vacancy or the newly
created directorship for the unexpired portion of the term being filled, shall
be elected by a vote of not less than a majority of the directors of the
Corporation then in office, from a list of one or more persons proposed in
accordance with the nominating process specified in Article IV, Section 2 of
these Bylaws, or, in the absence of such list being arrived at in accordance
with the nominating process specified in Article IV, Section 2 of these Bylaws,
then by the vote of a majority of the Board of Directors, provided, however,
during the Initial Period, in the case of replacing or filling a vacancy of a
BCC Designee (as such term is defined in Article IV, Section 2), the vote shall
be of not less than a majority of the remaining BCC Designees and, in the case
of replacing or filling a vacancy of a WellPoint Designee (as such term is
defined in Article IV, Section 2), the vote shall be of not less than a majority
of the remaining WellPoint Designees. Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified. A vacancy or vacancies in the Board of Directors shall be
deemed to exist in the event of the death, resignation, or removal of any
director, or if the Board of Directors by resolution declares vacant the office
of a director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors is increased, or
if the stockholders fail, at any meeting of stockholders at which any director
or directors are elected, to elect the number of directors to be voted for at
that meeting.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary, or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
SECTION 4. REMOVAL OF DIRECTORS
Any or all of the directors may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the voting power of the shares
of the Corporation's stock entitled to vote at an election of directors.
However, a director may not be removed without cause if the votes cast against
removal of the director would be sufficient to elect the director if voted
cumulatively (without regard to whether shares may otherwise be voted
cumulatively) at an election at which the same total number of votes were cast
and either the number of directors elected at the most recent annual meeting of
the stockholders, or if greater, the number of directors for whom removal is
being sought, were then being elected.
SECTION 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the Board of Directors. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
Corporation. Special meetings of the Board of Directors shall be held at any
place within or outside the State of Delaware that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no notice,
at the principal executive office of the Corporation. Any meeting, regular or
special, may be held by conference telephone, electronic video screen
communication or other communications equipment, if (1) each member
participating in the meeting can communicate with all of the other members
concurrently, (2) each member is provided the means of participating in all
matters before the Board of Directors, including the capacity to propose, or to
interpose an objection, to a specific action to be taken by the Corporation, and
(3) the Corporation adopts and implements some means of verifying that (a) a
member communicating by telephone, electronic video screen, or other
communications equipment is a director entitled to participate in the meeting
and (b) all statements, questions, actions, or votes were made by that director
and not by another person not
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permitted to participate as a director. Participation in a meeting as permitted
by this Section 5 constitutes presence in person at such meeting.
SECTION 6. REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held without call at
such time as shall from time to time be fixed by the Board of Directors. Such
regular meetings may be held without notice.
SECTION 7. SPECIAL MEETINGS
Special meetings of the Board of Directors for any purpose or purposes may
be called at any time by the Chairman of the Board, the President or by a
majority of directors.
Notice of the time and place of special meetings (but the purpose need not
be stated) shall be delivered personally or by telephone, facsimile, or
electronic mail message to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
residence or usual place of business. In case the notice is mailed, it shall be
deposited in the United States mail at least two (2) calendar days before the
time of the holding of the meeting. In case the notice is delivered personally,
or by telephone, facsimile, electronic mail message, or telegram, it shall be
delivered personally or by telephone, facsimile, electronic mail message, or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. As used herein, notice by telephone shall be deemed to
include a voice messaging system or other system or technology designed to
record and communicate messages, or wireless, to the recipient, including the
recipient's designated voice mailbox or address on such a system.
SECTION 8. QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except as so provided in Section 14 of this
Article and as provided in Article IV. Every act done or decision made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, subject to the
provisions of Section 144 of the DGCL (as to approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 141 of the DGCL (as to appointment of committees), and
Section 145 of the DGCL (as to indemnification of directors). A meeting at which
a quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for that meeting.
SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the Board of Directors, however called
and noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if, either before
or after the meeting, each of the directors not present signs a written waiver
of notice, a consent to holding the meeting or an approval of the minutes. The
waiver of notice or consent need not specify the purpose of the meeting. All
such waivers, consents, and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Notice of a meeting shall also be
deemed given to any director who attends the meeting without protesting before
or at its commencement the lack of notice to that director.
SECTION 10. ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
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SECTION 11. NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given, unless the meeting is adjourned for more than 24 hours, in which case
notice of the time and place shall be given prior to the time of the adjourned
meeting, in the manner specified in Section 7 of this Article III, to the
directors who were not present at the time of the adjournment.
SECTION 12. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting, if all members of the Board shall individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the Board of
Directors. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board.
SECTION 13. FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement of expenses, as may be fixed or
determined by resolution of the Board of Directors. This Section 13 shall not be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation for those services.
SECTION 14. RULES AND REGULATIONS
The Board of Directors may adopt such rules and regulations not
inconsistent with the provisions of the Certificate of Incorporation, these
Bylaws or applicable law for the conduct of its meetings and management of the
affairs of the Corporation as the Board of Directors may deem to be proper.
SECTION 15. LOANS BY THE CORPORATION TO OFFICERS.
The Board of Directors, acting alone (by a vote sufficient without counting
the vote of any interested director or directors), and without any approval of
the stockholders of the Corporation, shall be authorized to approve the making
of any loan of money or property by the Corporation to, or the guarantee by the
Corporation of the obligation of, any officer (whether or not a director) of the
Corporation, or an employee benefit plan authorizing such a loan or guaranty to
an officer (whether or not a director), if the Board of Directors determines
that such a loan or guaranty or plan may reasonably be expected to benefit the
Corporation.
ARTICLE IV
COMMITTEES
SECTION 1. COMMITTEES
The Board may, by resolution adopted by a majority of the authorized number
of directors, designate one or more committees, each consisting of two or more
directors, to serve at the pleasure of the Board, provided, however, that any
executive committee established pursuant to this provision shall, during the
Initial Period, have at least one member who shall be a BCC Designee (as
hereinafter defined) and a majority of members who shall be non-BCC Designees.
Subject to Section 2 of this Article IV, the Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. Any committee, to the
extent allowed by law and provided in these Bylaws or the resolution
establishing the committee, shall have all the authority of the Board in the
management and of the business and affairs of the Corporation. Each committee
shall keep regular minutes and report to the Board when required.
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SECTION 2. NOMINATING COMMITTEE
There shall be a Nominating Committee of the Board which shall consist of
three directors, at least one of whom shall be a BCC Designee and a majority of
members who shall be non-BCC Designees, and all of whom shall be independent,
but none of whom shall consist of the Chairman of the Board so long as the
Chairman of the Board is also an executive officer of the Corporation. The
Nominating Committee shall continue in existence, with the power and authority
specified in this Section 2, at least until the expiration of the Initial
Period. So long as it shall remain in existence, the Nominating Committee shall
have the power, acting by majority vote, to nominate persons to serve as
directors of the Corporation, subject (i) to any rights of stockholders under
law to nominate persons to serve as directors, (ii) in the case of a person
nominated to be a replacement for any BCC Designee on the Board, the BCC
Designee member(s) of the Nominating Committee shall have a veto vote, (iii) in
the case of a person nominated to be a replacement for any WellPoint Designee on
the Board, the Nominating Committee shall not nominate such a person if a
majority of the WellPoint Designee members of the Nominating Committee oppose
such a nomination, (iv) to any contractual obligations of the Corporation, and
(v) to the next paragraph hereof.
So long as the Nominating Committee shall remain in existence, if the
Nominating Committee is unable to nominate a candidate for the Corporation's
Board of Directors as set forth above on a timely basis, nominations shall be
made by vote of a majority of the Board of Directors, provided, however, in the
case of replacing a BCC Designee, by vote of a majority of the remaining BCC
Designees or, in the case of replacing a WellPoint Designee, by vote of a
majority of the remaining WellPoint Designees and with respect to any other
position on the Board, by a vote of a majority of the Board of Directors.
