<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1999.
REGISTRATION NO. 333-80153
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
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 of (IRS Employer Identification Number)
Incorporation or Organization)
</TABLE>
1 WELLPOINT WAY, THOUSAND OAKS, CALIFORNIA 91362
(818) 703-4000
(Address including zip code, telephone number, including area code, of
Registrant's principal executive offices)
THOMAS C. GEISER, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1 WELLPOINT WAY
THOUSAND OAKS, CALIFORNIA 91362
(805) 557-6110
(Name, 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, California 94104 Los Angeles, CA 90071
(415) 393-8231 (213) 485-1234
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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, please 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. / /
---------------------
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 OR UNTIL THE 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 of up to 10,350,000 shares of common
stock of WellPoint Health Networks Inc. by the California HealthCare Foundation
(the "Equity Prospectus") and one to be used in connection with an offering of
approximately $327,750,000 in aggregate principal amount of Zero Coupon
Convertible Subordinated Debentures Due 2019 by WellPoint Health Networks Inc.
(the "Debt Prospectus"). The Equity Prospectus included in this Registration
Statement is to be used in connection with an offering (the "U.S. Offering") in
the United States and Canada of up to 8,550,000 shares of common stock,
including up to 1,350,000 shares that may be sold pursuant to the underwriters'
over-allotment option, if exercised. The complete Equity Prospectus related to
the U.S. Offering follows this explanatory note. After the Equity Prospectus
related to the U.S. Offering are the following alternate pages to be used in
connection with the concurrent international offering outside the United States
and Canada of up to 1,800,000 shares (the "International Offering"): a front
cover page, page 2, and a section entitled "United States Federal Tax
Consequences to Non-United States Holders" to be inserted after "Description of
Capital Stock" and before "Underwriting" in the form of Equity Prospectus to be
used in the International Offering. Each alternate page related to the
International Offering included in this Registration Statement is labeled
"Alternate Page for International Prospectus." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission pursuant to Rule
424(b).
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 28, 1999
9,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
THE CALIFORNIA HEALTHCARE FOUNDATION IS OFFERING 9,000,000 SHARES OF COMMON
STOCK OF WELLPOINT HEALTH NETWORKS INC. INITIALLY, THE U.S. UNDERWRITERS ARE
OFFERING 7,200,000 SHARES OF OUR COMMON STOCK IN THE UNITED STATES AND CANADA,
AND THE INTERNATIONAL UNDERWRITERS ARE OFFERING 1,800,000 SHARES OF OUR COMMON
STOCK OUTSIDE OF THE UNITED STATES AND CANADA. THE CALIFORNIA HEALTHCARE
FOUNDATION CURRENTLY OWNS APPROXIMATELY 26.5% OF OUR COMMON STOCK AND WILL OWN
APPROXIMATELY 13.2% AFTER THE OFFERING. WE ARE ALSO CURRENTLY OFFERING THROUGH
ANOTHER PROSPECTUS $285,000,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF OUR
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES DUE 2019. IF THAT OFFERING IS
SUCCESSFUL, WE INTEND TO USE THE PROCEEDS TO PURCHASE FROM THE CALIFORNIA
HEALTHCARE FOUNDATION AS MANY SHARES OF OUR COMMON STOCK AS POSSIBLE, UP TO A
MAXIMUM OF 2,000,000 SHARES.
OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"WLP." ON JUNE 23, 1999, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK WAS
$90 15/16 PER SHARE. OUR CERTIFICATE OF INCORPORATION PROHIBITS CERTAIN
INSTITUTIONAL INVESTORS FROM OWNING MORE THAN ONE SHARE LESS THAN 10% OF OUR
COMMON STOCK AND ANY OTHER PERSON OR ENTITY (OTHER THAN THE CALIFORNIA
HEALTHCARE FOUNDATION) FROM BENEFICIALLY OWNING MORE THAN ONE SHARE LESS THAN 5%
OF OUR COMMON STOCK. FOR A MORE DETAILED DISCUSSION OF THIS RESTRICTION, SEE
"DESCRIPTION OF CAPITAL STOCK" BEGINNING ON PAGE 16.
---------------------
PRICE $ A SHARE
-----------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS STOCKHOLDER
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CALIFORNIA HEALTHCARE FOUNDATION HAS GRANTED THE U.S. UNDERWRITERS THE RIGHT
TO PURCHASE UP TO AN ADDITIONAL 1,350,000 SHARES OF COMMON STOCK TO COVER
OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES
TO PURCHASERS ON JUNE , 1999.
-------------------
MORGAN STANLEY DEAN WITTER MERRILL LYNCH & CO.
DEUTSCHE BANC ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
JUNE , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 3
THE COMPANY................................................................................................ 3
RECENT DEVELOPMENTS........................................................................................ 3
THE OFFERING............................................................................................... 4
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA.......................................................... 5
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS................................................. 7
USE OF PROCEEDS............................................................................................ 8
DIVIDEND POLICY............................................................................................ 8
PRICE RANGE OF COMMON STOCK................................................................................ 8
CAPITALIZATION............................................................................................. 9
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 10
SELLING STOCKHOLDER........................................................................................ 16
DESCRIPTION OF CAPITAL STOCK............................................................................... 16
UNDERWRITERS............................................................................................... 20
LEGAL MATTERS.............................................................................................. 23
EXPERTS.................................................................................................... 23
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 23
</TABLE>
-------------------
You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized anyone to provide you with
information or to make any representation to you that is not contained in this
prospectus. This prospectus is not an offer to sell securities in any
jurisdiction where the offer or sale is not permitted. You should not under any
circumstances assume that the information in this prospectus is correct on any
date after the date of this prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO
THE FINANCIAL STATEMENTS AND OTHER INFORMATION, INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS.
THE COMPANY
We are one of the nation's largest publicly traded managed health care
companies. As of March 31, 1999, we had approximately 6.9 million medical
members and approximately 30 million specialty members. We offer a broad
spectrum of network-based managed care plans. We provide these plans to small
employer groups, individuals, large employer groups and the Medicare and
Medicaid markets. Our managed care plans include health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"),
point-of-service ("POS") plans, other hybrid plans and traditional indemnity
plans. We also provide a broad array of specialty and other products, including
pharmacy, dental, life insurance, preventive care, disability insurance,
behavioral health, COBRA and flexible benefits account administration. In
addition, we offer non-risk bearing managed care services, including
underwriting, actuarial services, network access, medical cost management,
claims processing and administrative services.
We market our products in California under the name Blue Cross of California
and outside of California under the name UNICARE. Historically, our primary
market for managed care products has been California. We hold the exclusive
right in California to market our products under the Blue Cross name and mark.
RECENT DEVELOPMENTS
We entered into a merger agreement with Cerulean Companies, Inc. on July 9,
1998. Upon completion of the merger, Cerulean will become one of our wholly
owned subsidiaries. Cerulean currently holds the exclusive license to use the
Blue Cross and Blue Shield name in the state of Georgia. For a more complete
description of the merger, please see our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, which is incorporated by reference into this
prospectus. The pro forma financial statements included in this prospectus
present our historical results of operations and those of Cerulean, with certain
adjustments, as if the merger had occurred on the dates specified. We still need
to obtain some approvals to complete the merger.
We are also now offering for sale through another prospectus $285,000,000
aggregate principal amount at maturity of our Zero Coupon Convertible
Subordinated Debentures Due 2019 (plus an additional $42,750,000 aggregate
principal amount at maturity if the underwriters' over-allotment option is
exercised in full). If the debentures are sold, we will have additional annual
imputed interest expense of $4.4 million for financial reporting purposes during
the first year that the debentures are outstanding. The implied interest expense
will increase at a rate equal to the yield to maturity. We plan to use the net
proceeds raised from the sale of the debentures, which we expect to be
approximately $170 million, to repurchase at the same time from the California
HealthCare Foundation as many shares of our common stock as possible, up to a
maximum of 2,000,000 shares, at a price per share equal to the price per share
being offered to the public under this prospectus. After the repurchase and this
offering, the California HealthCare Foundation will own 10.5% of our common
stock, or 8.5% if the underwriters' over-allotment option is exercised in full.
We expect that the sale of the debentures and the repurchase of the shares of
our common stock will happen at the same time as the sale of common stock by the
California HealthCare Foundation under this prospectus (or as soon as possible
after such sale), but it may not happen then or at all.
3
<PAGE>
THE OFFERING
THE FOLLOWING SUMMARIZES THE CALIFORNIA HEALTHCARE FOUNDATION'S OFFERING OF
OUR COMMON STOCK AND OUR POSSIBLE REPURCHASE OF ADDITIONAL SHARES OF OUR COMMON
STOCK FROM THE CALIFORNIA HEALTHCARE FOUNDATION.
<TABLE>
<S> <C>
Common stock offered by the California
HealthCare Foundation...................... 9,000,000 shares
Over-allotment option........................ 1,350,000 shares
Common stock offered in:
U.S. offering.............................. 7,200,000 shares
International offering..................... 1,800,000 shares
Total.................................... 9,000,000 shares
Common stock to be outstanding after the
offering................................... 67,575,530 shares
Common stock to be owned by the selling
stockholder after the offering and
percentage of our outstanding common
stock...................................... 8,910,000 shares
13.2% (11.2% assuming full exercise of
over-allotment option)
Common stock to be outstanding after the
offering and repurchase (assuming the
repurchase of 2,000,000 shares)............ 65,575,530 shares
Common stock to be owned by the selling
stockholder after the offering and
repurchase and percentage of our
outstanding common stock (assuming the
repurchase of 2,000,000 shares)............ 6,910,000 shares
10.5% (8.5% assuming full exercise of
over-allotment option)
Use of proceeds.............................. We will not receive any proceeds from the
sale by the selling stockholder of its
shares.
New York Stock Exchange symbol............... WLP
</TABLE>
We calculated the outstanding shares after the offering assuming the U.S.
underwriters do not exercise the over-allotment option and based on the number
of shares outstanding as of June 1, 1999, excluding a total of 5,678,998 shares
of common stock issuable upon exercise of options granted by us under our stock
option plans, of which approximately 2,498,473 were exercisable as of May 31,
1999. We have calculated the outstanding shares after the offering excluding the
shares expected to be issued in connection with the Cerulean transaction. Based
on the closing sale price of the common stock on June 1, 1999, we currently
anticipate issuing between 3,330,000 shares and 6,052,000 shares in the Cerulean
transaction, all of which will be freely tradeable upon issuance.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth for the periods indicated our selected
historical financial data and historical operating statistics. For the period
January 1, 1996 through May 20, 1996 (the effective date of our recapitalization
with our then-largest stockholder), the selected historical consolidated
financial data does not include the commercial operations of that stockholder.
Information as of December 31, 1998 and for the three years ended December 31,
1998 has been derived from our consolidated financial statements which are
incorporated by reference into this prospectus and which have been audited by
PricewaterhouseCoopers LLP, our independent public accountants, whose report is
incorporated by reference into this prospectus. The selected historical
financial data and historical operating statistics for the three months ended
March 31, 1999 have been derived from our unaudited consolidated financial
statements and contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of this information. The
operating results for the three months ended March 31, 1999 are not necessarily
indicative of the operating results to be expected for the full year. For the
purposes of presenting the unaudited pro forma financial data for the year ended
December 31, 1998 and for the three months ended March 31, 1999, we have assumed
that the Cerulean transaction was completed as of the beginning of each period.
For the purposes of the unaudited pro forma balance sheet as of March 31, 1999,
we have assumed that the Cerulean transaction was completed as of such date. For
purposes of the as adjusted financial data for the year ended December 31, 1998
and for the three months ended March 31, 1999, we have assumed the completion of
the debenture offering and the concurrent repurchase by us of 2,000,000 shares
of common stock from the selling stockholder as of the beginning of each period.
For the purposes of the unaudited as adjusted balance sheet as of March 31,
1999, we have assumed that the debenture offering and repurchase of our shares
of common stock from the selling stockholder were completed as of such date. The
pro forma and as adjusted data assume a price of $82 5/8 per share of our common
stock, the closing price on June 1, 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
YEAR ENDED DECEMBER 31, 1998
------------------------------- ------------
1996 1997 1998 PRO FORMA
--------- --------- --------- ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA
AND OPERATING STATISTICS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA(A):
Revenues:................... $3,970,832 $5,642,238 $6,478,350 $ 7,805,411
Operating Expenses:
Operating expenses
(excluding nonrecurring
costs) (B).............. 3,571,773 5,173,390 6,031,522 7,469,797
Nonrecurring costs........ -- 14,535 -- --
--------- --------- --------- ------------
3,571,773 5,187,925 6,031,522 7,469,797
Operating Income............ 399,059 454,313 446,828 335,614
Interest expense.......... 36,628 36,658 26,903 42,001
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change......... 198,518 229,437 319,548 224,490
Net Income.................. 202,002 227,409 231,280 --
Per Share Data (A)(C)(D)(E):
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change:
Earnings Per Share...... $2.99 $3.33 $4.63 $3.20
Earnings Per Share
Assuming Full
Dilution.............. $2.99 $3.30 $4.55 $3.15
Income (Loss) from
Discontinued Operations:
Earnings Per Share...... $0.05 $(0.03) $(1.28) --
Earnings Per Share
Assuming Full
Dilution.............. $0.05 $(0.03) $(1.26) --
Cumulative Effect of
Accounting Change
Earnings Per Share...... -- -- -- --
Earnings Per Share
Assuming Full
Dilution.............. -- -- -- --
Net Income:
Earnings Per Share...... $3.04 $3.30 $3.35 --
Earnings Per Share
Assuming Full
Dilution.............. $3.04 $3.27 $3.29 --
OPERATING STATISTICS (A)(F):
Loss ratio.................. 76.4% 80.6% 80.5% --
Selling expense ratio....... 5.3% 4.6% 4.4% --
General and administrative
expense ratio............. 14.1% 15.4% 15.3% --
Net income ratio............ 5.3% 4.2% 3.6% --
Medical Membership (G)...... 4,485,000 6,638,000 6,892,000 --
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-----------------------------------------
AS ADJUSTED ACTUAL PRO FORMA AS ADJUSTED
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA(A):
Revenues:................... $ 7,805,411 $1,771,245 $ 2,157,376 $2,157,376
Operating Expenses:
Operating expenses
(excluding nonrecurring
costs) (B).............. 7,469,797 1,640,489 2,026,167 2,026,167
Nonrecurring costs........ -- -- -- --
------------- ----------- ------------- -----------
7,469,797 1,640,489 2,026,167 2,026,167
Operating Income............ 335,614 130,756 131,209 131,209
Interest expense.......... 46,450 6,100 9,874 10,979
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change......... 222,361 71,110 70,421 69,776
Net Income.................. -- 50,552 -- --
Per Share Data (A)(C)(D)(E):
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change:
Earnings Per Share...... $3.26 $1.06 $1.00 $1.02
Earnings Per Share
Assuming Full
Dilution.............. $3.15 $1.04 $0.98 $0.98
Income (Loss) from
Discontinued Operations:
Earnings Per Share...... -- -- -- --
Earnings Per Share
Assuming Full
Dilution.............. -- -- -- --
Cumulative Effect of
Accounting Change
Earnings Per Share...... -- $(0.31) -- --
Earnings Per Share
Assuming Full
Dilution.............. -- $(0.30) -- --
Net Income:
Earnings Per Share...... -- $0.75 -- --
Earnings Per Share
Assuming Full
Dilution.............. -- $0.74 -- --
OPERATING STATISTICS (A)(F):
Loss ratio.................. -- 80.9% -- --
Selling expense ratio....... -- 4.4% -- --
General and administrative
expense ratio............. -- 14.7% -- --
Net income ratio............ -- 2.9% -- --
Medical Membership (G)...... -- 6,913,000 -- --
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------
DECEMBER 31, 1998 ACTUAL PRO FORMA AS ADJUSTED
----------------- ---------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments........ $2,764,302 $2,813,947 $3,197,250 $3,202,000
Total assets................ 4,225,834 4,328,961 5,246,797 5,256,547
Long-term debt.............. 300,000 300,000 525,000 700,000
Total equity................ 1,315,223 1,356,624 1,631,624 1,466,374
</TABLE>
- -------------
(A) We have restated financial information prior to 1998 to reflect our workers'
compensation business, which we sold in September 1998, as a discontinued
operation.
(B) The pro forma and as adjusted operating expenses include net other expenses.
(C) We have calculated per share data for the year ended December 31, 1996 using
66,366,500 shares, the number of shares outstanding immediately following
completion of our recapitalization, plus the weighted average number of
shares issued during 1996 after completion of the recapitalization.
(D) Per share data includes nonrecurring costs of $0.13 per share for 1997.
(E) We have restated per share data for 1996 to reflect the adoption of SFAS No.
128, "Earnings Per Share."
(F) 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.
(G) Membership numbers are 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.
6
<PAGE>
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference,
contains forward-looking statements. Also, documents we subsequently file with
the SEC and incorporate by reference will contain forward-looking statements. In
particular, statements pertaining to our business operations and financial
results of operations and financial condition contain forward-looking
statements. Similarly, our pro forma financial statements and other pro forma
information included in this prospectus and all our statements regarding
anticipated market conditions and results of operations are forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. Forward-looking
statements depend on assumptions, data or methods which may be incorrect or
imprecise and we may not be able to realize them. We do not guarantee that the
transactions and events described will happen as described (or that they will
happen at all). You can identify forward-looking statements by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates"
or "anticipates" or the negative of these words and phrases or similar words or
phrases. You can also identify forward-looking statements by discussions of
strategy, plans or intentions. The following factors, among others, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements:
- the effect on our operations of changes in federal and state health care
regulation or new health care legislation or court decisions;
- unexpected increases in health care costs;
- an increase in competitive pressures in our markets that reduces our
members or limits our ability to increase premiums to offset increased
health care costs;
- a failure to close our proposed merger with Cerulean or the effect of
unexpected additional requirements necessary to obtain required approvals
in order to close the merger;
- increased costs or unforeseen problems in our operations that we
experience as a result of our various acquisitions;
- a failure of our computer systems to process information properly after
this year; and
- the loss of services of our independent agents and brokers or certain
existing employees.
We undertake 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.
UNCERTAINTIES REGARDING THE CLOSING OF THE CERULEAN TRANSACTION
We may not be able to obtain all of the necessary approvals to complete our
pending acquisition of Cerulean. In July 1998, we entered into a merger
agreement with Cerulean. Cerulean currently holds the exclusive license to use
the Blue Cross and Blue Shield name in the state of Georgia. On June 25, 1999,
the merger was approved by the required majority of the Cerulean shareholders.
In order to complete the merger, a number of conditions must be satisfied,
including approval by the Georgia Department of Insurance after a public
hearing. If the Georgia Department of Insurance fails to approve the merger then
we will not be able to complete the merger. In addition, the merger agreement
provides that either we or Cerulean may terminate the merger agreement if all
conditions to closing are not satisfied on or before July 9, 1999, the
termination date of the merger agreement. As of the date of this prospectus, not
all of the conditions to closing have been satisfied and we cannot assure you
that we will reach agreement with Cerulean to extend the termination date or on
what terms an agreement may be reached. If all of the conditions to closing are
not satisfied by July 9, 1999 and we have not come to an agreement with Cerulean
to extend the termination date, then either we or Cerulean may terminate the
merger agreement.
7
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of common stock
being offered by the selling stockholder in this offering. See the discussion
under the caption entitled "Selling Stockholder."
DIVIDEND POLICY
We currently intend to retain all of our current and future earnings for use
in our business. Our board of directors has determined to retain all of our
earnings during 1999. The payment of any future dividends on shares of our
common stock is at the discretion of our board of directors.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the New York Stock Exchange under the symbol
"WLP." The following table presents for the periods indicated the high and low
sale prices for our common stock as reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
Year Ended December 31, 1997
First Quarter.............................................................................. $ 457/8 $ 327/8
Second Quarter............................................................................. 51 373/4
Third Quarter.............................................................................. 601/2 461/4
Fourth Quarter............................................................................. 581 /16 3813/16
Year Ended December 31, 1998
First Quarter.............................................................................. 701/16 421/4
Second Quarter............................................................................. 74 6115/16
Third Quarter.............................................................................. 75 501/2
Fourth Quarter............................................................................. 877/8 517/16
Year Ending December 31, 1999
First Quarter.............................................................................. 859/16 701/8
Second Quarter (through June 23, 1999)..................................................... 97 6613/16
</TABLE>
On June 23, 1999, the closing price on the New York Stock Exchange for our
common stock was $90 15/16 per share. As of June 1, 1999, there were
approximately 206 holders of record of our common stock.
8
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited capitalization as of March 31,
1999 on an actual basis and on a pro forma basis to give effect to the
completion of the Cerulean transaction. In addition, the following table sets
forth our unaudited capitalization as further adjusted to assume the completion
of the debenture offering and the repurchase by us of 2,000,000 shares of common
stock from the selling stockholder. The pro forma and as adjusted capitalization
assume a price of $82 5/8 per share of our common stock, the closing price on
June 1, 1999.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Revolving credit facility(1).......................................... $ 300,000 $ 525,000 $ 525,000
Convertible subordinated debentures due 2019.......................... -- -- 175,000
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none
issued and outstanding.............................................. -- -- --
Common stock, $0.01 par value, 300,000,000 shares authorized,
71,008,772 issued................................................... 710 710 710
Treasury stock, at cost, 3,501,556, 173,266 and 2,173,266 shares,
respectively........................................................ (193,435) (9,314) (174,564)
Additional paid-in capital............................................ 938,083 1,028,962 1,028,962
Accumulated other comprehensive income................................ (15,884) (15,884) (15,884)
Retained earnings..................................................... 627,150 627,150 627,150
------------ ------------ ------------
Total stockholders' equity.......................................... 1,356,624 1,631,624 1,466,374
------------ ------------ ------------
Total capitalization.............................................. $ 1,656,624 $ 2,156,624 $ 2,166,374
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ---------
(1) Does not include the effect of our anticipated receipt of a tax refund of
approximately $200 million, which we expect to use to reduce outstanding
indebtedness under our revolving credit facility.
9
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Our unaudited pro forma combined condensed balance sheet as of March 31,
1999 and our unaudited pro forma combined condensed income statements for the
year ended December 31, 1998 and the three months ended March 31, 1999 are
presented below. The unaudited pro forma combined condensed financial statements
include historical amounts for us and Cerulean, adjusted to reflect our
acquisition of Cerulean. See the discussion under the caption entitled "Recent
Developments." The unaudited pro forma combined condensed financial statements
are further adjusted to reflect the sale of the debentures and the repurchase of
our common stock from the selling stockholder. See the notes to the unaudited
pro forma combined condensed financial statements for a discussion of the
transactions. The Cerulean balance sheet is presented on a classified basis to
be consistent with our presentation. The Cerulean income statement for the year
ended December 31, 1998 includes a one-time charge of $76.2 million related to
its endowment of a non-profit foundation. Our net income for the three months
ended March 31, 1999 includes an after-tax charge of $20.6 million, or $0.31 per
basic and $0.30 per diluted share, related to an accounting change resulting
from the adoption of AICPA Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities. For the purpose of presenting the unaudited pro forma
combined condensed balance sheet, we have assumed that the merger occurred as of
March 31, 1999, while we are presenting the unaudited pro forma combined
condensed income statements on the basis that the transactions occurred as of
the beginning of each period shown. The unaudited pro forma combined condensed
financial statements also assume that we have reissued treasury shares with an
aggregate value of $275 million. We have assumed that the remaining $225 million
of merger consideration is financed with the incurrence of additional
indebtedness under our existing revolving credit facility. For purposes of the
as adjusted balance sheet and income statements, we have assumed that the
proceeds from the issuance of the debentures are used to purchase 2,000,000
shares of our common stock from the selling stockholder at an assumed purchase
price of $82 5/8 per share, the closing price of our common stock on the New
York Stock Exchange on June 1, 1999. The remaining net proceeds from the sale of
the debentures are assumed to be used for general corporate purposes.
As further discussed in the notes to the unaudited pro forma combined
condensed financial statements, we have accounted for our pending merger with
Cerulean using the purchase method of accounting. Under this method, the
respective assets and liabilities of Cerulean are recorded at their estimated
fair value.
We have condensed or omitted some of the data and notes normally included in
financial statements presented in accordance with generally accepted accounting
principles. The unaudited pro forma combined condensed financial statements in
this prospectus include, in the opinion of our management, all adjustments
necessary for a fair presentation of our pro forma financial position and
results of operations for the date and periods indicated. Our unaudited pro
forma combined condensed balance sheet is not necessarily indicative of our
financial condition had we completed the merger and the sale of the debentures
as of March 31, 1999. Our unaudited pro forma combined condensed income
statements are not necessarily indicative of our results of operations had we
completed these transactions as of the dates indicated. In addition, our
unaudited pro forma combined condensed financial statements are not necessarily
indicative of our future financial condition or results of operations. The pro
forma financial information should be read in conjunction with our historical
consolidated financial statements and those of Cerulean, which are incorporated
by reference in this prospectus.
