<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
WELLPOINT HEALTH NETWORKS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4635504
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>
21555 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 703-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
THOMAS C. GEISER, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
WELLPOINT HEALTH NETWORKS INC.
21555 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 703-4000
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
WILLIAM L. HUDSON, ESQ. GARY OLSON, ESQ.
Gibson, Dunn & Crutcher LLP Latham & Watkins
One Montgomery Street, Telesis Tower 633 West Fifth Street, Suite 4000
San Francisco, CA 94104 Los Angeles, CA 90071
(415) 393-8200 (213) 485-1234
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, par value $0.01 per share.................. 8,050,000 $543,878,125 $160,445
</TABLE>
(1) Includes 1,050,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for purposes of computing the registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be used
in connection with an underwritten offering in the United States and Canada (the
"U.S. Prospectus") and one to be used in connection with a concurrent
international offering outside the United States and Canada (the "International
Prospectus"). The two prospectuses relate to a public offering of up to
8,050,000 shares of Common Stock, $0.01 par value, of WellPoint Health Networks
Inc., including up to 1,050,000 shares that may be sold pursuant to the
underwriters' over-allotment option, if exercised. The complete U.S. Prospectus
follows this explanatory note. After the U.S. Prospectus are the following
alternate pages for the International Prospectus: a front cover page, page 2,
and a section entitled "Certain United States Federal Tax Consequences to
Non-United States Purchasers" to be inserted after "Description of Capital
Stock" and before "Underwriting" in the International Prospectus. All other
pages of the U.S. Prospectus are to be used for both the United States offering
and the international offering. Each alternate page for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." Final forms for each Prospectus will be filed with the Securities
and Exchange Commission pursuant to Rule 424(b).
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 31, 1998
7,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 7,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 5,600,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY
ARE BEING SOLD BY THE CALIFORNIA HEALTHCARE FOUNDATION (THE
"FOUNDATION" OR "SELLING STOCKHOLDER"). SEE "SELLING STOCKHOLDER."
THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE
OF SHARES OFFERED HEREBY. THE COMMON STOCK IS LISTED ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "WLP." ON MARCH
30, 1998, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $66 13/16
PER SHARE.
AS OF MARCH 15, 1998, THE FOUNDATION OWNED 29,910,000 SHARES OF COMMON STOCK,
REPRESENTING APPROXIMATELY 42.7% OF THE TOTAL SHARES OF COMMON STOCK
OUTSTANDING. FOLLOWING THE OFFERING, THE FOUNDATION WILL OWN 22,910,000 SHARES
OF THE COMPANY'S COMMON STOCK, WHICH WILL REPRESENT APPROXIMATELY 32.7% OF
THE OUTSTANDING SHARES (OR, IF THE OVER-ALLOTMENT OPTION IS EXERCISED IN
FULL, 21,860,000 SHARES OF THE COMPANY'S COMMON STOCK, WHICH WILL
REPRESENT APPROXIMATELY 31.2% OF THE OUTSTANDING SHARES). THE
COMPANY'S CERTIFICATE OF INCORPORATION PROHIBITS CERTAIN
INSTITUTIONAL INVESTORS FROM OWNING MORE THAN ONE SHARE LESS THAN
10% OF THE COMPANY'S OUTSTANDING VOTING SECURITIES AND ANY OTHER
PERSON OR ENTITY OR AFFILIATED PERSONS OR ENTITIES (OTHER THAN
THE FOUNDATION) FROM BENEFICIALLY OWNING MORE THAN ONE SHARE
LESS THAN 5% OF THE COMPANY'S OUTSTANDING VOTING
SECURITIES. SEE "DESCRIPTION OF CAPITAL STOCK."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
------------------
PRICE $ A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
------------------ ------------------ ---------------------
<S> <C> <C> <C>
PER SHARE............................................. $ $ $
TOTAL(3).............................................. $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) EXPENSES ASSOCIATED WITH THE OFFERING, ESTIMATED AT $450,000, ARE
PAYABLE BY THE COMPANY.
(3) THE SELLING STOCKHOLDER HAS GRANTED THE U.S. UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS FROM THE DATE HEREOF, TO PURCHASE UP TO
1,050,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVER-ALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO SELLING STOCKHOLDER WILL BE $ , $
AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
----------------------
THE SHARES OF COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND
IF ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY LATHAM & WATKINS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY
OF THE SHARES OF COMMON STOCK WILL BE MADE ON OR ABOUT APRIL , 1998 AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
------------------
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
APRIL , 1998
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Documents Incorporated by Reference................................................................................ 2
Prospectus Summary................................................................................................. 3
Cautionary Disclosure Regarding Forward-Looking Statements......................................................... 8
May 1996 Recapitalization.......................................................................................... 8
August 1997 Reincorporation........................................................................................ 9
Use of Proceeds.................................................................................................... 10
Dividend Policy.................................................................................................... 10
Price Range of Common Stock........................................................................................ 10
Selling Stockholder................................................................................................ 10
Description of Capital Stock....................................................................................... 11
Underwriters....................................................................................................... 14
Legal Matters...................................................................................................... 17
Experts............................................................................................................ 17
Additional Information............................................................................................. 17
</TABLE>
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission (the "Commission") (File No. 001-13803) are incorporated
herein by reference:
(i) the Company's Annual Report on Form 10-K for the year ended December 31,
1997; and
(ii) the Company's Registration Statement on Form 8-B filed June 12, 1997.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date of this Prospectus and prior to the termination of the Offering
made hereby shall be deemed to be incorporated in this Prospectus by reference
and to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge to any person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any document incorporated by reference herein, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
in such document. Requests should be directed to 21555 Oxnard Street, Woodland
Hills, California 91367, Attention: Secretary. The Company's telephone number is
(818) 703-4000.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
THERETO AND OTHER INFORMATION INCORPORATED HEREIN BY REFERENCE. UNLESS THE
CONTEXT OTHERWISE INDICATES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR
"WELLPOINT" ARE TO WELLPOINT HEALTH NETWORKS INC. AND ITS SUBSIDIARIES.
THE COMPANY
The Company is one of the nation's largest publicly traded managed care
companies with approximately 6.6 million medical members and approximately 22
million specialty members as of December 31, 1997. The Company's revenues for
1997 increased 39.7% from 1996 to $5.8 billion and its net income increased
12.6% to $227.4 million. The Company's medical membership increased 48.0% during
1997, or approximately 2,153,000 members, to 6,638,000 members. Membership
growth was primarily driven by the acquisition of approximately 1.3 million
medical members associated with the health and related life group benefit
operations (the "GBO") of John Hancock Mutual Life Insurance Company (the "GBO
Acquisition") in addition to medical membership growth of approximately 854,000
members or 19% in 1997.
The Company offers a broad spectrum of network-based managed care products,
including preferred provider organizations ("PPOs"), health maintenance
organizations ("HMOs") and point-of-service ("POS") and other hybrid plans and
indemnity plans to the large and small employer, individual and senior markets.
The Company offers a continuum of managed care products while providing
incentives to members and employers to select more intensively managed products.
Such products are typically offered at a lower cost in exchange for additional
cost-control measures, such as limited flexibility in choosing non-network
providers. The Company uses its risk management expertise and medical management
skills in managing the medical costs associated with its products. The Company
believes that it is better able to predict and control its health care costs as
its members select more intensively managed products. In addition, the Company
offers managed care services for self-funded employers, including underwriting,
actuarial services, network access, medical cost management and claims
processing. The Company also provides a broad array of specialty and other
products and services, including pharmacy, dental, utilization management, life,
integrated workers' compensation, preventive care, disability, behavioral
health, COBRA and flexible benefits account administration.
The Company markets its products in California primarily under the name Blue
Cross of California and outside of California primarily under the name UNICARE.
BLUE CROSS OF CALIFORNIA. Historically, the Company's primary market for
its managed care products has been California. The Company holds the exclusive
right in California to market its products under the Blue Cross name and mark.
The Company is diversified in its California customer base, with extensive
membership among large and small employer groups and individuals and a growing
presence in the Medicare and Medicaid markets. The Company's California medical
membership increased 17.4% during 1997 to approximately 4,200,000 members
(2,800,000 PPO members and 1,400,000 HMO members). As of December 31, 1997, the
PPO network included approximately 42,000 physicians and 440 hospitals and the
HMO network included approximately 28,000 physicians and 430 hospitals.
WellPoint uses its large California membership to negotiate provider contracts
at favorable rates.
UNICARE. In 1996, the Company began pursuing a nationwide expansion
strategy through selective acquisitions and start-up activities in key
geographic areas. With the acquisition in March 1996 of the Life & Health
Benefits Management division of Massachusetts Mutual Life Insurance Company (the
"MMHD Acquisition") and the GBO Acquisition, the Company has significantly
expanded its operations outside of California. At December 31, 1997, the Company
had approximately 2.4 million members covered under its UNICARE health plans
(including approximately 57,000 members in California), the majority of which
are covered under traditional indemnity and other health insurance products.
Approximately 55% of UNICARE medical membership as of such date was concentrated
in eight states: Illinois, Texas, Massachusetts, Ohio, Michigan, New York,
Georgia and Indiana.
3
<PAGE>
Over the past decade, the Company has transitioned substantially all of its
California indemnity insurance members to managed care products. An element of
the Company's geographic expansion strategy is to replicate its experience in
California in motivating traditional indemnity members to transition to the
Company's broad range of managed care products. The Company believes that its
current UNICARE medical membership provides its UNICARE operations with
sufficient scale to begin development of proprietary provider network systems in
key geographic areas which will enable the Company over time to begin offering a
broader range of managed care products. The Company also intends to use these
new networks to introduce individual, small group and senior products in these
markets. The Company has developed or is actively developing proprietary
networks in Texas, Georgia, Illinois, Indiana, Ohio and Virginia and has
introduced new managed care products in, among other states, Texas, Georgia and
Illinois. The Company intends to use the risk management expertise and medical
management skills that it has developed and refined in the California
marketplace to manage the medical costs in these networks. As of December 31,
1997, UNICARE's proprietary networks included approximately 42,000 primary and
specialty physicians and 350 hospitals.
SPECIALTY MANAGED HEALTH CARE AND OTHER PLANS AND SERVICES. The Company
offers pharmacy, dental, life and disability insurance, mental health,
integrated workers' compensation, and other specialty products and services. As
of December 31, 1997, WellPoint's pharmacy plans served approximately 12.3
million risk and non-risk members and had approximately 49,000 participating
pharmacies. The Company's dental products (which include a dental HMO and PPO)
served approximately 3.2 million members as of December 31, 1997. WellPoint
believes that these specialty networks and plans complement and facilitate the
marketing of WellPoint's PPO, HMO and POS plans and help in attracting employer
groups and other members that are increasingly seeking a wider variety of
options and services. WellPoint also markets these specialty products on a
stand-alone basis to other health plans and other payors.
In May 1996, the Company completed a recapitalization (the
"Recapitalization") with its former majority stockholder, Blue Cross of
California ("BCC"). See "May 1996 Recapitalization." In August 1997, the Company
was effectively reincorporated in Delaware. See "August 1997 Reincorporation."
The Company is a corporation organized under the laws of the State of
Delaware. The Company's principal executive offices are located at 21555 Oxnard
Street, Woodland Hills, California 91367 and its telephone number is (818)
703-4000.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock offered by Selling Stockholder
U.S. Offering.......................... 5,600,000 shares
International Offering................. 1,400,000 shares
Total................................ 7,000,000 shares
Common Stock to be outstanding after the
Offering................................ 69,971,937 shares(1)
Common Stock to be owned by the Selling
Stockholder after the Offering.......... 22,910,000 shares(2)
Use of Proceeds.......................... The Company will not receive any proceeds from the
sale of shares offered hereby by the Selling
Stockholder. See "Use of Proceeds."
New York Stock Exchange symbol........... WLP
</TABLE>
- ------------
(1) Excludes approximately 4,099,000 shares of Common Stock subject to
outstanding options granted by the Company under certain stock option plans,
of which approximately 1,077,000 were exercisable as of December 31, 1997.
(2) Assumes that the over-allotment option of 1,050,000 shares granted by the
Selling Stockholder to the U.S. Underwriters is not exercised. Upon
completion of the Offering, the Selling Stockholder will continue to own
approximately 32.7% of the Company's outstanding Common Stock. If such
over-allotment option is exercised in full, the Selling Stockholder will own
21,860,000 shares of Common Stock, or 31.2% of the Company's outstanding
Common Stock, after the Offering.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth for the periods indicated selected historical
consolidated financial data and historical operating statistics for the Company.
For the years ended December 31, 1993 through 1995 and for the period January 1,
1996 through May 20, 1996 (the effective date of the Recapitalization), the
selected historical consolidated financial data do not include the commercial
operations of BCC (the "BCC Commercial Operations"). Information as of December
31, 1997 and for each of the three years ended December 31, 1997 has been
derived from the Consolidated Financial Statements of WellPoint incorporated
herein by reference, which have been audited by Coopers & Lybrand L.L.P.,
independent public accountants for WellPoint, whose report is incorporated
herein by reference. Information for the years ended December 31, 1993 and 1994
has been derived from WellPoint's audited consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING STATISTICS)
INCOME STATEMENT DATA:
Revenues............................ $ 2,449,175 $ 2,791,672 $ 3,107,079 $ 4,169,782 $ 5,826,444
Operating expenses:
Operating expenses (excluding
nonrecurring costs)............. 2,133,245 2,431,643 2,734,541 3,773,512 5,358,904
Nonrecurring costs................ -- -- 57,074(5) -- 14,535(5)
Operating income.................... 315,930 360,029 315,464 396,270 453,005
Interest expense.................... -- -- -- 36,628 36,658
Net income.......................... $ 165,384 $ 213,170 $ 179,989 $ 202,002 $ 227,409
------------ ------------ ------------ --------------- ------------
------------ ------------ ------------ --------------- ------------
Per share data(1)(2)
Earnings per share................ $ 2.49 $ 3.21 $ 2.71(6) $ 3.04 $ 3.30(6)
Earnings per share assuming full
dilution........................ $ 2.49 $ 3.21 $ 2.71(6) $ 3.04 $ 3.27(6)
OPERATING STATISTICS:(3)
Loss ratio.......................... 73.0% 72.8% 75.6% 77.4% 81.2%
Selling expense ratio............... 6.2% 6.3% 6.4% 5.6% 4.6%
General and administrative expense
ratio............................. 11.2% 12.5% 11.6% 13.6% 15.2%
Net income ratio.................... 7.0% 7.9% 6.1% 5.0% 4.1%
Number of medical members at end of
period(4)......................... 2,322,000 2,617,000 2,797,000 4,485,000 6,638,000
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments................ $ 1,779,495 $ 1,973,388 $ 2,257,269 $ 2,165,492 $ 2,939,445
Total assets........................ 1,921,832 2,385,636 2,679,257 3,405,542 4,533,415
Long-term debt...................... -- -- -- 625,000 388,000
Total equity........................ 1,233,190 1,418,919 1,670,226 870,459(7) 1,223,169
</TABLE>
- ---------
(1) Per share data for all periods presented prior to 1996 has been recomputed
using 66,366,500 shares, the number of shares outstanding immediately
following completion of the Recapitalization on May 20, 1996. Per share data
for 1996 has been calculated using such 66,366,500 shares, plus the weighted
average number of shares issued during 1996 after the Recapitalization.
(2) Per share data for periods prior to 1997 has been restated to reflect the
adoption of SFAS No. 128, "Earnings Per Share."
6
<PAGE>
(3) The loss ratio represents health care services and other benefits as a
percentage of premium revenue. All other ratios are shown as a percentage of
premium revenue and management services revenue combined.
(4) Membership numbers are unaudited and approximate and include some estimates
based upon the number of contracts at the relevant date and an actuarial
estimate of the number of members represented by each contract.
(5) The nonrecurring costs in 1995 included $29.8 million of costs, primarily
professional fees, associated with the proposed recapitalization of the
Company and the terminated acquisition of Health Systems International, Inc.
and $27.3 million for the impairment of the Company's pharmaceutical
benefits management business. The nonrecurring costs in 1997 included $8.0
million related to the write-down of certain California dental and medical
practices being developed by the Company and $6.5 million of severance and
retention payments associated with the GBO Acquisition.
(6) Per share data for the year ended December 31, 1995 includes nonrecurring
costs of $0.52 per share and for the year ended December 31, 1997 includes
nonrecurring costs of $0.13 per share.
(7) Reflects the impact of the Company's May 1996 Recapitalization. See "May
1996 Recapitalization" and "Dividend Policy."
7
<PAGE>
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
Securities Act of 1933, as amended (the "Securities Act")). Such statements
involve a number of risks and uncertainties which may cause actual results to
differ from those projected. Factors that can cause actual results to differ
materially include, but are not limited to, those discussed under
"Business--Factors That May Affect Future Results of Operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Results of Operations" in the
Company's Annual Report on Form 10-K and in other documents filed from time to
time by the Company with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date made. The Company undertakes no obligation to update
these forward-looking statements as a result of any events or circumstances
after the date made or to reflect the occurrence of unanticipated events.
MAY 1996 RECAPITALIZATION
On May 20, 1996, BCC and one of the Company's predecessors, WellPoint Health
Networks Inc., a Delaware corporation ("Old WellPoint"), concluded the
Recapitalization pursuant to which, (a) Old WellPoint distributed an aggregate
of $995.0 million by means of a special dividend of $10.00 per share of its
common stock, and BCC, as a California nonprofit public benefit corporation,
thereupon immediately donated its portion thereof ($800 million) to the
California Endowment (the "Endowment"), a newly created foundation; (b) BCC
donated its assets, other than BCC's Old WellPoint Class B Common Stock and the
BCC Commercial Operations to the Foundation; (c) BCC changed its status to a
California for-profit business corporation and issued to the Foundation
53,360,000 shares of its common stock; and (d) Old WellPoint merged with and
into BCC (the "Merger") and the surviving California corporation changed its
name to WellPoint Health Networks Inc. ("WellPoint California"). In the Merger,
(i) each outstanding share of Old WellPoint Class A Common stock was converted
into 0.667 shares of WellPoint California's Common Stock, (ii) the outstanding
shares of WellPoint California's Common Stock held by the Foundation prior to
the Merger were converted into 53,360,000 shares of the post-Merger WellPoint
California's Common Stock and a cash payment of $235.0 million to reflect the
value of the BCC Commercial Operations and the value of the Blue Cross mark and
(iii) the outstanding shares of Old WellPoint Class B Common Stock were
canceled.