As used in these Bylaws, "BCC Designee" means each of W. Toliver Besson,
Stephen L. Davenport and Sheila P. Burke, or a direct or indirect replacement
thereof; "WellPoint Designees" shall mean Leonard D. Schaeffer, David R. Banks,
Roger E. Birk, Julie A. Hill and Elizabeth E. Sanders, or a direct or indirect
replacement thereof.
SECTION 3. POWERS OF COMMITTEES
Any committee, to the extent allowed by law and provided in these Bylaws or
the resolution of the Board of Directors establishing the committee, shall have
all the authority of the Board of Directors, except with respect to:
(a) the approval of any action which, under the DGCL, also requires
stockholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
Board of Directors or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors;
(f) a distribution to the stockholders of the Corporation, except at a
rate or in a periodic amount or within a price range set forth in the
Corporation's Certificate of Incorporation or determined by the Board of
Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of these committees.
SECTION 4. MEETINGS AND ACTION OF COMMITTEES
Meetings and action of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 5
(place of meetings), Section 6 (regular meetings), Section 7 (special meetings
and notice), Section 8 (quorum), Section 9 (waiver of notice), Section 10
(adjournment), Section 11 (notice of adjournment), and Section 12 (action
without meeting), with such
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changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee; special
meetings of committees may also be called by resolution of the Board of
Directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS
The officers of the Corporation shall be a Chairman of the Board, a
President, a Secretary, and a Chief Financial Officer. The Treasurer is the
Chief Financial Officer of the Corporation unless the Board of Directors has by
resolution determined a Vice President or other officer to be the Chief
Financial Officer. The Corporation may also have, at the discretion of the Board
of Directors, one or more vice presidents, one or more assistant secretaries,
one or more assistant treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
offices may be held by the same person.
SECTION 2. ELECTION OF OFFICERS
The officers of the Corporation, except such officers as may be appointed
in accordance with the provisions of Section 3 or Section 5 of this Article V,
shall be chosen by the Board of Directors, and each shall serve at the pleasure
of the Board, subject to the rights, if any, of any officer under an express
written contract of employment.
SECTION 3. SUBORDINATE OFFICERS
The Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of the Corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the Bylaws or as the Board of Directors or the
President may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS
Except as otherwise provided in these Bylaws and subject to the rights, if
any, of any officer under an express written contract of employment, any officer
may be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting of the Board of Directors, or except in the case of
an officer chosen by the Board of Directors, by any officer upon whom such power
of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
SECTION 5. VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
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SECTION 6. CHAIRMAN OF THE BOARD
The Chairman of the Board shall, when present, preside at meetings of the
Board of Directors and, when present, preside at the meetings of the
stockholders. The Chairman of the Board shall perform such duties and possess
such powers as are usually vested in the office of the Chairman of the Board or
as may be vested in the Chairman of the Board by the Board of Directors, subject
to the terms of his or her employment agreement.
SECTION 7. PRESIDENT/CHIEF EXECUTIVE OFFICER
The President shall be the chief operating officer of the Corporation. He
shall also be the chief executive officer of the Corporation, unless such title
is assigned to the Chairman of the Board. The President shall perform such
duties and possess such powers as are usually vested in the office of the
President or as may be vested in the President by the Board of Directors,
subject to the terms of his or her employment agreement.
SECTION 8. VICE PRESIDENT
In the absence or disability of the President, the vice presidents, if any,
in order of their rank as fixed by the Board of Directors or, if not ranked, a
vice president designated by the Board of Directors, shall perform all the
duties of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the Bylaws, and
the President, or the Chairman of the Board.
SECTION 9. SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office or such other place as the Board of Directors may direct, a book of
minutes of all meetings and actions of directors, committees of directors, and
stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice given, the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings.
The Secretary shall keep or cause to be kept, at the principal executive
office or at such other place as designated by the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep the seal of the Corporation if one be adopted, in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the Bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or by the Bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS AND FIDUCIARIES
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall be required, to the maximum extent permitted by the
DGCL, to indemnify each of its directors and officers against expenses,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was a director, officer, employee, or other agent of the
Corporation or a Predecessor Corporation or is or was serving at the request of
the Corporation or a Predecessor Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise. For purposes hereof, "Predecessor Corporation" shall mean WellPoint
Health Networks Inc., a California corporation ("WellPoint").
SECTION 2. INDEMNIFICATION OF OTHER AGENTS
The Corporation may, in its absolute discretion, up to the maximum extent
permitted by the DGCL, indemnify each of its agents who are not required to be
indemnified under Section 1 of this Article VI against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact that any such
person is or was an agent of the Corporation or a Predecessor Corporation. For
purposes of this Section 2, an "agent" of the Corporation includes any person
who is or was an employee or other agent of the Corporation or a Predecessor
Corporation, or is or was serving at the request of the Corporation or a
Predecessor Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise.
SECTION 3. INDEMNIFICATION OF FIDUCIARIES
The Corporation shall indemnify any director, officer, employee, or other
agent of the Corporation against expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that any such person is or was a trustee,
investment manager, or other fiduciary under any employee benefit plan of the
Corporation (or a Predecessor Corporation). The provisions of this Section 3
shall be deemed to constitute a contract between the Corporation (or any
Predecessor Corporation) and any such indemnified person, or for the benefit of
any such indemnified person.
SECTION 4. ADVANCES OF EXPENSES
To the extent permitted by the DGCL, expenses incurred in defending any
proceeding in the cases described in Sections 1 and 3 of this Article VI shall,
and in the case described in Section 2 of this Article VI may, be advanced by
the Corporation prior to the final disposition of such proceeding upon receipt
of any undertaking by or on behalf of the agent to repay such amount, if it
shall be determined ultimately that the agent is not entitled to be indemnified
as authorized in this section.
ARTICLE VII
RECORDS AND REPORTS
SECTION 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER
The Corporation shall keep at its principal executive office, or at the
office of its transfer agent or registrar, if either be appointed and as
determined by resolution of the Board of Directors, a record of its
stockholders, giving the names and addresses of all stockholders and the number
and class of shares held by each stockholder.
Any stockholder of the Corporation may upon written demand under oath
stating the proper purpose thereof (i) inspect and copy the records of
stockholders' names and addresses and shareholdings during usual business hours
upon five (5) days' prior written demand on the Corporation, or (ii) obtain from
the transfer
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agent of the Corporation, upon the tender of such transfer agent's usual charges
for such list, a list of the stockholders' names and addresses entitled to vote
for the election of directors, and their shareholdings, as of the most recent
record date for which that list has been compiled or as of a date specified by
the stockholder subsequent to the date of demand. This list shall be made
available to any such stockholder by the transfer agent on or before the later
of five days after the demand is received or the date specified in the demand as
the date as of which the list is to be compiled. The record of stockholders
shall also be open to inspection on the written demand of any stockholder or
holder of a voting trust certificate, at any time during usual business hours,
for a purpose reasonably related to the holder's interests as a stockholder or
as the holder of a voting trust certificate. Any inspection and copying under
this Section 1 may be made in person or by an agent or attorney of the
stockholder or holder of a voting trust certificate making the demand.
SECTION 2. MAINTENANCE AND INSPECTION OF BYLAWS
The Corporation shall keep at its principal executive office the original
or a copy of the Bylaws as amended to date, which shall be open to inspection by
the stockholders at all reasonable times during office hours.
SECTION 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and minutes of proceedings of the
stockholders and the Board of Directors and any committee or committees of the
Board of Directors shall be kept at such place or places designated by the Board
of Directors, or, in the absence of such designation, at the principal executive
office of the Corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any stockholder or holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to the
stockholder's interests as a stockholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney,
and shall include the right to copy and to make extracts.
SECTION 4. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind and the physical
properties of the Corporation and each of its subsidiary corporations. This
inspection by a director may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts of
documents.