10
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
------------ ---------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and current investments......... $ 2,708,876 $ 383,303 $ -- $ 3,092,179 $ 4,750(5) $ 3,096,929
Other current assets................. 831,507 134,582 3,289 )(2 969,378 -- 969,378
------------ ---------- ------------ ------------ ------------ ------------
Total current assets............. 3,540,383 517,885 3,289 4,061,557 4,750 4,066,307
Intangible assets and goodwill,
net................................ 424,067 -- 308,059(1) 732,126 -- 732,126
Other non-current assets............. 364,511 88,603 -- 453,114 5,000(5) 458,114
------------ ---------- ------------ ------------ ------------ ------------
Total non-current assets......... 788,578 88,603 308,059 1,185,240 5,000 1,190,240
------------ ---------- ------------ ------------ ------------ ------------
Total assets..................... $ 4,328,961 $ 606,488 $ 311,348 $ 5,246,797 $ 9,750 $ 5,256,547
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Medical claims payable and reserves
for future policy benefits......... $ 1,058,434 $ 193,040 $ -- $ 1,251,474 $ -- $ 1,251,474
Unearned premiums.................... 214,994 10,060 -- 225,054 -- 225,054
Experience rated and other refunds... 230,442 7,769 -- 238,211 -- 238,211
Other current liabilities............ 752,557 67,549 78,936 )(2 899,042 -- 899,042
------------ ---------- ------------ ------------ ------------ ------------
Total current liabilities........ 2,256,427 278,418 78,936 2,613,781 -- 2,613,781
Long-term reserves for future policy
benefits........................... 307,501 -- -- 307,501 -- 307,501
Long-term debt....................... 300,000 -- 225,000 )(4 525,000 -- 525,000
Convertible subordinated
debentures......................... -- -- -- -- 175,000(5) 175,000
Other non-current liabilities........ 108,409 60,482 -- 168,891 -- 168,891
------------ ---------- ------------ ------------ ------------ ------------
Total liabilities................ 2,972,337 338,900 303,936 3,615,173 175,000 3,790,173
Mandatorily redeemable preferred
stock.............................. -- 46,645 (46,645)(1) -- -- --
Common stock, $0.01 par value,
300,000,000 shares authorized,
71,008,772 issued.................. 710 -- -- 710 -- 710
Class A common stock................. -- 4 (4)(1) -- -- --
Treasury stock, at cost, 3,501,556,
173,266 and 2,173,266 shares
historically, pro forma and as
adjusted, respectively............. (193,435) -- 184,121 )(4 (9,314) (165,250)(5) (174,564)
Additional paid-in capital........... 938,083 45,188 45,691 )(4 1,028,962 -- 1,028,962
Stock warrants exercisable........... -- 29,968 (29,968)(1) -- -- --
Accumulated other comprehensive
income............................. (15,884) 16,021 (16,021)(1) (15,884) -- (15,884)
Retained earnings.................... 627,150 129,762 (129,762)(1) 627,150 -- 627,150
------------ ---------- ------------ ------------ ------------ ------------
Total stockholders' equity........... 1,356,624 220,943 54,057 1,631,624 (165,250) 1,466,374
------------ ---------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity........... $ 4,328,961 $ 606,488 $ 311,348 $ 5,246,797 $ 9,750 $ 5,256,547
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
11
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
----------- ----------- ------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 6,478,350 $ 1,334,320 $ (7,259)(6) $ 7,805,411 $ -- $ 7,805,411
Expenses..................... 6,059,461 1,387,895 22,441 )(7 7,469,797 -- 7,469,797
----------- ----------- ------------ ----------- ----------- -----------
Operating and other income... 418,889 (53,575) (29,700) 335,614 -- 335,614
Interest expense............. 26,903 -- 15,098(8) 42,001 4,449 (11 46,450
----------- ----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations before provision
for income taxes and
minority interests......... 391,986 (53,575) (44,798) 293,613 (4,449) 289,164
Provision (benefit) for
income taxes............... 72,438 2,073 (6,908)(9) 67,603 (2,320) 12) 65,283
Minority interests in
earnings of joint venture
investments................ -- (1,520) -- (1,520) -- (1,520)
----------- ----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations................. $ 319,548 $ (57,168) $ (37,890) $ 224,490 $ (2,129) $ 222,361
----------- ----------- ------------ ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- -----------
Earnings per share........... $ 4.63 $ 3.20 $ 3.26
----------- ----------- -----------
----------- ----------- -----------
Earnings per share assuming
full dilution.............. $ 4.55 $ 3.15 $ 3.15(14)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
shares outstanding......... 69,099 1,099 (10 70,198 (2,000) 13) 68,198
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Weighted average number of
shares outstanding
including common stock
equivalents................ 70,259 1,099 (10 71,358 (176) 14) 71,182
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
12
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
----------- --------- ------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 1,771,245 $ 388,951 $ (2,820)(6) $ 2,157,376 $ -- $ 2,157,376
Expenses..................... 1,648,574 374,613 2,980 )(7 2,026,167 -- 2,026,167
----------- --------- ------------ ----------- ----------- -----------
Operating and other income... 122,671 14,338 (5,800) 131,209 -- 131,209
Interest expense............. 6,100 -- 3,774(8) 9,874 1,105(11) 10,979
----------- --------- ------------ ----------- ----------- -----------
Income (loss) before
provision for income taxes,
minority interests and
cumulative effect of
accounting change.......... 116,571 14,338 (9,574) 121,335 (1,105) 120,230
Provision (benefit) for
income taxes............... 45,461 3,654 1,369(9) 50,484 (460) 12) 50,024
Minority interests in
earnings of joint venture
investments................ -- (430) -- (430) -- (430)
----------- --------- ------------ ----------- ----------- -----------
Income (loss) before
cumulative effect of
accounting change.......... $ 71,110 $ 10,254 $ (10,943) $ 70,421 $ (645) $ 69,776
----------- --------- ------------ ----------- ----------- -----------
----------- --------- ------------ ----------- ----------- -----------
Earnings per share........... $ 1.06 $ 1.00 $ 1.02
----------- ----------- -----------
----------- ----------- -----------
Earnings per share assuming
full dilution.............. $ 1.04 $ 0.98 $ 0.98(14)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
shares outstanding......... 67,259 3,328 (10 70,587 (2,000) 13) 68,587
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Weighted average number of
shares outstanding
including common stock
equivalents................ 68,561 3,328 (10 71,889 (176) 14) 71,713
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
13
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The net increase in intangible assets of $308.1 million is a result of the
excess of cost over the fair market value of the net assets of Cerulean (at
a purchase price of $500 million) and certain estimated purchase price
adjustments related to the merger. The purchase results in the elimination
of the Cerulean mandatorily redeemable preferred stock ($46.6 million) and
equity ($220.9 million) and increases liabilities by $84.4 million net of
an increase in the deferred tax asset of $8.8 million for expected costs
related to the merger, including estimated change in control payments to
Cerulean management of $54.3 million and approximately $30.1 million
related to severance and other employee payments. We intend to complete a
study on the allocation of the identified intangible assets of Cerulean
such as the Blue Cross Blue Shield name and service mark, employer groups
and provider contracts and also goodwill upon consummation of the
transaction. Although no such allocation has yet been completed, the
following preliminary allocation of the intangible assets is presented for
informational purposes. These assets have been assigned preliminary values
and lives consistent with the methodology used in our previous
acquisitions.
<TABLE>
<CAPTION>
ASSIGNED VALUE LIFE
(IN MILLIONS) (IN YEARS)
--------------- -------------
<S> <C> <C>
Blue Cross Blue Shield name and mark................................. $ 90.8 40
Employer relationships
Experience-rated................................................... 183.7 14
Direct pay......................................................... 2.3 5
Company-developed software........................................... 19.8 1.5
Goodwill............................................................. 11.5 20
------
$ 308.1
------
------
</TABLE>
(2) Represents the elimination of $5.5 million of accounts receivable/payable
arising from transactions between one of our subsidiaries and Cerulean.
(3) Reflects our payment of $225 million cash related to the maximum cash
component of the merger, financed through the incurrence of indebtedness,
and WellPoint's reissuance of our common stock held in treasury with a
value of $275 million in connection with the merger. These pro forma
financial statements assume that our common stock was reissued from
treasury at the market value on June 1, 1999. Please refer to note 4 for a
more complete description of the assumptions used regarding the financing
of the merger. From time to time, we may also incur additional indebtedness
in order to, among other things, fund additional repurchases of our common
stock.
(4) Our pro forma financial statements assume that the merger is financed
primarily through the reissuance of treasury shares having a value of $275
million on June 1, 1999, and through the incurrence of indebtedness of $225
million, representing the maximum cash payment to Cerulean shareholders.
Our board of directors has authorized us and we intend to purchase
additional shares of our common stock prior to and following the merger in
an amount equal to the number of shares to be issued in connection with the
merger, provided that we will not purchase shares of our common stock
following the merger unless we receive a ruling from the IRS, or determine
after consultation with counsel, that the purchase will not prevent the
merger from qualifying as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code. Through June 1, 1999, we had
repurchased an aggregate of 3.5 million shares of our common stock in
anticipation of the merger at an average purchase price of $55.32 per
share.
(5) Represents the issuance of the debentures resulting in net proceeds of
approximately $170 million after offering costs of approximately $5.0
million. The net offering proceeds from the sale of the debentures will be
used to purchase 2,000,000 shares of our common stock from the California
HealthCare Foundation at $82 5/8 per share. The remainder of the net
offering proceeds of approximately $4.8 million is assumed to be available
for general corporate purposes.
(6) Represents the elimination of $7.3 million and $2.8 million for the year
ended December 31, 1998 and the three months ended March 31, 1999,
respectively, of revenue and expense related to transactions between one of
our subsidiaries and Cerulean.
14
<PAGE>
(7) Reflects the adjustment required to amortize, for the year ended December
31, 1998 and the three months ended March 31, 1999, the intangible assets
of $308.1 million estimated to be created as a result of the merger on a
straight-line basis over the life of each of the identified intangible
assets and goodwill, which results in $29.9 million and $5.8 million of
amortization expense for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively.
(8) The increase in interest expense of $15.1 million and $3.8 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively, reflects the cost of $225 million of indebtedness incurred to
finance the merger (see note 3) at an assumed fixed rate of 6.71% per
annum, which represents an estimate of our effective interest rate as a
result of our currently effective interest rate swap agreements. A 1/8%
increase in the effective interest rate results in no change per basic or
diluted share for the year ended December 31, 1998 or the three months
ended March 31, 1999.
(9) Reflects the tax effect of the pro forma adjustments to effect the merger
to bring the pro forma tax expense in line with the projected effective tax
rate, which results in a decrease in tax expense of $6.9 million for the
year ended December 31, 1998 and an increase in tax expense of $1.4 million
for the three months ended March 31, 1999. The projected effective tax rate
has been increased to reflect the assumption that the goodwill generated as
a result of the merger will not be deductible. The historical tax expense
of WellPoint for the year ended December 31, 1998 includes a one-time
benefit of $85.5 million related to its receipt of a private letter ruling
from the IRS regarding the deductibility of some payments made at the time
of its May 1996 recapitalization.
(10) The increase in the weighted average shares outstanding for the year ended
December 31, 1998 results from the elimination of the impact of the
repurchase of 3.3 million shares of our common stock acquired throughout
the year, which are assumed to be issued in conjunction with the merger.
The increase in the weighted average shares outstanding for the three
months ended March 31, 1999 results from the impact of the reissuance, as
a result of the merger, of 3.3 million shares of our common stock held in
treasury.
(11) The increase in interest expense of $4.4 million and $1.1 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively, represents the effect of the issuance of the debentures
discussed in note 5, based on an assumed effective yield of 2.45% and the
amortization of the deferred debt issuance costs. As the debentures pay no
stated interest, the aggregate principal balance of the debentures
increases by the amount of the aggregate interest expense accrued until
maturity, when the principal amount due at maturity will be approximately
$285.0 million. The interest expense accrued will increase in each
subsequent year until maturity.
(12) Reflects the tax effect of the pro forma adjustment to interest expense in
note 11 above based on the overall effective tax rate for each period,
resulting in a decrease in income tax expense of $2.3 million and $0.5
million for the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively.
(13) The net change in weighted average shares outstanding for the year ended
December 31, 1998 and the three months ended March 31, 1999 reflects the
impact of the repurchase of 2.0 million shares of our common stock with a
portion of the proceeds from the sale of our debentures.
(14) The calculation of diluted earnings per share for the year ended December
31, 1998 and the three months ended March 31, 1999 assumes the conversion
of the debentures as of the beginning of the period, resulting in the
elimination of the after-tax interest charge and the addition of
approximately 1.8 million converted shares to the diluted weighted average
shares outstanding.
15
<PAGE>
SELLING STOCKHOLDER
As of June 1, 1999, the selling stockholder owned 17,910,000 shares of our
common stock, representing approximately 26.5% of the total 67,575,530 shares of
common stock outstanding. Following the offering, the selling stockholder will
own 8,910,000 shares of our common stock, which will represent approximately
13.2% of the outstanding shares. If the over-allotment option is exercised in
full, the selling stockholder will own 7,560,000 shares of our common stock,
which will represent approximately 11.2% of the outstanding shares. If we
repurchase 2,000,000 shares of our common stock from the selling stockholder
with the proceeds from our sale of debentures, the selling stockholder will own
6,910,000 shares of our common stock, which will represent 10.5% of the
outstanding shares or, if the underwriters' over-allotment option is exercised
in full, 5,560,000 shares of our common stock, which will represent 8.5% of the
outstanding shares. The shares owned by the selling stockholder are subject to
the provisions of a voting trust agreement and a voting agreement, which may
inhibit or delay changes of control or other significant corporate events.
We have entered into a Registration Rights Agreement with the selling
stockholder, granting the selling stockholder certain demand and unlimited
"piggyback" registration rights. The selling stockholder is selling shares in
this offering pursuant to the exercise of its demand registration rights. When
the selling stockholder's ownership of our common stock falls below 10% of our
outstanding shares, which may occur as a result of this offering, our repurchase
of shares with the proceeds of the sale of debentures and the closing of the
Cerulean merger, the selling stockholder may no longer be deemed an affiliate of
ours. Once the selling stockholder is no longer deemed to be our affiliate, and
upon expiration of the applicable lock-up period described under the caption
entitled "Underwriting," the selling stockholder will be able to freely sell the
remainder of its shares of our common stock at any time. Sales of substantial
amounts of common stock in the public market may adversely affect the market
price of our common stock.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Under our certificate of incorporation, we are authorized to issue up to
300,000,000 shares of common stock, $0.01 par value. As of June 1, 1999, there
were 67,575,530 shares of common stock issued and outstanding. In addition, up
to 10,900,000 shares, excluding 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 our 1999 Stock Incentive Plan, 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.
Shares of our common stock:
- are not redeemable;
- do not have any conversion rights and are not subject to call;
- do not have any preemptive rights which would allow the holders of our
common stock to maintain their percentage of ownership in future offerings
or sales of our stock;
- are entitled to one vote per share on all matters submitted to a vote of
our stockholders with no cumulative voting rights;
- are fully paid and nonassessable;
- are entitled to receive dividends, if any, as and when declared from time
to time by our board of directors out of assets or funds legally available
for distribution, subject to the restrictions on shares owned in excess of
the ownership limit as described below; and
16
<PAGE>
- will be entitled to participate ratably, in proportion to the number of
shares held, in our net assets available for distribution to holders of
our common stock, upon liquidation, dissolution or winding up of our
affairs.
PREFERRED STOCK
We are authorized to issue up to 50,000,000 shares of preferred stock, $0.01
par value, none of which is outstanding as of the date of this prospectus. Our
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 our
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
our company.
CERTAIN CHARTER PROVISIONS THAT MAY LIMIT CHANGES IN CONTROL
In connection with our recapitalization in May 1996, we entered into a
license agreement with the Blue Cross Blue Shield Association which granted us
the exclusive license to use the Blue Cross name in California. The license
agreement requires as a condition to our retention of the Blue Cross license
that our certificate of incorporation contain the following provisions:
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Our certificate of incorporation provides that no person other than the
selling stockholder may beneficially own shares of voting capital stock of our
company in excess of the ownership limit. As a result of an agreement between us
and the Blue Cross Blue Shield Association executed in December 1997, in
accordance with the provisions of Article VII, Section 14(f)(2) of our
certificate of incorporation, the ownership limit is the following:
- for any "Institutional Investor," one share less than 10% of our
outstanding voting securities; and
- for any "Noninstitutional Investor," other than the selling stockholder,
one share less than 5% of our outstanding voting securities.
"Institutional Investor" means any person if (but only if) such person is:
- a broker or dealer registered under Section 15 of the Securities Exchange
Act of 1934, as amended;
- a bank as defined in Section 3(a)(6) of the Exchange Act;
- an insurance company as defined in Section 3(a)(19) of the Exchange Act;
- an investment company registered under Section 8 of the Investment Company
Act of 1940;
- an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940;
- 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;
- 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 the six bullet points listed above, does not exceed
one percent of the securities of the subject class such as common stock;
or
- a group, provided that all the members are persons specified in the seven
bullet points listed above.
17
<PAGE>
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 that
person's beneficial ownership must contain a certification (or a substantially
similar one) that our common stock acquired by that 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 our company and was
not acquired in connection with or as a participant in any transaction having
such purpose or effect.
"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
the intended transferee acquiring no rights in such shares (with certain
exceptions) and the person's shares will be deemed transferred to an escrow
agent to be held until the shares are transferred to a person whose ownership of
the shares will not violate the ownership limit. These provisions prevent a
third party from obtaining control of our company without obtaining the
supermajority vote required to amend our certificate of incorporation and may
have the effect of discouraging or even preventing a merger or business
combination, a tender offer or similar extraordinary transaction involving us.
STOCKHOLDERS' MEETINGS
Our certificate of incorporation provides that special meetings of our
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
Our certificate of incorporation prohibits action that is required or
permitted to be taken at any annual or special meeting of our stockholders from
being taken by the written consent of stockholders without a meeting.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide that our 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 us, even though such an attempt might be
beneficial to us and our 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 our 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 certificate of
incorporation, including the provisions concerning:
- the number of directors,
- the classified board provision,
- the filling of vacancies on the board of directors,
18
<PAGE>
- the power of directors to amend our certificate of incorporation,
- the prohibition on stockholder action by written consent,
- the ownership and transfer restrictions,
- the prohibition on cumulative voting by stockholders, and
- the requirement for supermajority stockholder approval to amend such
provisions.
In addition, any amendment of our certificate of incorporation, and
amendment of certain provisions of our bylaws, requires the approval of the
greater of two-thirds or seven of the company's directors.
SHARES ELIGIBLE FOR FUTURE SALE
We have granted the selling stockholder certain demand and unlimited
"piggyback" registration rights. In addition, when the selling stockholder is no
longer deemed to be our affiliate, and upon expiration of the applicable lock-up
period described under the caption entitled "Underwriters," it may freely sell
the remainder of its shares of our common stock at any time. See the discussion
under the caption entitled "Selling Stockholder." We have agreed to grant
certain demand and unlimited "piggyback" registration rights to Georgia
Strategic Healthcare, LLC, a stockholder of Cerulean, on the closing of the
merger with Cerulean. Under this agreement, if necessary to allow the
stockholder to freely sell its shares, we will register for possible sale all of
this stockholder's common stock from the closing of the merger through 90 days
after the closing. Based on an assumed price of our common stock of $82 5/8,
this stockholder will receive approximately 1,076,000 shares of our common stock
in the merger. In addition, upon closing of our merger with Cerulean,
approximately 70,000 individual Cerulean stockholders may receive relatively
small amounts of our common stock. Based upon the closing price of our common
stock on June 1, 1999, we expect to issue between 3,330,000 shares and 6,052,000
shares in connection with the Cerulean transaction. All of these shares will be
freely tradeable upon issuance. Sales of substantial amounts of our common stock
in the public market by the selling stockholder or Georgia Strategic Healthcare,
LLC, or by other Cerulean stockholders, may adversely affect the market price of
our common stock.
19
<PAGE>
UNDERWRITERS
Under the terms and conditions of the underwriting agreement dated the date
of this prospectus, the U.S. underwriters named below, for whom Morgan Stanley &
Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche
Bank Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Smith Barney Inc. and Warburg Dillon Read LLC are acting as U.S.
representatives, and the international underwriters named below for whom Morgan
Stanley & Co. International Limited, Merrill Lynch International, Deutsche Bank
AG London, Donaldson, Lufkin & Jenrette International, Salomon Brothers
International Limited and Warburg Dillon Read LLC are acting as international
managers, have severally agreed to purchase, and the selling stockholder has
agreed to sell to them, severally, the number of shares of our common stock
indicated below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.................................................................
Merrill Lynch, Pierce, Fenner & Smith.............................................................
Incorporated
Deutsche Bank Securities Inc......................................................................
Donaldson, Lufkin & Jenrette Securities Corporation...............................................
Salomon Smith Barney Inc..........................................................................
Warburg Dillon Read LLC...........................................................................
------------
Subtotal........................................................................................ 7,200,000
------------
</TABLE>
<TABLE>
<S> <C>
International Underwriters:
Morgan Stanley & Co. International Limited....................................
Merrill Lynch International...................................................
Deutsche Bank AG London.......................................................
Donaldson, Lufkin & Jenrette International....................................
Salomon Brothers International Limited........................................
Warburg Dillon Read LLC.......................................................
---------
Subtotal.................................................................... 1,800,000
---------
Total..................................................................... 9,000,000
---------
---------
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from the selling stockholder and subject to prior sale.
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares are conditioned on the
delivery of legal opinions by their counsel. The underwriters are obligated to
purchase all of the shares, except those covered by the U.S. underwriters'
over-allotment option described below, if any are purchased.
In the agreement between U.S. and international underwriters, each U.S.
underwriter has represented and agreed that (1) it is not purchasing any shares
for the account of anyone other than a United States or Canadian person and (2)
it has not offered or sold, and will not offer or sell 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. Each international
underwriter has represented and agreed that (1) it is not purchasing any shares
for the account of any United States or Canadian person and (2) it has not
offered or sold, and will not offer or sell any shares or distribute any
prospectus relating to the shares in the United States or Canada or to any
United States or Canadian person. For any underwriter that is both a U.S.
underwriter and an international underwriter, these representations and
agreements (1) made by it in its capacity as a U.S. underwriter apply only to it
in its capacity as a U.S. underwriter and (2) made by it in its capacity as an
international underwriter
20
<PAGE>
apply only to it in its capacity as an international underwriter. The
limitations described above do not apply to, among other things, stabilization
transactions or to other transactions specified in the agreement between U.S.
and international underwriters. As used in this section, "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 the laws of the United States or Canada or of any political
subdivision of the United States or Canada, other than a branch located outside
the United States and Canada of any United States or Canadian person. "United
States or Canadian person" includes any United States or Canadian branch of an
entity who is otherwise not a United States or Canadian person.
In the agreement between U.S. and international underwriters, sales of
shares may be made between U.S. underwriters and international underwriters. The
price of any shares so sold will be the public offering price set forth on the
cover page of this prospectus, in U.S. dollars, less an amount not greater than
$ a share.
In 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 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 of Canada. Each U.S. underwriter 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 the 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 that, by purchasing the shares, the dealer agrees
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 the offer or sale is made. Each dealer will deliver to any
other dealer to whom it sells any shares a notice containing substantially the
same Canadian selling restrictions.
In the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that:
- 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 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;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986; and
- it has and will distribute any document relating to the shares in the
United Kingdom only to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document
may otherwise lawfully be distributed.
In 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 in Japan or to or for the account of
any resident of Japan any of the shares. This limitation does not apply to
offers or sales to Japanese international underwriters or dealers and offers and
sales 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
that, by purchasing the shares,
21
<PAGE>
the dealer agrees that any offer or sale of the shares in Japan will be made
only to Japanese international underwriters or dealers or under an exemption
from the registration requirements of the Securities and Exchange Law and
otherwise in compliance with applicable provisions of Japanese law. Each dealer
will send to any other dealer to whom it sells any shares a notice containing
substantially the same Japanese selling restrictions.
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 of this prospectus. The underwriters may also offer the shares to
securities dealers at a price that represents a concession not in excess of $ a
share under the public offering price. Any underwriter may allow, and dealers
may reallow, a concession not in excess of $ a share to other underwriters or
to securities dealers. After the initial offering of the shares of common stock,
the offering price and other selling terms may from time to time be changed by
the representatives.
The U.S. underwriters have an option to purchase from the selling
stockholder up to an aggregate of 1,350,000 additional shares of common stock at
the public offering price set forth on the cover page of this prospectus, less
underwriting discounts and commissions. The U.S. underwriters' option is
exercisable for 30 days from the date of this prospectus. The U.S. underwriters
may exercise this option only for the purpose of covering over-allotments, if
any, made in connection with this offering. If this option is exercised, each
U.S. underwriter will become obligated to purchase the same percentage of
additional shares of common stock as set forth in the preceding table. If the
U.S. underwriters' option is exercised in full, the total price to the public
for this offering would be $ , the total underwriting discounts and
commissions would be $ and the total proceeds to California
HealthCare Foundation would be $ .
Our company and certain of our executive officers have agreed, and the
selling stockholder has agreed, that we and they will not, during the period
ending 90 days after the date of this prospectus, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters:
- 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, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another person,
in whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash, or otherwise. These restrictions are subject
to certain limited exceptions set forth in the underwriting agreements,
including those relating to:
- the issuance of options or common stock under employee or director benefit
plans and stock for stock exercise of options;
- the issuance of shares by us in connection with the acquisition of a
business; and
- the repurchase of shares of common stock from the selling stockholder.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of our common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in our common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of our 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
shares in the offering, if the syndicate repurchases previously distributed
shares in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any
22
<PAGE>
of these activities may stabilize or maintain the market price of our 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.
From time to time, some of the U.S. and international underwriters and their
affiliates have engaged in, and may in the future engage in, commercial banking
and investment banking transactions with us and the selling stockholder and our
affiliates. In addition, Donaldson, Lufkin & Jenrette Securities Corporation is
providing us with financial advisory services in connection with the Cerulean
transaction.
Our company, the selling stockholder and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of our common stock to be offered in this prospectus will be
passed upon for us 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.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
by reference into the prospectus, have been audited by PricewaterhouseCoopers
LLP, independent auditors, as stated in their report on these financial
statements and are incorporated into this prospectus by reference in reliance
upon the authority of PricewaterhouseCoopers LLP as experts in accounting and
auditing. Ernst & Young LLP, independent auditors, have audited Cerulean
Companies, Inc.'s consolidated financial statements included in Amendment No. 5
to our Registration Statement (Form S-4 No. 333-64955), as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. These financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may inspect and copy these reports, proxy
statements and other information at the public reference facilities of the SEC,
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60661. You may also obtain copies
of these materials from the public reference section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You should call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. The
SEC also maintains an Internet website that contains reports, proxy and
information statements and other information regarding companies and other
persons that file electronically with the SEC. The SEC's Internet website
address is http:\\www.sec.gov\. You may inspect reports and other information
that we file at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York, 10005. We have filed a registration statement and
related exhibits with the SEC under the Securities Act. The registration
statement, which includes this prospectus, contains additional information about
our company and the shares of our common stock to be sold by the selling
stockholder. You may inspect the registration statement and exhibits without
charge at the office of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and you may obtain copies from the SEC at prescribed rates.
The SEC allows us to "incorporate by reference" information that we file
with it, which means that we can disclose important information to you by
referring to those documents. The information
23
<PAGE>
incorporated by reference is an important part of this prospectus, and the
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the following documents
that we have filed with the SEC:
<TABLE>
<S> <C>
Annual Report on Form 10-K................... for the year ended December 31, 1998
Quarterly Report on Form 10-Q................ for the quarter ended March 31, 1999
The description of common stock contained in filed on June 12, 1997
our registration statement on Form 8-B.....
Cerulean Companies, Inc. Consolidated filed on September 30, 1998, as amended.