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"), which owns
the rights to the Blue Cross name and mark. The BCBSA and the Company entered
into the License Agreement effective as of May 20, 1996 (the "License
Agreement"), pursuant to which the Company became the exclusive licensee for the
right to use the Blue Cross name and related service marks in California and
became a member of the BCBSA.
The License Agreement required that the Foundation enter into a 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 will be
voted (i) with respect to elections and removal of directors, calling of
stockholder meetings and amendment of the Company's Certificate 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, 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
8
<PAGE>
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.
Pursuant to an addendum to the License Agreement, the Foundation's Board of
Directors was required to consist of a majority of persons that served as
directors of BCC on or before May 17, 1996 (the "Original Blue Cross
Directors"). In March 1998, the Company, the BCBSA and the Foundation
tentatively agreed to modify this restriction. Pursuant to a proposed amendment
to the Voting Trust Agreement (the "Amended Voting Trust Agreement"), in the
event that the number of Original Blue Cross Directors were to become equal to
the number of non-Original Blue Cross Directors (such occurrence being known as
the "Even Division Date"), the Foundation would be required to immediately make
deposits into the Voting Trust to reduce its holdings outside the Voting Trust
to 20% of the outstanding Common Stock and make additional deposits into the
Voting Trust within one year thereafter to reduce its holdings outside of the
Voting Trust to 5% of the outstanding Common Stock. The Foundation has indicated
to the Company that an Even Division Date may occur in April 1998. In order for
a change in composition of the Foundation Board to be permitted, the Foundation
must obtain the approval of the California Attorney General and the California
Department of Corporations. There can be no assurance that such approvals will
be obtained or that the Amended Voting Trust Agreement will be executed.
With respect to those shares held by the Foundation in excess of the
Ownership Limit (discussed in "Description of Capital Stock" below) that are not
subject to the Voting Trust Agreement, the Foundation has also entered into a
voting agreement (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 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 stockholder meetings and amendment of the
Company's Certificate 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.
In connection with the Recapitalization, the Company and the Foundation also
entered into 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 annual demand and unlimited "piggyback" registration
rights. The sale of Common Stock offered hereby by the Foundation is being made
pursuant to the exercise of demand registration rights.
AUGUST 1997 REINCORPORATION
On August 4, 1997, WellPoint California was effectively reincorporated in
Delaware as the Company by virtue of a merger transaction which resulted in the
Company becoming substantially a holding company with Wellpoint California as a
wholly owned subsidiary (the "Reincorporation"). The shareholders of WellPoint
California became the stockholders of the Company and the directors of WellPoint
California became the directors of the Company, maintaining their same class
designations.
In connection with the Reincorporation, the Company assumed the obligations
under various agreements and plans of WellPoint California, including its
existing stock option plans and employee stock purchase plan. In addition,
WellPoint California's license agreement with BCBSA was terminated, and a new
license agreement between the Company and the BCBSA, having substantially the
same terms, became effective. Certain of the agreements with the Foundation
(including the Voting Agreement, Voting Trust Agreement and Registration Rights
Agreement) were amended and restated and assumed by the Company. The Company
also assumed the obligations under WellPoint California's senior credit
agreement, pursuant to an amendment to such agreement.
9
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock being offered hereby by the Selling Stockholder. See "Selling
Stockholder."
DIVIDEND POLICY
The Company currently intends to retain all of its current and future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. In connection with the Recapitalization,
Old WellPoint paid a special dividend of $10.00 per share to the holders of its
Class A and Class B Common Stock. See "May 1996 Recapitalization." The payment
of any future dividends will be at the discretion of the Company's Board of
Directors.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "WLP." The following table sets forth for the periods indicated the
high and low sale prices for the Common Stock since the completion of the
Recapitalization.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Year Ended December 31, 1996 (Post-Recapitalization)
Second Quarter (May 21, 1996 to June 30, 1996)............................................... $ 39.13 $ 31.13
Third Quarter................................................................................ 33.75 23.38
Fourth Quarter............................................................................... 35.50 28.25
Year Ended December 31, 1997
First Quarter................................................................................ 45.88 32.88
Second Quarter............................................................................... 51.00 37.75
Third Quarter................................................................................ 60.50 46.25
Fourth Quarter............................................................................... 58.81 38.81
Year Ending December 31, 1998
First Quarter (through March 27, 1998)....................................................... 70.06 42.25
</TABLE>
On March 30, 1998 the closing price on the New York Stock Exchange for the
Company's Common Stock was $66.81 per share. As of March 27, 1998, there were
approximately 1,110 holders of record of Common Stock.
SELLING STOCKHOLDER
As of March 15, 1998, the Foundation owned 29,910,000 shares of the
Company's Common Stock, representing approximately 42.7% of the total 69,971,937
shares of Common Stock outstanding. Following the Offering, the Foundation will
own 22,910,000 shares of WellPoint Common Stock, which will represent
approximately 32.7% of the outstanding shares (or, if the over-allotment option
is exercised in full, 21,860,000 shares of WellPoint Common Stock, which will
represent approximately 31.2% of the outstanding shares). Such ownership,
however, is subject to the provisions of a Voting Agreement, which may inhibit
or delay changes of control or other significant corporate events. In certain
instances, the shares owned by the Foundation may also become subject to the
provisions of the Voting Trust Agreement. See "May 1996 Recapitalization." The
Foundation, while not being entitled to exercise a majority of the outstanding
voting power of WellPoint, will by virtue of the voting power under its control
have the ability to exert influence over stockholder actions, including the sale
or merger of WellPoint. In exercising this voting power, the Foundation may have
interests that diverge from those of WellPoint's other stockholders.
The Company has entered into a Registration Rights Agreement with the
Foundation, granting the Foundation certain annual demand and unlimited
"piggyback" registration rights. Sales of substantial amounts of Common Stock in
the public market pursuant to any exercise of such rights may adversely affect
the market price of WellPoint Common Stock. The shares being sold in the
Offering by the Foundation are being sold pursuant to the exercise of its demand
registration rights.
10
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Under the Company's Restated Certificate of Incorporation (the "Certificate
of Incorporation"), the Company is authorized to issue up to 300,000,000 shares
of Common Stock, $0.01 par value ("Common Stock"). As of March 15, 1998, there
were 69,971,937 shares of Common Stock issued and outstanding. In addition, up
to 7,400,000 shares (excluding any decreases that have occurred as a result of
issuances) have been reserved for issuance upon the exercise of options and
awards or upon purchase under the Company's 1994 Stock Option/Award Plan,
Employee Stock Purchase Plan and Employee Stock Option Plan. ChaseMellon
Shareholder Services, L.L.C. is the transfer agent and registrar of the shares
of Common Stock.
The Common Stock is not redeemable, does not have any conversion rights and
is not subject to call. Holders of shares of Common Stock have no preemptive
rights to maintain their percentage of ownership in future offerings or sales of
stock of the Company. Holders of shares of Common Stock have one vote per share
on all matters submitted to a vote of stockholders of the Company, except with
respect to shares of Common Stock owned by the Selling Stockholder pursuant to
the Voting Agreement and the Voting Trust Agreement as described under the
caption "May 1996 Recapitalization." Subject to the restrictions on shares owned
in excess of the Ownership Limit as described below, the holders of Common Stock
are entitled to receive dividends, if any, as and when declared from time to
time by the Board of Directors of the Company out of assets or funds legally
available therefor. See "--Certain Charter Provisions That May Limit Changes in
Control--Restrictions on Ownership and Transfer." The holders of Common Stock do
not have cumulative voting rights. Upon liquidation, dissolution or winding up
of the affairs of the Company, the holders of Common Stock will be entitled to
participate ratably, in proportion to the number of shares held, in the net
assets of the Company available for distribution to holders of Common Stock. The
shares of Common Stock currently outstanding (including the shares offered
hereby by the Selling Stockholder) are fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 50,000,000 shares of Preferred
Stock, $0.01 par value ("Preferred Stock"), none of which is outstanding as of
the date hereof. The Board of Directors has the authority to issue Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions, including dividend rights, voting rights, conversion rights, terms
of redemption and liquidation preferences, without any further vote or action by
the Company's stockholders, unless action is required by applicable laws or
regulations or by the terms of other outstanding preferred stock. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company.
CERTAIN CHARTER PROVISIONS THAT MAY LIMIT CHANGES IN CONTROL
The License Agreement requires as a condition to the Company's retention of
the Blue Cross license that the Company's Certificate of Incorporation contains
the following provisions:
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Company's Certificate of Incorporation provides that no person other
than the Foundation may Beneficially Own (as defined) shares of voting capital
stock of the Company in excess of the Ownership Limit. As a result of an
agreement between the Company and the BCBSA executed in December 1997, in
accordance with the provisions of Article VII, Section 14(f)(2) of the Company's
Certificate of Incorporation, the Ownership Limit is the following: (i) for any
"Institutional Investor," one share less than 10% of the Company's outstanding
voting securities; and (ii) for any "Noninstitutional Investor," other than the
Foundation, one share less than 5% of the company's outstanding voting
securities. For these purposes, "Institutional Investor" means any person if
(but only if) such person is (1) a broker or dealer registered under Section 15
of the Exchange Act, (2) a bank as defined in Section 3(a)(6) of the Exchange
Act, (3) an
11
<PAGE>
insurance company as defined in Section 3(a)(19) of the Exchange Act, (4) an
investment company registered under Section 8 of the Investment Company Act of
1940, (5) an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, (6) an employee benefit plan, or pension fund which is
subject to the provisions of the Employee Retirement Income Security Act of 1974
or an endowment fund, (7) a parent holding company, provided the aggregate
amount held directly by the parent, and directly and indirectly by its
subsidiaries which are not persons specified in paragraphs (1) through (6), does
not exceed one percent of the securities of the subject class, or (8) a group,
provided that all the members are persons specified in paragraphs (1) through
(7). In addition, every filing made by such person with the SEC under
Regulations 13D-G (or any successor Regulations) under the Exchange Act with
respect to such person's beneficial ownership must contain a certification (or a
substantially similar one) that the WellPoint Common Stock acquired by such
person was acquired in the ordinary course of business and was not acquired for
the purpose of and does not have the effect of changing or influencing the
control of WellPoint and was not acquired in connection with or as a participant
in any transaction having such purpose or effect. For such purposes,
"Noninstitutional Investor" means any person that is not an Institutional
Investor.
Any transfer of stock that would result in any person Beneficially Owning
shares of voting capital stock in excess of the Ownership Limit will result in
such intended transferee acquiring no rights in such shares (with certain
exceptions) and such shares will be deemed transferred to an escrow agent to be
held until such time as such shares are transferred to a person whose
acquisition thereof will not violate the Ownership Limit. These provisions
prevent a third party from obtaining control of the Company without obtaining
the supermajority vote required to amend the Company's Certificate of
Incorporation and may have the effect of discouraging or even preventing a
merger or business confirmation, a tender offer or similar extraordinary
transaction involving WellPoint.
STOCKHOLDERS' MEETINGS
The Company's Certificate of Incorporation provides that special meetings of
the stockholders may be called at any time only by a majority of the 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. This provision
will make it more difficult for stockholders to take actions opposed by the
Board of Directors.
NO ACTION BY STOCKHOLDER CONSENT
The Company's Certificate of Incorporation prohibits action that is required
or permitted to be taken at any annual or special meeting of stockholders of the
Company from being taken by the written consent of stockholders without a
meeting.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide that the
Company's Board of Directors is divided into three classes, with each class
consisting, as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. These classes (after an interim
period) will serve for staggered three-year terms. The classified Board
provisions could have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company, even
though such an attempt might be beneficial to the Company and its stockholders.
In addition, these provisions could delay stockholders who do not like the
policies of the Board of Directors from removing a majority of the members of
the Board for two years unless such stockholders can show cause and obtain the
requisite vote.
SUPERMAJORITY PROVISIONS
Under the Company's Certificate of Incorporation, the affirmative vote of
the holders of at least 75% of each class of the shares of voting capital stock
represented and voting at a duly held meeting of stockholders at which a quorum
is present, voting by class, is required to amend certain provisions of the
12
<PAGE>
Certificate of Incorporation, 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
Company's Certificate of Incorporation, (v) the prohibition on stockholder
action by written consent, (vi) the ownership and transfer restrictions, (vii)
the prohibition on cumulative voting by stockholders and (viii) the requirement
for supermajority stockholder approval to amend such provisions. In addition,
any amendment of the Company's Certificate of Incorporation, and amendment of
certain provisions of the Company's Bylaws, requires the approval of the greater
of two-thirds or seven of the Company's directors.
13
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Smith
Barney Inc., Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Smith Barney Inc., Bear, Stearns International Limited and Donaldson, Lufkin &
Jenrette International are acting as International Representatives, have
severally agreed to purchase, and the Selling Stockholder has agreed to sell to
them, the respective number of shares of Common Stock set forth opposite the
names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................................................
Smith Barney Inc. .................................................................................
Bear, Stearns & Co. Inc............................................................................
Donaldson, Lufkin & Jenrette Securities Corporation................................................
----------
Subtotal......................................................................................... 5,600,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.........................................................
Smith Barney Inc...................................................................................
Bear, Stearns International Limited................................................................
Donaldson, Lufkin & Jenrette International.........................................................
----------
Subtotal......................................................................................... 1,400,000
----------
Total.......................................................................................... 7,000,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under
14
<PAGE>
the laws of the United States or Canada or of any political subdivision thereof
(other than a branch located outside the United States and Canada of any United
States or Canadian Person), and includes any United States or Canadian branch of
a person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of Shares as may be mutually agreed. The per share price of any Shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer of sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article II(3) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such
15
<PAGE>
dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.
The Selling Stockholder has granted to the U.S. Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 1,050,000 additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
set forth next to the names of all U.S. Underwriters in the preceding table.
The Company, the Selling Stockholder and certain executive officers of the
Company have agreed not to sell, offer to sell, grant any options for the sale
of or otherwise dispose of any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock (other than shares issued
by the Company in connection with the acquisition of a business or pursuant to
the Company's employee benefit plans and other than sales by the Selling
Stockholder to the Company) for a period of 90 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated and subject to certain limited exceptions included in the
Underwriting Agreement.
Certain of the Underwriters have been engaged from time to time, and may in
the future be engaged, to perform investment banking and other advisory-related
services to the Company and its affiliates, including the Selling Stockholder,
in the ordinary course of business. In connection with rendering such services
in the past, such Underwriters have received customary compensation, including
reimbursement of related expenses.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
16
<PAGE>
LEGAL MATTERS
The validity of WellPoint Common Stock to be offered in the Offering will be
passed upon for the Company by Gibson, Dunn & Crutcher LLP, San Francisco,
California. Certain legal matters in connection with the Offering will be passed
upon for the Selling Stockholder by Munger, Tolles & Olson LLP, Los Angeles,
California and for the Underwriters by Latham & Watkins, Los Angeles,
California. Latham & Watkins has from time to time represented the independent
directors of WellPoint in various matters, including their consideration and
approval of the Recapitalization.
EXPERTS
The audited consolidated financial statements of WellPoint Health Networks
Inc. and subsidiaries as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, incorporated herein by reference,
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report with respect thereto incorporated herein by reference in
reliance upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Reports, proxy and information
statements and other information filed by the Company with the Commission
pursuant to the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Branch of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company is required to file electronic versions of such material with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Electronic
filings are publicly available at http://www.sec.gov within 24 hours of
acceptance. The Company's stock is listed on the New York Stock Exchange.
Reports, proxy and information statements and other information filed by the
Company can also be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, the Chicago Stock Exchange, 440
South LaSalle Street, Chicago, Illinois 60605, and the Pacific Stock Exchange,
Inc., 301 Pine Street, San Francisco, California 94104, or 233 South Beaudry
Avenue, Los Angeles, California 90012.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
17
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MARCH 31, 1998
7,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 7,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,400,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 5,600,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY
ARE BEING SOLD BY THE CALIFORNIA HEALTHCARE FOUNDATION (THE
"FOUNDATION" OR "SELLING STOCKHOLDER"). SEE "SELLING STOCKHOLDER."
THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE
OF SHARES OFFERED HEREBY. THE COMMON STOCK IS LISTED ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "WLP." ON MARCH
30, 1998, THE LAST REPORTED SALE PRICE OF THE COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $66 13/16
PER SHARE.
AS OF MARCH 15, 1998, THE FOUNDATION OWNED 29,910,000 SHARES OF COMMON STOCK,
REPRESENTING APPROXIMATELY 42.7% OF THE TOTAL SHARES OF COMMON STOCK
OUTSTANDING. FOLLOWING THE OFFERING, THE FOUNDATION WILL OWN 22,910,000 SHARES
OF THE COMPANY'S COMMON STOCK, WHICH WILL REPRESENT APPROXIMATELY 32.7% OF
THE OUTSTANDING SHARES (OR, IF THE OVER-ALLOTMENT OPTION IS EXERCISED IN
FULL, 21,860,000 SHARES OF THE COMPANY'S COMMON STOCK, WHICH WILL
REPRESENT APPROXIMATELY 31.2% OF THE OUTSTANDING SHARES). THE
COMPANY'S CERTIFICATE OF INCORPORATION PROHIBITS CERTAIN
INSTITUTIONAL INVESTORS FROM OWNING MORE THAN ONE SHARE LESS THAN
10% OF THE COMPANY'S OUTSTANDING VOTING SECURITIES AND FOR ANY
OTHER PERSON OR ENTITY OR AFFILIATED PERSONS OR ENTITIES
(OTHER THAN THE FOUNDATION) FROM BENEFICIALLY OWNING MORE
THAN ONE SHARE LESS THAN 5% OF THE COMPANY'S
OUTSTANDING VOTING SECURITIES. SEE "DESCRIPTION OF CAPITAL
STOCK."
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
------------------
PRICE $ A SHARE
----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
------------------ ------------------ ---------------------
<S> <C> <C> <C>
PER SHARE............................................. $ $ $
TOTAL(3).............................................. $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) EXPENSES ASSOCIATED WITH THE OFFERING, ESTIMATED AT $450,000, ARE
PAYABLE BY THE COMPANY.