ARTICLE VIII
GENERAL CORPORATE MATTERS
SECTION 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before any such action, and in that case only stockholders
of record on the date so fixed are entitled to receive the dividend,
distribution, or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date so fixed, except as otherwise provided in the DGCL.
If the Board of Directors does not so fix a record date, the record date
for determining stockholders for any such purpose shall be at the close of
business on the date on which the Board of Directors adopts the applicable
resolution.
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SECTION 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS
All checks, drafts, or other orders for payment of money, notes, or other
evidences of indebtedness, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
SECTION 3. EXECUTING CORPORATE CONTRACTS AND INSTRUMENTS
The Board of Directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation, and
this authority may be general or confined to specific instances; and, unless so
authorized or ratified by the Board of Directors or within the agency power of
an officer, no officer, agent, or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
SECTION 4. CERTIFICATES FOR SHARES
A certificate or certificates for shares of the capital stock of the
Corporation shall be issued to each stockholder when any of these shares are
fully paid, and the Board of Directors may authorize the issuance of
certificates or shares as partly paid provided that these certificates shall
state thereon the amount of the consideration to be paid for them and the amount
paid. All certificates shall be signed in the name of the Corporation by the
Chairman of the Board or the President or Vice President and by the Chief
Financial Officer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the stockholder. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed on a certificate shall have ceased to
be that officer, transfer agent, or registrar before that certificate is issued,
it may be issued by the Corporation with the same effect as if that person were
an officer, transfer agent, or registrar at the date of issue.
SECTION 5. LOST CERTIFICATES
Except as provided in this Section 5, no new certificates for shares shall
be issued to replace an old certificate unless the latter is surrendered to the
Corporation and cancelled at the same time. The Board of Directors may, in case
any share certificate or certificate for any other security is lost, stolen, or
destroyed, authorize the issuance of a replacement certificate on such terms and
conditions as the Board of Directors may require, including provision for
indemnification of the Corporation secured by a bond or other adequate security
sufficient to protect the Corporation against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft,
or destruction of the certificate or the issuance of the replacement
certificate.
SECTION 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the President, or any Vice President, or any
other person authorized by resolution of the Board of Directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
Corporation any and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the Corporation. The authority granted to
these officers to vote or represent on behalf of the Corporation any and all
shares held by the Corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by a proxy duly executed by these officers.
SECTION 7. CONSTRUCTION AND DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the DGCL shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
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ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENT BY STOCKHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by the
vote of holders of a majority of the outstanding shares entitled to vote, except
as otherwise provided by law or in the Certificate of Incorporation.
SECTION 2. AMENDMENT BY DIRECTORS
Subject to the rights of the stockholders as provided in Section 1 of this
Article IX, to adopt, amend, or repeal Bylaws, and subject to the provisions of
the Certificate of Incorporation, Bylaws may be adopted, amended, or repealed by
the Board of Directors; provided, however, that the Board of Directors may adopt
a Bylaw or amendment of a Bylaw changing the authorized number of directors only
for the purpose of fixing the exact number of directors within the limits
specified in the Certificate of Incorporation.
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APPENDIX C
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter called the
"Reorganization Agreement") is made as of , 1997, by and between
WELLPOINT HEALTH NETWORKS INC., a California corporation ("WellPoint
California"), WLP ACQUISITION CORP., a California corporation ("Merger Sub"),
and WELLPOINT HEALTH NETWORKS INC., a Delaware corporation ("WellPoint
Delaware"). WellPoint California and Merger Sub are sometimes referred to as the
"Constituent Corporations."
WHEREAS, the authorized capital stock of WellPoint California consists of
Three Hundred Million (300,000,000) shares of Common Stock, $.01 par value, and
Fifty Million (50,000,000) shares of Preferred Stock, $.01 par value. The
authorized capital stock of WellPoint Delaware consists of Three Hundred Million
(300,000,000) shares of Common Stock, $.01 par value ("WellPoint Delaware Common
Stock"), and Fifty Million (50,000,000) shares of Preferred Stock, $.01 par
value.
WHEREAS, the directors of the Constituent Corporations and WellPoint
Delaware deem it advisable and to the advantage of the Constituent Corporations
and WellPoint Delaware that Merger Sub merge into WellPoint California upon the
terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Reorganization Agreement and do hereby agree that Merger Sub
shall merge into WellPoint California on the following terms, conditions and
other provisions:
ARTICLE I. TERMS AND CONDITIONS.
1.1 Reorganization. Merger Sub shall be merged with and into WellPoint
California (the "Reorganization"), and WellPoint California shall be the
surviving corporation (the "Surviving Corporation") effective upon the date when
the Merger Agreement in the form of Exhibit A hereto is filed with the Secretary
of State of California (the "Effective Date").
1.2 Succession. On the Effective Date, WellPoint California shall continue
its corporate existence under the laws of the State of California, and the
separate existence and corporate organization of Merger Sub shall be terminated
and cease.
1.3 Transfer of Assets and Liabilities. On the Effective Date, the rights,
privileges, powers and franchises, both of a public as well as of a private
nature, of each of the Constituent Corporations shall be vested in and possessed
by the Surviving Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, real, personal and mixed, of each of the Constituent Corporations,
and all debts due to each of the Constituent Corporations on whatever account,
and all things in action or belonging to each of the Constituent Corporations
shall be transferred to and vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest, shall be thereafter the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real estate vested by
deed or otherwise in either of the Constituent Corporations shall not revert or
be in any way impaired by reason of the Reorganization.
1.4 Common Stock of WellPoint California, Merger Sub and WellPoint
Delaware. On the Effective Date, by virtue of the Reorganization and without
any further action on the part of the Constituent Corporations or their
shareholders, each share of Common Stock of WellPoint California issued and
outstanding immediately prior thereto shall be converted into one (1) fully paid
and nonassessable share of WellPoint Delaware Common Stock, each share of Merger
Sub issued and outstanding immediately prior to the Effective Date shall be
converted into one share of Common Stock of WellPoint California and each share
of Common Stock of WellPoint Delaware issued and outstanding immediately prior
thereto shall be canceled and returned to the status of authorized but unissued
shares.
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1.5 Stock Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of WellPoint California shall be deemed
for all purposes to evidence ownership of and to represent the shares of
WellPoint Delaware into which the shares of WellPoint California represented by
such certificates have been converted as herein provided and shall be so
registered on the books and records of WellPoint Delaware or its transfer
agents. The registered owner of any such outstanding stock certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to WellPoint Delaware or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of WellPoint Delaware
evidenced by such outstanding certificate as above provided.
1.6 Options. On the Effective Date, the Surviving Corporation will assume
and continue WellPoint California's 1994 Stock Option/Award Plan and Employee
Stock Option Plan and the outstanding and unexercised portions of all options to
purchase Common Stock of WellPoint California, including without limitation all
options outstanding under such stock plans and any other outstanding options,
shall be converted into options of WellPoint Delaware, such that an option for
one (1) share of WellPoint California shall be converted into an option for one
(1) share of WellPoint Delaware, with no change in the exercise price of the
WellPoint Delaware option. No other changes in the terms and conditions of such
options will occur. Effective on the Effective Date, WellPoint Delaware hereby
assumes the outstanding and unexercised portions of such options and the
obligations of WellPoint California with respect thereto.
1.7 Employee Benefit Plans. On the Effective Date, WellPoint Delaware
shall assume all obligations of WellPoint California under any and all employee
benefit plans, including the WellPoint Health Networks Inc. Employee Stock
Purchase Plan, in effect as of such date. On the Effective Date, WellPoint
Delaware shall adopt and continue in effect all such employee benefit plans upon
the same terms and conditions as were in effect immediately prior to the
Reorganization and shall reserve that number of shares of WellPoint Delaware
Common Stock with respect to each such employee benefit plan as is proportional
to the number of shares of WellPoint California Common Stock (if any) so
reserved on the Effective Date.