Financial Statements contained in
WellPoint's Registration Statement on Form
S-4........................................
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of the prospectus and the termination of the offering of the
shares. You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
WellPoint Health Networks Inc.
1 WellPoint Way
Thousand Oaks, CA 91362
(805) 557-6789
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. Neither we nor the underwriters
have authorized anyone else to provide you with different information.
24
<PAGE>
[LOGO]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Alternate Page for International Prospectus
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 28, 1999
9,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
THE CALIFORNIA HEALTHCARE FOUNDATION IS OFFERING 9,000,000 SHARES OF COMMON
STOCK OF WELLPOINT HEALTH NETWORKS INC. INITIALLY, THE U.S. UNDERWRITERS ARE
OFFERING 7,200,000 SHARES OF OUR COMMON STOCK IN THE UNITED STATES AND CANADA,
AND THE INTERNATIONAL UNDERWRITERS ARE OFFERING 1,800,000 SHARES OF OUR COMMON
STOCK OUTSIDE OF THE UNITED STATES AND CANADA. THE CALIFORNIA HEALTHCARE
FOUNDATION CURRENTLY OWNS APPROXIMATELY 26.5% OF OUR COMMON STOCK AND WILL OWN
APPROXIMATELY 13.2% AFTER THE OFFERING. WE ARE ALSO CURRENTLY OFFERING THROUGH
ANOTHER PROSPECTUS $285,000,000 IN AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF OUR
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES DUE 2019. IF THAT OFFERING IS
SUCCESSFUL, WE INTEND TO USE THE PROCEEDS TO PURCHASE FROM THE CALIFORNIA
HEALTHCARE FOUNDATION AS MANY SHARES OF OUR COMMON STOCK AS POSSIBLE UP TO A
MAXIMUM OF 2,000,000 SHARES.
OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"WLP." ON JUNE 23, 1999, THE LAST REPORTED SALE PRICE OF OUR COMMON STOCK WAS
$90 15/16 PER SHARE. OUR CERTIFICATE OF INCORPORATION PROHIBITS CERTAIN
INSTITUTIONAL INVESTORS FROM OWNING MORE THAN ONE SHARE LESS THAN 10% OF OUR
COMMON STOCK AND ANY OTHER PERSON OR ENTITY (OTHER THAN THE CALIFORNIA
HEALTHCARE FOUNDATION) FROM BENEFICIALLY OWNING MORE THAN ONE SHARE LESS THAN 5%
OF OUR COMMON STOCK. FOR A MORE DETAILED DISCUSSION OF THIS RESTRICTION, SEE
"DESCRIPTION OF CAPITAL STOCK" BEGINNING ON PAGE 16.
--------------------------
PRICE $ A SHARE
---------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND SELLING
TO PUBLIC COMMISSIONS STOCKHOLDER
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CALIFORNIA HEALTHCARE FOUNDATION HAS GRANTED THE U.S. UNDERWRITERS THE RIGHT
TO PURCHASE UP TO AN ADDITIONAL 1,350,000 SHARES OF COMMON STOCK TO COVER
OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES
TO PURCHASERS ON JUNE , 1999.
------------------------
MORGAN STANLEY DEAN WITTER MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
WARBURG DILLON READ
JUNE , 1999
Alternate Page for International Prospectus
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 3
THE COMPANY................................................................................................ 3
RECENT DEVELOPMENTS........................................................................................ 3
THE OFFERING............................................................................................... 4
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA.......................................................... 5
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS................................................. 7
USE OF PROCEEDS............................................................................................ 8
DIVIDEND POLICY............................................................................................ 8
PRICE RANGE OF COMMON STOCK................................................................................ 8
CAPITALIZATION............................................................................................. 9
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 10
SELLING STOCKHOLDER........................................................................................ 16
DESCRIPTION OF CAPITAL STOCK............................................................................... 16
UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS........................................ 20
UNDERWRITERS............................................................................................... 22
LEGAL MATTERS.............................................................................................. 25
EXPERTS.................................................................................................... 25
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 25
</TABLE>
------------------------
You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized anyone to provide you with
information or to make any representation to you that is not contained in this
prospectus. This prospectus is not an offer to sell securities in any
jurisdiction where the offer or sale is not permitted. You should not under any
circumstances assume that the information in this prospectus is correct on any
date after the date of this prospectus.
2
Alternate Page for International Prospectus
<PAGE>
UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
This is a general discussion of U.S. federal tax consequences of the
acquisition, ownership, and disposition of our common stock by a holder that,
for U.S. federal income tax purposes, is a non-U.S. holder as we define that
term below (a "non-U.S. holder"). We have based this summary upon the U.S.
federal tax law in effect as of the date of this prospectus. These laws may
change, possibly retroactively. We do not discuss all aspects of U.S. federal
taxation that may be important to you in light of your individual investment
circumstances, such as if special tax rules apply to you, for example, if you
are a financial institution, insurance company, broker-dealer, or tax-exempt
organization. We urge you to consult your tax advisor about the U.S. federal tax
consequences of acquiring, holding, and disposing of our common stock, as well
as any tax consequences that may arise under the laws of any foreign, state,
local, or other taxing jurisdiction.
As used herein, the term non-U.S. holder means a holder of common stock that
is not:
- for U.S. federal income tax purposes, a citizen or resident of the United
States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
- an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust, the administration of which is subject to the primary supervision
of a court within the United States and which has one or more United
States persons with authority to control all substantial decisions, or if
the trust was in existence on August 20, 1996, and has elected to continue
to be treated as a U.S. person.
DIVIDENDS. Dividends, if any, paid on the common stock to a non-U.S.
holder, generally will be subject to a 30% U.S. federal withholding tax, subject
to reduction for non-U.S. holders eligible for the benefits of certain income
tax treaties. Currently, for purposes of determining whether tax is to be
withheld at the 30% rate or at a reduced treaty rate, we will ordinarily presume
that dividends paid to an address in a foreign country are paid to a resident of
such country absent knowledge that such presumption is not warranted. A non-U.S.
holder is required to satisfy certain certification requirements to claim treaty
benefits. Except as otherwise provided under an applicable tax treaty, a
non-U.S. holder will be taxed in the same manner as a U.S. holder on dividends
paid, or deemed paid, that: (1) are effectively connected with the conduct of a
trade or business in the United States, or (2) if a tax treaty applies, are
attributable to a U.S. permanent establishment of the non-U.S. holder. Such
dividends generally are not subject to the 30% withholding rates, provided that
the non-U.S. holder timely files the appropriate form with the paying agent. If
such dividends are received by a non-U.S. holder that is a foreign corporation,
it may also be required to pay a U.S. branch profits tax on such effectively
connected income at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
GAIN ON DISPOSITION OF COMMON STOCK. A non-U.S. holder generally will not
be required to pay U.S. federal income tax on gain realized on the sale or
exchange of common stock unless:
- in the case of an individual non-U.S. holder, such holder is present in
the United States for 183 days or more in the year of such sale or
exchange and either (A) has a tax home in the United States and certain
other requirements are met, or (B) the gain from the disposition is
attributable to an office or other fixed place of business in the United
States;
- the non-U.S. holder is required to pay tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates;
- the gain is effectively connected with the conduct of a U.S. trade or
business or, if a tax treaty applies, is attributable to a U.S. permanent
establishment of the non-U.S. holder; or
20
Alternate Page for International Prospectus
<PAGE>
- in the case of the disposition of common stock, we are a U.S. real
property holding corporation. We do not believe that we are currently a
U.S. real property holding corporation or that we will become one in the
future.
U.S. FEDERAL ESTATE TAX. Common stock held by an individual who at the time
of death is not a citizen or resident of the United States, as specially defined
for U.S. federal estate tax purposes, will be included in such individual's
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty otherwise applies.
BACKUP WITHHOLDING AND INFORMATION REPORTING
NON-U.S. HOLDERS. We must report annually to the IRS and to each non-U.S.
holder the amount of any dividends paid to, and the tax withheld with respect
to, such non-U.S. holder, regardless of whether any tax was actually withheld.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the non-U.S. holder resides.
The payment of the proceeds on the disposition of shares of common stock to
or through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a non-U.S. holder of shares of
common stock to or through a foreign office of a broker will not be subject to
backup withholding or information reporting. However, if such broker is a U.S.
person, a controlled foreign corporation for U.S. tax purposes, or a foreign
person, 50% or more of whose gross income from all sources for certain periods
is from activities that are effectively connected with a U.S. trade or business,
or, in the case of payments made after December 31, 2000, a foreign partnership
with certain connections to the United States, information reporting
requirements will apply unless such broker has documentary evidence in its files
of the holder's non-U.S. status and has no actual knowledge to the contrary or
unless the holder otherwise establishes an exemption.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, these
regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. In addition, these
regulations impose more stringent conditions on the ability of financial
intermediaries acting for a non-U.S. holder to provide certifications on behalf
of the holder, which may include entering into an agreement with IRS to audit
certain documentation with respect to such certifications. These regulations are
generally effective for payments made after December 31, 2000, subject to
certain transition rules. You should consult your tax advisor to determine the
effects of the application of these regulations to your particular
circumstances.
21
Alternate Page for International Prospectus
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 28, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
$285,000,000
[LOGO]
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURES DUE 2019
-----------------
HOLDERS MAY CONVERT THE DEBENTURES INTO SHARES OF OUR COMMON STOCK AT ANY TIME
PRIOR TO MATURITY AT A CONVERSION RATE OF SHARES PER $1,000 PRINCIPAL
AMOUNT AT MATURITY. THE CONVERSION RATE WILL NOT BE ADJUSTED FOR ACCRUED
ORIGINAL ISSUE DISCOUNT, BUT WILL BE SUBJECT TO ADJUSTMENT IN CERTAIN EVENTS.
-------------------
ON OR AFTER JUNE , 2002, WE MAY REDEEM ANY OF THE DEBENTURES AT THE REDEMPTION
PRICES SET FORTH IN THE TABLE ON PAGE 25.
-------------------
FOR A MORE DETAILED DESCRIPTION OF THE DEBENTURES, SEE "DESCRIPTION OF
DEBENTURES" BEGINNING ON
PAGE 18.
-------------------
OUR COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"WLP." ON JUNE 23, 1999, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE WAS $90 15/16. OUR CERTIFICATE OF INCORPORATION
PROHIBITS CERTAIN INSTITUTIONAL INVESTORS FROM OWNING MORE THAN ONE SHARE LESS
THAN 10% OF OUR COMMON STOCK AND ANY OTHER PERSON OR ENTITY (OTHER THAN THE
CALIFORNIA HEALTHCARE FOUNDATION) FROM BENEFICIALLY OWNING MORE THAN ONE SHARE
LESS THAN 5% OF OUR COMMON STOCK. FOR PURPOSES OF THIS OWNERSHIP LIMIT,
OWNERSHIP OF THE DEBENTURES WILL BE DEEMED OWNERSHIP OF SHARES OF OUR COMMON
STOCK. FOR A MORE DETAILED DISCUSSION OF THIS RESTRICTION, SEE "RESTRICTIONS ON
OWNERSHIP AND TRANSFER OF THE DEBENTURES AND OUR COMMON STOCK" ON PAGE 24.
-------------------
PRICE % AND ACCRUED ORIGINAL ISSUE DISCOUNT, IF ANY
-----------------
WE HAVE GRANTED TO THE UNDERWRITERS AN OPTION TO PURCHASE UP TO AN ADDITIONAL
$42,750,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF DEBENTURES TO COVER
OVER-ALLOTMENTS, IF ANY. SEE THE DISCUSSION UNDER THE CAPTION ENTITLED
"UNDERWRITERS."
-------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
JUNE , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 3
THE COMPANY................................................................................................ 3
RECENT DEVELOPMENTS........................................................................................ 3
THE OFFERING............................................................................................... 4
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA.......................................................... 7
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS................................................. 9
USE OF PROCEEDS............................................................................................ 10
RATIO OF EARNINGS TO FIXED CHARGES......................................................................... 10
CAPITALIZATION............................................................................................. 11
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................................................ 12
DESCRIPTION OF DEBENTURES.................................................................................. 18
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS............................................................ 37
DESCRIPTION OF CAPITAL STOCK............................................................................... 43
UNDERWRITERS............................................................................................... 47
LEGAL MATTERS.............................................................................................. 48
EXPERTS.................................................................................................... 48
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 48
</TABLE>
-------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information or to make any
representation to you that is not contained in this prospectus. This prospectus
is not an offer to sell securities in any jurisdiction where the offer or sale
is not permitted. You should not under any circumstances assume that the
information in this prospectus is correct on any date after the date of this
prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO
THE FINANCIAL STATEMENTS AND OTHER INFORMATION, INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS.
THE COMPANY
We are one of the nation's largest publicly traded managed health care
companies. As of March 31, 1999, we had approximately 6.9 million medical
members and approximately 30 million specialty members. We offer a broad
spectrum of network-based managed care plans. We provide these plans to small
employer groups, individuals, large employer groups and the Medicare and
Medicaid markets. Our managed care plans include health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"),
point-of-service ("POS") plans, other hybrid plans and traditional indemnity
plans. We also provide a broad array of specialty and other products, including
pharmacy, dental, life insurance, preventive care, disability insurance,
behavioral health, COBRA and flexible benefits account administration. In
addition, we offer non-risk bearing managed care services, including
underwriting, actuarial services, network access, medical cost management,
claims processing and administrative services.
We market our products in California under the name Blue Cross of California
and outside of California under the name UNICARE. Historically, our primary
market for managed care products has been California. We hold the exclusive
right in California to market our products under the Blue Cross name and mark.
RECENT DEVELOPMENTS
We entered into a merger agreement with Cerulean Companies, Inc. on July 9,
1998. Upon completion of the merger, Cerulean will become one of our wholly
owned subsidiaries. Cerulean currently holds the exclusive license to use the
Blue Cross and Blue Shield name in the state of Georgia. For a more complete
description of the merger, please see our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, which is incorporated by reference into this
prospectus. The pro forma financial statements included in this prospectus
present our historical results of operations and those of Cerulean, with certain
adjustments, as if the merger had occurred on the dates specified. We still need
to obtain some approvals to complete the merger.
California HealthCare Foundation, one of our stockholders, is also now
offering for sale through another prospectus 9,000,000 shares of our common
stock (plus an additional 1,350,000 shares if the underwriters' over-allotment
option is exercised in full). We will receive none of the net proceeds raised
from the sale of the common stock by the California HealthCare Foundation. We
expect that the sale of common stock by the California HealthCare Foundation
will happen at the same time as the sale of the debentures under this prospectus
(or as soon as possible after such sale) but it might not happen then or at all.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
THE DEBENTURES............................. - $285,000,000 aggregate principal amount at maturity of
zero coupon convertible subordinated debentures due
2019, or $327,750,000 aggregate principal amount at
maturity if the underwriters' over-allotment option is
exercised in full.
- We will not pay periodic interest on the debentures,
except as described under the caption entitled
"Description of Debentures--Optional Conversion to
Semiannual Coupon Debentures Upon a Tax Event." See
the discussion under the caption entitled "Description
of Debentures--General."
YIELD TO MATURITY OF DEBENTURES............ - % per year compounded semi-annually, calculated from
June , 1999.
CONVERSION................................. - You have the option to convert the debentures into our
common stock at any time prior to maturity.
- You can convert the debentures into common stock at a
conversion rate of shares per $1,000 principal
amount at maturity. The conversion rate will be
subject to adjustment if certain events occur. See the
discussion under the caption entitled "Description of
Debentures-- Conversion of Debentures."
- The debentures initially are convertible into
shares of our common stock. This number does not
include additional shares of common stock that may be
issued if the conversion rate of the debentures is
adjusted. See the discussion under the caption
entitled "Description of Debentures--Conversion of
Debentures."
- In lieu of delivering shares of common stock upon
conversion of any debentures, we may elect to pay you
cash for your debentures in an amount equal to the
last reported sales price of our common stock on the
trading day preceding the conversion date, multiplied
by the applicable conversion rate.
- You must exercise the option to convert before the
debentures reach maturity and before we redeem them.
SUBORDINATION.............................. - The debentures are subordinate in right of payment to
all existing and future Senior Indebtedness.
- The debentures are also effectively subordinate in
right of payment to all of our subsidiaries'
Indebtedness and other liabilities.
- At March 31, 1999 we had approximately $323.9 million
of Senior Indebtedness outstanding.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- At March 31, 1999 our subsidiaries had approximately
$2,653.3 million of Indebtedness and other
liabilities. This number includes trade and other
payables outstanding. It does not include intercompany
liabilities and liabilities that are not required to
be reflected on a balance sheet by generally accepted
accounting principles. See the discussion under the
caption entitled "Description of
Debentures--Subordination of Debentures."
ORIGINAL ISSUE DISCOUNT.................... - The debentures are being offered at original issue
discount for Federal income tax purposes equal to the
excess of the principal amount at maturity of the
debentures over the amount of their issue price.
- We will not make periodic cash payments of interest on
the debentures, except as described under the caption
entitled "Description of Debentures--Optional
Conversion to Semiannual Coupon Debentures Upon a Tax
Event." Nonetheless, you should be aware that accrued
original issue discount will be included periodically
in your gross income for Federal income tax purposes.
See the discussion under the caption entitled
"Material U.S. Federal Income Tax Considerations."
- You should be aware that you will be responsible for
the payment of taxes that may be due even though you may
not receive any cash payment at the time original
issue discount is included in your gross income.
SINKING FUND............................... - None
REDEMPTION AT THE OPTION OF THE COMPANY.... - We cannot redeem the debentures before June , 2002.
- On and after June , 2002, we can redeem all or part
of the debentures for cash at any time. You can convert
the debentures after they are called for redemption at
any time up to the redemption date.
- Redemption prices are equal to the issue price plus
accrued original issue discount to the date of
redemption. You can find a table on page 25 that lists
the redemption prices. See the discussion under the
caption entitled "Description of Debentures--
Redemption of Debentures at WellPoint's Option."
FUNDAMENTAL CHANGE......................... - You may require us to repurchase the debentures if we
experience a Fundamental Change.
- The Fundamental Change purchase price is equal to the
issue price plus accrued original issue discount to
the date of repurchase, subject to adjustment in
certain circumstances. You can find a table on page 25
that lists the purchase prices. See the discussion
under the caption entitled "Description of
Debentures-- Repurchase at the Option of the Holder
Upon a Fundamental Change."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
REPURCHASE AT THE OPTION OF THE HOLDER..... - We will repurchase the debentures at your option on
June , 2002, June , 2009 and June , 2014 for a
purchase price equal to the issue price plus accrued
original issue discount to the date of repurchase. We
may elect to pay the purchase price in common stock
instead of cash if certain conditions are met. You can
find a table on page 27 that lists the purchase
prices. See "Description of Debentures--Repurchase of
Debentures at the Option of the Holder."
CONVERSION TO SEMIANNUAL COUPON DEBENTURE.. - If a Tax Event prevents us from deducting original
issue discount payable on the debentures, we can elect
to pay you interest in cash and terminate the further
accrual of original issue discount. See "Description
of Debentures--Optional Conversion to Semiannual
Coupon Debentures Upon a Tax Event."
RESTRICTIONS ON OWNERSHIP AND TRANSFER
OF THE DEBENTURES AND OUR COMMON STOCK... - Our certificate of incorporation provides that no
person may beneficially own shares of our common stock,
including shares deemed owned upon conversion of the
debentures, in excess of a prescribed ownership limit.
See the discussion under the caption entitled
"Description of Capital Stock--Certain Charter
Provisions That May Limit Changes in Control."
- Ownership of the debentures shall be deemed ownership
of the greater number of shares of our common stock
which you would receive either if you exercised the
option to convert or we exercised our option to pay
for your debentures with common stock were you to
require us to purchase them. If the conversion rate of
the debentures is adjusted, then you may be deemed to
beneficially own a greater number of shares of our
common stock.
- Upon completion of the offering and repurchase of
2,000,000 shares of our common stock from one of our
stockholders, we will have 65,575,530 shares of our
common stock outstanding, excluding shares to be
issued in connection with the Cerulean transaction,
which we anticipate will be between 3,330,000 shares
and 6,051,000 shares.
USE OF PROCEEDS............................ - We will use the net proceeds of the offering to
purchase as many shares of our common stock as possible
from one of our stockholders, up to a maximum of
2,000,000 shares. We will use any remaining proceeds
for general corporate purposes.
</TABLE>
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth for the periods indicated our selected
historical financial data and historical operating statistics. For the period
January 1, 1996 through May 20, 1996 (the effective date of our recapitalization
with our then-largest stockholder), the selected historical consolidated
financial data does not include the commercial operations of that stockholder.
Information as of December 31, 1998 and for the three years ended December 31,
1998 has been derived from our consolidated financial statements which are
incorporated by reference into this prospectus and which have been audited by
PricewaterhouseCoopers LLP, our independent public accountants, whose report is
incorporated by reference into this prospectus. The selected historical
financial data and historical operating statistics for the three months ended
March 31, 1999 have been derived from our unaudited consolidated financial
statements and contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of this information. The
operating results for the three months ended March 31, 1999 are not necessarily
indicative of the operating results to be expected for the full year. For the
purposes of presenting the unaudited pro forma financial data for the year ended
December 31, 1998 and for the three months ended March 31, 1999, we have assumed
that the Cerulean transaction was completed as of the beginning of each period.
For the purposes of the unaudited pro forma balance sheet as of March 31, 1999,
we have assumed that the Cerulean transaction was completed as of such date. For
purposes of the as adjusted financial data for the year ended December 31, 1998
and for the three months ended March 31, 1999, we have assumed the completion of
the debenture offering and the concurrent repurchase by us of 2,000,000 shares
of common stock from the selling stockholder as of the beginning of each period.
For the purposes of the unaudited as adjusted balance sheet as of March 31,
1999, we have assumed that the debenture offering and repurchase of our shares
of common stock from the selling stockholder were completed as of such date. The
pro forma and as adjusted data assume a price of $82 5/8 per share of our common
stock, the closing price on June 1, 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
YEAR ENDED DECEMBER 31, 1998
------------------------------- ------------
1996 1997 1998 PRO FORMA
--------- --------- --------- ------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA
AND OPERATING STATISTICS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA(A):
Revenues:................... $3,970,832 $5,642,238 $6,478,350 $ 7,805,411
Operating Expenses:
Operating expenses
(excluding nonrecurring
costs) (B)............... 3,571,773 5,173,390 6,031,522 7,469,797
Nonrecurring costs........ -- 14,535 -- --
--------- --------- --------- ------------
3,571,773 5,187,925 6,031,522 7,469,797
Operating Income............ 399,059 454,313 446,828 335,614
Interest expense.......... 36,628 36,658 26,903 42,001
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change.......... 198,518 229,437 319,548 224,490
Net Income.................. 202,002 227,409 231,280 --
Per Share Data (A)(C)(D)(E):
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change:
Earnings Per Share...... $2.99 $3.33 $4.63 $3.20
Earnings Per Share
Assuming Full
Dilution............... $2.99 $3.30 $4.55 $3.15
Income (Loss) from
Discontinued Operations:
Earnings Per Share...... $0.05 $(0.03) $(1.28) --
Earnings Per Share
Assuming Full
Dilution............... $0.05 $(0.03) $(1.26) --
Cumulative Effect of
Accounting Change
Earnings Per Share...... -- -- -- --
Earnings Per Share
Assuming Full
Dilution............... -- -- -- --
Net Income:
Earnings Per Share...... $3.04 $3.30 $3.35 --
Earnings Per Share
Assuming Full
Dilution............... $3.04 $3.27 $3.29 --
OPERATING STATISTICS (A)(F):
Loss ratio.................. 76.4% 80.6% 80.5% --
Selling expense ratio....... 5.3% 4.6% 4.4% --
General and administrative
expense ratio.............. 14.1% 15.4% 15.3% --
Net income ratio............ 5.3% 4.2% 3.6% --
Medical Membership (G)...... 4,485,000 6,638,000 6,892,000 --
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-----------------------------------------
AS ADJUSTED ACTUAL PRO FORMA AS ADJUSTED
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA(A):
Revenues:................... $ 7,805,411 $1,771,245 $ 2,157,376 $2,157,376
Operating Expenses:
Operating expenses
(excluding nonrecurring
costs) (B)............... 7,469,797 1,640,489 2,026,167 2,026,167
Nonrecurring costs........ -- -- -- --
------------- ----------- ------------- -----------
7,469,797 1,640,489 2,026,167 2,026,167
Operating Income............ 335,614 130,756 131,209 131,209
Interest expense.......... 46,450 6,100 9,874 10,979
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change.......... 222,361 71,110 70,421 69,776
Net Income.................. -- 50,552 -- --
Per Share Data (A)(C)(D)(E):
Income from Continuing
Operations before
Cumulative Effect of
Accounting Change:
Earnings Per Share...... $3.26 $1.06 $1.00 $1.02
Earnings Per Share
Assuming Full
Dilution............... $3.15 $1.04 $0.98 $0.98
Income (Loss) from
Discontinued Operations:
Earnings Per Share...... -- -- -- --
Earnings Per Share
Assuming Full
Dilution............... -- -- -- --
Cumulative Effect of
Accounting Change
Earnings Per Share...... -- $(0.31) -- --
Earnings Per Share
Assuming Full
Dilution............... -- $(0.30) -- --
Net Income:
Earnings Per Share...... -- $0.75 -- --
Earnings Per Share
Assuming Full
Dilution............... -- $0.74 -- --
OPERATING STATISTICS (A)(F):
Loss ratio.................. -- 80.9% -- --
Selling expense ratio....... -- 4.4% -- --
General and administrative
expense ratio.............. -- 14.7% -- --
Net income ratio............ -- 2.9% -- --
Medical Membership (G)...... -- 6,913,000 -- --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------
DECEMBER 31, 1998 ACTUAL PRO FORMA AS ADJUSTED
----------------- ---------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments........ $2,764,302 $2,813,947 $3,197,250 $3,202,000
Total assets................ 4,225,834 4,328,961 5,246,797 5,256,547
Long-term debt.............. 300,000 300,000 525,000 700,000
Total equity................ 1,315,223 1,356,624 1,631,624 1,466,374
</TABLE>
- -------------
(A) We have restated financial information prior to 1998 to reflect our workers'
compensation business, which we sold in September 1998, as a discontinued
operation.
(B) The pro forma and as adjusted operating expenses include net other expenses.
(C) We have calculated per share data for the year ended December 31, 1996 using
66,366,500 shares, the number of shares outstanding immediately following
completion of our recapitalization, plus the weighted average number of
shares issued during 1996 after completion of the recapitalization.