(3) THE SELLING STOCKHOLDER HAS GRANTED THE U.S. UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS FROM THE DATE HEREOF, TO PURCHASE UP TO
1,050,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, FOR THE PURPOSE OF COVERING
OVER-ALLOTMENTS, IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN
FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS
AND PROCEEDS TO SELLING STOCKHOLDER WILL BE $ , $
AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
----------------------
THE SHARES OF COMMON STOCK ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND
IF ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY LATHAM & WATKINS, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT DELIVERY
OF THE SHARES OF COMMON STOCK WILL BE MADE ON OR ABOUT APRIL , 1998 AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
------------------
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
APRIL , 1998
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Documents Incorporated by Reference................................................................................ 2
Prospectus Summary................................................................................................. 3
Cautionary Disclosure Regarding Forward-Looking Statements......................................................... 8
May 1996 Recapitalization.......................................................................................... 8
August 1997 Reincorporation........................................................................................ 9
Use of Proceeds.................................................................................................... 10
Dividend Policy.................................................................................................... 10
Price Range of Common Stock........................................................................................ 10
Selling Stockholder................................................................................................ 10
Description of Capital Stock....................................................................................... 11
Certain United States Tax Consequences to Non-United States Holders................................................ 14
Underwriters....................................................................................................... 16
Legal Matters...................................................................................................... 19
Experts............................................................................................................ 19
Additional Information............................................................................................. 19
</TABLE>
------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission (the "Commission") (File No. 001-13803) are incorporated
herein by reference:
(i) the Company's Annual Report on Form 10-K for the year ended December 31,
1997; and
(ii) the Company's Registration Statement on Form 8-B filed June 12, 1997.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
after the date of this Prospectus and prior to the termination of the Offering
made hereby shall be deemed to be incorporated in this Prospectus by reference
and to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge to any person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any document incorporated by reference herein, other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
in such document. Requests should be directed to 21555 Oxnard Street, Woodland
Hills, California 91367, Attention: Secretary. The Company's telephone number is
(818) 703-4000.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a discussion of certain anticipated United States income
and estate tax consequences of the ownership and disposition of the Common Stock
by a "Non-U.S. Holder." For the purpose of this discussion, a "Non-U.S. Holder"
is any person or entity that is, as to the United States, a foreign corporation,
a non-resident alien individual, a foreign partnership or a foreign estate or
trust as such terms are defined in the Internal Revenue Code of 1986, as amended
(the "Code"). This discussion does not deal with all aspects of United States
income and estate taxation and does not address foreign, state and local tax
consequences that may be relevant to Non-U.S. Holders in light of their personal
circumstances. Furthermore, the following discussion is based on current
provisions of the Code, existing and proposed regulations promulgated thereunder
and administrative and judicial interpretations as of the date hereof, all of
which are subject to change. Prospective foreign investors are urged to consult
their tax advisors regarding the United States Federal, state, local and
non-United States income and other tax consequences of owning and disposing of
Common Stock.
DIVIDENDS
Distributions by the Company to a Non-U.S. Holder will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Generally, any such dividend
paid to a Non-U.S. Holder of Common stock will be subject to United States
withholding tax either at a rate of 30% of the gross amount of the dividend or
at a lesser rate as may be specified by an applicable income tax treaty. On the
other hand, dividends received by a Non-U.S. Holder that are effectively
connected with a United States trade or business (or, if an income tax treaty
applies, a permanent establishment) conducted by such Non-U.S. Holder are exempt
from such withholding tax. However, such effectively connected dividends, net of
certain deductions and credits, are taxed at the same graduated rates applicable
to United States individuals and corporations. In addition to the graduated tax
described above, dividends received by a corporate Non-U.S. Holder that are
effectively connected with a United States trade or business (or, if an income
tax treaty applies, a permanent establishment) of the corporate Non-U.S. Holder
may also be subject to a branch profits tax at a rate of 30% or at a lesser rate
as may be specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address in a country other than the United States are presumed to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and, under the current interpretation
of United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate (the "address rule"). Thus, Non-U.S. Holders
who receive dividends at addresses outside the United States generally are not
yet required to file tax forms to obtain the benefit of an applicable treaty
rate. Under recently issued Treasury Regulations scheduled to take effect
January 1, 2000 (the "Final Regulations"), the address rule will no longer
apply, and a Non-U.S. Holder who seeks to claim the benefit of an applicable
treaty rate would be required to satisfy certain certification and other
requirements. The Final Regulations also provide special rules regarding
whether, for purposes of determining the applicability of an income tax treaty,
dividends paid to a Non-U.S. Holder that is an entity should be treated as being
paid to the entity itself or to the persons holding an interest in that entity.
A Non-U.S. Holder must file a properly completed and executed U.S. Internal
Revenue Service ("IRS") Form 4224 (or, under the Final Regulations, for
distributions after December 31, 1999, an IRS Form W-8A) with the Company's
withholding agent certifying that the investment to which the distribution
relates is effectively connected with the conduct of a United States trade or
business or is attributable to a permanent establishment of such Non-U.S. Holder
in order to qualify for the exemption from withholding under the effectively
connected income and permanent establishment exemptions discussed above.
14
<PAGE>
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Holder to the extent that they do
not exceed the adjusted basis of the stockholder's Common Stock, but rather will
reduce the adjusted basis of such stock. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Holder's Common Stock, they will give
rise to gain from the sale or exchange of his stock, the tax treatment of which
is described below. Under current regulations, if it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current or accumulated earnings and profits, the distribution will generally
be treated as a dividend for withholding purposes. Under the Final Regulations,
the Company will generally be permitted to make a reasonable estimate of the
amount of such distribution that should be treated as a dividend and therefore
subject to withholding.
A Non-U.S. Holder eligible for a reduced rate of United States withholding
tax pursuant to an income tax treaty or whose dividends have otherwise been
subjected to withholding in an amount that exceeds such holder's United States
federal income tax liability may obtain a refund for any excess amount withheld
by filing an appropriate claim for refund with the IRS.
DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States Federal
income tax on any gain realized upon the sale or other disposition of Common
Stock unless (i) such gain is effectively connected with a United States trade
or business of the Non-U.S. Holder, (ii) in the case of certain Non-U.S. Holders
who are non-resident alien individuals and hold the Common Stock as a capital
asset, such individuals are present in the United States for 183 or more days in
the taxable year of disposition and certain other conditions are met, (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates or (iv) under certain circumstances, the
Company is or has been a "United States real property holding corporation" for
Federal income tax purposes at any time within the shorter of the five-year
period preceding such disposition or such holder's holding period. The Company
has determined that it is not and does not believe that it will become a "United
States real property holding corporation" for Federal income tax purposes. If a
Non-U.S. Holder falls under clause (i) above, the holder will be taxed on the
net gain derived from the sale under regular graduated United States Federal
income tax rates (and, with respect to corporate Non-U.S. Holders, may also be
subject to the branch profits tax described above). If an individual Non-U.S.
Holder falls under clause (ii) above, the holder generally will be subject to a
30% tax on the gain derived from the sale, which gain may be offset by the
capital losses recognized within the same taxable year of such sale.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payor. In addition,
the payor of dividends may rely on the payee's foreign address in determining
that the payee is exempt from backup withholding, unless the payor has knowledge
that the payee is a United States person (as such term is defined in the Code),
except that with regard to payments made after December 31, 1999, the Final
Regulations provide that a Non-U.S. Holder will be entitled to such an exemption
only if it provides an IRS Form W-8 (or satisfies certain documentary evidence
requirements for establishing that it is a non-United States person).
15
<PAGE>
The payment of the proceeds of the disposition of Common Stock to or through
the United States office of a broker is subject to information reporting and
backup withholding at a rate of 31% unless the beneficial owner certifies under
penalties of perjury that it is a non-U.S. Holder or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the payment is made outside the
United States through a non-United States office of a non-United States broker.
However, information reporting requirements (but not backup withholding) will
apply to a payment of disposition proceeds outside the United States through an
office outside the United States of a broker that is (a) a United States person;
(b) a United States controlled foreign corporation or (c) a foreign person 50%
or more of whose gross income for certain periods is from a United States trade
or business unless such broker has documentary evidence in its files of the
owner's foreign status and has no actual knowledge to the contrary.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
ESTATE TAX
An individual Non-U.S. Holder who owns Common Stock at the time of his death
or has made certain lifetime transfers of an interest in Common Stock will be
required to include the value of such Common Stock in his gross estate for
United Stated Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
16
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of Common Stock being registered. All amounts are
estimates except the registration fee and the NASD fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
Registration fee................................................................ $ 160,445
NASD fee........................................................................ 30,500
Printing and engraving.......................................................... 50,000
Legal fees and expenses......................................................... 75,000
Accounting fees and expenses.................................................... 75,000
Blue sky fees and expenses...................................................... 10,000
Transfer agent fees............................................................. 5,000
Miscellaneous................................................................... 44,055
------------
Total......................................................................... $ 450,000
------------
------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Section 145 of the General
Corporation Law of the state of Delaware (the "Delaware Law") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
The Company's Certificate of Incorporation provides that the liability of
the Company's directors to the Company or the Company's stockholders for
monetary damages for breach of fiduciary duty 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 the 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 the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) 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 the Company 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 law.
II-1
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. (CONTINUED)
The Company's Bylaws provide that the Company will indemnify each present
and former director and officer of the Company or a predecessor company and each
of their respective subsidiaries, as such companies exist or have existed, and
such agents of the Company as the Board of Directors shall determine, to the
fullest extent provided by law. In addition, the Company has entered into
indemnification agreements with its directors and certain officers that provide
for the maximum indemnification permitted by law.
Under the terms of the Underwriting Agreement filed as an exhibit hereto,
directors, certain officers and controlling persons of the Company are entitled
to indemnification under certain circumstances, including proceedings under the
Securities Act of 1933 and the Securities Exchange Act of 1934.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of U.S. Underwriting Agreement.
1.2 Form of International Underwriting Agreement.
2.1 Amended and Restated Recapitalization Agreement dated as of March 31, 1995, by and among the
Registrant, Blue Cross of California, WellPoint Health Partnership and Western Foundation for
Health Improvements, incorporated by reference to Exhibit 2.1 of Registrant's Form S-4 dated April
8, 1996
2.2 Agreement and Plan of Reorganization dated as of July 22, 1997 by and among the Registrant,
WellPoint Health Networks Inc., a California corporation ("WellPoint California"), and WLP
Acquisition Corp., incorporated by reference to Exhibit 99.1 of Registrant's Current Report on Form
8-K filed on August 5, 1997
4.1 Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to
the Company's Current Report on Form 8-K filed on August 5, 1997).
4.2 Bylaws of the Company (originally filed as Appendix B to WellPoint California's Schedule 14A filed
May 8, 1997, File No. 333-03292-01, and incorporated herein by reference).
4.3 Specimen of common stock certificate of Wellpoint Health Networks, Inc., incorporated by reference
to Exhibit 4.4 of Registrant's Registration Statement on Form 8-K, Registration No. 001-13083.
5.1 Opinion of Gibson, Dunn & Crutcher LLP.
9.1 Amended and Restated Voting Agreement (incorporated by reference from Exhibit 99.3 to the Company's
Current Report on Form 8-K filed on August 5, 1997).
9.2 Amended and Restated Voting Trust Agreement (incorporated by reference from Exhibit 99.2 to the
Company's Current Report on Form 8-K filed on August 5, 1997).
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in its Opinion filed as Exhibit 5.1).
24.1 Powers of Attorney (see signature page included in Registration Statement).
</TABLE>
- ---------
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purpose of determining any liability
under the Securities Act of 1933, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15 or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LOS ANGELES, CALIFORNIA, ON THE 30TH DAY OF MARCH,
1998.
WELLPOINT HEALTH NETWORKS INC.
By: /S/ LEONARD D. SCHAEFFER
--------------------------------------
Leonard D. Schaeffer
CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Leonard D. Schaeffer and
Thomas C. Geiser and each one of them, his or her true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him or
her and in such person's name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and
all post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming that which each of said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute an
instrument. Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 30th day of March, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- ------------------------------------------------------------------------------
<C> <S>
/s/ LEONARD D. SCHAEFFER
------------------------------- Chairman of the Board and Chief Executive Officer (Principal Executive
Leonard D. Schaeffer Officer)
/s/ DAVID C. COLBY
------------------------------- Executive Vice President and Chief Financial Officer (Principal Financial
David C. Colby Officer)
/s/ S. LOUISE MCCRARY
------------------------------- Senior Vice President, Controller and Chief Accounting Officer (Principal
S. Louise McCrary Accounting Officer)
/s/ DAVID R. BANKS
------------------------------- Director
David R. Banks
/s/ W. TOLIVER BESSON
------------------------------- Director
W. Toliver Besson
/s/ ROGER E. BIRK
------------------------------- Director
Roger E. Birk
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
/s/ SHEILA A. BURKE
------------------------------- Director
Sheila A. Burke
/s/ STEPHEN L. DAVENPORT
------------------------------- Director
Stephen L. Davenport
/s/ JULIE A. HILL
------------------------------- Director
Julie A. Hill
/s/ ELIZABETH A. SANDERS
------------------------------- Director
Elizabeth A. Sanders
</TABLE>
II-5
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
5,600,000 Shares of Common Stock
FORM OF
U.S. UNDERWRITING AGREEMENT
Dated: April __, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
5,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
FORM OF U.S. UNDERWRITING AGREEMENT
April __, 1998
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as U.S. Representatives of the several U.S. Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
WellPoint Health Networks Inc., a Delaware corporation (the
"Company"), and the California HealthCare Foundation, a California non-profit
corporation (the "Selling Stockholder"), confirm their respective agreements
with Morgan Stanley & Co. Incorporated ("Morgan Stanley") and each of the
other U.S. Underwriters named in Schedule A hereto (collectively, the "U.S.
Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Morgan Stanley, Smith
Barney Inc., Bear, Stearns & Co. Inc., and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as representatives (in such capacity, the
"U.S. Representatives"), with respect to (i) the sale by the Selling
Stockholder, and the purchase by the U.S. Underwriters, acting severally and
not jointly, of the respective numbers of shares of Common Stock, par value
$.01 per share, of the Company ("Common Stock") set forth in Schedule A
hereto and (ii) the grant by the Selling Stockholder to the U.S.
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 1,050,000 additional
shares of Common Stock to cover over-allotments, if any. The aforesaid
5,600,000 shares of Common Stock (the "Initial U.S. Securities") to be
purchased by the U.S. Underwriters and all or any part of the 1,050,000
shares of Common Stock subject to the option described in Section 2(b) hereof
(the "U.S. Option Securities") are hereinafter called, collectively, the
"U.S. Securities."
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<PAGE>
It is understood that the Company and the Selling Stockholder are
concurrently entering into an agreement dated the date hereof (the
"International Underwriting Agreement") providing for the offering by the
Selling Stockholder of an aggregate of 1,400,000 shares of Common Stock (the
"International Securities") outside the United States and Canada with Morgan
Stanley & Co. International Limited, Smith Barney Inc., Bear, Stearns
International Limited and Donaldson, Lufkin & Jenrette International (the
"International Managers"). It is understood that the Selling Stockholder is not
obligated to sell and the U.S. Underwriters are not obligated to purchase, any
Initial U.S. Securities unless all of the International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
International Securities are hereinafter collectively called the "Initial
Securities," and the U.S. Securities, and the International Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Morgan Stanley (in such capacity, the "Global Coordinator").
The Company and the Selling Stockholder understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities in the
United States, and a private placement of the U.S. Securities in Canada, as soon
as the U.S. Representatives deem advisable after this Agreement has been
executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-_____) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
Two forms of prospectus are to be used in connection with the offering and sale
of the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical
to the Form of U.S. Prospectus, except for the front cover page and the
inclusion in the Form of International Prospectus of a section under the caption
"Certain United States Tax Considerations for Non-United States Holders." The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement at
the time it became effective (a)
2
<PAGE>
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of
International Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement, is
herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto, schedules thereto, if any, and the documents
incorporated by reference therein (including the exhibits to any such
documents) pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement."
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use
in connection with the offering of the Securities are herein called the "U.S.
Prospectus" and the "International Prospectus," respectively, and
collectively, the "Prospectuses." If Rule 434 is relied on, the terms "U.S.
Prospectus" and "International Prospectus" shall refer to the preliminary
U.S. Prospectus dated March 31, 1998 and preliminary International Prospectus
dated March 31, 1998, respectively, each together with the applicable Term
Sheet and all references in this Agreement to the date of such Prospectuses
shall mean the date of the applicable Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed
to include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of U.S.
Prospectus and Form of International Prospectus) or the Prospectuses (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus
(including the Form of U.S. Prospectus and Form of International Prospectus) or
the Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in
3
<PAGE>
Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in
Section 2(b) hereof, and agrees with each U.S. Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectuses nor any amendments or supplements
thereto, at the time the Prospectuses or any such amendment or supplement
was issued and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any U.S. Underwriter relating to
such U.S. Underwriter through Morgan Stanley expressly for use in the
Registration Statement or the Prospectuses.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to
be incorporated by reference in the Registration Statement and the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
4
<PAGE>
Commission thereunder (the "1934 Act Regulations") and, when read together
with the other information in the Prospectuses, at the time the
Registration Statement became effective, at the time the Prospectuses were
issued and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectuses present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited financial statements included in the Registration Statement.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the state of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
5
<PAGE>
(vii) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the
Company listed on Schedule C hereto (the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock of any such Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
Other than the Subsidiaries, the Company has no subsidiaries which either
(i) are "Significant Subsidiaries," as such term is defined under
Regulation S-X under the 1933 Act, or (ii) are material to the Company's
financial condition or results of operations.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under the
caption "Description of Capital Stock" (except for subsequent issuances, if
any, under the Company's 1994 Stock Option/Award Plan, Employee Stock
Option Plan or Employee Stock Purchase Plan). The shares of issued and
outstanding capital stock, including the Securities to be purchased by the
Underwriters from the Selling Stockholder, have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock, including the Securities to be
purchased by the Underwriters from the Selling Stockholder, was issued in
violation of the preemptive or other similar rights of any securityholder
of the Company.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement and the
International Underwriting Agreement have been duly authorized, executed
and delivered by the Company.
(x) ABSENCE OF MANIPULATION. None of the Company or its
subsidiaries or any of their respective officers and directors has
taken, or will take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(xi) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Common
Stock conforms to all statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder.
6
<PAGE>
(xii) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company
nor any of its subsidiaries is in violation of its charter or bylaws or
in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the International
Underwriting Agreement and the consummation of the transactions
contemplated in this Agreement, the International Underwriting Agreement
and the Registration Statement and compliance by the Company with its
obligations under this Agreement and the International Underwriting
Agreement have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, the
Agreements and Instruments (except for such conflicts, breaches,
defaults or Repayment Events or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xiii) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiv) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or
any subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the consummation of the
transactions contemplated in this Agreement and the International
Underwriting Agreement or the performance by the Company of its obligations
hereunder or thereunder; the aggregate of all pending legal or governmental
7
<PAGE>
proceedings to which the Company or any subsidiary is a party or of which
any of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xv) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xvi) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own, possess, or can acquire on reasonable terms, adequate
rights to use all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary for the conduct of the
business now operated or to be operated by the Company and its
subsidiaries, as described in the Prospectuses, and neither the Company nor
any of its subsidiaries has received any notice or is otherwise aware of
any infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect.