1.8 Assumption of Agreements. At or following the Effective Time,
WellPoint California shall assign, and WellPoint Delaware shall assume, such
other agreements as the parties herein shall agree are in the best interest of
the parties to so assign and assume.
ARTICLE II. DIRECTORS AND OFFICERS.
2.1 Directors. The directors of WellPoint California immediately preceding
the Effective Date shall become the directors of WellPoint Delaware on and after
the Effective Date to serve until the expiration of their terms and until their
successors are elected and qualified.
2.2 Officers. The officers of WellPoint California immediately preceding
the Effective Date shall become the officers of WellPoint Delaware on and after
the Effective Date to serve at the pleasure of its Board of Directors of
WellPoint Delaware.
ARTICLE III. MISCELLANEOUS.
3.1 Further Assurances. From time to time, and when required by WellPoint
Delaware or by its successors and assigns, there shall be executed and delivered
on behalf of WellPoint California such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate or necessary in order to vest or perfect in or to conform
of record or otherwise, in the Surviving Corporation the title to and possession
of all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of WellPoint California and otherwise to carry out the
purposes of this Reorganization Agreement, and the officers and directors of
WellPoint Delaware are fully authorized in the name and on behalf of WellPoint
California or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
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3.2 Amendment. At any time before or after approval by the shareholders of
WellPoint California, this Reorganization Agreement may be amended in any manner
(except that, after the approval of the Reorganization Agreement by the
shareholders of WellPoint California, the principal terms may not be amended
without the further approval of the shareholders of WellPoint California) as may
be determined in the judgment of the respective Board of Directors of WellPoint
Delaware and WellPoint California to be necessary, desirable, or expedient in
order to clarify the intention of the parties hereto or to effect or facilitate
the purpose and intent of this Reorganization Agreement.
3.3 Conditions to Reorganization. The obligations of the Constituent
Corporations and WellPoint Delaware to effect the transactions contemplated
hereby are subject to satisfaction of the following conditions (any or all of
which may be waived by any of these Corporations in their sole discretion to the
extent permitted by law):
(a) the Reorganization shall have been approved by the shareholders of
WellPoint California in accordance with applicable provisions of the
General Corporation Law of the State of California;
(b) WellPoint California, as sole stockholder of WellPoint Delaware,
shall have approved the Reorganization in accordance with the General
Corporation Law of the State of Delaware;
(c) WellPoint Delaware, as the sole shareholder of Merger Sub, shall
have approved the Reorganization in accordance with the General Corporation
Law of the State of California; and
(d) any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of WellPoint California to be material
to consummation of the Reorganization shall have been obtained.
3.4 Abandonment or Deferral. At any time before the Effective Date, this
Reorganization Agreement may be terminated and the Reorganization may be
abandoned by the Board of Directors of either WellPoint California or WellPoint
Delaware or both, notwithstanding the approval of this Reorganization Agreement
by the shareholders of WellPoint California or WellPoint Delaware, or the
consummation of the Reorganization may be deferred for a reasonable period of
time if, in the opinion of the Boards of Directors of WellPoint California and
WellPoint Delaware, such action would be in the best interest of such
corporations. In the event of termination of this Reorganization Agreement, this
Reorganization Agreement shall become void and of no effect and there shall be
no liability on the part of either Constituent Corporation, WellPoint Delaware
or its respective Board of Directors or shareholders with respect thereto,
except that WellPoint California shall pay all expenses incurred in connection
with the Reorganization or in respect of this Reorganization Agreement or
relating thereto.
3.5 Counterparts. This Reorganization Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original.
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IN WITNESS WHEREOF, this Reorganization Agreement, having first been duly
approved by the Board of Directors of WellPoint California, Merger Sub and
WellPoint Delaware, is hereby executed on behalf of each said corporation and
attested by their respective officers thereunto duly authorized.
WELLPOINT HEALTH NETWORKS INC.
a California corporation
By:
------------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By:
------------------------------------
Thomas C. Geiser
Secretary
WELLPOINT HEALTH NETWORKS INC.
a Delaware corporation
By:
------------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By:
------------------------------------
Thomas C. Geiser
Secretary
WLP ACQUISITION CORP.
a California corporation
By:
------------------------------------
Leonard D. Schaeffer
President
By:
------------------------------------
Thomas C. Geiser
Secretary
C-4
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EXHIBIT A
AGREEMENT OF MERGER
This Agreement of Merger, dated as of , 1997 ("Merger Agreement"),
is made and entered into by WellPoint Health Networks Inc., a California
corporation ("WellPoint"), and WLP Acquisition Corp., a California corporation
("Merger Sub") (WellPoint California and Merger Sub being collectively referred
to as the "Constituent Corporations") and WellPoint Health Networks Inc., a
Delaware corporation ("WellPoint Delaware").
WITNESSETH:
WHEREAS, the Constituent Corporations and WellPoint Delaware previously
have entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") providing for certain representations, warranties and agreements in
connection with the transactions contemplated; and
WHEREAS, the Boards of Directors of the Constituent Corporations deem it
advisable and in the best interests of the Constituent Corporations and in the
best interests of the shareholders of the Constituent Corporations that
WellPoint California and Merger Sub be combined through a merger (the "Merger")
of Merger Sub into WellPoint California.
NOW, THEREFORE, the Constituent Corporations and WellPoint Delaware hereby
agree as follows:
ARTICLE I.
THE CONSTITUENT CORPORATIONS
1.01 (a) WellPoint California was incorporated under the laws of the State
of California on June 8, 1982.
(b) WellPoint California is authorized to issue an aggregate of
300,000,000 Common Shares (the "WellPoint California Common Stock") and
50,000,000 Preferred Shares (the "WellPoint California Preferred Stock").
(c) As of the date and time immediately prior to the consummation of
the Merger, there will be an aggregate of shares of WellPoint
California Common Stock and no shares of WellPoint California Preferred Stock
will be outstanding.
1.02 (a) Merger Sub was incorporated under the laws of the State of
California on , 1997.
(b) Merger Sub is authorized to issue an aggregate of 1,000 shares
of Common Stock ("Merger Sub Common Stock").
(c) As of the date and time immediately prior to the consummation of
the Merger, an aggregate of 1,000 shares of Merger Sub Common Stock will be
outstanding and owned by WellPoint Delaware.
ARTICLE II.
THE MERGER
2.01 (a) This Merger Agreement shall be submitted to the shareholders of
WellPoint California and Merger Sub. If adopted and approved by the vote of the
shareholders of WellPoint California and by the written consent of the
shareholders of Merger Sub, and if all of the conditions precedent to the
consummation of the Merger specified in the Reorganization Agreement shall have
been satisfied or duly waived by the party entitled to satisfaction thereof,
then, unless terminated as provided in the Reorganization Agreement, this Merger
Agreement, along with certificates meeting the requirements of the California
General Corporation
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Law, shall be filed with the Secretary of State of California. Upon such filing,
the Merger shall become effective ("Effective Time of the Merger").
(b) At the Effective Time of the Merger, Merger Sub shall be merged
into WellPoint California and the separate corporate existence of Merger Sub
shall thereupon cease. WellPoint California shall be the surviving corporation
in the Merger (the "Surviving Corporation") and the separate corporate existence
of WellPoint California, with all of its purposes, objects, rights, privileges,
powers, immunities and franchises, shall continue unaffected and unimpaired by
the Merger.
2.02 (a) The Surviving Corporation shall succeed to all of the rights,
privileges, powers, immunities and franchises of Merger Sub, all of the
properties and assets of Merger Sub and all of the debts, choses in action and
other interests due or belonging to Merger Sub and shall be subject to, and
responsible for, all of the debts, liabilities and obligations of Merger Sub
with the effect set forth in the California General Corporation Law.