(D) Per share data includes nonrecurring costs of $0.13 per share for 1997.
(E) We have restated per share data for 1996 to reflect the adoption of SFAS No.
128, "Earnings Per Share."
(F) 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.
(G) Membership numbers are 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.
8
<PAGE>
CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by reference,
contains forward-looking statements. Also, documents we subsequently file with
the SEC and incorporate by reference will contain forward-looking statements. In
particular, statements pertaining to our business operations and financial
results of operations and financial condition contain forward-looking
statements. Similarly, our pro forma financial statements and other pro forma
information included in this prospectus and all our statements regarding
anticipated market conditions and results of operations are forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. Forward-looking
statements depend on assumptions, data or methods which may be incorrect or
imprecise and we may not be able to realize them. We do not guarantee that the
transactions and events described will happen as described (or that they will
happen at all). You can identify forward-looking statements by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates"
or "anticipates" or the negative of these words and phrases or similar words or
phrases. You can also identify forward-looking statements by discussions of
strategy, plans or intentions. The following factors, among others, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements:
- the effect on our operations of changes in federal and state health care
regulation or new health care legislation or court decisions;
- unexpected increases in health care costs;
- an increase in competitive pressures in our markets that reduces our
members or limits our ability to increase premiums to offset increased
health care costs;
- a failure to close our proposed merger with Cerulean or the effect of
unexpected additional requirements necessary to obtain required approvals
in order to close the merger;
- increased costs or unforeseen problems in our operations that we
experience as a result of our various acquisitions;
- a failure of our computer systems to process information properly after
this year; and
- the loss of services of our independent agents and brokers or certain
existing employees.
We undertake 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.
UNCERTAINTIES REGARDING THE CLOSING OF THE CERULEAN TRANSACTION
We may not be able to obtain all of the necessary approvals to complete our
pending acquisition of Cerulean. In July 1998, we entered into a merger
agreement with Cerulean. Cerulean currently holds the exclusive license to use
the Blue Cross and Blue Shield name in the state of Georgia. On June 25, 1999,
the merger was approved by the required majority of the Cerulean shareholders.
In order to complete the merger, a number of conditions must be satisfied,
including approval by the Georgia Department of Insurance after a public
hearing. If the Georgia Department of Insurance fails to approve the merger then
we will not be able to complete the merger. In addition, the merger agreement
provides that either we or Cerulean may terminate the merger agreement if all
conditions to closing are not satisfied on or before July 9, 1999, the
termination date of the merger agreement. As of the date of this prospectus, not
all of the conditions to closing have been satisfied and we cannot assure you
that we will reach agreement with Cerulean to extend the termination date or on
what terms an agreement may be reached. If all of the conditions to closing are
not satisfied by July 9, 1999 and we have not come to an agreement with Cerulean
to extend the termination date, then either we or Cerulean may terminate the
merger agreement.
9
<PAGE>
USE OF PROCEEDS
We plan to use the net proceeds from the sale of the debentures to purchase
from one of our stockholders, the California HealthCare Foundation, as many
shares of our common stock as possible, up to a maximum of 2,000,000 shares. Any
remaining proceeds will be used for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES
The following table presents our ratio of earnings to fixed charges of
WellPoint for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........................... 68.9 68.5 9.0 9.1 10.5
<CAPTION>
QUARTER ENDED
MARCH 31, 1999
-----------------
<S> <C>
Ratio of Earnings to Fixed Charges........................... 13.3
</TABLE>
For purposes of computing our ratios of earnings to fixed charges, we calculated
earnings by adding fixed charges to income before income taxes. Fixed charges
consist of gross interest expense and one-third of our rent expense, the amount
we believe is representative of the interest factor component of our rent
expense.
10
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited capitalization as of March 31,
1999 on an actual basis and on a pro forma basis to give effect to the
completion of the Cerulean transaction. In addition, the following table sets
forth our unaudited capitalization as further adjusted to assume the completion
of the debenture offering and the repurchase by us of 2,000,000 shares of common
stock from the selling stockholder. The pro forma and as adjusted capitalization
assume a price of $82 5/8 per share of our common stock, the closing price on
June 1, 1999.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Revolving credit facility(1).......................................... $ 300,000 $ 525,000 $ 525,000
Convertible subordinated debentures due 2019.......................... -- -- 175,000
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none
issued and outstanding............................................... -- -- --
Common stock, $0.01 par value, 300,000,000 shares authorized,
71,008,772 issued.................................................... 710 710 710
Treasury stock, at cost, 3,501,556, 173,266 and 2,173,266 shares,
respectively......................................................... (193,435) (9,314) (174,564)
Additional paid-in capital............................................ 938,083 1,028,962 1,028,962
Accumulated other comprehensive income................................ (15,884) (15,884) (15,884)
Retained earnings..................................................... 627,150 627,150 627,150
------------ ------------ ------------
Total stockholders' equity.......................................... 1,356,624 1,631,624 1,466,374
------------ ------------ ------------
Total capitalization.............................................. $ 1,656,624 $ 2,156,624 $ 2,166,374
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ---------
(1) Does not include the effect of our anticipated receipt of a tax refund of
approximately $200 million, which we expect to use to reduce outstanding
indebtedness under our revolving credit facility.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Our unaudited pro forma combined condensed balance sheet as of March 31,
1999 and our unaudited pro forma combined condensed income statements for the
year ended December 31, 1998 and the three months ended March 31, 1999 are
presented below. The unaudited pro forma combined condensed financial statements
include historical amounts for us and Cerulean, adjusted to reflect our
acquisition of Cerulean. See the discussion under the caption entitled "Recent
Developments." The unaudited pro forma combined condensed financial statements
are further adjusted to reflect the sale of the debentures and the repurchase of
our common stock from the selling stockholder. See the notes to the unaudited
pro forma combined condensed financial statements for a discussion of the
transactions. The Cerulean balance sheet is presented on a classified basis to
be consistent with our presentation. The Cerulean income statement for the year
ended December 31, 1998 includes a one-time charge of $76.2 million related to
its endowment of a non-profit foundation. Our net income for the three months
ended March 31, 1999 includes an after-tax charge of $20.6 million, or $0.31 per
basic and $0.30 per diluted share, related to an accounting change resulting
from the adoption of AICPA Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities. For the purpose of presenting the unaudited pro forma
combined condensed balance sheet, we have assumed that the merger occurred as of
March 31, 1999, while we are presenting the unaudited pro forma combined
condensed income statements on the basis that the transactions occurred as of
the beginning of each period shown. The unaudited pro forma combined condensed
financial statements also assume that we have reissued treasury shares with an
aggregate value of $275 million. We have assumed that the remaining $225 million
of merger consideration is financed with the incurrence of additional
indebtedness under our existing revolving credit facility. For purposes of the
as adjusted balance sheet and income statements, we have assumed that the
proceeds from the issuance of the debentures are used to purchase 2,000,000
shares of our common stock from the selling stockholder at an assumed purchase
price of $82 5/8 per share, the closing price of our common stock on the New
York Stock Exchange on June 1, 1999. The remaining net proceeds from the sale of
the debentures are assumed to be used for general corporate purposes.
As further discussed in the notes to the unaudited pro forma combined
condensed financial statements, we have accounted for our pending merger with
Cerulean using the purchase method of accounting. Under this method, the
respective assets and liabilities of Cerulean are recorded at their estimated
fair value.
We have condensed or omitted some of the data and notes normally included in
financial statements presented in accordance with generally accepted accounting
principles. The unaudited pro forma combined condensed financial statements in
this prospectus include, in the opinion of our management, all adjustments
necessary for a fair presentation of our pro forma financial position and
results of operations for the date and periods indicated. Our unaudited pro
forma combined condensed balance sheet is not necessarily indicative of our
financial condition had we completed the merger and the sale of the debentures
as of March 31, 1999. Our unaudited pro forma combined condensed income
statements are not necessarily indicative of our results of operations had we
completed these transactions as of the dates indicated. In addition, our
unaudited pro forma combined condensed financial statements are not necessarily
indicative of our future financial condition or results of operations. The pro
forma financial information should be read in conjunction with our historical
consolidated financial statements and those of Cerulean, which are incorporated
by reference in this prospectus.
12
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
------------ ---------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and current investments......... $ 2,708,876 $ 383,303 $ -- $ 3,092,179 $ 4,750(5) $ 3,096,929
Other current assets................. 831,507 134,582 3,289 )(2 969,378 -- 969,378
------------ ---------- ------------ ------------ ------------ ------------
Total current assets............. 3,540,383 517,885 3,289 4,061,557 4,750 4,066,307
Intangible assets and goodwill,
net................................ 424,067 -- 308,059(1) 732,126 -- 732,126
Other non-current assets............. 364,511 88,603 -- 453,114 5,000(5) 458,114
------------ ---------- ------------ ------------ ------------ ------------
Total non-current assets......... 788,578 88,603 308,059 1,185,240 5,000 1,190,240
------------ ---------- ------------ ------------ ------------ ------------
Total assets..................... $ 4,328,961 $ 606,488 $ 311,348 $ 5,246,797 $ 9,750 $ 5,256,547
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Medical claims payable and reserves
for future policy benefits......... $ 1,058,434 $ 193,040 $ -- $ 1,251,474 $ -- $ 1,251,474
Unearned premiums.................... 214,994 10,060 -- 225,054 -- 225,054
Experience rated and other refunds... 230,442 7,769 -- 238,211 -- 238,211
Other current liabilities............ 752,557 67,549 78,936 )(2 899,042 -- 899,042
------------ ---------- ------------ ------------ ------------ ------------
Total current liabilities........ 2,256,427 278,418 78,936 2,613,781 -- 2,613,781
Long-term reserves for future policy
benefits........................... 307,501 -- -- 307,501 -- 307,501
Long-term debt....................... 300,000 -- 225,000 )(4 525,000 -- 525,000
Convertible subordinated
debentures......................... -- -- -- -- 175,000(5) 175,000
Other non-current liabilities........ 108,409 60,482 -- 168,891 -- 168,891
------------ ---------- ------------ ------------ ------------ ------------
Total liabilities................ 2,972,337 338,900 303,936 3,615,173 175,000 3,790,173
Mandatorily redeemable preferred
stock.............................. -- 46,645 (46,645)(1) -- -- --
Common stock, $0.01 par value,
300,000,000 shares authorized,
71,008,772 issued.................. 710 -- -- 710 -- 710
Class A common stock................. -- 4 (4)(1) -- -- --
Treasury stock, at cost, 3,501,556,
173,266 and 2,173,266 shares
historically, pro forma and as
adjusted, respectively............. (193,435) -- 184,121 )(4 (9,314) (165,250)(5) (174,564)
Additional paid-in capital........... 938,083 45,188 45,691 )(4 1,028,962 -- 1,028,962
Stock warrants exercisable........... -- 29,968 (29,968)(1) -- -- --
Accumulated other comprehensive
income............................. (15,884) 16,021 (16,021)(1) (15,884) -- (15,884)
Retained earnings.................... 627,150 129,762 (129,762)(1) 627,150 -- 627,150
------------ ---------- ------------ ------------ ------------ ------------
Total stockholders' equity........... 1,356,624 220,943 54,057 1,631,624 (165,250) 1,466,374
------------ ---------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity............ $ 4,328,961 $ 606,488 $ 311,348 $ 5,246,797 $ 9,750 $ 5,256,547
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
13
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
----------- ----------- ------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 6,478,350 $ 1,334,320 $ (7,259)(6) $ 7,805,411 $ -- $ 7,805,411
Expenses..................... 6,059,461 1,387,895 22,441 )(7 7,469,797 -- 7,469,797
----------- ----------- ------------ ----------- ----------- -----------
Operating and other income... 418,889 (53,575) (29,700) 335,614 -- 335,614
Interest expense............. 26,903 -- 15,098(8) 42,001 4,449 (11 46,450
----------- ----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations before provision
for income taxes and
minority interests......... 391,986 (53,575) (44,798) 293,613 (4,449) 289,164
Provision (benefit) for
income taxes............... 72,438 2,073 (6,908)(9) 67,603 (2,320) 12) 65,283
Minority interests in
earnings of joint venture
investments................ -- (1,520) -- (1,520) -- (1,520)
----------- ----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations................. $ 319,548 $ (57,168) $ (37,890) $ 224,490 $ (2,129) $ 222,361
----------- ----------- ------------ ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- -----------
Earnings per share........... $ 4.63 $ 3.20 $ 3.26
----------- ----------- -----------
----------- ----------- -----------
Earnings per share assuming
full dilution.............. $ 4.55 $ 3.15 $ 3.15(14)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
shares outstanding......... 69,099 1,099 (10 70,198 (2,000) 13) 68,198
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Weighted average number of
shares outstanding
including common stock
equivalents................ 70,259 1,099 (10 71,358 (176) 14) 71,182
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
14
<PAGE>
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS DEBENTURE
FOR CERULEAN OFFERING AS
WELLPOINT CERULEAN MERGER PRO FORMA ADJUSTMENTS ADJUSTED
----------- --------- ------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 1,771,245 $ 388,951 $ (2,820)(6) $ 2,157,376 $ -- $ 2,157,376
Expenses..................... 1,648,574 374,613 2,980 )(7 2,026,167 -- 2,026,167
----------- --------- ------------ ----------- ----------- -----------
Operating and other income... 122,671 14,338 (5,800) 131,209 -- 131,209
Interest expense............. 6,100 -- 3,774(8) 9,874 1,105(11) 10,979
----------- --------- ------------ ----------- ----------- -----------
Income (loss) before
provision for income taxes,
minority interests and
cumulative effect of
accounting change.......... 116,571 14,338 (9,574) 121,335 (1,105) 120,230
Provision (benefit) for
income taxes............... 45,461 3,654 1,369(9) 50,484 (460) 12) 50,024
Minority interests in
earnings of joint venture
investments................ -- (430) -- (430) -- (430)
----------- --------- ------------ ----------- ----------- -----------
Income (loss) before
cumulative effect of
accounting change.......... $ 71,110 $ 10,254 $ (10,943) $ 70,421 $ (645) $ 69,776
----------- --------- ------------ ----------- ----------- -----------
----------- --------- ------------ ----------- ----------- -----------
Earnings per share........... $ 1.06 $ 1.00 $ 1.02
----------- ----------- -----------
----------- ----------- -----------
Earnings per share assuming
full dilution.............. $ 1.04 $ 0.98 $ 0.98(14)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of
shares outstanding......... 67,259 3,328 (10 70,587 (2,000) 13) 68,587
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Weighted average number of
shares outstanding
including common stock
equivalents................ 68,561 3,328 (10 71,889 (176) 14) 71,713
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
15
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The net increase in intangible assets of $308.1 million is a result of the
excess of cost over the fair market value of the net assets of Cerulean (at
a purchase price of $500 million) and certain estimated purchase price
adjustments related to the merger. The purchase results in the elimination
of the Cerulean mandatorily redeemable preferred stock ($46.6 million) and
equity ($220.9 million) and increases liabilities by $84.4 million net of
an increase in the deferred tax asset of $8.8 million for expected costs
related to the merger, including estimated change in control payments to
Cerulean management of $54.3 million and approximately $30.1 million
related to severance and other employee payments. We intend to complete a
study on the allocation of the identified intangible assets of Cerulean
such as the Blue Cross Blue Shield name and service mark, employer groups
and provider contracts and also goodwill upon consummation of the
transaction. Although no such allocation has yet been completed, the
following preliminary allocation of the intangible assets is presented for
informational purposes. These assets have been assigned preliminary values
and lives consistent with the methodology used in our previous
acquisitions.
<TABLE>
<CAPTION>
ASSIGNED VALUE LIFE
(IN MILLIONS) (IN YEARS)
--------------- -------------
<S> <C> <C>
Blue Cross Blue Shield name and mark................................. $ 90.8 40
Employer relationships
Experience-rated................................................... 183.7 14
Direct pay......................................................... 2.3 5
Company-developed software........................................... 19.8 1.5
Goodwill............................................................. 11.5 20
------
$ 308.1
------
------
</TABLE>
(2) Represents the elimination of $5.5 million of accounts receivable/payable
arising from transactions between one of our subsidiaries and Cerulean.
(3) Reflects our payment of $225 million cash related to the maximum cash
component of the merger, financed through the incurrence of indebtedness,
and WellPoint's reissuance of our common stock held in treasury with a
value of $275 million in connection with the merger. These pro forma
financial statements assume that our common stock was reissued from
treasury at the market value on June 1, 1999. Please refer to note 4 for a
more complete description of the assumptions used regarding the financing
of the merger. From time to time, we may also incur additional indebtedness
in order to, among other things, fund additional repurchases of our common
stock.
(4) Our pro forma financial statements assume that the merger is financed
primarily through the reissuance of treasury shares having a value of $275
million on June 1, 1999, and through the incurrence of indebtedness of $225
million, representing the maximum cash payment to Cerulean shareholders.
Our board of directors has authorized us and we intend to purchase
additional shares of our common stock prior to and following the merger in
an amount equal to the number of shares to be issued in connection with the
merger, provided that we will not purchase shares of our common stock
following the merger unless we receive a ruling from the IRS, or determine
after consultation with counsel, that the purchase will not prevent the
merger from qualifying as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code. Through June 1, 1999, we had
repurchased an aggregate of 3.5 million shares of our common stock in
anticipation of the merger at an average purchase price of $55.32 per
share.
(5) Represents the issuance of the debentures resulting in net proceeds of
approximately $170 million after offering costs of approximately $5.0
million. The net offering proceeds from the sale of the debentures will be
used to purchase 2,000,000 shares of our common stock from the California
HealthCare Foundation at $82 5/8 per share. The remainder of the net
offering proceeds of approximately $4.8 million is assumed to be available
for general corporate purposes.
(6) Represents the elimination of $7.3 million and $2.8 million for the year
ended December 31, 1998 and the three months ended March 31, 1999,
respectively, of revenue and expense related to transactions between one of
our subsidiaries and Cerulean.
16
<PAGE>
(7) Reflects the adjustment required to amortize, for the year ended December
31, 1998 and the three months ended March 31, 1999, the intangible assets
of $308.1 million estimated to be created as a result of the merger on a
straight-line basis over the life of each of the identified intangible
assets and goodwill, which results in $29.9 million and $5.8 million of
amortization expense for the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively.
(8) The increase in interest expense of $15.1 million and $3.8 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively, reflects the cost of $225 million of indebtedness incurred to
finance the merger (see note 3) at an assumed fixed rate of 6.71% per
annum, which represents an estimate of our effective interest rate as a
result of our currently effective interest rate swap agreements. A 1/8%
increase in the effective interest rate results in no change per basic or
diluted share for the year ended December 31, 1998 or the three months
ended March 31, 1999.
(9) Reflects the tax effect of the pro forma adjustments to effect the merger
to bring the pro forma tax expense in line with the projected effective tax
rate which results in a decrease in tax expense of $6.9 million for the
year ended December 31, 1998 and an increase in tax expense of $1.4 million
for the three months ended March 31, 1999. The projected effective tax rate
has been increased to reflect the assumption that the goodwill generated as
a result of the merger will not be deductible. The historical tax expense
of WellPoint for the year ended December 31, 1998 includes a one-time
benefit of $85.5 million related to its receipt of a private letter ruling
from the IRS regarding the deductibility of some payments made at the time
of its May 1996 recapitalization.
(10) The increase in the weighted average shares outstanding for the year ended
December 31, 1998 results from the elimination of the impact of the
repurchase of 3.3 million shares of our common stock acquired throughout
the year, which are assumed to be issued in conjunction with the merger.
The increase in the weighted average shares outstanding for the three
months ended March 31, 1999 results from the impact of the reissuance, as
a result of the merger, of 3.3 million shares of our common stock held in
treasury.
(11) The increase in interest expense of $4.4 million and $1.1 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively, represents the effect of the issuance of the debentures
discussed in note 5, based on an assumed effective yield of 2.45% and the
amortization of the deferred debt issuance costs. As the debentures pay no
stated interest, the aggregate principal balance of the debentures
increases by the amount of the aggregate interest expense accrued until
maturity, when the principal amount due at maturity will be approximately
$285.0 million. The interest expense accrued will increase in each
subsequent year until maturity.
(12) Reflects the tax effect of the pro forma adjustment to interest expense in
note 11 above based on the overall effective tax rate for each period,
resulting in a decrease in income tax expense of $2.3 million and $0.5
million for the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively.
(13) The net change in weighted average shares outstanding for the year ended
December 31, 1998 and the three months ended March 31, 1999 reflects the
impact of the repurchase of 2.0 million shares of our common stock with a
portion of the proceeds from the sale of our debentures.
(14) The calculation of diluted earnings per share for the year ended December
31, 1998 and the three months ended March 31, 1999 assumes the conversion
of the debentures as of the beginning of the period, resulting in the
elimination of the after-tax interest charge and the addition of
approximately 1.8 million converted shares to the diluted weighted average
shares outstanding.
17
<PAGE>
DESCRIPTION OF DEBENTURES
The debentures will be issued under an indenture dated as of ,
1999, between WellPoint and The Bank of New York, as trustee. We have summarized
the material terms and provisions of the indenture in this section. We have also
filed the form of indenture as an exhibit to the registration statement. You
should read the indenture for additional information before you buy any debt
securities. References in this section to WellPoint are solely to WellPoint
Health Networks Inc. and not to its subsidiaries.
GENERAL
The debentures are unsecured obligations of WellPoint limited to
$285,000,000 aggregate principal amount at maturity, or $327,750,000 aggregate
principal amount at maturity if the underwriters' over-allotment option is
exercised in full. The debentures will mature on , 2019. The
debentures are being offered at a substantial discount from their principal
amount at maturity and will therefore have original issue discount for U.S.
federal income tax purposes. See the discussion under the caption entitled
"Material U.S. Federal Income Tax Considerations."
There will be no periodic cash payments of interest on the debentures,
except as described under the caption entitled "--Optional Conversion to
Semiannual Coupon Debentures Upon a Tax Event." The calculation of the accrual
of original issue discount, the difference between the issue price of a
debenture and the principal amount at maturity of a debenture, in the period
during which a debenture remains outstanding will be compounded semi-annually
using a year composed of twelve 30-day months. The accrual of original issue
discount will commence on the issue date of the debentures. Original issue
discount or, if the debentures are converted to semiannual coupon debentures
following the occurrence of a Tax Event, interest on the debentures, will cease
to accrue on the debentures upon conversion, repurchase or redemption under the
terms and subject to the conditions of the indenture.
The principal amount at maturity of each debenture is payable at the office
or agency of the paying agent, initially the trustee, in the Borough of
Manhattan, The City of New York, or any other office of the paying agent
maintained for this purpose. Debentures may be presented for conversion into
common stock at the office of the conversion agent. Debentures in definitive
form may be presented for exchange for other debentures or registration of
transfer at the office of the registrar. Initially, the trustee will be the
paying agent, the conversion agent and the registrar. WellPoint will not charge
a service charge for any registration, transfer or exchange of debentures.
However, WellPoint may require the holder to pay for any tax, assessment or
other governmental charge to be paid in connection with any registration,
transfer or exchange of debentures.
SUBORDINATION OF DEBENTURES
As set forth in the indenture, the debentures are subordinate in right of
payment to the holders of all existing and future Senior Indebtedness.
Subordination of the debentures will not prevent the occurrence of any event of
default under the indenture.
Upon any distribution of assets of WellPoint upon any:
- dissolution,
- winding up,
- voluntary or involuntary bankruptcy,
- insolvency,
- liquidation,
- reorganization,
18
<PAGE>
- receivership,
- similar proceeding relating to WellPoint or its property or
- an assignment for the benefit of creditors or any marshaling of
WellPoint's assets or liabilities,
the holders of Senior Indebtedness will be entitled to receive payment in full
before the holders of debentures will be entitled to receive any payment in
respect of the debentures.
By reason of the subordination, if any of the events described above occur,
holders of Senior Indebtedness may receive more, ratably, than WellPoint's other
creditors. For the same reason, the holders of debentures may receive less,
ratably, than WellPoint's other creditors.
If the debentures are declared due and payable prior to maturity because of
an event of default, then WellPoint must promptly notify holders of Designated
Senior Indebtedness of the acceleration. WellPoint may not pay amounts owed
pursuant to the debentures until five days have passed after acceleration
occurs. After five days have passed, WellPoint may pay amounts owed pursuant to
the debentures only if the terms of the indenture otherwise permit payment at
that time. WellPoint also may not make any payment on the debentures if:
(1) a default in any payment obligations in respect of Designated Senior
Indebtedness occurs and is continuing, without regard to any applicable
period of grace, whether at maturity or at a date fixed for payment or by
declaration or otherwise; or
(2) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which the default relates to accelerate its maturity
and the trustee receives a notice of the default, also referred to as a
payment blockage notice, from a representative for any issue of
Designated Senior Indebtedness.
The subordination provisions of the indenture will not delay or prevent
WellPoint from satisfying its obligations to issue shares of its common stock to
a holder of debentures upon the election of a holder to convert its debentures
into common stock. See the discussion under the caption entitled "--Conversion
of Debentures."
Payments on the debentures may be resumed:
- in case of a payment default, the earlier of the date on which the default
is cured or waived or ceases to exist; and
- in case of a nonpayment default, the earlier of the date on which the
nonpayment default is cured or waived or ceases to exist or 179 days after
the date on which the applicable payment blockage notice is received by
the trustee, if the maturity of the Designated Senior Indebtedness has not
been accelerated,
and in either case only if the terms of the indenture otherwise permit payment
at that time.
No new period of payment blockage with respect to a nonpayment default may
be commenced pursuant to a payment blockage notice until 365 days have elapsed
since the initial effectiveness of the immediately prior payment blockage
notice. A nonpayment default that existed or was continuing on the date of
delivery of any payment blockage notice to the trustee will not be the basis for
a subsequent payment blockage. Any action of WellPoint or any of its
subsidiaries occurring subsequent to delivery of a payment blockage notice that
would give rise to any event of default under Senior Indebtedness under which an
event of default previously existed or was continuing at the time of delivery of
the payment blockage notice will constitute a new event of default for this
purpose. Any
19
<PAGE>
breach of a financial covenant giving rise to a nonpayment default for a period
ending subsequent to the date of delivery of the respective payment blockage
notice constitutes a new event of default for this purpose.