(xvii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations under this Agreement and the International Underwriting
Agreement, in connection with the offering or sale of the Securities by the
Selling Stockholder under this Agreement and the International Underwriting
Agreement, or the consummation of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except such as have
been already obtained or made or as may be required under the 1933 Act or
the 1933 Act Regulations or state or foreign securities laws.
(xviii) KNOX-KEENE LICENSE. Blue Cross of California has been
licensed in the State of California as a health care service plan under the
Knox-Keene Health Care Service Plan Act of 1975, as amended (the
"Knox-Keene Act"), and such license has not been modified since the
issuance thereof (other than modifications filed in the ordinary course of
business) in any respect that would materially and adversely affect the
ability of the Company to conduct its business in the manner described in
the Registration Statement. None of the Company's other subsidiaries are
required to be licensed under the Knox-Keene Act.
8
<PAGE>
(xix) BCBSA LICENSE. The Company is in full compliance with the
requirements of the Blue Cross License Agreement, dated as of August 4,
1997, between the Company and the Blue Cross and Blue Shield Association
(the "BCBSA") and the California Blue Cross License Addendum, dated as of
December 30, 1997, between the Company and the BCBSA, except in each case
where such noncompliance would not have a Material Adverse Effect. Each of
the Company's subsidiaries that is required by the BCBSA as of the date
hereof, or that will be required by the BCBSA as of the Closing Time, to be
a party to a Blue Cross Affiliate License Agreement is in full compliance
with the requirements of such agreement, except in each case where such
noncompliance would not have a Material Adverse Effect.
(xx) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations, including, without limitation, under the Knox-Keene Act
(collectively, "Governmental Licenses"), issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct
the business now operated by them and the Company and its subsidiaries are
in compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to possess such Governmental Licenses
or to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and effect
would not have a Material Adverse Effect; and neither the Company nor any
of its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xxi) TITLE TO PROPERTY. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and its
subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses or (b) do not, singly or in the aggregate,
have a Material Adverse Effect and do not interfere in any material respect
with the use made and proposed to be made of such property by the Company
or any of its subsidiaries; and all of the leases and subleases material to
the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Prospectuses, are in full force and effect, and
neither the Company nor any subsidiary has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or such
subsidiary to the continued possession of the leased or subleased premises
under any such lease or sublease.
9
<PAGE>
(xxii) MAINTENANCE OF INSURANCE. The Company and each of its
subsidiaries maintain insurance policies with respect to such insurable
properties, potential liabilities and occurrences that merit or require
catastrophic insurance in amounts deemed adequate in the reasonable opinion
of the management, or the Company and each of its subsidiaries maintain a
system or systems of self-insurance or assumption of risk which accords
with the practices of similar businesses; all such insurance policies are
in full force and effect; and, at the time that each of the physicians and
physicians groups with which the Company or any of its subsidiaries has
contracted entered into such agreement, such physician or physician group
represented that they had professional liability and medical malpractice
insurance in minimum amounts which the Company believes to be adequate for
such physicians and physician groups generally.
(xxiii) COMPLIANCE WITH TAX LAWS. All material income, payroll and
sales tax returns required to be filed by the Company or any of its
subsidiaries, in any jurisdiction, have been so filed, and all material
taxes, including related withholding taxes, penalties and interest,
assessments and other charges due or claimed to be due from such entities
have been paid, other than those being contested in good faith and for
which adequate reserves have been provided or those currently payable
without penalty or interest.
(xxiv) COMPLIANCE WITH CUBA ACT. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xxv) INVESTMENT COMPANY ACT. The Company is not an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xxvi) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C)
there are no pending or threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens,
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notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or any Environmental Laws.
(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING STOCKHOLDER. The Selling
Stockholder represents and warrants to each U.S. Underwriter as of the date
hereof, as of the Closing Time and, if the Selling Stockholder is selling U.S.
Option Securities on a Date of Delivery, as of each such Date of Delivery, and
agrees with each U.S. Underwriter, as follows:
(i) ACCURATE DISCLOSURE. To the extent that any statements or
omissions made in the Registration Statement or Prospectuses, or any
amendment or supplement thereto, are made in reliance on, and in conformity
with, written information furnished to the Company by or on behalf of the
Selling Stockholder specifically for use in the preparation thereof, each
such part of the Registration Statement, when it became effective, did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statement
therein not misleading, and each such part of either of the Prospectuses,
or of any amendments or supplements thereto, at the time it was issued and
as of the Closing Time, did not include nor will it include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; the Selling
Stockholder is not prompted to sell the Securities to be sold by the
Selling Stockholder hereunder by any material nonpublic information
concerning the Company or any subsidiary of the Company which is not set
forth in the Prospectuses. The Company and the Underwriters acknowledge
that the statements relating to such Selling Stockholder under the heading
"May 1996 Recapitalization" and "August 1997 Reincorporation" (but only
insofar as such paragraphs purport to describe agreements to which the
Selling Stockholder is a party) and "Selling Stockholder" in any Prospectus
constitute the only information furnished in writing by or on behalf of
such Selling Stockholder for inclusion in the Registration Statement or any
Prospectus.
(ii) AUTHORIZATION OF AGREEMENTS. The Selling Stockholder has
the full right, power and authority to enter into this Agreement, the
International Underwriting Agreement and to sell, transfer and deliver
the Securities to be sold by the Selling Stockholder hereunder. The
execution and delivery of this Agreement, the International Underwriting
Agreement and the sale and delivery of the Securities to be sold by the
Selling Stockholder and the consummation of the transactions
contemplated in this Agreement and the International Underwriting
Agreement and compliance by the Selling Stockholder with its obligations
hereunder have been duly authorized by the Selling Stockholder and do
not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be
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sold by the Selling Stockholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease or
other agreement or instrument to which the Selling Stockholder is a party
or by which the Selling Stockholder may be bound, or to which any of the
property or assets of the Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the charter or by-laws
or other organizational instrument of the Selling Stockholder, if
applicable, or any applicable treaty, law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Selling Stockholder or any of its properties.
(iii) GOOD AND MARKETABLE TITLE. The Selling Stockholder has and
will at the Closing Time and, if any Option Securities are purchased, on
the Date of Delivery have good and marketable title to the Securities to be
sold by the Selling Stockholder hereunder, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance of
any kind, other than pursuant to this Agreement, the International
Underwriting Agreement and the Voting Agreement and the Voting Trust
Agreement, each as defined in the Registration Statement; and upon delivery
of such Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any adverse
claim, each of the Underwriters will receive good and marketable title to
the Securities purchased by it from the Selling Stockholder, free and clear
of any security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
(iv) ABSENCE OF MANIPULATION. The Selling Stockholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(v) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or consent,
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Selling Stockholder of its
obligations under this Agreement or the International Underwriting
Agreement, or in connection with the sale and delivery of the Securities
under this Agreement or the International Underwriting Agreement or the
consummation of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except such as may have previously
been made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities laws.
(vi) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Selling Stockholder will
not, without the prior written consent of Morgan Stanley, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any share of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
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(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise,
provided, that Morgan Stanley shall give the Selling Stockholder at
least two business days' notice of any waiver of the restriction on
sales by the Company contained in Section 3(h) hereof and the Selling
Stockholder shall be deemed to have been granted a waiver of this
subsection 3(b)(vi) on the same terms as any such waiver granted to the
Company. The foregoing sentence shall not apply to the Securities to be
sold (w) hereunder or (x) under the International Underwriting
Agreement, or (y) to any deposit or withdrawal of Common Stock in or from
the trust established pursuant to the Voting Trust Agreement or (z) to
the Company.
(vii) NO ASSOCIATION WITH NASD. Neither the Selling Stockholder
nor any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, or has any other association with (within the meaning of Article I,
Section 1(m) of the By-laws of the National Association of Securities
Dealers, Inc.), any member firm of the National Association of Securities
Dealers, Inc.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby; and any certificate signed by or on behalf of the
Selling Stockholder as such and delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters pursuant to the terms of
this Agreement shall be deemed a representation and warranty by the Selling
Stockholder as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.
(a) INITIAL U.S. SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Stockholder agrees to sell to each U.S. Underwriter and each
U.S. Underwriter, severally and not jointly, agrees to purchase from the Selling
Stockholder, at the price per share set forth in Schedule B, the number of
Initial U.S. Securities set forth in Schedule A, plus any additional number of
Initial U.S. Securities which such U.S. Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof, subject, in each case,
to such adjustments among such U.S. Underwriters as the U.S. Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.
(b) U.S. OPTION SECURITIES. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Stockholder hereby grants an option to
the U.S. Underwriters, severally and not jointly, to purchase up to an
additional 1,050,000 shares of Common Stock at the price per share set forth in
Schedule B, less an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial U.S. Securities but not
payable on the U.S. Option Securities. The option
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hereby granted will expire 30 days after the date hereof and may be exercised
in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Selling Stockholder setting forth the number of U.S.
Option Securities as to which the several U.S. Underwriters are then
exercising the option and the time and date of payment and delivery for such
U.S. Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Global Coordinator, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined. If the option
is exercised as to all or any portion of the U.S. Option Securities, each of
the U.S. Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of U.S. Option Securities then being purchased
which the number of Initial U.S. Securities set forth in Schedule A opposite
the name of such U.S. Underwriter bears to the total number of Initial U.S.
Securities, subject in each case to such adjustments as the U.S.
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) PAYMENT. The closing of the purchase and sale of the Initial
Securities, including acknowledgment of the payment of the purchase price
therefor and delivery of certificates therefor, shall be at the offices of
Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071, or
at such other place as shall be agreed upon by the U.S. Representatives and the
Company and the Selling Stockholder, at 7:00 A.M. (California time) on the third
business day (or the fourth business day, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given business day) after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
U.S. Representatives and the Selling Stockholder (such time and date of payment
and delivery being herein called "Closing Time"). Delivery of certificates for
the Initial Securities shall be made at the Closing Time at the office of Morgan
Stanley 1585 Broadway, New York, New York 10036.
In addition, in the event that any or all of the U.S. Option
Securities are purchased by the U.S. Underwriters, payment of the purchase price
for, and delivery of certificates for, such U.S. Option Securities shall be made
at the above-mentioned offices, or at such other place as shall be agreed upon
by the U.S. Representatives and the Company and the Selling Stockholder, on each
Date of Delivery as specified in the notice from the U.S. Representatives to the
Company and the Selling Stockholder.
Payment shall be made to the Selling Stockholder by wire transfer of
immediately available funds to a bank account designated by the Selling
Stockholder not later than two business days preceding the Closing Time against
delivery to the U.S. Representatives for the respective accounts of the U.S.
Underwriters of certificates for the Securities to be purchased by them. It is
understood that each U.S. Underwriter has authorized the U.S. Representatives,
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial U.S. Securities and the U.S. Option Securities,
if any, which it has agreed to purchase. Morgan Stanley, individually and not
as representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
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Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
U.S. Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUEST. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the U.S. Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectuses or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly whether the
form of any prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the U.S. Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectuses included in the
Registration Statement at the time it became effective or to the Prospectuses,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
U.S. Representatives with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which the U.S. Representatives or counsel for the
U.S. Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the U.S. Representatives and counsel for the U.S. Underwriters,
without charge, signed copies of
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the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also
deliver to the U.S. Representatives, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the U.S. Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each U.S.
Underwriter, without charge, as many copies of each preliminary prospectus as
such U.S. Underwriter reasonably requested, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each U.S. Underwriter, without charge, during the period when the
U.S. Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
such number of copies of the U.S. Prospectus (as amended or supplemented) as
such U.S. Underwriter may reasonably request. The U.S. Prospectus and any
amendments or supplements thereto furnished to the U.S. Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the Securities
as contemplated in this Agreement, the International Underwriting Agreement and
the Prospectuses. If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Securities, any event shall
occur or condition shall exist as a result of which it is necessary, in the
reasonable opinion of counsel for the U.S. Underwriters or for the Company, to
amend the Registration Statement or amend or supplement the Prospectuses in
order that the Prospectuses will not include any untrue statements of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the time it
is delivered to a purchaser, or if it shall be necessary, in the reasonable
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement the Prospectuses in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b) of the 1933 Act, such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectuses comply with
such requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the U.S. Representatives may designate
and to maintain such qualifications in effect for a period of not less than one
year from the later of the effective date of the Registration Statement and any
Rule 462(b) Registration
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Statement; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Securities have been so qualified, the Company
will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not
less than one year from the effective date of the Registration Statement and
any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from
the date of the Prospectuses, the Company will not, without the prior written
consent of Morgan Stanley (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold under
this Agreement and the International Underwriting Agreement, (B) any shares
of Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectuses, (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to the Company's 1994 Stock
Option/Award Plan, Employee Stock Option Plan, Employee Stock Purchase Plan
or any other existing employee benefit plans of the Company referred to in
the Prospectuses (as well as the filing of any registration statement on Form
S-8 (or similar form) for the purpose of registering under the 1933 Act
shares of Common Stock issued in connection with any such plan), (D) any
shares of Common Stock issued pursuant to any dividend reinvestment plan, (E)
the issuance by the Company of up to 50,000 shares of Common Stock pursuant
to a restricted stock plan for agents and brokers which market the products
of the Company or any of its Subsidiaries (as well as the filing of any
registration statement on Form S-3 (or similar form) for the purpose of
registering under the 1933 Act shares of Common Stock issued in connection
with any such plan) and cash-settled stock appreciation rights that the
Company may issue to agents or brokers, (F) the issuance of securities in
connection with the acquisition of a business or (G) the purchase of
Securities from the Selling Stockholder.
(i) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to
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be filed with the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the 1934 Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay or cause to be paid all expenses
incident to the performance of its or the Selling Stockholder's obligations
under this Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, the International
Underwriting Agreement, any Agreement among Underwriters, the Intersyndicate
Agreement and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale or delivery of the Securities to the Underwriters
and the transfer of the Securities between the U.S. Underwriters and the
International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of the Preliminary Blue Sky Survey, the Final Blue Sky Survey and any
supplements thereto, (vi) the printing and delivery to the Underwriters of
copies of each preliminary prospectus, any Term Sheets and of the Prospectuses
and any amendments or supplements thereto, (vii) the preparation, printing and
delivery to the Underwriters of copies of the Preliminary Blue Sky Survey, the
Final Blue Sky Survey and any supplements thereto, (viii) the fees and expenses
of any transfer agent or registrar for the Securities, (ix) the filing fees
incident to the review by the National Association of Securities Dealers, Inc.
(the "NASD") of the terms of the sale of the Securities and (x) the fees and
expenses incurred in connection with the listing of the Securities on the New
York Stock Exchange. The Selling Stockholder will pay or cause to be paid the
fees and expenses of its counsel, agents and advisors for which it is
responsible under the terms of the Registration Rights Agreement between the
Selling Stockholder and the Company.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or
Section 9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the U.S. Underwriters. If this Agreement is
terminated by the U.S. Representatives in accordance with the provisions of
Section 11 hereof, the Selling Stockholder shall reimburse the U.S. Underwriters
for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the U.S. Underwriters.
(c) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect any agreement that the Company and the Selling Stockholder may make for
the sharing of such costs and expenses.
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SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company and the Selling
Stockholder contained in Section 1 hereof or in certificates of any officer
of the Company or any subsidiary of the Company or on behalf of the Selling
Stockholder delivered pursuant to the provisions hereof, to the performance
by the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the U.S. Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Gibson, Dunn & Crutcher LLP, counsel for the Company, in form and
substance satisfactory to counsel for the U.S. Underwriters, together with
signed or reproduced copies of such letter for each of the other U.S.
Underwriters to the effect set forth in Exhibit A hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request.
(c) OPINION OF GENERAL COUNSEL FOR THE COMPANY. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Thomas C. Geiser, Esq., general counsel for the Company, in form and
substance satisfactory to counsel for the U.S. Underwriters, together with
signed or reproduced copies of such letter for each of the other U.S.
Underwriters to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request.
(d) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER. At Closing Time, the
U.S. Representatives shall have received the favorable opinion, dated as of
Closing Time, of Munger, Tolles & Olson LLP, counsel for the Selling
Stockholder, in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for each
of the other U.S. Underwriters to the effect set forth in Exhibit C hereto and
to such further effect as counsel to the U.S. Underwriters may reasonably
request.
(e) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Latham & Watkins, counsel for the U.S. Underwriters, together with
signed or reproduced copies of such letter for each of the other U.S.
Underwriters with respect to the matters set forth in clauses (i) (solely with
respect to the Company), (ii) (solely with respect to the Company), (v) through
(vii),
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inclusive, (ix) (solely as to the information in the Prospectus under
"Description of Capital Stock--Common Stock") and the penultimate paragraph
of Exhibit A hereto. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the laws of the
States of New York, Delaware and California and the federal securities laws
of the United States, upon the opinions of counsel satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
in all material respects with all agreements and satisfied all conditions on its
part to be performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or, to
such persons' knowledge, are contemplated by the Commission.
(g) CERTIFICATE OF SELLING STOCKHOLDER. At Closing Time, the U.S.
Representatives shall have received a certificate of an officer of the Selling
Stockholder, dated as of Closing Time, to the effect that (i) the
representations and warranties of the Selling Stockholder contained in Section
1(b) hereof are true and correct in all respects with the same force and effect
as though expressly made at and as of Closing Time and (ii) the Selling
Stockholder has complied in all material respects with all agreements and all
conditions on its part to be performed under this Agreement at or prior to
Closing Time.
(h) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from Coopers & Lybrand
L.L.P. a letter dated such date, in form and substance satisfactory to the U.S.
Representatives, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(i) BRING-DOWN COMFORT LETTER. At Closing Time, the U.S. Representatives
shall have received from Coopers & Lybrand L.L.P. a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (h) of this Section,
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except that the specified date referred to shall be a date not more than
three business days prior to Closing Time.
(j) LOCK-UP AGREEMENTS. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form of
Exhibit D hereto signed by each of the persons listed on Schedule D hereto.
(k) CONDITIONS TO PURCHASE OF U.S. OPTION SECURITIES. In the event that
the U.S. Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the U.S. Option Securities, the representations
and warranties of the Company and the Selling Stockholder contained herein and
the statements in any certificates furnished by the Company, any subsidiary of
the Company and the Selling Stockholder hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming
that the certificate delivered at the Closing Time pursuant to Section
5(f) hereof remains true and correct as of such Date of Delivery.
(ii) CERTIFICATE OF SELLING STOCKHOLDER. A certificate, dated
such Date of Delivery, of an officer of the Selling Stockholder
confirming that the certificate delivered at Closing Time pursuant to
Section 5(g) remains true and correct as of such Date of Delivery.