(b) If, at any time after the Effective Time of the Merger, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or to otherwise
carry out this Merger Agreement, the officers and directors of the Surviving
Corporation shall and will be authorized to execute and deliver, in the name and
on behalf of Merger Sub or otherwise, all such deeds, bills of sale, assignments
and assurances and to take and do, in the name and on behalf of Merger Sub or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or to otherwise
carry out this Merger Agreement.
ARTICLE III.
ARTICLES OF INCORPORATION
3.01 The Articles of Incorporation of WellPoint California in effect
immediately prior to the Effective Time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation.
ARTICLE IV.
MANNER AND BASIS OF CONVERTING SHARES
OF THE CONSTITUENT CORPORATIONS
4.01 At the Effective Time of the Merger:
(a) Each share of Merger Sub Common Stock which is outstanding immediately
prior to the Effective Time of the Merger shall be converted at the Effective
Time of the Merger into one (1) share of WellPoint California Common Stock.
(b) Each share of WellPoint California Common Stock which is outstanding
immediately prior to the Effective Time of the Merger shall be converted into
one (1) fully-paid and non-assessable share of Common Stock, $.01 par value per
share of WellPoint Delaware ("WellPoint Delaware Common Stock").
(c) Each Share of WellPoint Delaware Common Stock which is outstanding
immediately prior to the Effective Time of the Merger shall be cancelled.
4.02 On and after the Effective Date, all of the outstanding certificates
which prior to that time represented shares of WellPoint California Common Stock
shall be deemed for all purposes to evidence ownership of and to represent the
shares of WellPoint Delaware Common Stock into which the shares of WellPoint
California Common Stock represented by such certificates have been converted as
herein provided and shall be so registered on the books and records of WellPoint
Delaware or its transfer agents. The registered
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<PAGE> 93
owner of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or conversion or otherwise accounted
for to WellPoint Delaware or its transfer agent, have and be entitled to
exercise any voting and other rights with respect to and to receive any dividend
and other distributions upon the shares of WellPoint Delaware evidenced by such
outstanding certificate as above provided.
4.03 If any certificate for shares of WellPoint Delaware Common Stock is
to be issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
person requesting such transfer pay to the Exchange Agent any transfer or other
taxes payable by reason of the issuance of such new certificate in any name
other than that of the registered holder of the certificate surrendered or
establish to the satisfaction of WellPoint Delaware that such tax has been paid
or is not payable.
ARTICLE V.
GENERAL
5.01 This Merger Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.02 Notwithstanding approval of this Merger Agreement by the shareholders
of either of the Constituent Corporations, this Merger Agreement shall terminate
forthwith in the event that the Reorganization Agreement shall be terminated as
therein provided.
5.03 This Merger Agreement may be amended by the parties hereto at any
time before or after approval hereof by the shareholders of either of the
Constituent Corporations, but, after any such approval, no amendment shall be
made which would have a material adverse effect on the shareholders of either of
the Constituent Corporations, or change any of the principal terms of the
Reorganization Agreement, without the further approval of such shareholders.
This Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. Without limiting the foregoing,
the parties hereto acknowledge and agree that any modification of the manner or
basis of exchanging shares of WellPoint California Common Stock into WellPoint
Delaware Common Stock shall require further approval of the Boards of Directors
(or appropriate committee thereof empowered to so act) of WellPoint Delaware and
WellPoint California and the stockholders of WellPoint California.
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<PAGE> 94
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first written above.
WELLPOINT HEALTH NETWORKS INC.
a California corporation
By:
--------------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By:
--------------------------------------
Thomas C. Geiser
Secretary
WELLPOINT HEALTH NETWORKS INC.,
a Delaware corporation
By:
--------------------------------------
Leonard D. Schaeffer
Chairman of the Board and
Chief Executive Officer
By:
--------------------------------------
Thomas C. Geiser
Secretary
WLP ACQUISITION CORP.,
a California corporation
By:
--------------------------------------
Leonard D. Schaeffer
President
By:
--------------------------------------
Thomas C. Geiser
Secretary
4
<PAGE> 95
APPENDIX D
WELLPOINT HEALTH NETWORKS INC. STOCK OPTION/AWARD PLAN
[AS AMENDED THROUGH JANUARY 15, 1997]
ARTICLE ONE
GENERAL PROVISIONS
1.1 PURPOSE OF THE PLAN
This WellPoint Health Networks Inc. Stock Option/Award Plan ("Plan"),
originally adopted effective January 1, 1994 ("Effective Date"), is intended to
enable WellPoint Health Networks Inc. ("Company") to offer options, restricted
stock, performance shares, performance units, phantom stock, and automatic stock
appreciation rights to the following eligible individuals ("Eligible
Individuals"): Key employees and officers, consultants and independent
contractors of the Company or of an affiliate ("Affiliate") of the Company
linked to the Company by a 50% or greater chain of ownership. For these
purposes, ownership means ownership of stock possessing 50% or more of the total
combined voting power of the owned entity. In addition to the aforementioned
discretionary grants, this Plan provides for automatic stock grants to
non-employee members of the Board of Directors of the Company ("Board").
1.2 ADMINISTRATION OF THE PLAN
A. Committee. The Plan will be administered by a committee or committees
appointed by the Board and consisting of two or more members of the Board. The
Board may delegate responsibility for administration of the Plan with respect to
designated grant and award recipients to different committees, subject to such
limitations as the Board deems appropriate. Members of a committee will serve
for such term as the Board may determine, and may be removed by the Board at any
time. The term "Committee," when used in this Plan, refers to the committee that
has been delegated authority with respect to a matter.
In determining the composition of any committee or subcommittee, the Board
or committee, as the case may be, shall consider the desirability of compliance
with the compositional requirements of (i) Rule 16b-3 of the Securities and
Exchange Commission with respect to award holders who are subject to the trading
restrictions of Section 16(b) of the Securities and Exchange Act of 1934 ("1934
Act") with respect to securities of the Corporation and (ii) Section 162(m) of
the Internal Revenue Code ("Code") with respect to performance units, but shall
not be bound by such compliance.
B. Authority. Each Committee has full authority to administer the Plan
within the scope of its delegated responsibilities, including authority to
interpret and construe any relevant provision of the Plan, to adopt rules and
regulations that it deems necessary, to determine which individuals are Eligible
Individuals and which Eligible Individuals are to receive grants and/or awards
under the Plan, to determine the amount and/or number of shares subject to such
a grant or award, and to determine the terms of such a grant or award made under
the Plan (which terms need not be identical). Decisions of a Committee made
within the discretion delegated to it by the Board are final and binding on all
persons.
1.3 STOCK SUBJECT TO THE PLAN
A. Number of Shares. Shares of the Company's Common Stock ("Common Stock")
available for issuance under the Plan will be drawn from the Company's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Company on the open market.
The number of shares of Common Stock that may be issued under the Plan will not
exceed 5 million, after adjustment for the Company's 1996 recapitalization and
subject to further adjustment in accordance with the terms of the Plan. Not more
than 5 million shares, after adjustment for the Company's 1996 recapitalization
and subject to further adjustment as provided in Paragraph 1.3.D., may be
subject to Incentive Options (as defined below).
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B. Affiliate Stock. Subject to such limits, regulatory approvals and
stockholder approvals as the Committee determines to be necessary, Common Stock
issuable under the Plan may include the stock of an Affiliate, a subsidiary, or
a joint venture in which the Company is a participant.
C. Expired Grants and Awards. If any outstanding grant or award under the
Plan expires, is terminated, is cancelled or is forfeited for any reason before
the full number of shares governed by the grant or award are issued, those
remaining shares will not be charged against the limit in Paragraph A above and
will become available for subsequent grants and awards under the Plan. Shares
forfeited to or repurchased by the Company pursuant to its forfeiture and
repurchase rights under this Plan will become available for subsequent grants
and awards under the Plan. Notwithstanding the foregoing, shares for which a
cash payment is made in lieu of payment in stock will not be available for
subsequent grants and awards under this Plan.