In the event that, notwithstanding the foregoing, the trustee or any holder
of the debentures receives any payment of any kind in contravention of the
subordination provisions of the indenture before full payment of the Senior
Indebtedness, then the payment will be held by the recipient in trust for the
benefit of, and paid over to, holders of Senior Indebtedness or their
representatives. These payments can be made in any form of consideration but
must take into account any concurrent payment or distribution to the holders of
Senior Indebtedness.
The trustee or the holders may accelerate the maturity of the debentures
because WellPoint fails to make any payments due and owing on the debentures
during a period of payment blockage. The holders of a majority in principal
amount at maturity of the then outstanding debentures may rescind an
acceleration and its consequences by sending notice of the rescission to the
trustee if the rescission would not conflict with any judgment or decree and if
all existing events of default (except nonpayment of principal or interest, if
any, that has become due wholly because of the acceleration) have been cured or
waived.
The debentures are obligations exclusively of WellPoint. Since substantially
all of the operations of WellPoint are conducted through subsidiaries, the cash
flow and the consequent ability to service debt, including the debentures, are
dependent upon the earnings of its subsidiaries and the distribution of those
earnings to, or upon loans or other payments of funds by those subsidiaries to,
WellPoint. The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amount pursuant to the
debentures or to make any funds available therefor, whether by dividends, loans
or other payments. Because certain of WellPoint's subsidiaries are regulated
managed care companies, the payment of dividends and making of loans and
advances to WellPoint by its subsidiaries are subject to statutory restrictions.
In addition, the payment of dividends and making of loans and advances are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of WellPoint to receive assets of any of its subsidiaries upon
their liquidation or reorganization, and the consequent right of the holders of
the debentures to participate in those assets, will be effectively subordinated
to the claims of that subsidiary's creditors. The only exception would be if
WellPoint is itself recognized as a creditor of the subsidiary. In that case
WellPoint's claims would still be subordinate to any security interests in the
assets of the subsidiary and any Indebtedness of the subsidiary senior to that
held by WellPoint.
At March 31, 1999, WellPoint had approximately $323.9 million of
Indebtedness outstanding that would have constituted Senior Indebtedness.
WellPoint's subsidiaries had approximately $2,653.3 million of Indebtedness and
other liabilities, including trade and other payables, outstanding, but
excluding intercompany liabilities and liabilities of a type not required to be
reflected on a balance sheet in accordance with generally accepted accounting
principles, to which the debentures would have been effectively subordinated.
The indenture does not limit the amount of additional Indebtedness,
including Senior Indebtedness, which WellPoint can incur, assume or guarantee.
Furthermore, the indenture does not limit the amount of Indebtedness which any
subsidiary can incur, assume or guarantee.
CONVERSION OF DEBENTURES
A holder of a debenture may convert it into WellPoint common stock at any
time prior to maturity. However, if WellPoint elects to redeem a debenture, the
holder may convert it only until the close of business on the last trading day
prior to a redemption date unless WellPoint defaults in the
20
<PAGE>
payment of the redemption price. If a holder has delivered a repurchase notice
exercising its option to require WellPoint to repurchase its debenture, that
debenture may be converted only if the notice is withdrawn in accordance with
the terms of the indenture. Similarly, if a holder exercises its option to
require WellPoint to repurchase its debenture upon a Fundamental Change, that
debenture may be converted only if the holder withdraws its election to exercise
its option in accordance with the terms of the indenture. A holder may convert
its debentures in part so long as the holder converts debentures of $l,000
principal amount at maturity or an integral multiple of $1,000.
The initial conversion rate is shares of common stock per $1,000
principal amount at maturity of debentures, subject to adjustment upon the
occurrence of the events described below. A holder entitled to a fractional
share of common stock will receive cash equal to the then current market value
of the fractional share.
On conversion of a debenture, a holder will not receive any cash payment
representing accrued original issue discount. WellPoint's delivery to the holder
of the fixed number of shares of common stock into which the debenture is
convertible, together with the cash payment, if any, in lieu of a fractional
share of common stock, will be deemed to satisfy WellPoint's obligation to pay
the principal amount at maturity of the debenture including the accrued original
issue discount attributable to the period from the issue date to the conversion
date.
In lieu of delivering shares of common stock upon notice or conversion of
any debentures, WellPoint may elect to pay holders surrendering debentures an
amount in cash per debenture equal to the last reported sale price of a share of
its common stock on the trading day immediately prior to the applicable
conversion date, multiplied by the conversion rate in effect on that trading
day, subject to adjustment upon the occurrence of the events described below;
PROVIDED, that if the payment of cash is not permitted pursuant to the
provisions of the indenture or otherwise, WellPoint will deliver shares of its
common stock (and cash in lieu of fractional shares) as described below.
WellPoint will inform the holders through the trustee no later than two business
days following the conversion date of its election to deliver shares of common
stock or to pay cash in lieu of delivery of the shares. If WellPoint elects to
deliver shares of common stock, the shares will be delivered through the trustee
no later than the seventh business day following the conversion date. If
WellPoint elects to pay cash, the payment will be made to holders surrendering
debentures no later than the fifth business day following the applicable
conversion date. If an Event of Default, as described under the caption entitled
"--Events of Default; Notice and Waiver" below (other than a default in a cash
payment upon conversion of the debentures), has occurred or is continuing,
WellPoint may not pay cash upon conversion of any debentures (other than cash in
lieu of fractional shares).
To convert a certificated debenture into common stock, a holder must:
(1) complete and manually sign the conversion notice on the back of the
debenture (or complete and manually sign a facsimile of the conversion
notice) and deliver the notice to the conversion agent;
(2) surrender the debenture to the conversion agent;
(3) if required, furnish appropriate endorsements and transfer documents;
and
(4) if required, pay all transfer or similar taxes.
Pursuant to the indenture, the date on which all of the above requirements have
been satisfied is the conversion date.
The conversion rate is subject to adjustment under formulae as set forth in
the indenture in certain events, including:
(1) the issuance of WellPoint common stock as a dividend or distribution on
the common stock;
21
<PAGE>
(2) certain subdivisions and combinations of the common stock;
(3) the issuance to all holders of common stock of certain rights or
warrants to purchase common stock;
(4) the distribution to all holders of common stock of capital stock, other
than WellPoint common stock, or evidences of WellPoint's Indebtedness or
of assets. This includes securities other than common stock, but excludes
those rights, warrants, dividends and distributions referred to in
clauses (1) and (3) above or paid in cash;
(5) distributions consisting of cash, excluding any quarterly cash dividend
on the common stock to the extent that the aggregate cash dividend per
share of common stock in any quarter does not exceed the greater of:
- the amount per share of common stock of the next preceding quarterly
cash dividend on the common stock to the extent that the preceding
quarterly dividend did not require an adjustment of the conversion rate
pursuant to this clause (5) (as adjusted to reflect subdivisions or
combinations of the common stock); and
- 3.75 percent of the average of the last reported sales price of the
common stock during the ten trading days immediately prior to the date
of declaration of the dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or winding
up of WellPoint;
(6) payment in respect of a tender offer or exchange offer by WellPoint or
any subsidiary of WellPoint for the common stock to the extent that the
per share consideration exceeds the current Market Price per share of
common stock on the trading day next succeeding the last date on which
tenders or exchanges may be made, PROVIDED, HOWEVER, that shares tendered
by the California HealthCare Foundation will be excluded from the
determination of the adjustment of the conversion rate pursuant to this
clause (6); and
(7) payment in respect of a tender offer or exchange offer by a person other
than WellPoint or any subsidiary of WellPoint in which, as of the closing
date of the offer, the board of directors is not recommending rejection
of the offer.
If an adjustment is required to be made as set forth in clause (5) above as
a result of a distribution that is a quarterly dividend, the adjustment would be
based upon the amount by which the distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant to clause (5) above.
If an adjustment is required to be made as set forth in clause (5) above as a
result of a distribution that is not a quarterly dividend, the adjustment would
be based upon the full amount of the distribution.
The adjustment referred to in clause (7) will only be made if both the
amount of the tender would increase the offeror's ownership of common stock to
more than 25% of the total shares of common stock outstanding, and if the cash
and value of any other consideration included in the payment per share of common
stock exceeds the current Market Price per share of common stock on the first
business day following the last date on which tenders or exchanges may be made
pursuant to the tender or exchange offer. The adjustment referred to in clause
(7) above will generally not be made, however, if as of the closing of an offer,
the offering documents with respect to the offer disclose a plan or an intention
to cause WellPoint to engage in a consolidation or merger of WellPoint or a sale
of all or substantially all of WellPoint's assets.
The indenture provides that if WellPoint implements a stockholders' rights
plan, the rights plan must provide that upon conversion of the debentures the
holders will receive, in addition to the
22
<PAGE>
common stock issuable upon conversion, the rights which would attach to the
common stock issuable upon conversion, regardless of whether the rights have
separated from the common stock at the time of conversion.
No adjustment in the conversion rate will be required unless the adjustment
would require a change of at least 1% in the rate then in effect; PROVIDED that
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion rate will not be adjusted for the
issuance of common stock or any securities convertible into or exchangeable for
common stock or carrying the right to purchase any of the foregoing.
In the case of either:
- any reclassification of the common stock, or
- a consolidation or merger involving WellPoint or a sale or conveyance to
another corporation of the property and assets of WellPoint as an entirety
or substantially as an entirety,
if holders of common stock will be entitled to receive any form of consideration
with respect to or in exchange for common stock, the holders of the debentures
then outstanding will be entitled to convert their debentures into the kind and
amount of consideration which they would have owned or been entitled to receive
had their debentures been converted immediately prior to the applicable
transaction. This assumes that a holder of debentures would not have exercised
any rights of election as to the consideration receivable in connection with the
transaction.
In the event of a taxable distribution to holders of common stock or in
certain other circumstances requiring an adjustment to the conversion rate, the
holders of debentures may, in certain circumstances, be deemed to have received
a distribution subject to United States income tax as a dividend. In certain
other circumstances, the absence of an adjustment may result in a taxable
dividend to the holders of common stock. See the discussion under the caption
entitled "Material U.S. Federal Income Tax Considerations."
WellPoint from time to time may to the extent permitted by law increase the
conversion rate by any amount for any period of at least 20 business days, if
the board of directors has made a determination that the increase would be in
WellPoint's best interests. For purposes of this paragraph, the determination by
the board of directors will be conclusive. If WellPoint increases the conversion
rate, WellPoint will give at least 15 days' notice of the increase. WellPoint
may, at its option, make increases in the conversion rate, in addition to those
described above, as the Board of Directors deems advisable to avoid or diminish
any income tax to holders of common stock resulting from any dividend or
distribution of stock, or rights to acquire stock, or from any event treated as
a dividend distribution or a right to acquire stock for income tax purposes. See
the discussion under the caption entitled "Material U.S. Federal Income Tax
Considerations."
In the event WellPoint exercises its option to have interest in lieu of
original issue discount accrue on a debenture following a Tax Event, the holder
will be entitled on conversion to receive the same number of shares of common
stock that the holder would have received if WellPoint had not exercised its
option. If WellPoint exercises its option, debentures surrendered for conversion
during the period from the close of business on the record date next preceding
the next interest payment date to the opening of business on the next interest
payment date (except debentures to be redeemed on the next interest payment
date) must also be accompanied by an amount equal to the accrued and unpaid
interest on the debenture that the registered holder is to receive. Except where
debentures surrendered for conversion must be accompanied by the payment
described in this paragraph, no interest on
23
<PAGE>
converted debentures will be payable by WellPoint on any interest payment date
subsequent to the date of conversion. See the discussion under the caption
entitled "--Optional Conversion to Semiannual Coupon Debentures Upon a Tax
Event."
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF THE DEBENTURES AND OUR COMMON STOCK
Our certificate of incorporation provides that no person may beneficially
own shares of our common stock, including shares deemed owned as a result of
ownership of the debentures, in excess of a prescribed ownership limit. The
indenture provides that these ownership restrictions apply to the shares of
common stock underlying the debentures. See the discussion under the caption
entitled "Description of Capital Stock--Certain Charter Provisions That May
Limit Changes in Control."
Ownership of the debentures shall be deemed ownership of the greater number
of shares of our common stock which you would receive either if you exercised
the option to convert or we exercised our option to pay for your debentures with
common stock were you to require us to purchase them. If the conversion rate of
the debentures is adjusted, you may be deemed to beneficially own a greater
number of shares of our common stock.
Upon completion of the offering and repurchase of 2,000,000 shares of our
common stock from one of our stockholders, we will have 65,575,530 shares of our
common stock outstanding, excluding shares to be issued in connection with the
Cerulean transaction, which we anticipate will be between 3,330,000 shares and
6,051,000 shares.
REDEMPTION OF DEBENTURES AT WELLPOINT'S OPTION
WellPoint may not redeem the debentures prior to , 2002.
Beginning on , 2002, WellPoint may redeem the debentures for cash as
a whole at any time, or from time to time in part by giving by mail to holders
of debentures not less than 20 days' nor more than 60 days' notice of redemption
for an amount in cash equal to 100% of the sum of (1) the debenture issue price
and (2) accrued original issue discount through the date of redemption. At the
same time, WellPoint will provide public notice of redemption through certain
financial news services. The debentures will be redeemable in multiples of
$l,000 principal amount at maturity. No sinking fund is provided for the
debentures.
24
<PAGE>
The table below shows redemption prices of debentures per $1,000 principal
amount at maturity, at , 2002 and at each thereafter
prior to maturity and at maturity on , 2019, which prices reflect
the accrued original issue discount calculated to each date. The redemption
price of a debenture redeemed between any two dates below would include an
additional amount reflecting the additional original issue discount accrued
since the date in the table preceding the actual redemption date.
<TABLE>
<CAPTION>
(2)
(1) ACCRUED ORIGINAL (3)
DEBENTURE ISSUE ISSUE DISCOUNT AT REDEMPTION PRICE
PRICE % (1)+(2)
--------------------- --------------------- ----------------
<S> <C> <C> <C>
, 2002...................................... $ $
, 2003......................................
, 2004......................................
, 2005......................................
, 2006......................................
, 2007......................................
, 2008......................................
, 2009......................................
, 2010......................................
, 2011......................................
, 2012......................................
, 2013......................................
, 2014......................................
, 2015......................................
, 2016......................................
, 2017......................................
, 2018......................................
, 2019...................................... 1,000.00
</TABLE>
If WellPoint elects to convert the debentures to semiannual coupon
debentures following a Tax Event, the debentures will be redeemable at the
Restated Principal Amount plus accrued and unpaid interest, if any, to the
applicable redemption date. The initial redemption date following the conversion
of the debentures to semiannual coupon debentures will be the third business day
after the initial interest payment date.
If less than all of the outstanding debentures held in certificated form are
to be redeemed, the trustee will select the debentures held in certificated form
to be redeemed in principal amounts at maturity of $1,000 or integral multiples
thereof by lot, PRO RATA or by another method the trustee considers fair and
appropriate. If a portion of a holder's certificated debentures is selected for
partial redemption and the holder converts a portion of its debentures, the
converted portion will be deemed to be the portion selected for redemption.
debentures registered in the name of DTC or its nominee will be redeemed as
described under the caption entitled "--Form, Denomination and Registration--
Global Debenture; Book-Entry Form."
REPURCHASE AT OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change occurs at any time prior to , 2019, each
holder will have the right, at the holder's option, to require WellPoint to
repurchase any or all of the holder's debentures. The debentures may be
repurchased in multiples of $1,000 principal amount at maturity. WellPoint will
repurchase the debentures at a price equal to the issue price plus accrued
original issue discount to the repurchase date. See the table under the caption
entitled "--Redemption of Debentures at WellPoint's Option." If, prior to the
repurchase date, WellPoint elects to convert the debentures to semiannual coupon
debentures following a Tax Event, the purchase price will be equal to
25
<PAGE>
the Restated Principal Amount plus accrued and unpaid interest to the repurchase
date. See the discussion under the caption entitled "--Optional Conversion to
Semiannual Coupon Debentures Upon a Tax Event."
On or before the tenth day after the occurrence of a Fundamental Change,
WellPoint will mail to all holders of record of the debentures a notice of the
occurrence of the Fundamental Change and of the resulting repurchase right.
WellPoint will also deliver to the trustee a copy of the notice. To exercise the
repurchase right, holders of debentures must deliver, on or before the 45th day
after the date of WellPoint's notice of a Fundamental Change, the debentures to
be repurchased, duly endorsed for transfer, together with the form entitled
"Option to Elect Repurchase Upon a Fundamental Change" on the reverse side of
the debenture duly completed, to WellPoint, or an agent designated by WellPoint.
WellPoint will comply with the provisions of Rule 13e-4 and any other tender
offer rules under the Exchange Act which may then be applicable in connection
with the repurchase of the debentures in the event of a Fundamental Change.
The repurchase rights of the holders of debentures could discourage a
potential acquiror of WellPoint. The Fundamental Change repurchase feature,
however, is not the result of management's knowledge of any specific effort to
obtain control of WellPoint by any means or part of a plan by management to
adopt a series of anti-takeover provisions.
The term Fundamental Change is limited to specified transactions and may not
include other events that might adversely affect WellPoint's financial
condition. In addition, holders may not be protected by the requirement that
WellPoint offer to repurchase the debentures upon a Fundamental Change in the
event of a highly leveraged transaction, reorganization, merger or similar
transaction involving WellPoint.
No debentures may be repurchased at the option of holders upon a Fundamental
Change if there has occurred and is continuing an event of default described
under the caption entitled "--Events of Default, Notice and Waiver" below.
However, debentures may be repurchased if the event of default is in the payment
of the Fundamental Change purchase price with respect to the debentures. In the
event of a Fundamental Change and exercise by holders of the debentures of their
right to require WellPoint to repurchase all or a portion of their debentures,
WellPoint may not have sufficient funds to pay the purchase price for all the
debentures tendered by the holders. The terms of future debt arrangements could
prevent the repurchase of the debentures. If a Fundamental Change occurs at a
time when WellPoint is prohibited from repurchasing the debentures, WellPoint
could ask existing lenders to consent to WellPoint's repurchase of the
debentures or could attempt to refinance the borrowings that contain the
prohibition. If WellPoint does not obtain the consent or repay the borrowings,
WellPoint would remain prohibited from repurchasing the debentures. In this
case, WellPoint's failure to repurchase the debentures required to be
repurchased under the terms of the indenture would constitute an event of
default and would likely constitute a default under the terms of any other
Indebtedness of WellPoint outstanding at the time. If this were to occur, or if
a Fundamental Change would in and of itself constitute an event of default under
agreements governing Senior Indebtedness then outstanding, the subordination
provisions in the indenture would likely prevent holders from being paid until
after the Senior Indebtedness is repaid.
REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
On , 2002, , 2009 and , 2014, WellPoint
will be obligated to repurchase, at the option of the holder, all or any portion
of the outstanding debentures. The purchase price payable in respect of a
debenture will be equal to the issue price plus accrued original issue discount
to the repurchase date. If, prior to the repurchase date, WellPoint elects to
convert the debentures to semiannual coupon debentures following a Tax Event,
the purchase price will be equal to
26
<PAGE>
the Restated Principal Amount plus accrued and unpaid interest to the repurchase
date. See the discussion under the caption entitled "--Optional Conversion to
Semiannual Coupon Debentures Upon a Tax Event."
The table below shows the purchase prices of a debenture as of the specified
repurchase dates. WellPoint may elect to pay the purchase price payable, as of
any repurchase date, in cash or common stock or any combination of cash or
common stock.
<TABLE>
<CAPTION>
REPURCHASE DATE PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
, 2002............................................................... $
, 2009...............................................................
, 2014...............................................................
</TABLE>
If WellPoint elects to pay the purchase price, in whole or in part, in
common stock, the number of shares to be delivered in respect of the portion of
the purchase price to be paid in common stock will be equal to the portion of
the purchase price divided by the Market Price of the common stock. However, no
fractional shares of common stock will be delivered upon any repurchase by
WellPoint of debentures through the delivery of common stock in payment, in
whole or in part, of the purchase price. Instead, WellPoint will pay cash based
on the Market Price for all fractional shares of common stock.
The holder's right to require WellPoint to repurchase debentures is
exercisable by delivery during the repurchase period of a written repurchase
notice by the holder to the office of the paying agent. The paying agent will
initially be the trustee. The repurchase period will begin at any time from the
opening of business on the date that is 20 business days prior to the applicable
repurchase date until the close of business on the applicable repurchase date.
If the repurchase notice is withdrawn during the period, WellPoint will not be
obligated to repurchase the debentures. WellPoint's repurchase obligation will
be subject to additional conditions set forth in the indenture.
The repurchase notice will state:
(1) the certificate numbers of the debentures to be delivered by the holder
for repurchase by WellPoint;
(2) the portion of the principal amount at maturity of debentures to be
repurchased, which must be $1,000 or in multiples of $1,000;
(3) that the debentures are to be repurchased by WellPoint pursuant to the
applicable provisions of the debentures and the indenture; and
(4) in the event that WellPoint elects to pay the purchase price in common
stock but does not end up satisfying the conditions to payment and
ultimately has to pay the holder in cash, whether the holder would
choose:
- to withdraw the repurchase notice as to some or all of the debentures to
which it relates; or
- to receive cash in respect of the entire purchase price for all
debentures subject to the repurchase notice.
If the holder fails to indicate the holder's choice with respect to the
election described in clause (4) above, the holder will be deemed to have
elected to receive cash for the entire purchase price for all debentures subject
to the repurchase notice. For a discussion of the tax treatment of a holder
receiving cash or common stock pursuant to its election to tender its debentures
to WellPoint on a repurchase date, see the discussion under the caption entitled
"Material U.S. Federal Income Tax Considerations."
27
<PAGE>
Any repurchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
repurchase date. The notice of withdrawal will state the principal amount at
maturity and the certificate numbers of the debentures as to which the
withdrawal notice relates and the principal amount at maturity, if any, which
remains subject to the repurchase notice.
WellPoint will give notice not less than 20 business days prior to the
repurchase date to all holders at their addresses shown in the register of the
registrar. WellPoint will also give notice to beneficial owners as required by
applicable law. This notice will state, among other things:
- whether WellPoint will pay the purchase price of the debentures in cash or
common stock, or any combination of cash or common stock. The notice will
specify the percentage of each, and
- if WellPoint elects to pay in common stock, in whole or in part, the
method of calculating the Market Price of the common stock.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, WellPoint will publish the
determination in a daily newspaper of national circulation.
WellPoint's right to repurchase debentures with common stock is subject to
the satisfaction of various conditions, including:
- the registration of the common stock under the Securities Act, if
required, and
- compliance with other applicable federal and state securities laws, if
any.
If the conditions are not satisfied by a repurchase date, WellPoint will pay
the purchase price of the debentures to be purchased on the repurchase date
entirely in cash. WellPoint will comply with the provisions of Rule 13e-4 and
any other tender offer rules under the Exchange Act which may then be applicable
and will file a Schedule 13E-4 or any other schedule required under the Exchange
Act in connection with any offer by WellPoint to repurchase debentures at the
option of holders.
Payment of the repurchase price for a debenture for which a repurchase
notice has been delivered and not withdrawn is conditioned upon book-entry
transfer or delivery of the debenture, together with necessary endorsements, to
the paying agent at its office in the Borough of Manhattan, The City of New
York, or any other office of the paying agent, at any time after delivery of the
repurchase notice. Payment of the purchase price for the debenture will be made
promptly following the later of the repurchase date or the time of book-entry
transfer or delivery of the debenture. If the paying agent holds money or
securities sufficient to pay the purchase price of the debenture on the business
day following the repurchase date, then, on and after the date, the debenture
will cease to be outstanding and original issue discount on the debenture or, if
the debentures are converted to semiannual coupon debentures following the
occurrence of a Tax Event, interest on the debentures, will cease to accrue.
This will be the case whether or not book-entry transfer of the debenture is
made or the debenture is delivered to the paying agent, and all other rights of
the holder will terminate, other than the right to receive the purchase price
upon delivery of the debenture.
No debentures may be repurchased at the option of the holder for cash if
there has occurred, prior to, on or after the giving by the holders of the
debentures of the required repurchase notice, and is continuing an event of
default described under the caption entitled "--Events of Default; Notice and
Waiver" below, other than a default in the payment of the purchase price with
respect to the debentures.
Even though WellPoint becomes obligated to repurchase any outstanding
debenture on a repurchase date, WellPoint may not have sufficient funds to pay
the purchase price on that repurchase date. If this were to occur, WellPoint
could be required to issue shares of common stock to pay the
28
<PAGE>
purchase price at valuations based on then prevailing market prices for all the
debentures tendered by the holders. Any future credit agreements or other
agreements relating to other Indebtedness, including Senior Indebtedness, to
which WellPoint becomes a party may provide that the maturing of any obligation
to repurchase the debentures would constitute an event of default and may
restrict or prohibit the repurchase of the debentures. In the event a repurchase
date occurs at a time when WellPoint is prohibited from repurchasing the
debentures, WellPoint could seek the consent of its then existing lenders to
repurchase the debentures or could attempt to refinance the borrowings that
contain the prohibition. If WellPoint does not obtain the consent or repay the
borrowings, WellPoint would remain prohibited from repurchasing the debentures.
WellPoint's failure to repurchase debentures required to be repurchased under
the terms of the indenture would constitute an event of default under the
indenture and would likely constitute a default under the terms of any other
Indebtedness of WellPoint outstanding at that time, including Senior
Indebtedness. In these circumstances, the subordination provisions in the
indenture would likely prevent WellPoint from making payments to debenture
holders.
MERGERS AND SALES OF ASSETS BY WELLPOINT
WellPoint may not consolidate with or merge into any other person or convey,
transfer or lease its properties and assets substantially as an entirety to
another person, unless, among other items:
- the resulting, surviving or transferee person, if other than WellPoint, is
organized and existing under the laws of the United States, any state
thereof or the District of Columbia;
- the successor person assumes all of WellPoint's obligations under the
debentures and the indenture; and
- WellPoint or the successor person will not immediately thereafter be in
default under the indenture.
Upon the assumption of WellPoint's obligations by a successor as described
above, subject to certain exceptions, WellPoint will be discharged from all
obligations under the debentures and the indenture. Certain of these
transactions which would constitute a Fundamental Change would permit each
holder to require WellPoint to repurchase their debentures as described under
the caption entitled "--Repurchase at Option of the Holder Upon a Fundamental
Change."