(iii) OPINION OF COUNSEL FOR COMPANY. The favorable opinion of
Gibson, Dunn & Crutcher LLP, counsel for the Company, in form and
substance satisfactory to counsel for the U.S. Underwriters, dated such
Date of Delivery, relating to the U.S. Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iv) OPINION OF GENERAL COUNSEL FOR COMPANY. The favorable
opinion of Thomas C. Geiser, Esq., general counsel for the Company, in
form and substance satisfactory to counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(c) hereof.
(v) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER. The
favorable opinion of Munger, Tolles & Olson LLP, counsel for the Selling
Stockholder, in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(d) hereof.
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(vi) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. The favorable
opinion of Latham & Watkins, counsel for the U.S. Underwriters, dated
such Date of Delivery, relating to the Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(e) hereof.
(vii) BRING-DOWN COMFORT LETTER. A letter from Coopers &
Lybrand L.L.P., in form and substance satisfactory to the U.S.
Representatives and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the U.S.
Representatives pursuant to Section 5(h) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of Delivery.
(l) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery
counsel for the U.S. Underwriters shall have been furnished with such documents
and opinions as they may reasonably require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Stockholder in connection with the sale of
the Securities as herein contemplated shall be satisfactory in form and
substance to the U.S. Representatives and counsel for the U.S. Underwriters.
(m) TERMINATION OF AGREEMENT. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of U.S. Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant U.S.
Option Securities, may be terminated by the U.S. Representatives by notice to
the Company at any time at or prior to Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that Sections 1, 6, 7
and 8 shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company and the Selling
Stockholder, jointly and severally, agree to indemnify and hold harmless each
U.S. Underwriter and each person, if any, who controls any U.S. Underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or
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any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company and the Selling Stockholder; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Morgan
Stanley), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission to the extent that any such expense
is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through Morgan Stanley expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto) and (B)
the foregoing indemnity agreement with respect to any untrue statement contained
in or omission from a preliminary prospectus shall not inure to the benefit of
the U.S. Underwriter from whom the person asserting any such losses,
liabilities, claims, damages or expenses purchased U.S. Securities, or any
person controlling such U.S. Underwriter, if (i) the Company and the Selling
Stockholder shall sustain the burden of proving that a copy of the U.S.
Prospectus (as then amended or supplemented, if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
the U.S. Underwriters to such person at or prior to the written confirmation of
the sale of such U.S. Securities to such person, (ii) the Company shall have
delivered the U.S. Prospectus (as then supplemented or amended) to the U.S.
Underwriters on a timely basis and in the requisite quantity to permit the U.S.
Underwriters to send or deliver such U.S. Prospectus to such person at or prior
to such written confirmation of the sale of such U.S. Securities and (iii) the
untrue statement contained in or omission from such preliminary prospectus was
corrected in the U.S. Prospectus (or the U.S. Prospectus as amended or
supplemented).
In making a claim for indemnification under this Section 6 or for
contribution under Section 7 hereof by the Company or the Selling Stockholder,
and subject to the further provisions of this paragraph, the indemnified parties
may proceed against either (i) both the Company and the Selling Stockholder
jointly or (ii) the Company only, but may not proceed solely against the Selling
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Stockholder. In the event that the indemnified parties are entitled to seek
indemnity or contribution hereunder against any loss, liability, claim, damage
and expense incurred as contemplated by clauses (a)(i), (a)(ii) or (a)(iii) of
this Section 6, including, without limitation, a final judgment from a trial
court then, as a precondition to any indemnified party obtaining indemnification
or contribution from the Selling Stockholder, the indemnified parties shall
first obtain a final judgment from a trial court that such indemnified parties
are entitled to indemnity or contribution under this Agreement with respect to
such loss, liability, claim, damage or expense (the "Final Judgment") from the
Company and the Selling Stockholder and shall seek to satisfy such Final
Judgment in full from the Company by making a written demand upon the Company
for such satisfaction. Only in the event such Final Judgment shall remain
unsatisfied in whole or in part 30 days following the date of receipt by the
Company of such demand shall any party entitled to indemnification hereunder
have the right to take action to satisfy such Final Judgment by making demand
directly on the Selling Stockholder (but only if and to the extent the Company
has not already satisfied such Final Judgment, whether by settlement, release or
otherwise). The indemnified parties shall, however, be relieved of their
obligation to first obtain a Final Judgment, to seek to obtain payment from the
Company with respect to such Final Judgment or, having sought such payment, to
wait such 30 days after failure by the Company to immediately satisfy any such
Final Judgment if (i) the Company files a petition for relief under the United
States Bankruptcy Code (the "Bankruptcy Code") and such order remains unstayed
and in effect for 60 days, (ii) an order for relief is entered against the
Company in an involuntary case under the Bankruptcy Code and such order remains
unstayed and in effect for 60 days, (iii) the Company makes an assignment for
the benefit of its creditors, or (iv) any court orders or approves the
appointment of a receiver or custodian for the Company or a substantial portion
of its assets and such order remains unstayed and in effect for 60 days.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND SELLING
STOCKHOLDER. Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the
Selling Stockholder and each person, if any, who controls the Selling
Stockholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the U.S. Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information relating to such U.S. Underwriter furnished to the Company
by such U.S. Underwriter through Morgan Stanley expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party
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shall not relieve such indemnifying party from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event
shall the indemnifying parties be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances. No indemnifying party
shall, without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or
Section 7 hereof (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim,
(ii) is accompanied or preceded by reimbursement of expenses of each such
indemnified party pursuant to clause (a)(iii) of this Section 6 and (iii)
does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Stockholder with respect to indemnification.
SECTION 7. CONTRIBUTION. Subject to the last paragraph of Section 6(a)
hereof, if the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any losses, liabilities, claims, damages or expenses referred
to therein, then each indemnifying party shall contribute to the aggregate
amount of such losses, liabilities, claims, damages and expenses incurred by
such indemnified party, as incurred, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the U.S. Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Selling
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Stockholder on the one hand and of the U.S. Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling
Stockholder on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Stockholder and the total
underwriting discount received by the U.S. Underwriters, in each case as set
forth on the cover of the U.S. Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet bear to the aggregate public offering
price of the U.S. Securities as set forth on such cover.
The relative fault of the Company and the Selling Stockholder on the
one hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling Stockholder
or by the U.S. Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholder and the U.S. Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to above in this
Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the
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Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company or the Selling Stockholder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act shall have the same rights to contribution as the Company or the Selling
Stockholder, as the case may be. The U.S. Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among
the Company and the Selling Stockholder with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries or the Selling Stockholder submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company or the Selling Stockholder, and
shall survive delivery of the U.S. Securities to the U.S. Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The U.S. Representatives may terminate this
Agreement, by notice to the Company and the Selling Stockholder, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the U.S. Representatives, impracticable to market the U.S.
Securities or to enforce contracts for the sale of the U.S. Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
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SECTION 10. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. If one or
more of the U.S. Underwriters fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have
the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if,
however, the U.S. Representatives shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, each of the
non-defaulting U.S. Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of the
U.S. Underwriters to purchase and of the Company to sell the U.S. Option
Securities to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the U.S. Underwriters to purchase and the Company to sell the relevant U.S.
Option Securities, as the case may be, either (i) the U.S. Representatives or
(ii) the Company and the Selling Stockholder shall have the right to postpone
Closing Time or the relevant Date of Delivery, as the case may be, for a period
not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectuses or in any other documents or
arrangements. As used herein, the term "U.S. Underwriter" includes any person
substituted for a U.S. Underwriter under this Section 10.
SECTION 11. DEFAULT BY THE SELLING STOCKHOLDER. If the Selling
Stockholder shall fail at Closing Time or at a Date of Delivery to sell and
deliver the number of U.S. Securities which the Selling Stockholder is
obligated to sell hereunder, then the U.S. Underwriters may, at option of the
U.S. Representatives, by notice from the U.S. Representatives to the Company
and the Selling Stockholder terminate this Agreement without any liability on
the fault of any non-defaulting party except that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken
pursuant to this Section 11 shall relieve the Selling Stockholder so
defaulting from liability, if any, in respect of such default.
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In the event of a default by the Selling Stockholder as referred to in
this Section 11, each of the U.S. Representatives and the Company shall have the
right to postpone Closing Time or Date of Delivery for a period not exceeding
seven days in order to effect any required change in the Registration Statement
or Prospectus or in any other documents or arrangements.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at Morgan Stanley,
1585 Broadway, New York, New York 10036, attention of Syndicate Operations
(with a copy, which shall not constitute notice, to Latham & Watkins, 633 W.
Fifth Street, Suite 4000, Los Angeles, California 90071-2007, attention of
Gary Olson, Esq.); notices to the Company shall be directed to it at 21555
Oxnard Street, Woodland Hills, California 91367, attention of Thomas C.
Geiser, Esq., General Counsel (with a copy, which shall not constitute
notice, to Gibson, Dunn & Crutcher LLP, One Montgomery Street, Telesis Tower,
San Francisco, California 94104, attention of William L. Hudson, Esq.); and
notices to the Selling Stockholder shall be directed to California HealthCare
Foundation, c/o Munger, Tolles & Olson LLP, 355 S. Grand Avenue, Suite 3500,
Los Angeles, California 90071, attention of Ruth E. Fisher, Esq.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters, the Company and the Selling
Stockholder and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm
or corporation, other than the U.S. Underwriters, the Company and the Selling
Stockholder and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters, the Company and the
Selling Stockholder and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any U.S. Underwriter shall be deemed to be a successor by
reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME, EXCEPT AS EXPRESSLY NOTED
OTHERWISE.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and to the Selling Stockholder
a counterpart hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the U.S. Underwriters, the Company and the
Selling Stockholder in accordance with its terms.
Very truly yours,
WELLPOINT HEALTH NETWORKS INC.
By
------------------------------------------
Name:
Title:
CALIFORNIA HEALTHCARE FOUNDATION
By
------------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
BEAR, STEARNS & CO., INC.
DONALDSON, LUFKIN & JENRETTE Securities Corporation
By: MORGAN STANLEY & CO. INCORPORATED
By
-----------------------------------------------
Name:
Title:
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
30
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF UNDERWRITER Number of
------------------- Initial
U.S. Securities
---------------
<S> <C>
Morgan Stanley & Co. Incorporated....................
Smith Barney Inc.....................................
Bear, Stearns & Co. Inc..............................
Donaldson, Lufkin & Jenrette Securities Corporation..
Total................................................ 5,600,000
---------------
---------------
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
WELLPOINT HEALTH NETWORKS INC.
5,600,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The public offering price per share for the U.S. Securities,
determined as provided in said Section 2, shall be $_____.
2. The purchase price per share for the U.S. Securities to be
paid by the several U.S. Underwriters shall be $______, being an amount equal
to the public offering price set forth above less $___ per share; provided that
the purchase price per share for any U.S. Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial U.S. Securities but not payable on the U.S.
Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
List of subsidiaries
1. Blue Cross of California
2. BC Life & Health Insurance Company
3. UNICARE Insurance Company
4. UNICARE Life & Health Insurance Company
5. UNICARE of Texas Health Plans, Inc.
Sch C-1
<PAGE>
SCHEDULE D
List of persons and entities
subject to lock-up
Leonard D. Schaeffer
D. Mark Weinberg
Ronald A. Williams
David C. Colby
Thomas C. Geiser, Esq.
S. Louise McCrary
Sch D-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company and each of its Subsidiaries (a) has been
duly organized and (b) is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation.
(ii) The Company and each of its Subsidiaries has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement.
(iii) The Company and each of its Subsidiaries, other than
UNICARE Insurance Company ("UIC") and UNICARE Life & Health Insurance Company
("UL&H"), is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, except where the failure to so qualify would not have a Material
Adverse Effect (such jurisdictions to be listed opposite the name of each of
the Company and the Subsidiaries other than UIC and UL&H on Exhibit 1
hereto). Each of UIC and UL&H is duly qualified as a foreign corporation to
transact business and is in good standing in such jurisdictions as are listed
opposite its name on Exhibit 1 hereto.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectuses under the caption
"Description of Capital Stock" (except for subsequent issuances, if any,
under the Company's 1994 Stock Option/Award Plan, Employee Stock Option Plan
or Employee Stock Purchase Plan); all of the shares of issued and outstanding
capital stock of the Company, including the Securities to be purchased by the
Underwriters from the Selling Stockholder, have been duly authorized and
validly issued and are fully paid and nonassessable and the shares of issued
and outstanding capital stock of each Subsidiary of the Company are owned,
directly or through subsidiaries, by the Company and have been duly
authorized and validly issued, are fully paid and nonassessable and are owned
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(v) The U.S. Underwriting Agreement and the International
Underwriting Agreement have been duly authorized, executed and delivered by
the Company.
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectuses pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to the
best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement has been
A-1
<PAGE>
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectuses, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and Prospectuses, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which such counsel need express no opinion) complied
as to form in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations.
(viii) The documents incorporated by reference in the
Prospectuses (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no
opinion), when they were filed with the Commission, complied as to form in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder.
(ix) The capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectuses under the
caption "Description of Capital Stock," and the form of certificate used to
evidence the Common Stock is in due and proper form and complies in all
material respects with all applicable statutory requirements and the
requirements of the New York Stock Exchange.
(x) There are no legal or governmental proceedings pending or,
to the knowledge of such counsel, threatened to which the Company or any of
its Subsidiaries is or may become a party or to which any of the properties
of the Company or any of its Subsidiaries is or may become subject that are
required to be described in the Registration Statement or the Prospectuses
and are not so disclosed therein and described as required, or any statute or
regulation that is required to be described in the Registration Statement or
the Prospectuses and is not so disclosed therein and described as required;
all pending legal or governmental proceedings to which the Company or any of
its Subsidiaries is a party or to which any of their property is subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the businesses, are, considered in the
aggregate, not material.
(xi) To the knowledge of such counsel, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be filed as exhibits to the Registration Statement which have not
been so filed.
(xii) The information in the Prospectuses under the captions
"May 1996 Recapitalization," "August 1997 Reincorporation," "Selling
Stockholder" and "Certain United States Tax Consequences to Non-United States
Holders," and the information under the caption "May 1996 Recapitalization
and August 1997 Reincorporation" in the Company's Form 10-K which is
incorporated by reference into the Prospectuses to the extent that it
constitutes matters of law, summaries of legal matters,
A-2
<PAGE>
documents or proceedings or legal conclusions, has been reviewed by such counsel
and is correct in all material respects.
(xiii) No authorization, approval, consent or order of any court
or governmental authority or agency is required in connection with the sale
to the Underwriters of the Securities, except such as may be required under
the 1933 Act, the 1934 Act or the respective rules and regulations of the
Commission thereunder or state or foreign securities laws (on which such
counsel expresses no opinion) and the filing of an amendment to the Company's
Health Care Services Plan application with the California Department of
Corporations (which filing has been made); and the execution, delivery and
performance of the U.S. Underwriting Agreement and the International
Underwriting Agreement, and the consummation of the transactions contemplated
thereby by the Company, will not conflict with or constitute a material
breach of or material default, or cause an acceleration of any obligation
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
Subsidiaries pursuant to, any instrument included as an exhibit to the
Registration Statement to which the Company or any of its Subsidiaries is a
party or by which any of them may be bound, or to which any of the property
or assets of the Company or any of its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the charter or bylaws of
the Company or any of its Subsidiaries, or any applicable law, administrative
regulation or administrative or court decree.
(xiv) Neither the Company nor any of its Subsidiaries is (a) in
violation of its articles or certificate of incorporation or bylaws; or (b)
to the knowledge of such counsel, in violation of or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any instrument included as an exhibit to the Registration
Statement to which the Company or any of its Subsidiaries is a party or by
which any of them may be bound, or to which any of the property or assets of
the Company or any of its Subsidiaries is subject, or any applicable law,
administrative regulation or administrative or court order or decree, which
violation or default would have a Material Adverse Effect on the Company and
its subsidiaries considered as one enterprise, as the case may be. The
applicable law, administrative regulations and administrative and court
orders and decrees referred to in clause (b) above are those that a lawyer
exercising customary professional diligence would reasonably recognize as
being directly applicable to the Company, the Subsidiaries or the transaction
contemplated by the U.S. Underwriting Agreement and the International
Underwriting Agreement.
(xv) To the knowledge of such counsel, the Company and its
Subsidiaries possess such certificates necessary to conduct the business now
operated by them. The opinion of such counsel for purposes of this paragraph
is limited to certificates the failure of which to possess would have a
Material Adverse Effect on the Company and its Subsidiaries considered as one
enterprise.
A-3
<PAGE>
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
Nothing has come to the attention of such counsel that would lead
such counsel to believe that the Registration Statement or any amendment
thereto, including the Rule 430A Information and Rule 434 Information (if
applicable), (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which such counsel need make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectuses or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom, as to
which such counsel need make no statement), at the time the Prospectuses were
issued, at the time any such amended or supplemented prospectuses were issued
or at the Closing Time, included or include an untrue statement of a material
fact or omitted or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of
fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
Such opinion shall not state that it is to be governed or qualified by, or
that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-4
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
State of Foreign
Name of Entity Incorporation Qualifications
-------------- ------------- --------------
<S> <C> <C>
WellPoint Health Networks Inc. Delaware California
SUBSIDIARIES
Blue Cross of California California None
UNICARE Insurance Company California Texas, Utah
UNICARE Life & Health Insurance Delaware California, Florida,
Company Georgia, Illinois,
Massachusetts,
New Jersey,
New York, Ohio,
Texas and Virginia
UNICARE of Texas Health Plans, Inc. Texas None
</TABLE>
1
<PAGE>
Exhibit B
FORM OF OPINION OF GENERAL COUNSEL TO THE COMPANY TO BE
DELIVERED PURSUANT TO SECTION 5(c)
(i) The statements under the captions "Item 1. Business--Government
Regulation" and "Item 3. Legal Proceedings" of the Company's Annual Report
on Form 10-K, which is incorporated by reference into the Prospectus, insofar
as such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings and fairly
summarize, in all material respects, the matters referred to therein.
(ii) Each of the Company, Blue Cross of California, WellPoint Dental
Plan and WellPoint Pharmacy Plan has been duly qualified and licensed in the
State of California as a health care service plan under the Knox-Keene Act,
and none of the Company's other subsidiaries are required to be licensed
under the Knox-Keene Act.