D. Adjustments. If any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments will be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
and price per share in effect under automatic option grants to directors and
each outstanding grant and award under the Plan and (iii) the maximum number of
shares issuable to one individual pursuant to Paragraph 1.3.E. The purpose of
these adjustments will be to preclude the enlargement or dilution of rights and
benefits under the grants and awards.
E. Individual Limit. No Eligible Individual will receive options,
restricted stock, performance shares, performance units, phantom stock,
automatic stock appreciation rights or any combination of each under this Plan
for more than 1 million shares (subject to adjustment as provided in Paragraph
1.3.D.) during any five-year period.
ARTICLE TWO
OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
A. Type and Term. The Committee has full authority to determine whether
options are to be incentive stock options ("Incentive Options") that satisfy the
requirements of Section 422 of the Internal Revenue Code or non-qualified
options not intended to satisfy those requirements ("Non-Qualified Options"),
the time or times at which grants become exercisable, and the maximum term for
which grants remain outstanding. No grants under the Plan will be exercisable
after the expiration of 10 years from the date of grant.
B. Price. The option price per share will be fixed by the Committee;
provided, however, that in no event will the option price per share for
Incentive Options be less than 100% of the Fair Market Value of a share of
Common Stock on the date of the grant.
C. Exercise and Payment. After any option granted under the Plan becomes
exercisable, it may be exercised by notice to the Company at any time before
termination of the option. The option price will be payable in full in cash or
check made payable to the Company; provided, however, that the Committee may,
either at the time the option is granted or at any subsequent time, and subject
to such limitations as it may determine, authorize payment of all or a portion
of the option price in one or more of the following alternative forms:
(1) in shares of Common Stock valued as of the Exercise Date (defined
below) and held for the requisite period to avoid a charge to earnings; or
(2) through a sale and remittance procedure under which the option
holder delivers a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds to pay the option price.
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For purposes of Subparagraph (2) immediately above, the "Exercise Date" is
the date on which written notice of the exercise of the option is delivered to
the Company. In all other cases, the Exercise Date is the date on which written
notice and actual payment is received by the Company.
D. Stockholder Rights. An option holder will have no stockholder rights
with respect to any shares covered by an option before the Exercise Date of the
option, as defined in the immediately preceding Paragraph.
E. Separation from Service. The Committee will determine and set forth in
each option whether the option will continue to be exercisable, and the terms of
such exercise, on and after the date that an optionee ceases to be employed by
or to provide services to the Company or an Affiliate. The date of termination
of an optionee's employment or services will be determined by the Committee,
which determination will be final.
F. Incentive Options. Options granted under the Plan that are intended to
be Incentive Options and will be subject to the following additional terms:
(1) Dollar Limit. To the extent that the aggregate fair market value
(determined as of the respective date or dates of grant) of shares with
respect to which options that would otherwise be Incentive Options are
exercisable for the first time by any individual during any calendar year
under the Plan (or any other plan of the Company, a parent or subsidiary
corporation or predecessor thereof) exceeds the sum of $100,000 (or a
greater amount permitted under the Internal Revenue Code), whether by
reason of acceleration or otherwise, those options will not be treated as
Incentive Options. In making this determination, options will be taken into
account in the order in which they were granted.
(2) 10% Stockholder. If any employee to whom an Incentive Option is
to be granted is, on the date of grant, the owner of stock (determined
using the attribution rules of Section 424(d) of the Internal Revenue Code)
possessing more than 10% of the total combined voting power of all classes
of stock of his or her employer corporation or of its parent or subsidiary
("10% Stockholder"), then the following special provisions will apply to
the option granted to that individual:
(i) The option price per share of the stock subject to that
Incentive Option will not be less than 110% of the Fair Market Value of
the option shares on the date of grant; and
(ii) The option will not have a term in excess of 5 years from the
date of grant.
(3) Parent and Subsidiary. For purposes of this Paragraph, "parent"
and "subsidiary" will have the meaning attributed to those terms, as they
are used in Section 422(b) of the Internal Revenue Code.
(4) Employees. Incentive Options may only be granted to employees of
the Company or of a parent or subsidiary.
G. Transferability. During the lifetime of the optionee, options will be
exercisable only by the optionee and will not be assignable or transferable by
the optionee otherwise than by Will or by the laws of descent and distribution
following the optionee's death. However, if and to the extent that the Committee
so authorizes at the time an award is granted or amended, an option or other
award may, in connection with the holder's estate plan, be assigned in whole or
in part during the grantee's lifetime to one or more members of the grantee's
immediate family or to a trust established exclusively for one or more such
family members. Rights under the assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the award pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the award immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Committee may deem
appropriate.
2.2 CORPORATE TRANSACTIONS
A. Termination. In the event of the disposition of all or substantially
all of the assets or outstanding capital stock of the issuer of Common Stock by
means of a sale, merger, reorganization, or liquidation, each award under this
Plan will terminate unless assumed pursuant to a written agreement by the
successor corporation or a parent or subsidiary thereof.
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B. Corporate Structure. The grant of awards under this Plan will in no way
affect the right of the issuer of Common Stock to adjust, reclassify,
reorganize, or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
2.3 REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be a term and
condition of one or more options exercised under the Plan that the Company or
its assigns will have the right, exercisable upon the optionee's separation from
service with the Company and/or its Affiliates, to repurchase any or all of the
shares of Common Stock previously acquired by the optionee upon the exercise of
that option. Any such repurchase right will be exercisable on such terms and
conditions (including the establishment of the appropriate vesting schedule and
other provisions for the expiration of the repurchase right in one or more
installments) as the Committee may specify in the instrument evidencing the
right. The Committee will also have full power and authority to provide for the
automatic termination of repurchase rights, in whole or in part, thereby
accelerating the vesting of any or all of the purchased shares.
ARTICLE THREE
RESTRICTED STOCK, PERFORMANCE SHARES,
PERFORMANCE UNITS, AND PHANTOM STOCK
3.1 RESTRICTED STOCK
Restricted stock granted under the Plan consists of shares of Common Stock
(together with cash dividend equivalents if so determined by the Committee), the
retention and transfer of which is subject to such terms, conditions and
restrictions (whether based on performance standards or periods of service or
otherwise and including repurchase and/or forfeiture rights in favor of the
Company) as the Committee shall determine. The terms, conditions and
restrictions to which restricted stock is subject will be evidenced by such
instruments as the Committee may from time to time approve and may vary from
grant to grant. The Committee has the absolute discretion to determine whether
any consideration (other than the services of the potential award holder) is to
be received by the Company or its Affiliates as a condition precedent to the
issuance of restricted stock.
3.2 PERFORMANCE SHARES
Performance shares granted under the Plan consist of the right, subject to
such terms, conditions and restrictions as the Committee may determine
(including, but not limited to performance standards), to receive a share of
Common Stock. Performance shares will be evidenced by such instruments as the
Committee may from time to time approve. The Committee has the absolute
discretion to determine whether any consideration (other than the services of
the potential award holder) is to be received by the Company or its Affiliates
as a condition precedent to the issuance of shares pursuant to performance
shares. The terms, conditions and restrictions to which performance shares are
subject may vary from grant to grant.
3.3 PHANTOM STOCK
Phantom stock granted under the Plan consists of the right to receive an
amount in cash equal to the Fair Market Value of one share of Common Stock on
the date of valuation of the phantom stock (together with cash dividend
equivalents if so determined by the Committee) less such amount, if any, as the
Committee shall specify. Phantom stock will be evidenced by such instruments as
the Committee may from time to time approve. The date of valuation and payment
of cash under phantom stock and the conditions, if any, to which such payment
will be subject (whether based on performance standards or periods of service or
otherwise) will be determined by the Committee.
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3.4 PERFORMANCE UNITS
Performance units granted under the Plan consist of the right to receive
cash, subject to such terms, conditions and restrictions (including, but not
limited to performance standards) as the Committee may determine. Performance
units will be evidenced by such instruments as the Committee may from time to
time approve. The terms, conditions and restrictions to which performance units
are subject may vary from grant to grant.