OPTIONAL CONVERSION TO SEMIANNUAL COUPON DEBENTURES UPON A TAX EVENT
From and after the date (referred to as the tax event date) of the
occurrence of a Tax Event, WellPoint may elect to have interest in lieu of
future original interest discount accrue at % per annum on a principal
amount at maturity per debenture equal to the issue price plus original issue
discount accrued to the date immediately prior to the later of:
- the tax event date; or
- the date on which WellPoint makes its election,
which is referred to as the option exercise date. The resulting amount is the
Restated Principal Amount. Interest will accrue from the option exercise date
and will be payable semiannually on the interest payment date, which is
and of each year. The interest will be payable to
holders of record of the debentures at the close of business on and
, the regular record date, immediately preceding the interest
payment date. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months. Interest will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the option
exercise date.
29
<PAGE>
President Clinton's 2000 budget proposes a tax law change that, if enacted
and made applicable to the debentures, would prevent WellPoint from deducting
interest, including original issue discount, payable on the debentures on a
current accrual basis for U.S. federal income tax purposes and could cause some
or all of the interest, including original issue discount, payable on the
debentures to fail to be deductible by WellPoint under any other method for U.S.
federal income tax purposes. This proposal has not yet been enacted and, based
on its proposed effective date, should not apply to the debentures.
Nevertheless, if a similar proposal were made applicable to the debentures in a
manner that would limit WellPoint's ability to either (a) deduct the interest,
including original issue discount, payable on the debentures on a current
accrual basis or (b) deduct the interest, including original issue discount,
payable on the debentures under any other method for U.S. federal income tax
purposes, it would result in a Tax Event and WellPoint could, at its option,
modify the terms of the debentures as described above. Modification of the terms
of the debentures by WellPoint upon a Tax Event as described above could alter
the timing of income recognition by holders of the debentures with respect to
the semiannual payments of interest due on the debentures after the option
exercise date. See the discussion under the caption entitled "Material U.S.
Federal Income Tax Considerations" below.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The indenture provides that, if an event of default specified in the
indenture has happened and is continuing, either the trustee or the holders of
not less than 25% in aggregate principal amount at maturity of the debentures
then outstanding may declare due and payable:
- the issue price of the debentures or, if the debentures are converted to
semiannual coupon debentures following the occurrence of a Tax Event, the
Restated Principal Amount; PLUS
- the original issue discount on the debentures or, if the debentures are
converted to semiannual coupon debentures following the occurrence of a
Tax Event, interest on the debentures, accrued and unpaid to the date of
the declaration.
In the case of certain events of bankruptcy or insolvency, the issue price
plus the original issue discount on the debentures or, if the debentures are
converted to semiannual coupon debentures following the occurrence of a Tax
Event, interest on the debentures, accrued to the occurrence of the event will
automatically become and be immediately due and payable.
Under certain circumstances, the holders of a majority in aggregate
principal amount at maturity of the outstanding debentures may rescind any
acceleration with respect to the debentures and its consequences.
Interest will accrue at the rate of % per annum and be payable on demand
upon a default in the payment of any redemption price or purchase price and,
after acceleration, of the issue price and accrued original issue discount or,
if the debentures are converted to semiannual coupon debentures following the
occurrence of a Tax Event, interest, to the extent that payment of the interest
is legally enforceable. Original issue discount or, if the debentures are
converted to semiannual coupon debentures following the occurrence of a Tax
Event, interest on the debentures, will cease to accrue after declaration of
acceleration.
Under the indenture, events of default are defined as:
(1) default in payment of:
- the principal amount at maturity,
- issue price,
30
<PAGE>
- accrued original issue discount, or, if the debentures are converted to
semiannual coupon debentures following the occurrence of a Tax Event,
interest on the debentures (if the default continues for 30 days),
- redemption price, or
- purchase price
with respect to any debenture when it becomes due and payable, whether or
not payment is prohibited by the provisions of the indenture;
(2) WellPoint's failure for 10 days to deliver shares of its common stock
(including cash in lieu of fractional shares) or, if it elects, cash in
lieu of shares of its common stock, when common stock or cash is required
to be delivered following the conversion of a debenture;
(3) WellPoint's failure to comply with any of its other agreements in the
debentures or the indenture upon the receipt by WellPoint of notice of
the default by the trustee or by holders of not less than 25% in
aggregate principal amount at maturity of the debentures then outstanding
and WellPoint's failure to cure the default within 60 days after receipt
by WellPoint of the notice; or
(4) certain events of bankruptcy or insolvency.
The trustee will give notice to holders of the debentures of any continuing
default known to the trustee within 90 days after the occurrence; PROVIDED that,
except in the case of a default as described in clause (1) above, the trustee
may withhold notice if it determines in good faith that withholding the notice
is in the interests of the holders.
The holders of a majority in aggregate principal amount at maturity of the
outstanding debentures may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee; PROVIDED that the direction may not conflict
with any law or the indenture and will be subject to certain other limitations.
Before proceeding to exercise any right or power under the indenture at the
direction of the holders, the trustee will be entitled to receive from the
holders reasonable security indemnity satisfactory to it against the costs,
expenses and liabilities incurred by it in complying with the direction. No
holder of any debenture will have any right to pursue any remedy with respect to
the indenture or the debentures unless:
(1) the holder will have previously given WellPoint and the trustee written
notice of a continuing event of default;
(2) the holders of at least 25% in aggregate principal amount at maturity of
the outstanding debentures have made a written request to the trustee to
pursue the remedy;
(3) the holder or holders have offered to the trustee reasonable indemnity
satisfactory to the trustee;
(4) the holders of a majority in aggregate principal amount at maturity of
the outstanding debentures have not given the trustee a direction
inconsistent with the request within 60 days after receipt of the
request; and
(5) the trustee has failed to comply with the request within the 60-day
period.
However, the right of any holder:
(1) to receive payment of:
- the principal amount at maturity,
31
<PAGE>
- issue price,
- accrued original issue discount, or, if the debentures are converted to
semiannual coupon debentures following the occurrence of a Tax Event,
interest on the debentures,
- redemption price,
and any interest in respect of a default in the payment of any amounts
due in respect of a debenture, on or after the due date of the debenture;
(2) to institute suit for the enforcement of any payments or conversion; or
(3) to convert debentures
will not be impaired or adversely affected without the holder's consent.
The holders of at least a majority in aggregate principal amount at maturity
of the outstanding debentures may waive an existing default and its
consequences, other than:
- any default in any payment on the debentures;
- any default with respect to the conversion rights of the debentures; or
- any default in respect of certain covenants or provisions in the indenture
which may not be modified without the consent of the holder of each
debenture as described under the caption entitled "--Modification" below.
WellPoint will be required to furnish to the trustee annually a statement as
to any default by WellPoint in the performance and observance of its obligations
under the indenture.
MODIFICATION
Modification and amendment of the indenture or the debentures may be
effected by WellPoint and the trustee with the consent of the holders of not
less than a majority in aggregate principal amount at maturity of the debentures
then outstanding. Notwithstanding the foregoing, no amendment may, without the
consent of each holder affected:
(1) reduce the principal amount at maturity, issue price, redemption price
or purchase price, or extend the stated maturity of any debenture or
alter the manner or rate of accrual of original issue discount or
interest, or make any debenture payable in money or securities other than
that stated in the debenture;
(2) make any change to the principal amount at maturity of debentures whose
holders must consent to an amendment or any waiver under the indenture or
modify the indenture provisions relating to amendments or waivers with
respect to the payment of principal at maturity;
(3) make any change that adversely affects the right to convert any
debenture or the right to require WellPoint to repurchase a debenture or
the right to require WellPoint to repurchase a debenture upon a
Fundamental Change;
(4) modify the provisions of the indenture relating to the subordination of
the debentures in a manner adverse to the holders of the debentures; or
(5) impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the debentures.
The indenture also provides for certain modifications of its terms without
the consent of the holders.
32
<PAGE>
FORM, DENOMINATION AND REGISTRATION
The debentures are issuable in fully registered form, without coupons, in
denominations of $1,000 principal amount at maturity and multiples of $1,000.
WellPoint may not reissue a debenture that has matured or been converted,
redeemed, repurchased by WellPoint at the option of a holder or otherwise
canceled, except for the transfer, exchange or replacement of the debenture.
GLOBAL DEBENTURE; BOOK-ENTRY FORM. The debentures will be issued in the form
of a global debenture. The global debenture will be deposited with, or on behalf
of, The Depository Trust Company and registered in the name of Cede & Co., DTC's
nominee. Except as set forth below, the global debenture may be transferred, in
whole or in part, only to another nominee of DTC or to a successor of DTC or its
nominee.
Purchasers of the debentures may hold their interests in the global
debenture directly through DTC if the holder is a participant in DTC, or
indirectly through organizations which are participants in DTC. Transfers
between participants will be effected in the ordinary way in accordance with DTC
rules and will be settled in clearing house funds.
Persons who are not participants may beneficially own interests in the
global debenture held by DTC only though participants, or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. So long as Cede & Co., as the nominee of DTC, is the registered
owner of the global debenture, Cede & Co. for all purposes will be considered
the sole holder of the global debenture. Except as provided below, owners of
beneficial interests in the global debenture will not be entitled to have
certificates registered in their names. These owners will not receive or be
entitled to receive physical delivery of certificates in definitive registered
form and will not be considered the holders of the global debenture.
Payment of principal amount at maturity or the redemption price or the
purchase price of the global debenture will be made to Cede & Co., the nominee
for DTC, as the registered owner of the global debenture. Payments will be made
by wire transfer of immediately available funds on the payment date. WellPoint,
the trustee and any paying agent will have no responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global debenture. In addition, WellPoint, the trustee
and any paying agent will have no responsibility or liability for maintaining,
supervising or reviewing any records relating to any beneficial ownership
interests.
WellPoint has been informed by DTC that, with respect to any payment of
principal amount at maturity or the redemption price or the purchase price of
the global debenture, DTC's practice is to credit participants' accounts on the
payment date. These payments will be in amounts proportionate to the
participants' respective beneficial interests in the principal amount
represented by the global debenture as shown on the records of DTC. DTC will not
credit participants' accounts if DTC has reason to believe that it will not
receive payment on the applicable payment date. Payments by participants to
owners of beneficial interests in the principal amount represented by the global
debenture held through participants will be the responsibility of the
participants. This is currently the case with securities held for the accounts
of customers registered in street name.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the global
debenture to pledge its interest to persons or entities that do not participate
in the DTC system, or otherwise take actions in respect of its interest, may be
affected by the lack of physical certificates evidencing its interest.
None of WellPoint, the trustee, or any registrar, paying agent or conversion
agent under the indenture, will have any responsibility for the performance by
DTC or its participants or indirect participants of their operations. DTC has
advised WellPoint that it will take any action permitted to be
33
<PAGE>
taken by a holder of debentures, including, without limitation, the presentation
of debentures for exchange as described below, only at the direction of one or
more participants to whose account with DTC interests in the global debenture
are credited. In addition, DTC will only take action in respect of the principal
amount of the debentures represented by the global debenture as to which a
participant or participants has or have given direction.
DTC has advised WellPoint as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a clearing corporation within the meaning of the Uniform
Commercial Code and a clearing agency registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants. This practice eliminates the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and may include certain other
organizations. Some of the participants, or their representatives, together with
other entities, own DTC. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with, a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global debenture among participants, it is under
no obligation to perform or continue to perform these procedures, and these
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
WellPoint within 90 days, WellPoint will cause the debentures to be issued in
definitive registered form in exchange for the global debenture.
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants and indirect participants to beneficial
owners will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. Redemption
notices will be sent to Cede, as nominee of DTC. If less than all of the
debentures are being redeemed, DTC will reduce the amount of interest of each
participant in the debentures in accordance with its procedures.
CERTIFICATED DEBENTURES. Holders of debentures may request that
certificated debentures be issued in exchange for debentures represented by the
global debenture. Furthermore, certificated debentures may be issued in exchange
for debentures represented by the global debenture if no successor depositary is
appointed by WellPoint as set forth above under the caption entitled "--Global
Debenture, Book-Entry Form." Likewise, a holder may exchange a certificated
debenture for a beneficial interest in the global debenture held by DTC by
surrendering the certificated debenture to a DTC participant, or banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
TAXATION OF DEBENTURES
See the description under the caption entitled "Material U.S. Federal Income
Tax Considerations" for a discussion of certain tax considerations relevant to a
holder of debentures.
INFORMATION CONCERNING THE TRUSTEE
WellPoint has appointed The Bank of New York as trustee under the indenture,
and as paying agent, conversion agent, registrar and custodian with regard to
the debentures.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the prospectus.
34
<PAGE>
"DESIGNATED SENIOR INDEBTEDNESS" means any particular Senior Indebtedness in
which the instrument creating or evidencing the same or the assumption or
guarantee thereof, or related agreements or documents to which WellPoint is a
party, expressly provides that such Senior Indebtedness will be Designated
Senior Indebtedness for purposes of the indenture; PROVIDED that such
instrument, agreement or other document may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness.
"FUNDAMENTAL CHANGE" means the occurrence of any transaction or event in
connection with which all or substantially all common stock will be exchanged
for, converted into, acquired for or constitute solely the right to receive any
form of consideration which is not all or substantially all common stock listed,
or, upon consummation of or immediately following such transaction or event,
which will be listed, on a United States national securities exchange or
approved for quotation on The NASDAQ National Market or any similar United
States system of automated dissemination of quotations of securities prices.
"INDEBTEDNESS" means, with respect to any person and without duplication:
(1) all indebtedness, obligations and other liabilities, contingent or
otherwise, of such person for borrowed money;
(2) all reimbursement obligations and other liabilities, contingent or
otherwise, of such person with respect to letters of credit, bank
guarantees or bankers' acceptances;
(3) all obligations and liabilities, contingent or otherwise, in respect of
leases of such person;
(a) required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on
the balance sheet of such person; or
(b) required, in conformity with generally accepted accounting principles
to be accounted for as an operating lease, PROVIDED that either (i)
such operating lease requires, at the end of the term thereof, that
such person make any payment other than accrued periodic rent in the
event that such person does not acquire the leased real property and
related fixtures subject to such lease, or (ii) such person has an
option to acquire the leased real property and related fixtures,
whether such option is exercisable at any time or under specified
circumstances;
(4) all obligations of such person, contingent or otherwise, with respect to
an interest rate swap, cap or collar agreement or other similar
instrument or agreement;
(5) all direct or indirect guaranties or similar agreements by such person
in respect of, and obligations or liabilities, contingent or otherwise,
of such person to purchase or otherwise acquire or otherwise assure a
creditor against loss in respect of, indebtedness, obligations or
liabilities of another person of the kind described in clauses (1)
through (4) above;
(6) any indebtedness or other obligations described in clauses (1) through
(4) above secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such person, regardless of
whether the indebtedness or other obligation secured thereby will have
been assumed by such person; and
(7) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation
or liability of the kind described in clauses (1) through (6).
"MARKET PRICE" means the average of the Sale Prices of the Common Stock for
the five trading day period ending on the third business day prior to the
applicable purchase date, if the third business day prior to the applicable
purchase date is a trading day or, if it is not a trading day, then on the last
trading day prior to such third business day, appropriately adjusted to take
into account the occurrence during the period commencing on the first of such
trading days during such five trading day period and
35
<PAGE>
ending on such purchase date of certain events that would result in an
adjustment of the conversion rate under the indenture with respect to the common
stock. Because the Market Price of the common stock is determined prior to the
applicable purchase date, holders of debentures bear the market risk with
respect to the value of the common stock to be received from the date of
determination of such Market Price to such purchase date. WellPoint may elect to
pay the purchase price in common stock only if the information necessary to
calculate the Market Price is reported in a daily newspaper of national
circulation.
"SALE PRICE OF THE COMMON STOCK" means, on any date, the closing per share
sale price, or if no closing sale price is reported, the average bid and ask
prices or, if more than one, in either case, the average of the average bid and
average ask prices, on such date as reported in the composite transactions for
the principal United States securities exchange on which the common stock is
traded or, if the common stock is not listed on a United States national or
regional stock exchange, as reported by The NASDAQ National Market.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, interest,
including all interest accruing subsequent to the commencement of any bankruptcy
or similar proceeding, whether or not a claim for post-petition interest is
allowable as a claim in any such proceeding, rent and end of term payments
payable on or in connection with, and, to the extent not included in the
foregoing, all amounts payable as fees, costs, expenses, liquidated damages,
indemnities, repurchase and other put obligations and other amounts to the
extent accrued or due on or in connection with Indebtedness of WellPoint,
whether outstanding on the date of the indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by WellPoint, including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing. Notwithstanding the foregoing,
the term Senior Indebtedness does not include:
(1) Indebtedness evidenced by the debentures;
(2) Indebtedness of WellPoint to any subsidiary of WellPoint, a majority of
the voting stock of which is owned, directly or indirectly, by WellPoint;
(3) accounts payable or other Indebtedness to trade creditors created or
assumed by WellPoint in the ordinary course of business; and
(4) any particular Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly
provides that such Indebtedness will not be senior in right of payment
to, or is PARI PASSU with, or is subordinated or junior to, the
debentures.
"TAX EVENT" means that WellPoint has received an opinion from independent
tax counsel experienced in such matters to the effect that, as a result of:
(1) an amendment to, or change or announced prospective change in, the laws
or regulations of the U.S. or any political subdivision or taxing
authority thereof or therein; or
(2) any amendment to, or change in, an interpretation or application of such
laws or regulations by any legislative body, court, governmental agency
or regulatory authority, in each case which amendment or change is
enacted, promulgated, issued or announced or which interpretation is
issued or announced or which action is taken, on or after the date of
this prospectus,
there is more than an insubstantial risk that interest, including original issue
discount, payable on the debentures either (a) would not be deductible on a
current accrual basis or (b) would not be deductible under any other method, in
either case in whole or in part, by WellPoint by reason of deferral,
disallowance or otherwise for U.S. federal income tax purposes.
36
<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income tax
considerations relating to the initial purchase, ownership and disposition of
the debentures and common stock to U.S. holders, and certain material U.S.
federal income and estate tax considerations relating to the purchase, ownership
and disposition of the debentures and common stock to non-U.S. holders. The
discussion is a summary only and does not purport to be a complete analysis of
all the potential tax considerations relating to the purchase, ownership and
disposition of the debentures and common stock. We have based this summary on
the U.S. federal income tax laws on the date of this prospectus. These laws may
change, possibly retroactively. There can be no assurance that the IRS will not
challenge one or more of the tax consequences described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of
counsel with respect to the U.S. federal tax consequences of purchasing, owning
or disposing of debentures and common stock.
The discussion does not address all tax consequences that may be important
to you in light of your specific circumstances. For instance, this discussion
does not address the alternative minimum tax provisions of the tax code, or
special rules applicable to certain categories of investors, such as certain
financial institutions, insurance companies, tax-exempt organizations, dealers
in securities, or persons who hold debentures or common stock as part of a
hedge, conversion or constructive sale transaction, straddle or other risk
reduction transaction, that may be subject to special rules. This discussion is
limited to purchasers of debentures who acquire the debentures from the
underwriters in the initial offering of the debentures, and will not apply
unless the holder holds the debentures and any common stock into which the
debentures are converted as capital assets. This discussion also does not
address the tax consequences arising under the laws of any foreign, state or
local jurisdiction or U.S. estate and gift tax law as applicable to U.S.
holders.
Persons considering the purchase of a debenture should consult their own tax
advisors as to the particular tax consequences to them of acquiring, holding,
converting or otherwise disposing of the debentures and common stock, including
the effect and applicability of state, local or foreign tax laws.
U.S. HOLDERS
As used in this discussion, the term U.S. holder means a holder of a
debenture or common stock that is:
(1) for United States federal income tax purposes, a citizen or resident of
the United States;
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
(3) an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
(4) a trust, the administration of which is subject to the primary
supervision of a court within the United States and which has one or more
United States persons with authority to control all substantial
decisions, or if the trust was in existence on August 20, 1996, and has
elected to continue to be treated as a United States trust.
A non-U.S. holder is any holder other than a U.S. holder.
ORIGINAL ISSUE DISCOUNT OR INTEREST ON THE DEBENTURES. The debentures will
be issued at a substantial discount from their stated redemption price at
maturity. For U.S. federal income tax purposes, the excess of the stated
redemption price at maturity of each debenture over its issue price constitutes
original issue discount. The issue price of the debentures will equal the
initial price at which a substantial amount of the debentures is sold to the
public, not including sales to the underwriters. U.S. holders of the debentures
will be required to include original issue discount in taxable ordinary income
37
<PAGE>
as it accrues before receipt of the cash attributable to such income, regardless
of such U.S. holder's regular method of accounting for U.S. federal income tax
purposes. A U.S. holder of a debenture must include in gross income for federal
income tax purposes the sum of the daily portions of original issue discount
with respect to the debenture for each day during the taxable year or portion of
a taxable year on which such U.S. holder holds the debenture. The daily portion
is determined by allocating to each day of each accrual period a pro rata
portion of an amount equal to the adjusted issue price of the debenture at the
beginning of the accrual period multiplied by the yield to maturity of the
debenture, determined by compounding at the close of each accrual period and
adjusted for the length of the accrual period. The adjusted issue price of a
debenture at the start of any accrual period will be the issue price of the
debenture increased by the accrued original issue discount for each prior
accrual period. Under these rules, U.S. holders will have to include in gross
income increasingly greater amounts of original issue discount in each
successive accrual period. A U.S. holder's original tax basis for determining
gain or loss on the sale or other disposition of a debenture will be increased
by any accrued original issue discount includable in such U.S. holder's gross
income.
There are circumstances under which we could make a payment on a debenture
which would affect the yield to maturity of a debenture, including, as described
under "Description of Debentures," in the event of certain defaults. According
to Treasury Regulations, the possibility of a change in the yield will not be
treated as affecting the amount of original issue discount required to be
recognized by a holder, or the timing of such recognition, if the likelihood of
the change, as of the date the debt obligations are issued, is remote. We intend
to take the position that the likelihood of any change in the yield on the
debentures is remote. We also take the position that there is no alternative
payment schedule that would minimize the yield on the debentures to WellPoint.
The modification of the terms of the debentures by us upon a Tax Event as
described in "Description of Debentures--Optional Conversion to Semiannual
Coupon Debenture upon a Tax Event," could possibly alter the timing of income
recognition by the holders with respect to the semiannual payments of interest
due after the option exercise date.
We or our paying agent will be required to furnish annually to the IRS and
each U.S. holder information regarding the amount of original issue discount
attributable to that year.
SALE, EXCHANGE OR RETIREMENT OF THE DEBENTURES. Upon the sale, exchange or
retirement of a debenture, including as a result of a tender upon the occurrence
of a fundamental change, and, except as discussed in the next paragraph on a
purchase date, a U.S. holder will generally recognize gain or loss equal to the
difference between the sale or redemption proceeds and the U.S. holder's
adjusted tax basis in the debenture.
If a U.S. holder elects to exercise its option to tender the debentures to
us on a purchase date and we issue common stock in satisfaction of all or part
of the purchase price, the exchange of the debentures for common stock should
qualify as a reorganization for federal income tax purposes. If the purchase
price is paid solely in common stock, except in the case of a fractional share
described below, a U.S. holder should not recognize any gain or loss realized.
If the purchase price is paid in a combination of common stock and cash, other
than cash received in lieu of a fractional share, gain, but not loss, realized
by the U.S. holder should be recognized, but only to the extent of the cash
received. A U.S. holder's initial tax basis in the common stock received should
be equal to such U.S. holder's adjusted tax basis in the debenture tendered
(except for any portion allocable to a fractional share of common stock),
increased by the amount of gain recognized, other than with respect to a
fractional share, and decreased by the amount of any cash received, except cash
received in lieu of a fractional share. The holding period for common stock
received in the exchange should include the holding period of the debenture
tendered to WellPoint in exchange for common stock. The receipt of cash in
38
<PAGE>
lieu of a fractional share of common stock should generally result in capital
gain or loss, measured by the difference between the amount of cash received for
the fractional share and the U.S. holder's tax basis in the fractional share
interest.
A holder's adjusted tax basis in a debenture will generally equal the
holder's cost of the debenture increased by any original issue discount
previously included in income by such holder with respect to such debenture and
decreased by any payments received thereon. Gain or loss realized on the sale,
exchange or retirement of a debenture will generally be capital gain or loss and
will be long-term capital gain or loss if the debenture is held for more than
one year. Long-term capital gain recognized by an individual U.S. holder is
generally subject to a maximum U.S. federal rate of tax of 20%.
CONVERSION OF DEBENTURES. A U.S. holder's conversion of a debenture into
common stock will generally not be a taxable event, except with respect to cash
received in lieu of a fractional share. A U.S. holder's basis in the common
stock received on conversion of a debenture will be the same as the U.S.
holder's basis in the debenture at the time of conversion, exclusive of any tax
basis allocable to a fractional share, and the holding period for the common
stock received on conversion will include the holding period of the debenture
converted. The receipt of cash in lieu of a fractional share of common stock
should generally result in capital gain or loss, measured by the difference
between the cash received for the fractional share interest and the U.S.
holder's tax basis in the fractional share interest. If WellPoint elects to pay
cash in lieu of issuing common stock upon the tender of a debenture for
conversion, the U.S. holder will recognize gain or loss equal to the difference
between the proceeds received and the U.S. holder's adjusted tax basis in the
debenture.
DIVIDENDS; ADJUSTMENT OF CONVERSION PRICE. Dividends, if any, paid on the
common stock generally will be includable in the income of a U.S. holder as
ordinary income to the extent of our current and accumulated earnings and
profits as determined for U.S. federal income tax purposes. If at any time we
make a distribution of property to shareholders that would be taxable to such
shareholders as a dividend for federal income tax purposes and, pursuant to the
anti-dilution provisions of the indenture, the conversion rate of the debentures
is increased, such increase may be deemed to be the payment of a taxable
dividend to U.S. holders of debentures. If the conversion rate is increased at
our discretion or in certain other circumstances, or if we implement a
shareholder rights plan, such increase or implementation also may be deemed to
be the payment of a taxable dividend to U.S. holders of debentures. The absence
of such an adjustment to the conversion rate also may, in certain circumstances,
be treated as a taxable dividend to U.S. holders.
CERTAIN MODIFICATIONS OR ASSUMPTIONS. The terms of the debentures may be
modified upon the consent of a specified percentage of holders and, in some
instances, without consent of the holders. In addition, the debentures may be
assumed upon certain transactions involving WellPoint. The modification or
assumption of a debenture could, in certain instances, give rise to a deemed
exchange of a debenture for a new debenture for U.S. federal income tax
purposes. If an exchange is deemed to occur by reason of a modification or
assumption, the amount and timing of taxable income required to be recognized by
a U.S. holder with respect to a debenture could be affected.