(iii) The Company is in full compliance with the requirements of the
Blue Cross License Agreement, dated as of August 4, 1997, between the Company
and the Blue Cross and Blue Shield Association (the "BCBSA") and the
California Blue Cross License Addendum, dated as of December 30, 1997,
between the Company and the BCBSA, except in each case where such
noncompliance would not have a Material Adverse Effect. Each of the
Company's subsidiaries that is required by the BCBSA as of the date of such
opinion to be a party to a Blue Cross Affiliate License Agreement is in full
compliance with the requirements of such agreement, except in each case where
such noncompliance would not have a Material Adverse Effect.
(iv) To such counsel's knowledge, none of the Company and its
subsidiaries have received any notice or correspondence (i) relating to the
loss or threatened loss by the Company or any of its subsidiaries of any
material permit, license, franchise or authorization by any applicable
managed health care or insurance regulatory agency or body or (ii) asserting
that the Company or any of its subsidiaries is not in substantial compliance
with any applicable regulation relating to the operation or conduct of
managed health care or insurance businesses (the "HMO Regulations") or
threatening the taking of any action against the Company or any of its
subsidiaries under any HMO Regulation, except where such noncompliance or the
taking of such action, if adversely determined, would not have a material
adverse effect on the business, operations or financial condition of the
Company and its subsidiaries, taken as a whole.
B-1
<PAGE>
Exhibit C
FORM OF OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(d)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority
or agency (other than the issuance of the order of the Commission declaring
the Registration Statement effective and such authorizations, approvals or
consents as may be necessary under state securities laws, as to which we need
express no opinion), is necessary or required to be obtained by the Selling
Stockholder for the performance by the Selling Stockholder of its obligations
under the U.S. Underwriting Agreement, the International Underwriting
Agreement or in connection with the offer, sale or delivery of the Securities.
(ii) The U.S. Underwriting Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by or on behalf
of the Selling Stockholder.
(iii) The execution, delivery and performance of the U.S. Underwriting
Agreement, the International Underwriting Agreement and the sale and delivery
of the Securities and the consummation of the transactions contemplated in
the U.S. Underwriting Agreement and the International Underwriting Agreement
and compliance by the Selling Stockholder with its obligations under the U.S.
Underwriting Agreement and the International Underwriting Agreement have been
duly authorized by all necessary action on the part of the Selling
Stockholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with, constitute a breach of, or
default under or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities pursuant to, the terms of any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
license, lease or other instrument or agreement known to such counsel and to
which the Selling Stockholder is a party or by which it may be bound, or to
which any of the property or assets of the Selling Stockholder may be subject
nor will such action result in any violation of the provisions of the charter
or by-laws of the Selling Stockholder, if applicable, or any law,
administrative regulation, judgment, order or decree known to us to be
applicable to the Selling Stockholder of any court, regulatory body,
administrative agency or governmental body or arbitrator having jurisdiction
over the Selling Stockholder or any of its properties.
(iv) To the best of such counsel's knowledge, the Selling Stockholder has
valid and marketable title to the Securities to be sold by the Selling
Stockholder pursuant to the U.S. Underwriting Agreement and the International
Underwriting Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind, other than as
disclosed in the Registration Statement, and has full right, power and
authority to sell, transfer and deliver such Securities pursuant to the U.S.
Underwriting Agreement and the International Underwriting Agreement. By
delivery of a certificate or certificates therefor the Selling Stockholder
will transfer to the Underwriters who have purchased such Securities pursuant
to the U.S. Underwriting Agreement and the International Underwriting
Agreement (without notice of any defect in the title of the Selling
Stockholder and who are otherwise bona fide purchasers for purposes of the
Uniform
C-1
<PAGE>
Commercial Code) valid and marketable title to such Securities, free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
C-2
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(l)]
Exhibit D
_______________, 1998
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE Securities Corporation
as U.S. Representatives of the several U.S. Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York
Re: PROPOSED PUBLIC OFFERING BY WELLPOINT HEALTH NETWORKS INC.
Dear Sirs:
The undersigned, a shareholder and an officer and/or director of
WellPoint Health Networks Inc., a California corporation (the "Company"),
understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Smith
Barney Inc., Bear Stearns & Co. Inc., and Donaldson, Lufkin & Jenrette
Securities Corporation propose(s) to enter into a U.S. Underwriting Agreement
(the "U.S. Underwriting Agreement") with the Company and the Selling
Stockholder providing for the public offering of shares (the "Securities") of
the Company's common stock, par value $.01 per share (the "Common Stock").
In recognition of the benefit that such an offering will confer upon the
undersigned as a shareholder and an officer and/or director of the Company,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with each underwriter
to be named in the Underwriting Agreement that, during a period of 90 days
from the date of the Underwriting Agreement provided that such person
continues to be an officer of the Company during such period, the undersigned
will not, without the prior written consent of Morgan Stanley, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of or transfer
any shares of the Company's Common Stock or any securities convertible into
or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file any
registration statement under the Securities Act of 1933, as amended, with
respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise.
Notwithstanding the provisions of the preceding sentence, the
undersigned shall be permitted to sell, transfer or otherwise dispose of
shares of Common Stock to: (1) the undersigned's spouse, children, spouses of
children, siblings and spouses of siblings, provided that any such transferee
D-1
<PAGE>
shall have agreed in writing to be subject to the terms of this letter; and
(2) any trust or charitable foundation established by the undersigned and/or
one or more of the persons listed in the foregoing clause (1), provided that
any such trust or charitable foundation and their respective beneficiaries
shall have agreed in writing to be subject to the terms of this letter.
Very truly yours,
Signature:
-------------------------------
Print Name:
------------------------------
D-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
1,400,000 Shares of Common Stock
FORM OF
INTERNATIONAL UNDERWRITING AGREEMENT
Dated: April __, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
1,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
FORM OF INTERNATIONAL UNDERWRITING AGREEMENT
April __, 1998
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
as U.S. Representatives of the several U.S. Underwriters
c/o Morgan Stanley & Co. International Limited
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
WellPoint Health Networks Inc., a Delaware corporation (the
"Company"), and the California HealthCare Foundation, a California non-profit
corporation (the "Selling Stockholder"), confirm their respective agreements
with Morgan Stanley & Co. International Limited ("Morgan Stanley") and each
of the other international underwriters named in Schedule A hereto
(collectively, the "International Managers," which term shall also include
any underwriter substituted as hereinafter provided in Section 10 hereof),
with respect to (i) the sale by the Selling Stockholder, and the purchase by
the International Managers, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $.01 per share, of
the Company ("Common Stock") set forth in Schedule A hereto (the
"International Securities").
It is understood that the Company and the Selling Stockholder are
concurrently entering into an agreement dated the date hereof (the "U.S.
Underwriting Agreement") providing for the offering by the Selling
Stockholder of an aggregate of 5,600,000 shares of Common Stock (the "Initial
U.S. Securities") in the United States and Canada for which Morgan Stanley &
Co. Incorporated, Smith Barney Inc., Bear, Stearns & Co. Inc., and Donaldson,
Lufkin & Jenrette Securities Corporation (the "U.S. Underwriters") and the
grant by the Selling Stockholder to the U.S. Underwriters, acting severally
and not jointly, of an option to purchase all or any part of the U.S.
Underwriters' pro rata portion of up to 1,050,000 additional shares of Common
Stock solely
1
<PAGE>
to cover overallotments, if any (the "U.S. Option Securities"). The Initial
U.S. Securities and the U.S. Option Securities are hereinafter called the
"U.S. Securities." It is understood that the Selling Stockholder is not
obligated to sell and the International Managers are not obligated to
purchase, any International Securities unless all of the Initial U.S.
Securities are contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are
hereinafter collectively called the "Underwriters," the International
Securities and the Initial U.S. Securities are hereinafter collectively
called the "Initial Securities," and the International Securities and the
U.S. Securities are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing
for the coordination of certain transactions among the Underwriters under the
direction of Morgan Stanley (in such capacity, the "Global Coordinator").
The Company and the Selling Stockholder understand that the
International Managers propose to make an offering of the International
Securities as soon as Morgan Stanley deems advisable after this Agreement has
been executed and delivered.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (No. 333-_______)
covering the registration of the Securities under the Securities Act of 1933,
as amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). Two forms of prospectus are
to be used in connection with the offering and sale of the Securities: one
relating to the International Securities (the "Form of International
Prospectus") and one relating to the U.S. Securities (the "Form of U.S.
Prospectus"). The Form of International Prospectus is identical to the Form
of U.S. Prospectus, except for the front cover page and the inclusion in the
Form of International Prospectus of a section under the caption "Certain
United States Tax Considerations for Non-United States Holders." The
information included in any such prospectus or in any such Term Sheet, as the
case may be, that was omitted from such registration statement at the time it
became effective but that is deemed to be part of such registration statement
at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is
referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of
Rule 434 is referred to as "Rule 434 Information." Each Form of
International Prospectus and Form of U.S. Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
2
<PAGE>
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein (including the exhibits to any
such documents) pursuant to Item 12 of Form S-3 under the 1933 Act, at the
time it became effective and including the Rule 430A Information and the Rule
434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final Form of
International Prospectus and the final Form of U.S. Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use
in connection with the offering of the Securities are herein called the
"International Prospectus" and the "U.S. Prospectus," respectively, and
collectively, the "Prospectuses." If Rule 434 is relied on, the terms
"International Prospectus" and "U.S. Prospectus" shall refer to the
preliminary International Prospectus dated March 31, 1998 and preliminary
U.S. Prospectus dated March 31, 1998, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the International Prospectus, the U.S. Prospectus or
any Term Sheet or any amendment or supplement to any of the foregoing shall
be deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated"
in the Registration Statement, any preliminary prospectus (including the Form
of U.S. Prospectus and Form of International Prospectus) or the Prospectuses
(or other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus (including the Form of U.S. Prospectus and Form of International
Prospectus) or the Prospectuses, as the case may be; and all references in
this Agreement to amendments or supplements to the Registration Statement,
any preliminary prospectus or the Prospectuses shall be deemed to mean and
include the filing of any document under the Securities Exchange Act of 1934
(the "1934 Act") which is incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectuses, as the case may
be.
SECTION 1. Representations and Warranties.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each International Manager as of the date hereof,
as of the Closing Time referred to in Section 2(c) hereof and agrees with
each International Manager, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and
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no stop order suspending the effectiveness of the Registration Statement
or any Rule 462(b) Registration Statement has been issued under the 1933
Act and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time, the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither the Prospectuses nor any amendments or supplements
thereto, at the time the Prospectuses or any such amendment or supplement
was issued and at the Closing Time, included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any International Manager relating
to such International Manager through Morgan Stanley expressly for use in
the Registration Statement or the Prospectuses.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement and
the Prospectuses, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when read
together with the other information in the Prospectuses, at the time the
Registration Statement became effective, at the time the Prospectuses
were issued and at the Closing Time, did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
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(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly
in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectuses present fairly the information shown
therein and have been compiled on a basis consistent with that of the
audited financial statements included in the Registration Statement.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the state of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the
Company listed on Schedule C hereto (the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectuses and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is
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required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be
in good standing would not result in a Material Adverse Effect; except
as otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. Other than the Subsidiaries,
the Company has no subsidiaries which either (i) are "Significant
Subsidiaries," as such term is defined under Regulation S-X under the
1933 Act, or (ii) are material to the Company's financial condition or
results of operations.
(viii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under the
caption "Description of Capital Stock" (except for subsequent issuances, if
any, under the Company's 1994 Stock Option/Award Plan, Employee Stock
Option Plan or Employee Stock Purchase Plan). The shares of issued and
outstanding capital stock, including the Securities to be purchased by the
Underwriters from the Selling Stockholder, have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock, including the Securities to be
purchased by the Underwriters from the Selling Stockholder, was issued in
violation of the preemptive or other similar rights of any securityholder
of the Company.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement and the U.S.
Underwriting Agreement have been duly authorized, executed and delivered by
the Company.
(x) ABSENCE OF MANIPULATION. None of the Company or its
subsidiaries or any of their respective officers and directors has
taken, or will take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(xi) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Common
Stock conforms to all statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder.
(xii) ABSENCE OF DEFAULTS AND CONFLICTS Neither the Company nor
any of its subsidiaries is in violation of its charter or bylaws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any
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subsidiary is subject (collectively, "Agreements and Instruments")
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement
and the U.S. Underwriting Agreement and the consummation of the
transactions contemplated in this Agreement, the U.S. Underwriting
Agreement and the Registration Statement and compliance by the Company
with its obligations under this Agreement and the U.S. Underwriting
Agreement have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, the
Agreements and Instruments (except for such conflicts, breaches,
defaults or Repayment Events or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xiii) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(xiv) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
consummation of the transactions contemplated in this Agreement and the
U.S. Underwriting Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal
or governmental proceedings to which the Company or any subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
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(xv) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xvi) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own, possess, or can acquire on reasonable terms, adequate
rights to use all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
for the conduct of the business now operated or to be operated by the
Company and its subsidiaries, as described in the Prospectuses, and
neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations under this Agreement and the International Underwriting
Agreement, in connection with the offering or sale of the Securities by
the Selling Stockholder under this Agreement and the U.S. Underwriting
Agreement, or the consummation of the transactions contemplated by this
Agreement and the U.S. Underwriting Agreement, except such as have been
already obtained or made or as may be required under the 1933 Act or the
1933 Act Regulations or state or foreign securities laws.
(xviii) KNOX-KEENE LICENSE. Blue Cross of California has been
licensed in the State of California as a health care service plan under
the Knox-Keene Health Care Service Plan Act of 1975, as amended (the
"Knox-Keene Act"), and such license has not been modified since the
issuance thereof (other than modifications filed in the ordinary course
of business) in any respect that would materially and adversely affect
the ability of the Company to conduct its business in the manner
described in the Registration Statement. None of the Company's other
subsidiaries are required to be licensed under the Knox-Keene Act.
(xix) BCBSA LICENSE. The Company is in full compliance with the
requirements of the Blue Cross License Agreement, dated as of August 4,
1997, between the Company and the Blue Cross and Blue Shield Association
(the "BCBSA") and the California Blue Cross License Addendum, dated as of
December 30, 1997, between the Company and the BCBSA, except in each case
where such noncompliance would not have a Material
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Adverse Effect. Each of the Company's subsidiaries that is required by
the BCBSA as of the date hereof, or that will be required by the BCBSA
as of the Closing Time, to be a party to a Blue Cross Affiliate License
Agreement is in full compliance with the requirements of such agreement,
except in each case where such noncompliance would not have a Material
Adverse Effect.
(xx) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations, including, without limitation, under the Knox-Keene Act
(collectively, "Governmental Licenses"), issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary to conduct
the business now operated by them and the Company and its subsidiaries are
in compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to possess such Governmental Licenses
or to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not have a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xxi) TITLE TO PROPERTY. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and
its subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectuses or (b) do not, singly or in the
aggregate, have a Material Adverse Effect and do not interfere in any
material respect with the use made and proposed to be made of such
property by the Company or any of its subsidiaries; and all of the
leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company
or any of its subsidiaries holds properties described in the
Prospectuses, are in full force and effect, and neither the Company nor
any subsidiary has any notice of any material claim of any sort that has
been asserted by anyone adverse to the rights of the Company or any
subsidiary under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or such subsidiary to
the continued possession of the leased or subleased premises under any
such lease or sublease.
(xxii) MAINTENANCE OF INSURANCE. The Company and each of its
subsidiaries maintain insurance policies with respect to such insurable
properties, potential liabilities and occurrences that merit or require
catastrophic insurance in amounts deemed adequate in the reasonable opinion
of the management, or the Company and each of its subsidiaries maintain a
system or systems of self-insurance or assumption of risk which accords
with the practices of similar businesses; all such insurance policies are
in full force and effect; and, at
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the time that each of the physicians and physicians groups with which
the Company or any of its subsidiaries has contracted entered into such
agreement, such physician or physician group represented that they had
professional liability and medical malpractice insurance in minimum
amounts which the Company believes to be adequate for such physicians
and physician groups generally.
(xxiii) COMPLIANCE WITH TAX LAWS. All material income, payroll and
sales tax returns required to be filed by the Company or any of its
subsidiaries, in any jurisdiction, have been so filed, and all material
taxes, including related withholding taxes, penalties and interest,
assessments and other charges due or claimed to be due from such entities
have been paid, other than those being contested in good faith and for
which adequate reserves have been provided or those currently payable
without penalty or interest.
(xxiv) COMPLIANCE WITH CUBA ACT. The Company has complied with, and
is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxv) INVESTMENT COMPANY ACT. The Company is not an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xxvi) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree
or judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or any Environmental Laws.
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(b) REPRESENTATIONS AND WARRANTIES BY THE SELLING STOCKHOLDER. The Selling
Stockholder represents and warrants to each International Manager as of the date
hereof, as of the Closing Time and agrees with each International Manager, as
follows:
(i) ACCURATE DISCLOSURE. To the extent that any statements or
omissions made in the Registration Statement or Prospectuses, or any
amendment or supplement thereto, are made in reliance on, and in conformity
with, written information furnished to the Company by or on behalf of the
Selling Stockholder specifically for use in the preparation thereof, each
such part of the Registration Statement, when it became effective, did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statement
therein not misleading, and each such part of either of the Prospectuses,
or of any amendments or supplements thereto, at the time it was issued and
as of the Closing Time, did not include nor will it include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; the Selling
Stockholder is not prompted to sell the Securities to be sold by the
Selling Stockholder hereunder by any material nonpublic information
concerning the Company or any subsidiary of the Company which is not set
forth in the Prospectuses. The Company and the Underwriters acknowledge
that the statements relating to such Selling Stockholder under the heading
"May 1996 Recapitalization" and "August 1997 Reincorporation" (but only
insofar as such paragraphs purport to describe agreements to which the
Selling Stockholder is a party) and "Selling Stockholder" in any Prospectus
constitute the only information furnished in writing by or on behalf of
such Selling Stockholder for inclusion in the Registration Statement or any
Prospectus.
(ii) AUTHORIZATION OF AGREEMENTS. The Selling Stockholder has the
full right, power and authority to enter into this Agreement, the U.S.
Underwriting Agreement and to sell, transfer and deliver the Securities to
be sold by the Selling Stockholder hereunder. The execution and delivery
of this Agreement, the U.S. Underwriting Agreement and the sale and
delivery of the Securities to be sold by the Selling Stockholder and the
consummation of the transactions contemplated in this Agreement and the
U.S. Underwriting Agreement and compliance by the Selling Stockholder with
its obligations hereunder have been duly authorized by the Selling
Stockholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be sold by the Selling
Stockholder pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, license, lease or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder may be bound, or to which any of the property or assets
of the Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other
organizational instrument of the Selling Stockholder, if applicable, or any
applicable treaty, law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Selling Stockholder or any of its
properties.