3.5 CASH PAYMENTS
The Committee may provide award holders with an election, or require a
holder, to receive a portion of the total value of the Common Stock subject to
restricted stock or performance shares in the form of a cash payment, subject to
such terms, conditions and restrictions as the Committee may specify.
3.6 ELECTIVE AND TANDEM AWARDS
The Committee may award stock options, restricted stock, performance
shares, phantom stock and performance units independently of other compensation
or in lieu of other compensation whether at the election of the potential award
holder or otherwise. The number of shares subject to options or shares of
restricted stock, phantom stock, performance shares, or performance units to be
awarded in lieu of other compensation will be determined by the Committee in its
sole discretion and need not be equal to the foregone compensation in Fair
Market Value. In addition, stock options, restricted stock, performance shares,
phantom stock and performance units may be awarded in tandem, so that a portion
of that award becomes payable or becomes free of restrictions only if and to the
extent that the tandem award is not exercised or is forfeited, subject to such
terms and conditions as the Committee may specify.
ARTICLE FOUR
AUTOMATIC STOCK GRANTS TO NON-EMPLOYEE DIRECTORS
In consideration of their past services, individuals who have been
non-employee members of the Board for at least six full calendar months on the
Automatic Grant Date defined below ("Independent Directors") will automatically
be granted Common Stock ("Automatic Stock Grants") for the number of shares of
Common Stock set forth below (subject to adjustment under Paragraph 1.3.D. of
this Plan) on the dates and terms set forth below.
A. No Discretion. No person will have any discretion to select which
Independent Directors will be granted Common Stock or to determine the number of
shares of Common Stock to be granted to Independent Directors; provided,
however, that nothing in this Plan will be construed to prevent an Independent
Director from declining to receive Common Stock under this Plan.
B. Grants. On the last business day of the second quarter of each fiscal
year of the Company that occurs after all approvals referenced in Paragraph
5.4.C. of the Plan have been obtained ("Automatic Grant Date") each continuing
Independent Director will automatically receive 800 shares of Common Stock;
provided that with respect to the initial Automatic Grant Date on June 30, 1996,
the grant will consist of 500 shares and the delivery of 167 of those shares
will be deferred until, and conditioned upon, shareholder approval of the
amendment to the Plan increasing the number of shares from 333 to 500 (all
figures are as adjusted for the Company's 1996 recapitalization and are subject
to further adjustment under Section 1.3.D).
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ARTICLE FIVE
MISCELLANEOUS
5.1 AMENDMENT
A. Board Action. The Board may amend, suspend or discontinue the Plan in
whole or in part at any time; provided, however, that (1) except to the extent
necessary to qualify as Incentive Options any or all options granted under the
Plan that are intended to so qualify, such action shall not adversely affect a
holder's rights and obligations with respect to grants and awards at the time
outstanding under the Plan and (2) certain amendments may, as determined by the
Board in its sole discretion, require stockholder approval pursuant to
applicable laws or regulations.
B. Modification of Grants and Awards. The Committee has full power and
authority to modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding grant or award under the Plan (other than an
Automatic Stock Grant), to the extent not inconsistent with the Plan; provided,
however, that no such modification or waiver shall, without the consent of the
holder of the grant or award, adversely affect the holder's rights thereunder.
5.2 TAX WITHHOLDING
A. Obligation. The Company's obligation to deliver shares or cash upon the
exercise of grants and awards under the Plan is subject to the satisfaction of
all applicable Federal, State and local income and employment tax withholding
requirements.
B. Stock Withholding. The Committee may require or permit, in its
discretion and upon such terms and conditions as it may deem appropriate
(including the applicable safe-harbor provisions of SEC Rule 16b-3) any or all
holders of outstanding grants or awards under the Plan to elect to have the
Company withhold, from the shares of Common Stock otherwise issuable pursuant to
such grant or award, one or more of such shares with an aggregate Fair Market
Value equal to the Federal, State and local employment and income taxes
("Taxes") incurred in connection with the acquisition of such shares. Holders of
grants or awards under the Plan may also be granted the right to deliver
previously acquired shares of Common Stock held for the requisite period to
avoid a charge to earnings in satisfaction of such Taxes. The withheld or
delivered shares will be valued at Fair Market Value on the applicable
determination date for such Taxes.
5.3 VALUATION
For all purposes under this Plan, the fair market value per share of Common
Stock on any relevant date under the Plan ("Fair Market Value") will be
determined as follows:
(1) National Exchange. If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the Fair Market
Value will be the closing selling price per share of Common Stock on the
day before the date in question on the stock exchange determined by the
Committee to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange.
If there is no reported sale of Common Stock on such exchange on the day
before the date in question, then the Fair Market Value will be the closing
selling price on the exchange on the last preceding date for which such
quotation exists.
(2) NASDAQ. If the Common Stock is not at the time listed or admitted
to trading on any national stock exchange but is traded in the
over-the-counter market, the fair market value will be the mean between the
highest bid and lowest asked prices (or, if such information is available,
the closing selling price) per share of Common Stock on the date in
question in the over-the-counter market, as such prices are reported by the
National Association of Securities Dealers through its NASDAQ system or any
successor system. If there are no reported bid and asked prices (or closing
selling price) for the Common Stock on the date in question, then the mean
between the highest bid price and lowest asked price (or the closing
selling price) on the last preceding date for which such quotations exist
will be determinative of fair market value.
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(3) Committee. Notwithstanding the foregoing, if the Committee
determines that, as a result of circumstances existing on any date, the use
of the above rules is not a reasonable method of determining Fair Market
Value on that date or if Common Stock is not at the time listed or admitted
to trading as outlined above, the Committee may use such other method as,
in its judgment, is reasonable.
5.4 EFFECTIVE DATE AND TERM OF PLAN
A. Effective Date. This Plan will become effective on the Effective Date,
but no Common Stock will be issued under the Plan before the Plan is approved by
the holders of at least a majority of the Company's voting stock. If such
stockholder approval is not obtained within twelve (12) months of the Effective
Date of the Plan, then all grants and awards under the Plan will terminate, and
no further grants or awards will be made under the Plan.
B. Term. No options or other awards may be granted under the Plan after
June 10, 2002 ("Termination Date"), the date five years following approval of
the Plan, as amended through January 15, 1997, by the shareholders of the
Company. Subject to this limit, the Committee may make grants and awards under
the Plan at any time after the Effective Date of the Plan and before the
Termination Date.
C. Approvals. The Plan was originally approved by shareholders on May 10,
1994 and its implementation was approved by the California Department of
Corporations in connection with the Company's 1996 Recapitalization. The Board
subsequently amended the Plan, as reflected in this document, for submission to
the shareholders at the Company's 1997 annual meeting of shareholders. If
shareholder approval of such amendments is not obtained at such meeting, the
Plan shall continue in accordance with its terms as in existence before such
amendments; provided, however, that the maximum number of shares with respect to
which awards may be made to a single individual shall be increased to 1,000,000
shares and the maximum number of shares issuable under the Plan shall be
increased solely to the extent to permit full exercise or settlement of awards
made by the Committee through April 18, 1997. The Board may, in its discretion,
condition any award under the Plan upon obtaining any other required or desired
regulatory approvals.
5.5 USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares pursuant
to grants and awards under the Plan will be used for general corporate purposes.
5.6 NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken under the
terms of this Plan, nor any provision of this Plan will be construed to grant
any individual the right to remain in the employ or service of the Company (or
any subsidiary or parent of the Company) for any period of specific duration,
and the Company (or any subsidiary or parent of the Company retaining the
services of such individual) may terminate such individual's employment or
service at any time and for any reason, with or without cause. Nothing contained
in this Plan or in any grant or award under this Plan will affect any
contractual rights of an employee or other service provider pursuant to a
written employment or service agreement executed by both parties.