SALE OF COMMON STOCK. Upon the sale or exchange of common stock, a U.S.
holder generally will recognize capital gain or capital loss equal to the
difference between the amount realized on such sale or exchange and the holder's
adjusted tax basis in such shares. Such capital gain or loss will be long-term
capital gain or loss if the cumulative holding period of the common stock,
including the holding period of a debenture converted to such common stock as
described above, is more than one year. Long-term capital gain of individuals
will generally be taxed at a maximum U.S. federal tax rate of 20%. See "--Sale,
Exchange or Retirement of the Debentures."
39
<PAGE>
NON-U.S. HOLDERS
The following discussion is a summary of the principal U.S. federal income
and estate tax consequences resulting from the ownership of the debentures or
common stock by non-U.S. holders.
WITHHOLDING TAX ON PAYMENTS OF PRINCIPAL AND ORIGINAL ISSUE DISCOUNT ON
DEBENTURES. The payment of principal, including any original issue discount
included therein, of a debenture by us or any of our paying agents to any
non-U.S. holder will not be subject to U.S. federal withholding tax, provided
that in the case of payment of cash in respect of original issue discount (i)
the non-U.S. holder does not actually or constructively own 10% or more of the
total voting combined power of all classes of our stock, (ii) the non-U.S.
holder is not a controlled foreign corporation that is related to us within the
meaning of the tax code, and (iii) either (A) the beneficial owner of the
debenture certifies to the applicable payor or its agent, under penalties of
perjury, that it is not a U.S. holder and provides its name and address on
United States Treasury Form W-8, or a suitable substitute or successor form, or
(B) a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business, and
holds the debenture certifies under penalties of perjury that such a Form W-8,
or suitable substitute form, has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof. Except to the extent otherwise provided under an
applicable tax treaty, a non-U.S. holder generally will be taxed in the same
manner as a U.S. holder with respect to original issue discount on a debenture
if such original issue discount is effectively connected with a U.S. trade or
business of the non-U.S. holder. Effectively connected interest received by a
corporate non-U.S. holder may also, under certain circumstances, be subject to
an additional "branch profits tax" at a 30% rate, or, if applicable, a lower
treaty rate. Such effectively connected original issue discount will not be
subject to withholding tax if the holder delivers an IRS Form 4224, and,
beginning December 31, 2000, a Form W-8ECI, to the payor.
DIVIDENDS. Dividends, if any, paid on the common stock to a non-U.S.
holder, and, after December 31, 2000, any deemed dividends resulting from an
adjustment to the conversion rate, see "U.S. Holders--Dividends; Adjustment of
Conversion Price" above, generally will be subject to a 30% U.S. federal
withholding tax, subject to reduction for non-U.S. holders eligible for the
benefits of certain income tax treaties. Currently, for purposes of determining
whether tax is to be withheld at the 30% rate or at a reduced treaty rate, we
will ordinarily presume that dividends paid to an address in a foreign country
are paid to a resident of such country absent knowledge that such presumption is
not warranted. A non-U.S. holder is required to satisfy certain certification
requirements to claim treaty benefits. Except as otherwise provided under an
applicable tax treaty, a non-U.S. holder will be taxed in the same manner as a
U.S. holder on dividends paid, or deemed paid, that: (1) are effectively
connected with the conduct of a trade or business in the United States, or (2)
if a tax treaty applies, are attributable to a U.S. permanent establishment of
the non-U.S. holder. Such dividends generally are not subject to the 30%
withholding rate, provided that the non-U.S. holder timely files the appropriate
form with the paying agent. If such dividends are received by a non-U.S. holder
that is a foreign corporation, the non-U.S. holder may also be required to pay
U.S. branch profits tax on such effectively connected income at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
40
<PAGE>
GAIN ON DISPOSITION OF THE DEBENTURES AND COMMON STOCK. A non-U.S. holder
generally will not be required to pay U.S. federal income tax on gain realized
on the sale, exchange or redemption of a debenture, including the exchange of a
debenture for common stock, or the sale or exchange of common stock unless:
(1) in the case of an individual non-U.S. holder, such holder is present in
the United States for 183 days or more in the year of such sale, exchange
or redemption and either (A) has a tax home in the United States and
certain other requirements are met, or (B) the gain from the disposition
is attributable to an office or other fixed place of business in the
United States;
(2) the non-U.S. holder is required to pay tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates;
(3) the gain is effectively connected with the conduct of a U.S. trade or
business of or, if a tax treaty applies, is attributable to a U.S.
permanent establishment of, the non-U.S. holder; or
(4) in the case of the disposition of common stock, we are a U.S. real
property holding corporation. We do not believe that we currently are a
U.S. real property holding corporation or that we will become one in the
future.
U.S. FEDERAL ESTATE TAX. A debenture held by an individual who at the time
of death is not a citizen or resident of the United States, as specially defined
for U.S. federal estate tax purposes, will not be required to pay U.S. federal
estate tax if the individual did not actually or constructively own 10% or more
of the total combined voting power of all classes of our stock and, at the time
of the individual's death, payments with respect to such debenture would not
have been effectively connected with the conduct by such individual of a trade
or business in the United States. Common stock held by an individual who at the
time of death is not a citizen or resident of the United States, as specially
defined for U.S. federal estate tax purposes, will be included in such
individual's estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty otherwise applies.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS. Information reporting will apply to payments of interest or
dividends on or the proceeds of the sale or other disposition of the debentures
or shares of common stock with respect to certain noncorporate U.S. holders, and
backup withholding at a rate of 31% may apply to such payments unless the
recipient of such payment supplies a taxpayer identification number, certified
under penalties of perjury, as well as certain other information or otherwise
establishes an exemption from backup withholding. Any amount withheld under the
backup withholding rules is allowable as a credit against the U.S. holder's
federal income tax, provided that the required information is provided to the
IRS on a timely basis.
NON-U.S. HOLDERS. We must report annually to the IRS and to each non-U.S.
holder the amount of any dividends paid to, and the tax withheld with respect
to, such non U.S. holder, regardless of whether any tax was actually withheld.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the non-U.S. holder resides.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of principal, including cash payments in
respect of original issue discount, on the debentures by us or our agent to a
non-U.S. holder if the non-U.S. holder certifies as to its non-U.S. holder
status under penalties of perjury or otherwise establishes an exemption,
provided that neither we nor our agents have actual knowledge that the holder is
a U.S. person or that the conditions of any other exemptions are not in fact
satisfied. The payment of the proceeds on the disposition of debentures or
shares of common stock to or through the United States office of a United States
or
41
<PAGE>
foreign broker will be subject to information reporting and backup withholding
unless the owner provides the certification described above or otherwise
establishes an exemption. The proceeds of the disposition by a non-U.S. holder
of debentures or shares of common stock to or through a foreign office of a
broker will not be subject to backup withholding or information reporting.
However, if such broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes, or a foreign person, 50% or more of whose gross income from
all sources for certain periods is from activities that are effectively
connected with a U.S. trade or business, or, in the case of payments made after
December 31, 2000, a foreign partnership with certain connections to the United
States, information reporting requirements will apply unless such broker has
documentary evidence in its files of the holder's non-U.S. status and has no
actual knowledge to the contrary or unless the holder otherwise establishes an
exemption.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, these
regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. In addition, these
regulations impose more stringent conditions on the ability of financial
intermediaries acting for a non-U.S. holder to provide certifications on behalf
of the holder, which may include entering into an agreement with IRS to audit
certain documentation with respect to such certifications. These regulations are
generally effective for payments made after December 31, 2000, subject to
certain transition rules. You should consult your own tax advisor to determine
the effects of the application of these regulations to your particular
circumstances.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Under our certificate of incorporation, we are authorized to issue up to
300,000,000 shares of common stock, $0.01 par value. As of June 1, 1999, there
were 67,575,530 shares of common stock issued and outstanding. In addition, up
to 10,900,000 shares, excluding 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 our 1999 Stock Incentive Plan, 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.
Shares of our common stock:
- are not redeemable;
- do not have any conversion rights and are not subject to call;
- do not have any preemptive rights which would allow the holders of our
common stock to maintain their percentage of ownership in future offerings
or sales of our stock;
- are entitled to one vote per share on all matters submitted to a vote of
our stockholders with no cumulative voting rights;
- are fully paid and nonassessable;
- are entitled to receive dividends, if any, as and when declared from time
to time by our board of directors out of assets or funds legally available
for distribution, subject to the restrictions on shares owned in excess of
the ownership limit as described below; and
- will be entitled to participate ratably, in proportion to the number of
shares held, in our net assets available for distribution to holders of
our common stock, upon liquidation, dissolution or winding up of our
affairs.
PREFERRED STOCK
We are authorized to issue up to 50,000,000 shares of preferred stock, $0.01
par value, none of which is outstanding as of the date of this prospectus. Our
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 our
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
our company.
CERTAIN CHARTER PROVISIONS THAT MAY LIMIT CHANGES IN CONTROL
In connection with our recapitalization in May 1996, we entered into a
license agreement with the Blue Cross Blue Shield Association which granted us
the exclusive license to use the Blue Cross name in California. The license
agreement requires as a condition to our retention of the Blue Cross license
that our certificate of incorporation contain the following provisions:
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Our certificate of incorporation provides that no person other than the
selling stockholder may beneficially own shares of voting capital stock of our
company in excess of the ownership limit. As a
43
<PAGE>
result of an agreement between us and the Blue Cross Blue Shield Association
executed in December 1997, in accordance with the provisions of Article VII,
Section 14(f)(2) of our certificate of incorporation, the ownership limit is the
following:
- for any "Institutional Investor," one share less than 10% of our
outstanding voting securities; and
- for any "Noninstitutional Investor," other than the selling stockholder,
one share less than 5% of our outstanding voting securities.
"Institutional Investor" means any person if (but only if) such person is:
- a broker or dealer registered under Section 15 of the Securities Exchange
Act of 1934, as amended;
- a bank as defined in Section 3(a)(6) of the Exchange Act;
- an insurance company as defined in Section 3(a)(19) of the Exchange Act;
- an investment company registered under Section 8 of the Investment Company
Act of 1940;
- an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940;
- 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;
- 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 the six bullet points listed above, does not exceed
one percent of the securities of the subject class such as common stock;
or
- a group, provided that all the members are persons specified in the seven
bullet points listed above.
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 that
person's beneficial ownership must contain a certification (or a substantially
similar one) that our common stock acquired by that 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 our company and was
not acquired in connection with or as a participant in any transaction having
such purpose or effect.
"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
the intended transferee acquiring no rights in such shares (with certain
exceptions) and the person's shares will be deemed transferred to an escrow
agent to be held until the shares are transferred to a person whose ownership of
the shares will not violate the ownership limit. These provisions prevent a
third party from obtaining control of our company without obtaining the
supermajority vote required to amend our certificate of incorporation and may
have the effect of discouraging or even preventing a merger or business
combination, a tender offer or similar extraordinary transaction involving us.
Our certificate of incorporation provides that the ownership limit applies
to the beneficial ownership of our common stock. Under our Blue Cross license
agreement, the Blue Cross Blue Shield Association reserves the authority to
determine how convertible securities, such as the debentures, will be treated
for purposes of determining a particular holder's beneficial ownership of our
common stock.
44
<PAGE>
We currently anticipate that, for purposes of the ownership limit, the Blue
Cross Blue Shield Association will treat a holder of debentures at a particular
time as beneficially owning shares of common stock equal to the greater of:
- the number of shares into which the debentures could be converted upon
exercise of the conversion right at such time; and
- the number of shares which the holder would receive if we paid the holder
in shares of common stock upon exercise of the holder's redemption right
(assuming redemption of the debentures at a price equal to the original
issue price plus then accrued original issue discount and based on the
then-current market price of our common stock).
This deemed beneficial ownership will be aggregated with a debenture
holder's other beneficial ownership of our common stock for purposes of
determining if the ownership limit provisions have been violated. If the
conversion rate of the debentures is adjusted, you will be deemed to
beneficially own a greater number of shares of our common stock. Your deemed
beneficial ownership of our common stock will fluctuate as a result of changes
in the market price of our common stock.
STOCKHOLDERS' MEETINGS
Our certificate of incorporation provides that special meetings of our
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
Our certificate of incorporation prohibits action that is required or
permitted to be taken at any annual or special meeting of our stockholders from
being taken by the written consent of stockholders without a meeting.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation and bylaws provide that our 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 us, even though such an attempt might be
beneficial to us and our 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 our 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 certificate of
incorporation, including the provisions concerning:
- the number of directors,
- the classified board provision,
- the filling of vacancies on the board of directors,
45
<PAGE>
- the power of directors to amend our certificate of incorporation,
- the prohibition on stockholder action by written consent,
- the ownership and transfer restrictions,
- the prohibition on cumulative voting by stockholders, and
- the requirement for supermajority stockholder approval to amend such
provisions.
In addition, any amendment of our certificate of incorporation, and
amendment of certain provisions of our bylaws, requires the approval of the
greater of two-thirds or seven of the company's directors.
SHARES ELIGIBLE FOR FUTURE SALE
We have granted the California HealthCare Foundation certain demand and
unlimited "piggyback" registration rights. In addition, when the California
HealthCare Foundation is no longer deemed to be our affiliate, and upon
expiration of the applicable lock-up period described under the caption entitled
"Underwriters," it may freely sell the remainder of its shares of our common
stock at any time. We have agreed to grant certain demand and unlimited
"piggyback" registration rights to Georgia Strategic Healthcare, LLC, a
stockholder of Cerulean, on the closing of the merger with Cerulean. Under this
agreement, if necessary to allow the stockholder to sell freely its shares, we
will register for possible sale all of this stockholder's common stock from the
closing of the merger through 90 days after the closing. Based on an assumed
price of our common stock of $82 5/8, this stockholder will receive
approximately 1,076,000 shares of our common stock in the merger. In addition,
upon closing of our merger with Cerulean, approximately 70,000 individual
Cerulean stockholders may receive relatively small amounts of our common stock.
Based upon the closing price of our common stock on June 1, 1999, we expect to
issue between 3,330,000 shares and 6,052,000 shares in connection with the
Cerulean transaction. All of these shares will be freely tradeable upon
issuance. Sales of substantial amounts of our common stock in the public market
by the California HealthCare Foundation or Georgia Strategic Healthcare, LLC, or
by other Cerulean stockholders, may adversely affect the market price of our
common stock.
46
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the underwriting agreement,
the underwriters named below have severally agreed to purchase, and we have
agreed to sell to them, severally, the principal amount of debentures set forth
opposite their names below:
<TABLE>
<S> <C>
AGGREGATE
PRINCIPAL
NAME AMOUNT AT MATURITY
------------------
Morgan Stanley & Co. Incorporated......................................... $
Bear, Stearns & Co. Inc...................................................
Credit Suisse First Boston Corporation....................................
------------------
Total................................................................. $ 285,000,000
------------------
------------------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the debentures 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
debentures in the offering if any are taken.
The underwriters propose to offer part of the debentures directly to the
public at the public offering price of $ per $1,000 principal amount at
maturity of the debentures and part to certain dealers at a price that
represents a concession not in excess of % of the principal amount at maturity
of the debentures. Any underwriter may allow, and any dealer may reallow, a
concession to certain other dealers not in excess of % of the principal
amount at maturity of the debentures. After the initial offering of the
debentures, the offering price and other selling terms may from time to time be
varied by the underwriters.
The company has granted to the underwriters an option, exercisable within 30
days of the date of this prospectus, to purchase up to an additional $42,750,000
aggregate principal amount at maturity of the debentures solely for the purpose
of covering over-allotments, if any.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of these
liabilities.
We do not intend to apply for listing of the debentures on a national
securities exchange, but have been advised by the underwriters that they
presently intend to make a market in the debentures as permitted by applicable
laws and regulations. The underwriters are not obligated, however, to make a
market in the debentures and any market-making may be discontinued at any time
at the sole discretion of the any underwriter. Accordingly, we cannot assure you
that a trading market for the debentures will be created.
Our company and certain of our executive officers have agreed that we will
not, during the period ending 90 days after the date of this prospectus, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters:
- 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, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another person,
in whole or in part, any of the economic consequences of ownership of the
common stock,
47
<PAGE>
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash, or otherwise. These restrictions are subject
to certain limited exceptions, as set forth in the underwriting agreement,
including those relating to:
- the issuance of options or common stock under employee or director benefit
plans and stock for stock exercise of options;
- the issuance of shares by us in connection with the acquisition of a
business; and
- the repurchase of shares of common stock from the California HealthCare
Foundation.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
debentures. Specifically, the underwriters may stabilize the price of the
debentures and the underwriters may bid for, and purchase, the debentures in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the debentures in the
offering, if the syndicate repurchases previously distributed debentures 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 debentures above independent market levels. The underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
From time to time, one of our underwriters, Credit Suisse First Boston
Corporation and its banking affiliate, has provided investment banking,
financial advisory and commercial banking services to us.
LEGAL MATTERS
The validity of the debentures to be offered in this prospectus will be
passed upon for us by Gibson, Dunn & Crutcher LLP, San Francisco, California.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Latham & Watkins, Los Angeles, California.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
by reference into the prospectus, have been audited by PricewaterhouseCoopers
LLP, independent auditors, as stated in their report on these financial
statements and are incorporated into this prospectus by reference in reliance
upon the authority of PricewaterhouseCoopers LLP as experts in accounting and
auditing. Ernst & Young LLP, independent auditors, have audited Cerulean
Companies, Inc.'s consolidated financial statements included in Amendment No. 5
to our Registration Statement (Form S-4 No. 333-64955), as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. These financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may inspect and copy these reports, proxy
statements and other information at the public reference facilities of the SEC,
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60661. You may also obtain copies
of these materials from the public reference section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. You should call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. The
SEC also maintains an Internet website that contains reports, proxy and
information statements and other information regarding companies and other
persons that file electronically with the SEC. The
48
<PAGE>
SEC's Internet website address is http:\\www.sec.gov\. You may inspect reports
and other information that we file at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York, 10005. We have filed a
registration statement and related exhibits with the SEC under the Securities
Act. The registration statement, which includes this prospectus, contains
additional information about our company and the debentures. You may inspect the
registration statement and exhibits without charge at the office of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain copies from
the SEC at prescribed rates.
The SEC allows us to "incorporate by reference" information that we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and the information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the following documents that we have filed with the SEC:
<TABLE>
<S> <C>
Annual Report on Form 10-K................... for the year ended December 31, 1998
Quarterly Report on Form 10-Q................ for the quarter ended March 31, 1999
The description of common stock contained in filed on June 12, 1997
our registration statement on Form 8-B.....
Cerulean Companies, Inc. Consolidated filed on September 30, 1998, as amended.
Financial Statements contained in
WellPoint's Registration Statement on Form
S-4........................................
</TABLE>
We are also incorporating by reference additional documents that we may file
with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
between the date of the prospectus and the termination of the offering of the
debentures. You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations
WellPoint Health Networks Inc.
1 WellPoint Way
Thousand Oaks, CA 91362
(805) 557-6789
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. Neither we nor the underwriters
have authorized anyone else to provide you with different information.
49
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable in connection with the
issuance and distribution of the securities being registered. All of the amounts
shown are estimates, except for the registration fee:
<TABLE>
<CAPTION>
AMOUNT
TO BE
ITEM PAID
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Registration fee.................................................................. $ 292,786
NASD fee.......................................................................... 61,000
Accounting fees and expenses...................................................... 75,000
Legal fees and expenses........................................................... 100,000
NYSE listing fees................................................................. 10,000
Trustee fees and expenses......................................................... 10,000
Printing and engraving expenses................................................... 100,000
Blue Sky fees and expenses........................................................ 10,000
Miscellaneous..................................................................... 41,214
----------
Total............................................................................. $ 700,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are 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 proceeding, 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.
Our certificate of incorporation provides that the liability of our
directors to us or our 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 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 our rights and the rights of
our stockholders (through stockholders' derivative suits on our behalf) to
recover monetary damages against a director for 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 our rights or
II-1
<PAGE>
any of our stockholder's rights to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
These provisions will not alter the liability of directors under federal
securities laws.
Our bylaws provide that we will indemnify each present and former director
and officer of WellPoint or a predecessor company and each of their respective
subsidiaries, as such companies exist or have existed, and such agents of
WellPoint as the Board of Directors shall determine, to the fullest extent
provided by Delaware law.
In addition, we have entered into indemnification agreements with our
directors and certain officers that provide for the maximum indemnification
permitted by law.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1....... Form of U.S. Equity Underwriting Agreement
1.2....... Form of International Equity Underwriting Agreement
1.3....... Form of Debenture Underwriting Agreement
2.1....... Amended and Restated Recapitalization Agreement dated as of March 31, 1995 by and among the Registrant,
Blue Cross of California, Western Health Partnerships and Western Foundation for Health Improvement,
incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on 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 the Registrant's Current Report on Form 8-K filed on August
5, 1997.
2.3....... Agreement and Plan of Merger dated as of July 9, 1998 by and among the Registrant, Cerulean Companies,
Inc. and Water Polo Acquisition Corp., incorporated by reference to Appendix A of the Registrant's
Registration Statement on Form S-4, File No. 333-64955.
2.4....... Stock Purchase Agreement dated as of July 29, 1998 by and between the Registrant and Fremont Indemnity
Company, incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed
on September 16, 1998.
2.5....... First Amendment to the Stock Purchase Agreement dated as of November 5, 1998, by and between the
registrant and Fremont Indemnity Company, incorporated by reference to Exhibit 2.05 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
2.6....... Second Amendment to the Stock Purchase Agreement dated as of February 1, 1999, by and between the
registrant and Fremont Indemnity Company, incorporated by reference to Exhibit 2.06 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
4.1....... Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of
Registrant's Current Report on Form 8-K filed on August 5, 1997.
4.2....... Bylaws of the Registrant, incorporated by reference to Exhibit 3.02 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
4.3....... Specimen of Common Stock certificate of the Registrant, incorporated by reference to Exhibit 4.4 of
Registrant's Registration Statement on Form 8-B, Registration No. 001-13083.
4.4....... Form of Indenture (including Form of Debenture attached as Exhibit A thereto).
5.1....... Opinion of Gibson Dunn & Crutcher LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
9.1....... Amended and Restated Voting Trust Agreement dated as of August 4, 1997, by and between the California
HealthCare Foundation (the "Foundation") and Wilmington Trust Company, incorporated by reference to
Exhibit 99.2 of Registrant's Current Report on Form 8-K filed on August 5, 1997.
9.2....... Amendment No. 1 dated as of June 12, 1998 to the Amended and Restated Voting Trust Agreement by and
among the Foundation, the Registrant and Wilmington Trust Company, incorporated by reference to Exhibit
99.2 of the Registrant's Current Report on Form 8-K filed on June 15, 1998.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges
23.1...... Consent of PricewaterhouseCoopers LLP
23.2...... Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed herewith as Exhibit 5.01).
23.3...... Consent of Ernst & Young LLP
24.1...... Power of Attorney (see signature page of this Registration Statement).
25.1...... Statement of Eligibility under the Trust Indenture Act of 1939 of Trustee (Form T-1).
</TABLE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act 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
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 SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that 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 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, 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 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act, 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 the time shall be deemed to
be the initial bona fide offering hereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 amendment no. 1 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Thousand Oaks, California, on the 24th day of June,
1999.
<TABLE>
<S> <C> <C>
WELLPOINT HEALTH NETWORKS INC.
By: /s/ THOMAS C. GEISER
-----------------------------------------
Thomas C. Geiser
EXECUTIVE VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities indicated below on the 24th day of June, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
* Chief Executive Officer
- ------------------------------ (Principal Executive
Leonard D. Schaeffer Officer)
Executive Vice President
* and Chief Financial
- ------------------------------ Officer (Principal
David C. Colby Financial Officer)
Senior Vice President,
* Chief Accounting Officer
- ------------------------------ and Controller
Louise McCrary (Principal Accounting
Officer)
*
- ------------------------------ Director
W. Toliver Besson
*
- ------------------------------ Director
Roger E. Birk
*
- ------------------------------ Director
Sheila P. Burke
*
- ------------------------------ Director
Stephen L. Davenport
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
Julie A. Hill
*
- ------------------------------ Director
Elizabeth A. Sanders
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ THOMAS C. GEISER
-------------------------
Thomas C. Geiser
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1....... Form of U.S. Equity Underwriting Agreement
1.2....... Form of International Equity Underwriting Agreement
1.3....... Form of Debenture Underwriting Agreement
2.1....... Amended and Restated Recapitalization Agreement dated as of March 31, 1995 by and among the Registrant,
Blue Cross of California, Western Health Partnerships and Western Foundation for Health Improvement,
incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on 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 the Registrant's Current Report on Form 8-K filed on August
5, 1997.
2.3....... Agreement and Plan of Merger dated as of July 9, 1998 by and among the Registrant, Cerulean Companies,
Inc. and Water Polo Acquisition Corp., incorporated by reference to Appendix A of the Registrant's
Registration Statement on Form S-4, File No. 333-64955.
2.4....... Stock Purchase Agreement dated as of July 29, 1998 by and between the Registrant and Fremont Indemnity
Company, incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed
on September 16, 1998.
2.5....... First Amendment to the Stock Purchase Agreement dated as of November 5, 1998, by and between the
registrant and Fremont Indemnity Company, incorporated by reference to Exhibit 2.05 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
2.6....... Second Amendment to the Stock Purchase Agreement dated as of February 1, 1999, by and between the
registrant and Fremont Indemnity Company, incorporated by reference to Exhibit 2.06 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1998.
4.1....... Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of
Registrant's Current Report on Form 8-K filed on August 5, 1997.
4.2....... Bylaws of the Registrant, incorporated by reference to Exhibit 3.02 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
4.3....... Specimen of Common Stock certificate of the Registrant, incorporated by reference to Exhibit 4.4 of
Registrant's Registration Statement on Form 8-B, Registration No. 001-13083.
4.4....... Form of Indenture (including Form of Debenture attached as Exhibit A thereto).
5.1....... Opinion of Gibson Dunn & Crutcher LLP.
9.1....... Amended and Restated Voting Trust Agreement dated as of August 4, 1997, by and between the California
HealthCare Foundation (the "Foundation") and Wilmington Trust Company, incorporated by reference to
Exhibit 99.2 of Registrant's Current Report on Form 8-K filed on August 5, 1997.
9.2....... Amendment No. 1 dated as of June 12, 1998 to the Amended and Restated Voting Trust Agreement by and
among the Foundation, the Registrant and Wilmington Trust Company, incorporated by reference to Exhibit
99.2 of the Registrant's Current Report on Form 8-K filed on June 15, 1998.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.1...... Consent of PricewaterhouseCoopers LLP
23.2...... Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed herewith as Exhibit 5.01).