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(iii) GOOD AND MARKETABLE TITLE. The Selling Stockholder has and
will at the Closing Time have good and marketable title to the Securities
to be sold by the Selling Stockholder hereunder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind, other than pursuant to this Agreement, and the
U.S. Underwriting Agreement and the Voting Agreement and the Voting Trust
Agreement, each as defined in the Registration Statement; and upon delivery
of such Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any adverse
claim, each of the Underwriters will receive good and marketable title to
the Securities purchased by it from the Selling Stockholder, free and clear
of any security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
(iv) ABSENCE OF MANIPULATION. The Selling Stockholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(v) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by the Selling
Stockholder of its obligations under this Agreement or the U.S.
Underwriting Agreement, or in connection with the sale and delivery of
the Securities under this Agreement or the U.S. Underwriting Agreement
or the consummation of the transactions contemplated by this Agreement
and the U.S. Underwriting Agreement, except such as may have previously
been made or obtained or as may be required under the 1933 Act or the
1933 Act Regulations or state securities laws.
(vi) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Selling Stockholder will
not, without the prior written consent of the Global Coordinator, (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file
any registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any
such swap or transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, provided, that the Global Coordinator shall give the Selling
Stockholder at least two business days' notice of any waiver of the
restriction on sales by the Company contained in Section 3(h) hereof and
the Selling Stockholder shall be deemed to have been granted a waiver of
this subsection 3(b)(vi) on the same terms as any such waiver granted to
the Company. The foregoing sentence shall not apply to the Securities
to be sold (w) hereunder or (x) under the U.S. Underwriting Agreement, or
(y) to any deposit or
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withdrawal of Common Stock in or from the trust established pursuant to
the Voting Trust Agreement or (z) to the Company.
(vii) NO ASSOCIATION WITH NASD. Neither the Selling Stockholder
nor any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of
Article I, Section 1(m) of the By-laws of the National Association of
Securities Dealers, Inc.), any member firm of the National Association
of Securities Dealers, Inc.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the
International Managers or to counsel for the International Managers shall be
deemed a representation and warranty by the Company to each International
Manager as to the matters covered thereby; and any certificate signed by or on
behalf of the Selling Stockholder as such and delivered to the Global
Coordinator, the International Managers or to counsel for the International
Managers pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Selling Stockholder as to the matters covered
thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
(a) INTERNATIONAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Stockholder agrees to sell to each International
Manager and each International Manager, severally and not jointly, agrees to
purchase from the Selling Stockholder, at the price per share set forth in
Schedule B, the number of International Securities set forth in Schedule A,
plus any additional number of International Securities which such
International Manager may become obligated to purchase pursuant to the
provisions of Section 10 hereof, subject, in each case, to such adjustments
among such International Managers as they in their sole discretion shall make
to eliminate any sales or purchases of fractional securities.
(b) PAYMENT. The closing of the purchase and sale of the Initial
Securities, including acknowledgment of the payment of the purchase price
therefor and delivery of certificates therefor, shall be made at the offices
of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA
90071, or at such other place as shall be agreed upon by the U.S.
Representatives and the Company and the Selling Stockholder, at 7:00 A.M.
(California time) on the third business day (or the fourth business day, if
the pricing occurs after 4:30 P.M. (Eastern time) on any given business day)
after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such
date as shall be agreed upon by the U.S. Representatives and the Selling
Stockholder (such time and date of payment and delivery being herein called
"Closing Time"). Delivery of certificates for the Initial Securities shall
be made at the Closing Time at the office of Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036.
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Payment shall be made to the Selling Stockholder by wire transfer
of immediately available funds to a bank account designated by the Selling
Stockholder not later than two business days preceding the Closing Time
against delivery to the International Managers for their respective accounts
of certificates for the Securities to be purchased by them. Morgan Stanley,
individually and not as representative of the International Managers, may
(but shall not be obligated to) make payment of the purchase price for the
International Securities to be purchased by any International Manager whose
funds have not been received by the Closing Time but such payment shall not
relieve such International Manager from its obligations hereunder.
(c) DENOMINATIONS; REGISTRATION. Certificates for the International
Securities, shall be in such denominations and registered in such names as
the International Managers may request in writing at least one full business
day before the Closing Time. The certificates for the International
Securities, will be made available for examination and packaging by the
International Managers in The City of New York not later than 10:00 A.M.
(Eastern time) on the business day prior to the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
International Manager as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUEST. The
Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the U.S. Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any
of such purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of any prospectus transmitted for filing
under Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) FILING OF AMENDMENTS. The Company will give the International
Managers notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectuses
included in the Registration Statement at the time it became effective or to
the Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the International Managers with copies of any such
documents a reasonable amount of time prior to
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such proposed filing or use, as the case may be, and will not file or use any
such document to which the International Managers or counsel for the
International Managers shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the International Managers and counsel for the International
Managers, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein and documents incorporated or
deemed to be incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
International Managers, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the International Managers. The copies of the
Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each International Manager,
without charge, during the period when the International Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, such number of
copies of the International Prospectus (as amended or supplemented) as such
International Manager may reasonably request. The International Prospectus
and any amendments or supplements thereto furnished to the International
Managers will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934
Act Regulations so as to permit the completion of the distribution of the
Securities as contemplated in this Agreement, the U.S. Underwriting Agreement
and the Prospectuses. If at any time when a prospectus is required by the
1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the reasonable opinion of counsel for the International
Managers or for the Company, to amend the Registration Statement or amend or
supplement the Prospectuses in order that the Prospectuses will not include
any untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the reasonable opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectuses in order to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b) of the 1933 Act, such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the Underwriters such number of
copies of such amendment or supplement as the Underwriters may reasonably
request.
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(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the International Managers, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the U.S. Representatives may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities
in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
(h) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from
the date of the Prospectuses, the Company will not, without the prior written
consent of the Global Coordinator, (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold under
this Agreement and the International Underwriting Agreement, (B) any shares
of Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectuses, (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to the Company's 1994 Stock
Option/Award Plan, Employee Stock Option Plan, Employee Stock Purchase Plan
or any other existing employee benefit plans of the Company referred to in
the Prospectuses (as well as the filing of any registration statement on Form
S-8 (or similar form) for the purpose of registering under the 1933 Act
shares of Common Stock issued in connection with any such plan), (D) any
shares of Common Stock issued pursuant to any dividend reinvestment plan, (E)
the issuance by the Company of up to 50,000 shares of Common Stock pursuant
to a restricted stock plan for agents and brokers which market the products
of the Company or any of its Subsidiaries (as well as the filing of any
registration statement on Form S-3 (or similar form) for the purpose of
registering under the 1933 Act shares of Common Stock issued in connection
with any such plan) and cash-settled stock
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appreciation rights that the Company may issue to agents or brokers, (F)
the issuance of Securities in connection with the acquisition of a business
or (G) the purchase of Securities from the Selling Stockholder.
(i) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to
the 1934 Act within the time periods required by the 1934 Act and the 1934
Act Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay or cause to be paid all expenses
incident to the performance of its or the Selling Stockholder's obligations
under this Agreement, including (i) the preparation, printing and filing of
the Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation,
printing and delivery to the Underwriters of this Agreement, the U.S.
Underwriting Agreement, any Agreement among Underwriters, the Intersyndicate
Agreement and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to
the Underwriters, including any stock or other transfer taxes and any stamp
or other duties payable upon the sale or delivery of the Securities to the
Underwriters and the transfer of the Securities between the U.S. Underwriters
and the International Managers, (iv) the fees and disbursements of the
Company's counsel, accountants and other advisors, (v) the qualification of
the Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Preliminary Blue Sky Survey, the Final
Blue Sky Survey and any supplements thereto, (vi) the printing and delivery
to the Underwriters of copies of each preliminary prospectus, any Term Sheets
and of the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the
Preliminary Blue Sky Survey, the Final Blue Sky Survey and any supplements
thereto, (viii) the fees and expenses of any transfer agent or registrar for
the Securities, (ix) the filing fees incident to the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale
of the Securities and (x) the fees and expenses incurred in connection with
the listing of the Securities on the New York Stock Exchange. The Selling
Stockholder will pay or cause to be paid the fees and expenses of its
counsel, agents and advisors for which it is responsible under the terms of
the Registration Rights Agreement between the Selling Stockholder and the
Company.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
International Managers in accordance with the provisions of Section 5 or
Section 9(a)(i) hereof, the Company shall reimburse the International
Managers for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the International Managers. If this
Agreement is terminated by the International Managers in accordance with the
provisions of Section 11 hereof, the Selling Stockholder shall reimburse the
International Managers for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the International Managers.
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(c) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect any agreement that the Company and the Selling Stockholder may make for
the sharing of such costs and expenses.
SECTION 5. CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS. The
obligations of the several International Managers hereunder are subject to
the accuracy of the representations and warranties of the Company and the
Selling Stockholder contained in Section 1 hereof or in certificates of any
officer of the Company or any subsidiary of the Company or on behalf of the
Selling Stockholder delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder,
and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
International Managers. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 424(b) (or
a post-effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule 430A) or,
if the Company has elected to rely upon Rule 434, a Term Sheet shall have
been filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the International
Managers shall have received the favorable opinion, dated as of Closing Time,
of Gibson, Dunn & Crutcher, LLP counsel for the Company, in form and
substance satisfactory to counsel for the International Managers, together
with signed or reproduced copies of such letter for each of the other
International Managers to the effect set forth in Exhibit A hereto and to
such further effect as counsel to the International Managers may reasonably
request.
(c) OPINION OF GENERAL COUNSEL FOR THE COMPANY. At Closing Time, the
International Managers shall have received the favorable opinion, dated as of
Closing Time, of Thomas C. Geiser, Esq., general counsel for the Company, in
form and substance satisfactory to counsel for the International Managers,
together with signed or reproduced copies of such letter for each of the
other International Managers to the effect set forth in Exhibit B hereto and
to such further effect as counsel to the International Managers may
reasonably request.
(d) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER. At Closing Time,
the International Managers shall have received the favorable opinion, dated
as of Closing Time, of Munger, Tolles & Olson LLP, counsel for the Selling
Stockholder, in form and substance satisfactory to counsel for the
International Managers, together with signed or reproduced copies of such
letter for each of the other International Managers to the effect set forth
in Exhibit C hereto and to such further effect as counsel to the
International Managers may reasonably request.
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(e) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. At Closing Time,
the International Managers shall have received the favorable opinion, dated
as of Closing Time, of Latham & Watkins, counsel for the International
Managers, together with signed or reproduced copies of such letter for each
of the other International Managers with respect to the matters set forth in
clauses (i) (solely with respect to the Company), (ii) (solely with respect
to the Company), (v) through (vii), inclusive, (ix) (solely as to the
information in the Prospectus under "Description of Capital Stock--Common
Stock") and the penultimate paragraph of Exhibit A hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the laws of the States of New York and California
and the federal securities laws of the United States, upon the opinions of
counsel satisfactory to the International Managers. Such counsel may also
state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
International Managers shall have received a certificate of the President or
a Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of Closing
Time, (iii) the Company has complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to such
person's knowledge, are contemplated by the Commission.
(g) CERTIFICATE OF SELLING STOCKHOLDER. At Closing Time, the
International Managers shall have received a certificate of an officer of the
Selling Stockholder, dated as of Closing Time, to the effect that (i) the
representations and warranties of the Selling Stockholder contained in
Section 1(b) hereof are true and correct in all respects with the same force
and effect as though expressly made at and as of Closing Time and (ii) the
Selling Stockholder has complied in all material respects with all agreements
and all conditions on its part to be performed under this Agreement at or
prior to Closing Time.
(h) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the International Managers shall have received from Coopers &
Lybrand L.L.P. a letter dated such date, in form and substance satisfactory
to the International Managers, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectuses.
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(i) BRING-DOWN COMFORT LETTER. At Closing Time, the International
Managers shall have received from Coopers & Lybrand L.L.P. a letter, dated as
of Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (h) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.
(j) LOCK-UP AGREEMENTS. At the date of this Agreement, the
International Managers shall have received an agreement substantially in the
form of Exhibit D hereto signed by each of the persons listed on Schedule D
hereto.
(k) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery
counsel for the International Managers shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Stockholder in connection with the sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the International
Managers and counsel for the International Managers.
(l) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the International Managers by notice to
the Company at any time at or prior to Closing Time and such termination
shall be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company and the Selling
Stockholder, jointly and severally, agree to indemnify and hold harmless each
International Manager and each person, if any, who controls any International
Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
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(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company and the Selling Stockholder; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Morgan
Stanley), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any International Manager through Morgan Stanley expressly for use
in the Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto) and (B) the foregoing indemnity agreement with respect to any untrue
statement contained in or omission from a preliminary prospectus shall not
inure to the benefit of the International Manager from whom the person
asserting any such losses, liabilities, claims, damages or expenses purchased
International Securities, or any person controlling such International
Manager, if (i) the Company and the Selling Stockholder shall sustain the
burden of proving that a copy of the International Prospectus (as then
amended or supplemented, if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of the
International Managers to such person at or prior to the written confirmation
of the sale of such International Securities to such person, (ii) the Company
shall have delivered the International Prospectus (as then supplemented or
amended) to the International Managers on a timely basis and in the requisite
quantity to permit the International Managers to send or deliver such
International Prospectus to such person at or prior to such written
confirmation of the sale of such International Securities and (iii) the
untrue statement contained in or omission from such preliminary prospectus
was corrected in the International Prospectus (or the International
Prospectus as amended or supplemented).
In making a claim for indemnification under this Section 6 or for
contribution under Section 7 hereof by the Company or the Selling
Stockholder, and subject to the further provisions of this paragraph, the
indemnified parties may proceed against either (i) both the Company and the
Selling Stockholder jointly or (ii) the Company only, but may not proceed
solely against the Selling Stockholder. In the event that the indemnified
parties are entitled to seek indemnity or contribution hereunder against any
loss, liability, claim, damage and expense incurred as contemplated by
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clauses (a)(i), (a)(ii) or (a)(iii) of this Section 6, including, without
limitation, a final judgment from a trial court then, as a precondition to
any indemnified party obtaining indemnification or contribution from the
Selling Stockholder, the indemnified parties shall first obtain a final
judgment from a trial court that such indemnified parties are entitled to
indemnity or contribution under this Agreement with respect to such loss,
liability, claim, damage or expense (the "Final Judgment") from the Company
and the Selling Stockholder and shall seek to satisfy such Final Judgment in
full from the Company by making a written demand upon the Company for such
satisfaction. Only in the event such Final Judgment shall remain unsatisfied
in whole or in part 30 days following the date of receipt by the Company of
such demand shall any party entitled to indemnification hereunder have the
right to take action to satisfy such Final Judgment by making demand directly
on the Selling Stockholder (but only if and to the extent the Company has not
already satisfied such Final Judgment, whether by settlement, release or
otherwise). The indemnified parties shall, however, be relieved of their
obligation to first obtain a Final Judgment, to seek to obtain payment from
the Company with respect to such Final Judgment or, having sought such
payment, to wait such 30 days after failure by the Company to immediately
satisfy any such Final Judgment if (i) the Company files a petition for
relief under the United States Bankruptcy Code (the "Bankruptcy Code") and
such order remains unstayed and in effect for 60 days, (ii) an order for
relief is entered against the Company in an involuntary case under the
Bankruptcy Code and such order remains unstayed and in effect for 60 days,
(iii) the Company makes an assignment for the benefit of its creditors, or
(iv) any court orders or approves the appointment of a receiver or custodian
for the Company or a substantial portion of its assets and such order remains
unstayed and in effect for 60 days.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND SELLING
STOCKHOLDER. Each International Manager severally agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act, and the Selling Stockholder and each person, if any, who controls the
Selling Stockholder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information relating
to such International Underwriters furnished to the Company by such
International Manager through Morgan Stanley expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which
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it may have otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall
not (except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be
sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim, (ii) is accompanied or preceded by
reimbursement of expenses of each such indemnified party pursuant to clause
(a)(iii) of this Section 6 and (iii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel, such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party
shall have received notice of the terms of such settlement at least 30 days
prior to such settlement being entered into and (iii) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(e) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions
of this Section shall not affect any agreement among the Company and the
Selling Stockholder with respect to indemnification.
SECTION 7. CONTRIBUTION. Subject to the last paragraph of Section 6(a)
hereof, if the indemnification provided for in Section 6 hereof is for any
reason unavailable to or insufficient to hold harmless an indemnified party
in respect of any losses, liabilities, claims, damages or expenses referred
to therein, then each indemnifying party shall contribute to the aggregate
amount of such losses, liabilities, claims, damages and expenses incurred by
such indemnified party, as incurred, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the International Managers on the other hand
from the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Selling Stockholder on the one hand and of the International Managers
on the other hand in connection
23
<PAGE>
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company and the Selling
Stockholder on the one hand and the International Managers on the other hand
in connection with the offering of the Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Securities pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling
Stockholder and the total underwriting discount received by the International
Managers, in each case as set forth on the cover of the International
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet bear to the aggregate public offering price of the International
Securities as set forth on such cover.
The relative fault of the Company and the Selling Stockholder on
the one hand and the International Managers on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or
the Selling Stockholder or by the International Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
The Company, the Selling Stockholder and the International Managers
agree that it would not be just and equitable if contribution pursuant to
this Section 7 were determined by pro rata allocation (even if the
International Managers were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by
it and distributed to the public were offered to the public exceeds the
amount of any damages which such International Manager has otherwise been
required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
24
<PAGE>
For purposes of this Section 7, each person, if any, who controls
an International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company or the Selling Stockholder within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights
to contribution as the Company or the Selling Stockholder, as the case may
be. The International Managers' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the number of
International Securities set forth opposite their respective names in
Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among
the Company and the Selling Stockholder with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries or the Selling Stockholder submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any International Manager or
controlling person, or by or on behalf of the Company or the Selling
Stockholder, and shall survive delivery of the International Securities to
the International Managers.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The International Managers may terminate
this Agreement, by notice to the Company and the Selling Stockholder, at any
time at or prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial
markets in the United States or the international financial markets, any
outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the International
Managers, impracticable to market the International Securities or to enforce
contracts for the sale of the International Securities, or (iii) if trading
in any securities of the Company has been suspended or materially limited by
the Commission or the New York Stock Exchange, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
25
<PAGE>
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full
force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE INTERNATIONAL MANAGERS. If
one or more of the International Managers fail at Closing Time to purchase
the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the International Managers shall have
the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting International Managers, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if,
however, the International Managers shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of International Securities to be purchased on such date, each of the
non-defaulting International Managers shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
International Securities to be purchased on such date, this Agreement shall
terminate without liability on the part of any non-defaulting International
Manager.