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WELLPOINT HEALTH NETWORKS INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Leonard D. Schaeffer and Thomas C. Geiser, or either of them, are hereby
constituted and appointed the lawful attorneys and proxies of the undersigned,
each with full power of substitution to vote and act as proxy with respect to
all shares of Common Stock of WellPoint Health Networks Inc. ("WellPoint")
standing in the name of the undersigned on the books of WellPoint at the close
of business on May 7, 1997, at the Annual Meeting of Shareholders to be held at
10:00 A.M., on June 10, 1997, at the Warner Center Marriott, 21850 Oxnard
Street, Woodland Hills, California 91367, or at any adjournment or postponement
thereof (1) as hereinafter specified upon the proposals listed below and as more
particularly described in WellPoint's Proxy Statement, receipt of which is
hereby acknowledged, and (2) in their discretion upon such other matters as may
properly come before the meeting.
The powers hereby granted may be exercised by both of said attroneys or proxies
or their substitutes present and acting at the Annual Meeting of Shareholders or
any adjournment or postponement thereof or, if only one be present and acting,
then by that one. The undersigned hereby revokes any and all proxies heretofore
given by the undersigned to vote at said meeting.
The shares represented hereby shall be voted as specified. If no specification
is made, such shares shall be voted FOR proposals 1 through 5. Whether or not
you are able to attend the meeting, you are urged to sign and mail the Proxy in
the return envelope so that your stock may be represented at the meeting.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY (CONTINUED
AND TO BE SIGNED ON REVERSE SIDE)
A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
1. Election of the three (3) Class I directors proposed in the accompanying
Proxy Statement to serve until the 2000 Annual Meeting.
Roger E. Birk Elizabeth A. Sanders Sheila P. Burke
FOR WITHHELD FOR ALL EXCEPT
2. Proposal to approve a transaction (the "Reincorporation Proposal") to be
effected pursuant to the terms of the Agreement and Plan of Reorganization dated
April , 1997 by and among WellPoint, WellPoint Delaware, a wholly-owned
subsidiary of WellPoint, and WLP Acquisition Corp., a wholly-owned subsidiary of
WellPoint Delaware, which provides, among other things, for the merger of
WellPoint with and into WLP Acquisition Corp. and for the conversion of each
share of WellPoint Common Stock into one share of WellPoint Delaware Common
Stock. As a result of the Reincorporation Proposal, the shareholders of
WellPoint will become stockholders of WellPoint Delaware and the directors of
WellPoint will become the directors of WellPoint Delaware with the same class
designation and term of office.
FOR AGAINST ABSTAIN
3. Approval of an amendment to WellPoint's 1994 Stock Option/Award Plan (the
"Stock Option Plan") which, among other things, establishes a maximum of
5,000,000 shares of WellPoint's Common Stock that may be issued under the Stock
Option Plan. Assuming approval of the Reincorporation Proposal, WellPoint
Delaware will assume the Stock Option Plan.
FOR AGAINST ABSTAIN
4. Ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ended December 31, 1997.
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<PAGE> 103
FOR AGAINST ABSTAIN
5. Transacting of such other business as may properly come before the meeting or
any adjournment or postponement thereof.
FOR AGAINST ABSTAIN
DATED , 1997
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons, or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by a
corporation, the Proxy should be executed by the President or Vice President and
the Secretary or Assistant Secretary, and the corporate seal should be affixed
thereto. Executors or administrators or other fiduciaries who execute the above
Proxy for a deceased shareholder should give their full title. Please date the
Proxy.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
ADMISSION TICKET
WELLPOINT HEALTH NETWORKS INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, JUNE 10, 1997
10:00 A.M.
WARNER CENTER MARRIOTT
21850 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
PLEASE ADMIT NON-TRANSFERABLE
D-9
<PAGE> 104
PROXY
WELLPOINT HEALTH NETWORKS INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Leonard D. Schaeffer and Thomas C. Geiser, or either of them, are hereby
constituted and appointed the lawful attorneys and proxies of the undersigned,
each with full power of substitution to vote and act as proxy with respect to
all shares of Common Stock of WellPoint Health Networks Inc. ("WellPoint")
standing in the name of the undersigned on the books of WellPoint at the close
of business on May 7, 1997, at the Annual Meeting of Shareholders to be held at
10:00 A.M., on June 10, 1997, at the Warner Center Marriott, 21850 Oxnard
Street, Woodland Hills, California 91367, or at any adjournment or postponement
thereof (1) as hereinafter specified upon the proposals listed below and as
more particularly described in WellPoint's Proxy Statement, receipt of which is
hereby acknowledged, and (2) in their discretion upon such other matters as may
properly come before the meeting.
The powers hereby granted may be exercised by both of said attorneys or proxies
or their substitutes present and acting at the Annual Meeting of Shareholders
or any adjournment or postponement thereof or, if only one be present and
acting, then by that one. The undersigned hereby revokes any and all proxies
heretofore given by the undersigned to vote at said meeting.
The shares represented hereby shall be voted as specified. If no specification
is made, such shares shall be voted FOR proposals 1 through 5. Whether or not
you are able to attend the meeting, you are urged to sign and mail the Proxy in
the return envelope so that your stock may be represented at the meeting.
(Continued and to be signed on reverse side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADMISSION TICKET
WELLPOINT HEALTH NETWORKS INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, JUNE 10, 1997
10:00 A.M.
WARNER CENTER MARRIOTT
21850 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
PLEASE ADMIT NON-TRANSFERABLE
<PAGE> 105
Please mark /X/
vote in the
following
manner using
dark ink only
A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1. Election of the three (3) 2. Proposal to approve a transaction (the "Reincorporation FOR AGAINST ABSTAIN
Class 1 directors Proposal") to be effected pursuant to the terms of the / / / / / /
proposed in the Agreement and Plan of Reorganization dated April __,
accompanying Proxy 1997 by and among WellPoint, WellPoint Delaware, a wholly
Statement to owned subsidiary of WellPoint, and WLP Acquisition Corp., a
serve until the 2000 wholly owned subsidiary of WellPoint Delaware, which provides,
Annual Meeting. among other things, for the merger of WellPoint with and into
WLP Acquisition Corp. and for the conversion of each share of
WellPoint Common Stock into one share of WellPoint Delaware
FOR WITHHELD Common Stock. As a result of the Reincorporation Proposal,
Roger E. Birk / / / / the shareholders of WellPoint will become stockholders of
WellPoint Delaware and the directors of Wellpoint will
FOR WITHHELD become the directors of WellPoint Delaware with the same
Elizabeth A. Sanders / / / / class designation and term of office.
FOR WITHHELD 3. Approval of an amendment to WellPoint's 1994 Stock Option/ FOR AGAINST ABSTAIN
Sheila P. Burke / / / / Award Plan (the "Stock Option Plan") which, among other / / / / / /
things, establishes a maximum of 5,000,000 shares of
WellPoint's Common Stock that may be issued under the Stock
Option Plan. Assuming approval of the Reincorporation
Proposal, WellPoint Delaware will assume the Stock Option
Plan.
4. Ratification of the appointment of Coopers & Lybrand L.L.P. FOR AGAINST ABSTAIN
as the Company's independent public accountants for the / / / / / /
fiscal year ended December 31, 1997.
5. Transacting of such other business as may properly come FOR AGAINST ABSTAIN
before the meeting or any adjournment or postponement / / / / / /
thereof.
</TABLE>
SIGNATURE(S) ____________________________________________ DATED___________, 1997
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand of record in the names of two or more persons, or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held of record by
a corporation, the Proxy should be executed by the President or Vice President
and the Secretary or Assistant Secretary, and the corporate seal should be
affixed thereto. Executors or administrators or other fiduciaries who execute
the above Proxy for a deceased shareholder should give their full title.
Please date the Proxy.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