No action taken pursuant to this Section shall relieve any
defaulting International Managers from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement either (i) the International Managers or (ii)
the Company and the Selling Stockholder shall have the right to postpone
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any
other documents or arrangements. As used herein, the term "International
Manager" includes any person substituted for an International Manager under
this Section 10.
SECTION 11. DEFAULT BY THE SELLING STOCKHOLDER. If the Selling
Stockholder shall fail at Closing Time to sell and deliver the number of
International Securities which the Selling Stockholder is obligated to sell
hereunder, then the International Managers may, at their option, by notice
from the International Managers to the Company and the Selling Stockholder
terminate this Agreement without any liability on the fault of any
non-defaulting party except that the provisions of Sections 1, 4, 6, 7 and 8
shall remain in full force and effect. No action taken pursuant to this
Section 11 shall relieve the Selling Stockholder so defaulting from
liability, if any, in respect of such default.
26
<PAGE>
In the event of a default by the Selling Stockholder as referred to
in this Section 11, each of the International Managers and the Company shall
have the right to postpone Closing Time for a period not exceeding seven days
in order to effect any required change in the Registration Statement or
Prospectus or in any other documents or arrangements.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the International Managers, c/o
the Global Coordinator at 1585 Broadway, New York, New York 10036, attention
of Syndicate Operations (with a copy, which shall not constitute notice, to
Latham & Watkins, 633 W. Fifth Street, Suite 4000, Los Angeles, California
90071-2007, attention of Gary Olson, Esq.); notices to the Company shall be
directed to it at 21555 Oxnard Street, Woodland Hills, California 91367,
attention of Thomas C. Geiser, Esq., General Counsel (with a copy, which
shall not constitute notice, to Gibson, Dunn & Crutcher LLP, One Montgomery
Street, Telesis Tower, San Francisco, California 94104, attention of William
L. Hudson, Esq.); and notices to the Selling Stockholder shall be directed to
California HealthCare Foundation, c/o Munger, Tolles & Olson, 355 S. Grand
Avenue, Suite 3500, Los Angeles, California 90071, attention of Ruth E.
Fisher, Esq.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the International Managers, the Company and the Selling
Stockholder and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm
or corporation, other than the International Managers, the Company and the
Selling Stockholder and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the International
Managers, the Company and the Selling Stockholder and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Securities from any International Manager
shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME EXCEPT AS EXPRESSLY NOTED
OTHERWISE.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
27
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and to the Selling
Stockholder a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the International
Managers, the Company and the Selling Stockholder in accordance with its
terms.
Very truly yours,
WELLPOINT HEALTH NETWORKS INC.
By
-------------------------------------
Name:
Title:
CALIFORNIA HEALTHCARE FOUNDATION
By
-------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
By: MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By
-------------------------------------------
Name:
Title:
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
NAME OF INTERNATIONAL MANAGER SECURITIES
----------------------------- -------------
<S> <C>
Morgan Stanley & Co. Incorporated. . . . . . . . . . . . . .
Smith Barney Inc.. . . . . . . . . . . . . . . . . . . . . .
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . . . . . .
Donaldson, Lufkin & Jenrette.Securities Corporation. . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400,000
-------------
-------------
</TABLE>
SCH A-1
<PAGE>
SCHEDULE B
WELLPOINT HEALTH NETWORKS INC.
1,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The public offering price per share for the International
Securities, determined as provided in said Section 2, shall be $_______.
2. The purchase price per share for the International Securities
to be paid by the several International Managers shall be $______, being an
amount equal to the public offering price set forth above less $.____ per
share.
SCH B-1
<PAGE>
SCHEDULE C
List of subsidiaries
1. Blue Cross of California
2. BC Life & Health Insurance Company
3. UNICARE Insurance Company
4. UNICARE Life & Health Insurance Company
5. UNICARE of Texas Health Plans, Inc.
SCH C-1
<PAGE>
SCHEDULE D
List of persons and entities subject to lock-up
Leonard D. Schaeffer
D. Mark Weinberg
Ronald A. Williams
David C. Colby
Thomas C. Geiser, Esq.
S. Louise McCrary
SCH D-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company and each of its Subsidiaries (a) has been duly
organized and (b) is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation.
(ii) The Company and each of its Subsidiaries has corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement.
(iii) The Company and each of its Subsidiaries, other than
UNICARE Insurance Company ("UIC") and UNICARE Life & Health Insurance Company
("UL&H"), is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, except where the failure to so qualify would not have a Material
Adverse Effect (such jurisdictions to be listed opposite the name of each of
the Company and the Subsidiaries other than UIC and UL&H on Exhibit 1
hereto). Each of UIC and UL&H is duly qualified as a foreign corporation to
transact business and is in good standing in such jurisdictions as are listed
opposite its name on Exhibit 1 hereto.
(iv) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectuses under the caption
"Description of Capital Stock" (except for subsequent issuances, if any,
under the Company's 1994 Stock Option/Award Plan, Employee Stock Option Plan
or Employee Stock Purchase Plan); all of the shares of issued and outstanding
capital stock of the Company, including the Securities to be purchased by the
Underwriters from the Selling Stockholder, have been duly authorized and
validly issued and are fully paid and nonassessable and the shares of issued
and outstanding capital stock of each Subsidiary of the Company are owned,
directly or through subsidiaries, by the Company and have been duly
authorized and validly issued, are fully paid and nonassessable and are owned
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
(v) The U.S. Underwriting Agreement and the International
Underwriting Agreement have been duly authorized, executed and delivered by
the Company.
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectuses pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); and, to the
best of our knowledge, no stop order suspending the
A-1
<PAGE>
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or threatened by the Commission.
(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectuses, excluding the documents
incorporated by reference therein, and each amendment or supplement to the
Registration Statement and Prospectuses, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which such counsel need express no opinion) complied
as to form in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations.
(viii) The documents incorporated by reference in the
Prospectuses (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which we need express no
opinion), when they were filed with the Commission, complied as to form in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder.
(ix) The capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectuses under the
caption "Description of Capital Stock," and the form of certificate used to
evidence the Common Stock is in due and proper form and complies in all
material respects with all applicable statutory requirements and the
requirements of the New York Stock Exchange.
(x) There are no legal or governmental proceedings pending or,
to the knowledge of such counsel, threatened to which the Company or any of
its Subsidiaries is or may become a party or to which any of the properties
of the Company or any of its Subsidiaries is or may become subject that are
required to be described in the Registration Statement or the Prospectuses
and are not so disclosed therein and described as required, or any statute or
regulation that is required to be described in the Registration Statement or
the Prospectuses and is not so disclosed therein and described as required;
all pending legal or governmental proceedings to which the Company or any of
its Subsidiaries is a party or to which any of their property is subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the businesses, are, considered in the
aggregate, not material.
(xi) To the knowledge of such counsel, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be filed as exhibits to the Registration Statement which have not
been so filed.
(xii) The information in the Prospectuses under the captions
"May 1996 Recapitalization," "August 1997 Reincorporation," "Selling
Stockholder" and "Certain United States Tax Consequences to Non-United States
Holders" and the information under the caption "May 1996 Recapitalization and
August 1997 Reincorporation" in the Company's Form 10-K which is incorporated
by reference into the
A-2
<PAGE>
Prospectuses to the extent that it constitutes matters of law, summaries of
legal matters, documents or proceedings or legal conclusions, has been
reviewed by such counsel and is correct in all material respects.
(xiii) No authorization, approval, consent or order of any court
or governmental authority or agency is required in connection with the sale
to the Underwriters of the Securities, except such as may be required under
the 1933 Act, the 1934 Act or the respective rules and regulations of the
Commission thereunder or state or foreign securities laws (on which such
counsel expresses no opinion) and the filing of an amendment to the Company's
Health Care Services Plan application with the California Department of
Corporations (which filing has been made); and the execution, delivery and
performance of the U.S. Underwriting Agreement and the International
Underwriting Agreement, and the consummation of the transactions contemplated
thereby by the Company, will not conflict with or constitute a material
breach of or material default, or cause an acceleration of any obligation
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
Subsidiaries pursuant to, any instrument included as an exhibit to the
Registration Statement to which the Company or any of its Subsidiaries is a
party or by which any of them may be bound, or to which any of the property
or assets of the Company or any of its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the charter or bylaws of
the Company or any of its Subsidiaries, or any applicable law, administrative
regulation or administrative or court decree.
(xiv) Neither the Company nor any of its Subsidiaries is (a) in
violation of its articles or certificate of incorporation or bylaws; or (b)
to the knowledge of such counsel, in violation of or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any instrument included as an exhibit to the Registration
Statement to which the Company or any of its Subsidiaries is a party or by
which any of them may be bound, or to which any of the property or assets of
the Company or any of its Subsidiaries is subject, or any applicable law,
administrative regulation or administrative or court order or decree, which
violation or default would have a Material Adverse Effect on the Company and
its subsidiaries considered as one enterprise, as the case may be. The
applicable law, administrative regulations and administrative and court
orders and decrees referred to in clause (b) above are those that a lawyer
exercising customary professional diligence would reasonably recognize as
being directly applicable to the Company, the Subsidiaries or the transaction
contemplated by the U.S. Underwriting Agreement and the International
Underwriting Agreement.
(xv) To the knowledge of such counsel, the Company and its
Subsidiaries possess such certificates necessary to conduct the business now
operated by them. The opinion of such counsel for purposes of this paragraph
is limited to certificates the failure of which to possess would have a
Material Adverse Effect on the Company and its Subsidiaries considered as one
enterprise.
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
A-3
<PAGE>
Nothing has come to the attention of such counsel that would lead
such counsel to believe that the Registration Statement or any amendment
thereto, including the Rule 430A Information and Rule 434 Information (if
applicable), (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which such counsel need make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectuses or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom, as to
which such counsel need make no statement), at the time the Prospectuses were
issued, at the time any such amended or supplemented prospectuses were issued
or at the Closing Time, included or include an untrue statement of a material
fact or omitted or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates
of responsible officers of the Company and public officials. Such opinion
shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating
to legal opinions, including, without limitation, the Legal Opinion Accord of
the ABA Section of Business Law (1991).
A-4
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
STATE OF FOREIGN
NAME OF ENTITY INCORPORATION QUALIFICATIONS
-------------- ------------- -------------------
<S> <C> <C>
WellPoint Health Networks Inc. Delaware California
SUBSIDIARIES
Blue Cross of California California None
UNICARE Insurance Company California Texas, Utah
UNICARE Life & Health Insurance Delaware California, Florida,
Company Georgia, Illinois,
Massachusetts,
New Jersey,
New York, Ohio,
Texas and Virginia
UNICARE of Texas Health Plans, Inc. Texas None
</TABLE>
A-1
<PAGE>
Exhibit B
FORM OF OPINION OF GENERAL COUNSEL TO THE COMPANY TO BE
DELIVERED PURSUANT TO SECTION 5(c)
(i) The statements under the captions "Item 1. Business--
Government Regulation" and "Item 3. Legal Proceedings" of the Company's
Annual Report on Form 10-K, which is incorporated by reference into the
Prospectus, insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize, in all material respects, the matters
referred to therein.
(ii) Each of the Company, Blue Cross of California, WellPoint
Dental Plan and WellPoint Pharmacy Plan has been duly qualified and licensed
in the State of California as a health care service plan under the Knox-Keene
Act, and none of the Company's other subsidiaries are required to be licensed
under the Knox-Keene Act.
(iii) The Company is in full compliance with the requirements of
the Blue Cross License Agreement, dated as of August 4, 1997, between the
Company and the Blue Cross and Blue Shield Association (the "BCBSA") and the
California Blue Cross License Addendum, dated as of December 30, 1997,
between the Company and the BCBSA, except in each case where such
noncompliance would not have a Material Adverse Effect. Each of the
Company's subsidiaries that is required by the BCBSA as of the date of such
opinion to be a party to a Blue Cross Affiliate License Agreement is in full
compliance with the requirements of such agreement, except in each case where
such noncompliance would not have a Material Adverse Effect.
(iv) To such counsel's knowledge, none of the Company and its
subsidiaries have received any notice or correspondence (i) relating to the
loss or threatened loss by the Company or any of its subsidiaries of any
material permit, license, franchise or authorization by any applicable
managed health care or insurance regulatory agency or body or (ii) asserting
that the Company or any of its subsidiaries is not in substantial compliance
with any applicable regulation relating to the operation or conduct of
managed health care or insurance businesses (the "HMO Regulations") or
threatening the taking of any action against the Company or any of its
subsidiaries under any HMO Regulation, except where such noncompliance or the
taking of such action, if adversely determined, would not have a material
adverse effect on the business, operations or financial condition of the
Company and its subsidiaries, taken as a whole.
B-1
<PAGE>
Exhibit C
FORM OF OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(d)
(i) No filing with, or consent, approval, authorization,
license, order, registration, qualification or decree of, any court or
governmental authority or agency (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state
securities laws, as to which we need express no opinion), is necessary or
required to be obtained by the Selling Stockholder for the performance by the
Selling Stockholder of its obligations under the U.S. Underwriting Agreement,
the International Underwriting Agreement or in connection with the offer,
sale or delivery of the Securities.
(ii) The U.S. Underwriting Agreement and the International
Underwriting Agreement have been duly authorized, executed and delivered by
or on behalf of the Selling Stockholder.
(iii) The execution, delivery and performance of the U.S. Underwriting
Agreement, the International Underwriting Agreement and the sale and delivery
of the Securities and the consummation of the transactions contemplated in
the U.S. Underwriting Agreement and the International Underwriting Agreement
and compliance by the Selling Stockholder with its obligations under the U.S.
Underwriting Agreement and the International Underwriting Agreement have been
duly authorized by all necessary action on the part of the Selling
Stockholder and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with, constitute a breach of, or
default under or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities pursuant to, the terms of any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
license, lease or other instrument or agreement known to such counsel and to
which the Selling Stockholder is a party or by which it may be bound, or to
which any of the property or assets of the Selling Stockholder may be subject
nor will such action result in any violation of the provisions of the charter
or by-laws of the Selling Stockholder, if applicable, or any law,
administrative regulation, judgment, order or decree known to us to be
applicable to the Selling Stockholder of any court, regulatory body,
administrative agency or governmental body or arbitrator having jurisdiction
over the Selling Stockholder or any of its properties.
(iv) To the best of such counsel's knowledge, the Selling Stockholder has
valid and marketable title to the Securities to be sold by the Selling
Stockholder pursuant to the U.S. Underwriting Agreement and the International
Underwriting Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind, other than as
disclosed in the Registration Statement, and has full right, power and
authority to sell, transfer and deliver such Securities pursuant to the U.S.
Underwriting Agreement and the International Underwriting Agreement. By
delivery of a certificate or certificates therefor the Selling Stockholder
will transfer to the Underwriters who have purchased such Securities pursuant
to the U.S. Underwriting Agreement and the International Underwriting
Agreement (without notice of any defect in the title
D-1
<PAGE>
of the Selling Stockholder and who are otherwise bona fide purchasers for
purposes of the Uniform Commercial Code) valid and marketable title to such
Securities, free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind.
D-2
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(l)]
Exhibit D
April __, 1998
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SMITH BARNEY INC.
BEAR, STEARNS INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
c/o MORGAN STANLEY & CO., INTERNATIONAL LIMITED
[address to come]
Re: PROPOSED PUBLIC OFFERING BY WELLPOINT HEALTH NETWORKS INC.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of
WellPoint Health Networks Inc., a California corporation (the "Company"),
understands that Morgan Stanley & Co. International Limited ("Morgan
Stanley"), Smith Barney Inc., Bear, Stearns International Limited and
Donaldson, Lufkin & Jenrette International propose(s) to enter into an
International Underwriting Agreement (the "International Underwriting
Agreement") with the Company and the Selling Stockholder providing for the
public offering of shares (the "Securities") of the Company's common stock,
par value $.01 per share (the "Common Stock"). In recognition of the benefit
that such an offering will confer upon the undersigned as a stockholder and
an officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees with each underwriter to be named in the International
Underwriting Agreement that, during a period of 90 days from the date of the
Underwriting Agreement provided that such person continues to be an officer
of the Company during such period, the undersigned will not, without the
prior written consent of Morgan Stanley, as global coordinator for the
offering and on behalf of the International Managers, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of
the Company's Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock, whether now owned or hereafter acquired by
the undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, or file any registration statement under
the Securities Act of 1933, as amended, with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise.
D-1
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Notwithstanding the provisions of the preceding sentence, the
undersigned shall be permitted to sell, transfer or otherwise dispose of
shares of Common Stock to: (1) the undersigned's spouse, children, spouses of
children, siblings and spouses of siblings, provided that any such transferee
shall have agreed in writing to be subject to the terms of this letter; and
(2) any trust or charitable foundation established by the undersigned and/or
one or more of the persons listed in the foregoing clause (1), provided that
any such trust or charitable foundation and their respective beneficiaries
shall have agreed in writing to be subject to the terms of this letter.
Very truly yours,
Signature:
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Print Name:
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D-2
<PAGE>
EXHIBIT 5.1
March 31, 1998
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, California 91367
Re: REGISTRATION STATEMENT ON FORM S-3 ("REGISTRATION STATEMENT") OF
WELLPOINT HEALTH NETWORKS INC. AND "PROSPECTUS" CONTAINED THEREIN
Ladies and Gentlemen:
We have acted as counsel to WellPoint Health Networks Inc., a Delaware
corporation (the "Company"), with respect to the issuance of this opinion
relating to the proposed offering by California HealthCare Foundation (the
"Selling Shareholder") of up to 8,050,000 shares (the "Shares") of the Common
Stock of the Company, $0.01 par value (the "Common Stock").
For purposes of rendering this opinion, we have made such legal and
factual examinations as we have deemed necessary under the circumstances and,
as part of such examination, we have examined, among other things, originals
and copies, certified or otherwise, identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed
necessary or appropriate. For the purposes of such examination, we have
assumed the genuineness of all signatures on original documents and the
conformity to original documents of all copies submitted to us.
On the basis of and in reliance upon the forgoing examinations and
assumptions, we are of the opinion that the Shares have been duly and validly
issued and are outstanding, fully paid and non-assessable shares of Common
Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of WellPoint Health Networks Inc. on Form S-3 (File No. 333- ) of our
report dated February 2, 1998, on our audits of the consolidated financial
statements of WellPoint Health Networks Inc. We also consent to the reference to
our firm under the captions "Consolidated Financial and Operating Data" and
"Experts."
Coopers & Lybrand L.L.P.
Los Angeles, California
March 30, 1998