23.3...... Consent of Ernst & Young LLP
24.1...... Power of Attorney (see signature page of this Registration Statement).
25.1...... Statement of Eligibility under the Trust Indenture Act of 1939 of Trustee (Form T-1).
</TABLE>
<PAGE>
EXHIBIT 1.1
____________________________________________________________________________
____________________________________________________________________________
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
7,200,000 Shares of Common Stock
U.S. UNDERWRITING AGREEMENT
Dated: June [ ], 1999
____________________________________________________________________________
____________________________________________________________________________
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
7,200,000 Shares of Common Stock
(Par Value $.01 Per Share)
U.S. UNDERWRITING AGREEMENT
June [ ], 1999
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEUTSCHE BANK SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
WARBURG DILLON READ LLC
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, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.
and Warburg Dillon Read LLC 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 1,350,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 7,200,000 shares of Common Stock (the
"INITIAL U.S. SECURITIES") to be purchased by the U.S. Underwriters and all or
any part of the 1,350,000 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."
1
<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 1,800,000 shares of Common Stock (the
"INTERNATIONAL SECURITIES") outside the United States and Canada with Morgan
Stanley & Co. International Limited, Merrill Lynch International, Deutsche Bank
AG London, Donaldson, Lufkin & Jenrette International, Salomon Brothers
International Limited and Warburg Dillon Read LLC (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. 333-80153), as amended
by pre-effective Amendment No. 1 thereto, 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
"United States Tax Consequences to 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 U.S. Prospectus and Form of
2
<PAGE>
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
June 14, 1999 and preliminary International Prospectus dated June 14, 1999,
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.
The Underwriters acknowledge that concurrently with the offering of
the Securities, the Company is offering $285,000,000 aggregate principal amount
at maturity of its Zero Coupon Convertible Subordinated Debentures due 2019
($327,750,000 aggregate principal amount at maturity if the over-allotment
option to the underwriters is exercised in full) (the "DEBT OFFERING") The
consummation of the offerings of the Securities is not contingent upon the
consummation of the Debt Offering or vice versa.
3
<PAGE>
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 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
4
<PAGE>
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 (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 Company's consolidated 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; such 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. The pro forma financial statements and the
related notes thereto included in the Registration Statement and the
Prospectuses present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
5
<PAGE>
(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 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
captions "Capitalization" and "Description of Capital Stock" (except for
subsequent issuances, if any, under the Company's 1999 Stock Incentive
Plan, 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
6
<PAGE>
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. The parties
hereto acknowledge that, in connection with the proposed issuance of the
Company's Zero Coupon Convertible Subordinated Debentures Due 2019, the
Company intends to use a portion of the net proceeds to purchase additional
shares of Common Stock from the Selling Stockholder, and in connection
with the proposed acquisition of Cerulean Companies, Inc., the Company
intends to issue additional shares of Common Stock in exchange for the
shares of capital stock of Cerulean Companies, Inc.
(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 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 by the Company or any of its subsidiaries 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
7
<PAGE>
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 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
8
<PAGE>
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.
(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
June 10, 1998, 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
9
<PAGE>
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 the time that each of the physicians and
physician 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) REGISTRATION RIGHTS. Except as disclosed in the
Prospectuses, there are no holders of any security of the Company or any
Subsidiary (debt or equity) who have or will have any right to require the
registration of such security by virtue of the filing of the Registration
Statement or the execution by the Company of this Agreement.
(xxvii) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement or except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A)
10
<PAGE>
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.
(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
"Selling Stockholder" in any Prospectus, and under the heading "Item 1.
Business--May 1996 Recapitalization and August 1997 Reincorporation" in
the Company's Form 10-K which is incorporated by reference into the
Prospectuses (but only insofar as such paragraphs purport to describe
agreements to which the Selling Stockholder is a party), constitute the
only information furnished in writing by or on behalf of such Selling
Stockholder for inclusion in the Registration Statement or any Prospectus.
11
<PAGE>
(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 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.
12
<PAGE>
(vi) NO ASSOCIATION WITH NASD. Except as disclosed in writing
to the Underwriter, 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 1,350,000 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 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.
13
<PAGE>
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.
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.
(a) COVENANTS OF THE COMPANY. The Company covenants with each U.S.
Underwriter as follows:
14
<PAGE>
(i) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUEST.
The Company, subject to Section 3(ii), 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.
(ii) 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.
(iii) 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 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.
(iv) 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
15
<PAGE>
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.
(v) 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.
(vi) 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 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.
(vii) 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.
16
<PAGE>
(viii) 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) 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, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or any other
arrangement 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) the
Zero Coupon Convertible Subordinated Debentures to be sold under that
certain Underwriting Agreement, dated June [ ], 1999, between the Company,
Morgan Stanley, and each of the underwriters named therein, (C) the
issuance of securities in connection with the acquisition of a business,
including, without limitation, upon consummation of that certain Agreement
and Plan of Merger, dated July 9, 1998, between the Company, Water Polo
Acquisition Corp. and Cerulean Companies, Inc., (D) 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, (E) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to the Company's 1999 Stock
Incentive Plan, 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), (F) 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, or (G)
the purchase of securities from the Selling Stockholder.
(ix) 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.
(b) COVENANT OF THE SELLING STOCKHOLDER. The Selling Stockholder
covenants with each U.S. Underwriter as follows:
(i) RESTRICTION ON SALE OF SECURITIES. During a period of 120
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
17
<PAGE>
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, HOWEVER, that beginning on
the 91st day after the date of the Prospectuses, the Selling Stockholder
may sell shares of Common Stock, in one or more transactions, but only
to the extent that (i) as of the time of any such sale the Selling
Stockholder owns 10% or more of the total issued and outstanding Common
Stock and (ii) such sale reduces the shares of Common Stock owned by the
Selling Stockholder to an amount not less than 10,000 shares less than
10% of the total issued and outstanding common stock; PROVIDED, FURTHER,
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(viii) hereof and the Selling Stockholder
shall be deemed to have been granted a waiver of this subsection 3(b)(i)
on the same terms as any such waiver granted to the Company. The
foregoing sentence shall not apply (x) to the Securities to be sold
hereunder, or 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 sale
of any Common Stock by the Selling Stockholder to the Company.
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(vi) 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.
18
<PAGE>
(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.
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
19
<PAGE>
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), 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 Chief Executive Officer
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) ACCOUNTANTS' COMFORT LETTER.
(i) PRICEWATERHOUSECOOPERS LLP. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from
PricewaterhouseCoopers LLP 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.
20
<PAGE>
Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the Company's consolidated financial statements and
certain financial information contained in the Registration Statement
and the Prospectuses.
(ii) ERNST & YOUNG LLP. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the Cerulean Companies, Inc. financial
statements and certain financial information of the Cerulean Companies,
Inc. contained in the Registration Statement and the Prospectus.
(i) BRING-DOWN COMFORT LETTERS.
(i) PRICEWATERHOUSECOOPERS LLP. At Closing Time, the U.S.
Representatives shall have received from PricewaterhouseCoopers LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (h)(i) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(ii) Ernst & Young LLP. At Closing Time, the Representatives shall
have received from Ernst & Young LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (h)(ii) 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 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 Chief Executive Officer 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.
21
<PAGE>
(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.
(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 LETTERS.
(1) PRICEWATERHOUSECOOPERS. A letter from
PricewaterhouseCoopers LLP, 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)(i) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than three days prior to such Date of
Delivery.
(2) ERNST & YOUNG LLP. A letter from Ernst & Young LLP, in
form and substance satisfactory to the 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)(ii) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
three 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.
22
<PAGE>
(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 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 relating to such U.S.
Underwriter furnished to the Company by any U.S. Underwriter through Morgan
Stanley expressly for use in the Registration Statement (or any
23
<PAGE>
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
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 .
24
<PAGE>
(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 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 faiure
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
25
<PAGE>
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 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.
26
<PAGE>
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 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
27
<PAGE>
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.
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
28
<PAGE>
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.
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 1 WellPoint Way,
Thousand Oaks, California 91362, 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
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEUTSCHE BANK SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
WARBURG DILLON READ LLC
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>
Number of
Initial
Name of Underwriter U.S. Securities
------------------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated..........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.........
Deutsche Bank Securities Inc...............................
Donaldson, Lufkin & Jenrette Securities Corporation........
Salomon Smith Barney Inc...................................
Warburg Dillon Read LLC....................................
---------
Total.................................................. 7,200,000
---------
---------
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
WELLPOINT HEALTH NETWORKS INC.
9,000,000 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 Life & Health Insurance Company
4. UNICARE of Texas Health Plans, Inc.
5. WellPoint California Services, Inc.
[6. UNICARE Specialty Services, Inc.]
7. UNICARE National Services, 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
Joan E. Herman
Clifton R. Gaus
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
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 UL&H on
Exhibit 1 hereto). 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
1999 Stock Incentive Plan, 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 issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
A-1
<PAGE>
(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 (or to any
documents incorporated by reference therein) which have not been so filed.
(xii) The information in the Prospectuses under the captions
"Selling Stockholder" and "United States Federal Tax Consequences to
Non-United States Holders," and the information under the caption "Item 1.
Business--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,
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,
A-2
<PAGE>
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 Blue Cross of California's Health Care Service 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 (and, including, without
limitation, as an exhibit to the documents incorporated by reference therein)
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 (and,
including, without limitation, as an exhibit to the documents incorporated by
reference therein) 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.
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
A-3
<PAGE>
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 Arizona, California,
Nevada, New York
SUBSIDIARIES
------------
(1) Blue Cross of California California Massachusetts,
Michigan, Ohio, Texas
(2) UNICARE Life & Health Insurance Delaware California, Florida,
Company Georgia, Illinois,
Massachusetts, New
Jersey,
New York, Ohio, Texas
and Virginia
(3) UNICARE of Texas Health Plans, Inc. Texas None
(4) WellPoint California Services, Inc. Delaware None
[(5) UNICARE Specialty Services, Inc. Delaware None]
(6) UNICARE National Services, Inc. Delaware None
(7) BC Life & Health Insurance Company California 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) Blue Cross of California 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 June 10, 1998, between the Company, Blue
Cross of California 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 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-1
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(l)]
Exhibit D
June [ ], 1999
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEUTSCHE BANK SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
WARBURG DILLON READ LLC
as U.S. Representatives of the several U.S. Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
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 Delaware corporation (the "Company"),
understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.
and Warburg Dillon Read LLC 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").
Capitalized terms used but not defined herein shall have the meaning given to
them in the Underwriting Agreement.
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 (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, and or otherwise
transfer or dispose of any shares of the 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
arrangement that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
D-1
<PAGE>
transaction described in clause (i) or (ii) above 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 (a) sell shares of Common Stock to the Company
in connection with a "stock-for-stock" exercise of stock options granted under
the Company's existing stock option plans (providing that any resulting shares
received by the undersigned upon such exercise shall be subject to the terms of
this letter), and (b) 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:
-----------------------------
Print Name:
-----------------------------
D-2
<PAGE>
EXHIBIT 1.2
____________________________________________________________________________
____________________________________________________________________________
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
1,800,000 Shares of Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
Dated: June [ ], 1999
____________________________________________________________________________
____________________________________________________________________________
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
1,800,000 Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL UNDERWRITING AGREEMENT
June [ ], 1999
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK AG LONDON
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WARBURG DILLON READ LLC
as International Representatives of the several International Underwriters
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
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 7,200,000 shares of Common Stock (the "INITIAL U.S.
SECURITIES") in the United States and Canada for which Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
1
<PAGE>
Deutsche Bank Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Smith Barney Inc. and Warburg Dillon Read LLC (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 1,350,000
additional shares of Common Stock solely 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. 333-80153) as amended by
pre-effective Amendment No. 1 thereto, 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 "United
States Federal Tax Consequences to 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
2
<PAGE>
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
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 June 14, 1999 and preliminary U.S.
Prospectus dated June 14, 1999, 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.
The Underwriters acknowledge that concurrently with the offering of
the Securities, the Company is offering $285,000,000 aggregate principal amount
at maturity of its Zero Coupon Convertible Subordinated Debentures due 2019
($327,750,000 aggregate principal amount at maturity if the over-allotment
option to the underwriters is exercised in full) (the "DEBT OFFERING") The
consummation of the offerings of the Securities is not contingent upon the
consummation of the Debt Offering or vice versa.
3
<PAGE>
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 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
4
<PAGE>
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.
(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 Company's consolidated 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; such 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. The pro forma financial statements and the
related notes thereto included in the Registration Statement and the
Prospectuses present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled
on the bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein.
5
<PAGE>
(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 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
captions "Capitalization" and "Description of Capital Stock" (except for
subsequent issuances, if any, under the Company's 1999 Stock Incentive
Plan, 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
6
<PAGE>
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. The parties
hereto acknowledge that, in connection with the proposed issuance of the
Company's Zero Coupon Convertible Subordinated Debentures Due 2019, the
Company intends to use a portion of the net proceeds to purchase additional
shares of Common Stock from the Selling Stockholder, and in connection
with the proposed acquisition of Cerulean Companies, Inc., the Company
intends to issue additional shares of Common Stock in exchange for the
shares of capital stock of Cerulean Companies, Inc.
(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 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 by the Company or any of its
subsidiaries 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,
7
<PAGE>
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.
(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.
8
<PAGE>
(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
June 10, 1998, 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.
9
<PAGE>
(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 the time that each of the physicians and
physician 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) REGISTRATION RIGHTS. Except as disclosed in the Prospectuses,
there are no holders of any security of the Company or any Subsidiary
(debt or equity) who have or will
10
<PAGE>
have any right to require the registration of such security by virtue of
the filing of the Registration Statement or the execution by the Company
of this Agreement.
(xxvii) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement or 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.
(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
"Selling Stockholder" in any Prospectus, and under the
11
<PAGE>
heading "Item 1. Business--May 1996 Recapitalization and August 1997
Reincorporation" in the Company's Form 10-K which is incorporated by
reference into the Prospectuses (but only insofar as such paragraphs
purport to describe agreements to which the Selling Stockholder is a
party), 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.
(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
12
<PAGE>
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) NO ASSOCIATION WITH NASD. Except as disclosed in writing
to the Underwriters, 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, 1585 Broadway, New York, New York 10036.
13
<PAGE>
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 .
(a) COVENANTS OF THE COMPANY. The Company covenants with each
International Manager as follows:
(i) 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.
(ii) 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
14
<PAGE>
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
International Managers or counsel for the International Managers shall
object.
(iii) 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.
(iv) 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.
(v) 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
15
<PAGE>
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.
(vi) 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.
(vii) 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.
(viii) 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) 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, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or any other
arrangement 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 U.S. Underwriting Agreement, (B) the Zero
Coupon Convertible Subordinated Debentures to be sold under that certain
Underwriting Agreement, dated June [ ], 1999, between the Company, Morgan
Stanley, and each of the underwriters named therein, (C) the issuance of
securities in connection with the acquisition of a business, including,
without limitation, upon consummation of that certain Agreement and Plan of
Merger, dated July 9, 1998, between the Company, Water Polo Acquisition
Corp. and Cerulean Companies, Inc., (D) 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, (E) any shares of Common Stock issued or options to purchase
Common Stock granted pursuant to the Company's 1999 Stock Incentive Plan,
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
16
<PAGE>
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), (F) 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, or (G) the purchase of securities from the Selling
Stockholder.
(ix) 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.
(b) COVENANT OF THE SELLING STOCKHOLDER. The Selling Stockholder
covenants with each U.S. Underwriter as follows:
(i) RESTRICTION ON SALE OF SECURITIES. During a period of 120
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 (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, HOWEVER, that beginning on the
91st day after the date of the Prospectuses, the Selling Stockholder may
sell shares of Common Stock, in one or more transactions, but only to the
extent that (i) as of the time of any such sale the Selling Stockholder
owns 10% or more of the total issued and outstanding Common Stock and (ii)
such sale reduces the shares of Common Stock owned by the Selling
Stockholder to an amount not less than 10,000 shares less than 10% of the
total issued and outstanding common stock; PROVIDED, FURTHER, 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(viii) hereof and the Selling Stockholder shall be deemed to
have been granted a waiver of this subsection 3(b)(i) on the same terms as
any such waiver granted to the Company. The foregoing sentence shall not
apply (x) to the Securities to be sold hereunder, or 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 sale of any Common Stock by the Selling
Stockholder to the Company.
17
<PAGE>
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(vi) 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.
(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
18
<PAGE>
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.
(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,
19
<PAGE>
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 Chief Executive Officer 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.
(i) PRICEWATERHOUSECOOPERS LLP. At the time of the execution of
this Agreement, the International Managers shall have received from
PricewaterhouseCoopers LLP 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 Company's consolidated
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
(ii) ERNST & YOUNG LLP. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP 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 Cerulean Companies, Inc. financial statements and certain
financial information of the Cerulean Companies, Inc. contained in the
Registration Statement and the Prospectus.
20
<PAGE>
(i) BRING-DOWN COMFORT LETTER.
(i) PRICEWATERHOUSECOOPERS LLP. At Closing Time, the
International Managers shall have received from PricewaterhouseCoopers LLP
a letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (h)(i) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(ii) ERNST & YOUNG LLP. At Closing Time, the International Managers
shall have received from Ernst & Young LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (h)(ii) 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 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
21
<PAGE>
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;
(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 relating to such
International Manager 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
22
<PAGE>
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 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
23
<PAGE>
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
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
24
<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.
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
25
<PAGE>
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.
(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.
26
<PAGE>
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.
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
27
<PAGE>
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 1 WellPoint Way, Thousand Oaks,
California 91362, 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.
28
<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
MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK AG LONDON
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WARBURG DILLON READ LLC
By: Morgan Stanley & Co. International Limited
By
--------------------------------------------
Name:
Title:
For themselves and as International Representatives of the other International
Underwriters named in Schedule A hereto.
29
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
International
Name of International Manager Securities
----------------------------- -------------
<S> <C>
Morgan Stanley & Co. Incorporated..............................
Merrill Lynch International....................................
Deutsche Bank AG London........................................
Donaldson, Lufkin & Jenrette International.....................
Salomon Brothers International Limited.........................
Warburg Dillon Read LLC........................................
---------
Total..................................................... 1,800,000
---------
---------
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
WELLPOINT HEALTH NETWORKS INC.
1,800,000 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 Life & Health Insurance Company
4. UNICARE of Texas Health Plans, Inc.
5. WellPoint California Services, Inc.
[6. UNICARE Specialty Services, Inc.]
7. UNICARE National Services, 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
Joan E. Herman
Clifton R. Gaus
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
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 UL&H on
Exhibit 1 hereto). 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 captions "Description
of Capital Stock" (except for subsequent issuances, if any, under the
Company's 1999 Stock Incentive Plan, 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
"Selling Stockholder" and "United States Federal Tax Considerations to
Non-United States Holders" and the information under the caption "Item 1.
Business--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,
documents or proceedings or legal conclusions, has been reviewed by such
counsel and is correct in all material respects.
A-2
<PAGE>
(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 Blue Cross of California's Health
Care Service 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 (and, including, without limitation, as an
exhibit to the documents incorporated by reference therein) 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 (and,
including, without limitation, as an exhibit to the documents incorporated by
reference therein) to which the Company or any of its Subsidiaries is a party or
(xv) 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.
(xvi) 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.
(xvii) 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
A-3
<PAGE>
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 Arizona, California,
Nevada, New York
SUBSIDIARIES
------------
(1) Blue Cross of California California Massachusetts,
Michigan, Ohio,
Texas
(2) UNICARE Life & Health Insurance Delaware California, Florida,
Company Georgia, Illinois,
Massachusetts,
New Jersey,
New York, Ohio,
Texas and Virginia
(3) UNICARE of Texas Health Plans, Inc. Texas None
(4) WellPoint California Services, Inc. Delaware None
[(5) UNICARE Specialty Services, Inc. Delaware None]
(6) UNICARE National Services, Inc. Delaware None
(7) BC Life & Health Insurance Company California 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) Blue Cross of California 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 June 10, 1998, between
the Company, Blue Cross of California 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
C-1
<PAGE>
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 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(j)]
Exhibit D
June [ ], 1999
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL
DEUTSCHE BANK AG LONDON
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WARBURG DILLON READ LLC
c/o MORGAN STANLEY & CO., INTERNATIONAL LIMITED
25 Cabot Square
Canary Wharf
London E14 4QA
England
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 Delaware corporation (the "Company"),
understands that Morgan Stanley & Co. International Limited ("Morgan Stanley"),
Merrill Lynch International, Deutsche Bank AG London, Donaldson, Lufkin &
Jenrette International, Salomon Brothers International Limited and Warburg
Dillon Read LLC propose(s) to enter into an Underwriting Agreement (the
"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"). Capitalized terms used
but not defined herein shall have the meaning given to them in the Underwriting
Agreement.
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 (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, and or otherwise
transfer or dispose of any shares of the 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
arrangement that transfers, in whole or in part, directly or indirectly,
D-1
<PAGE>
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 other securities, in cash or otherwise.
Notwithstanding the provisions of the preceding sentence, the
undersigned shall be permitted to (a) sell shares of Common Stock to the Company
in connection with a "stock-for-stock" exercise of stock options granted under
the Company's existing stock option plans (providing that any resulting shares
received by the undersigned upon such exercise shall be subject to the terms of
this letter), and (b) 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:
------------------------
Print Name:
------------------------
D-2
<PAGE>
EXHIBIT 1.3
______________________________________________________________________________
______________________________________________________________________________
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
$285,000,000
Zero Coupon Convertible Debentures Due 2019
UNDERWRITING AGREEMENT
Dated: June [ ], 1999
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
(a Delaware corporation)
$285,000,000
Zero Coupon Convertible Debentures Due 2019
UNDERWRITING AGREEMENT
June [ ], 1999
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
as Representatives of the several 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")
proposes to issue and sell to Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") and each of the other Underwriters named in Schedule A hereto
(collectively, the "UNDERWRITERS," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Morgan
Stanley, Bear, Stearns & Co. Inc. and Credit Suisse First Boston Corporation are
acting as representatives (in such capacity, the "REPRESENTATIVES"),
$285,000,000 aggregate principal amount at maturity of its Zero Coupon
Convertible Subordinated Debentures Due 2019 (the "INITIAL SECURITIES") to be
issued pursuant to the provisions of an Indenture dated as of June [ ], 1999
(the "INDENTURE") between the Company and The Bank of New York, as trustee (the
"TRUSTEE").
The Company also proposes to issue and sell to the several
Underwriters not more than an additional $42,750,000 aggregate principal amount
at maturity of its Zero Coupon Convertible Subordinated Debentures due 2019 (the
"ADDITIONAL SECURITIES") if and to the extent that the Representatives shall
have determined to exercise, on behalf of the Underwriters, the right to
purchase such debentures granted to the Underwriters in Section 2 hereof. The
Initial Securities and the Additional Securities to be issued pursuant to the
Indenture after giving effect to the sales contemplated hereby are hereinafter
referred to as the "SECURITIES." The shares of common stock, par value $.01 per
share, of the Company (the "COMMON STOCK") issuable upon conversion of the
Securities are hereinafter referred to as the "SHARES."
1
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-3 (No. 333-80153), as amended
by pre-effective Amendment No. 1 thereto, covering the registration of the
Securities and the Shares 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). 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 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 Prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for
use in connection with the offering of the Securities is herein called the
"PROSPECTUS." If Rule 434 is relied on, the term "PROSPECTUS" shall refer to
the preliminary Prospectus dated June 14, 1999 together with the applicable Term
Sheet and all references in this Agreement to the date of such Prospectus shall
mean the date of the applicable Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
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
Prospectus) or the Prospectus (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 Prospectus) or the Prospectus,
as the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement, any preliminary prospectus or the
Prospectus shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934 (the "1934 ACT") which is
2
<PAGE>
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
The Underwriters acknowledge that concurrently with the offering of
the Securities, the California HealthCare Foundation (the "SELLING STOCKHOLDER")
is offering 9,000,000 shares of common stock, par value $.01 per share, of the
Company (10,350,000 shares if the over-allotment option to the underwriters is
exercised in full) (the "EQUITY OFFERING"). The consummation of the offerings
of the Securities is not contingent upon the consummation of the Equity Offering
or vice versa.
SECTION 1. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and such Option Closing Date, if any,
referred to in Section 2(d) hereof, and agrees with each Underwriter, as
follows:
(a) 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, 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
Prospectus nor any amendments or supplements thereto, at the time the Prospectus
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
(A) statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by any Underwriter relating to such Underwriter through
Morgan Stanley expressly for use in the Registration Statement or the Prospectus
or (B) that part of the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of 1939, as amended (the
"TRUST INDENTURE ACT"), of the Trustee.
Each preliminary prospectus and the prospectus 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 Prospectus delivered to the Underwriters
3
<PAGE>
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.
(b) INCORPORATED DOCUMENTS. The documents incorporated or deemed to be
incorporated by reference in the Registration Statement and the Prospectus, 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 Prospectus, at the
time the Registration Statement became effective, at the time the Prospectus was
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.
(c) 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.
(d) FINANCIAL STATEMENTS. The Company's consolidated financial statements
included in the Registration Statement and the Prospectus, 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; such 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 Prospectus 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. The pro forma
financial statements and the related notes thereto included in the Registration
Statement and the Prospectus present fairly the information shown therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled on the
bases described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
4
<PAGE>
included in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the Cerulean Companies, Inc.
audited financial statements included in the Registration Statement.
(e) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
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.
(f) 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
Prospectus 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.
(g) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the Company listed
on Schedule B 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 Prospectus 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.
(h) CAPITALIZATION. The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under the captions
"Capitalization" and "Description of Capital Stock" (except for subsequent
issuances, if any, under the Company's 1999 Stock Incentive Plan, 1994 Stock
Option/Award Plan, Employee Stock Option Plan or Employee Stock Purchase Plan).
5
<PAGE>
(i) AUTHORIZATION AND DESCRIPTION OF COMMON STOCK. The Common Stock
conforms to all statements relating thereto contained or incorporated by
reference in the Prospectus and such description conforms to the rights set
forth in the instruments defining the same. Upon issuance and delivery of the
Securities in accordance with this Agreement and the Indenture, the Securities
will be convertible at the option of the holder thereof for Shares of Common
Stock in accordance with the terms of the Securities and the Indenture; the
Shares of Common Stock issuable upon conversion of the Securities have been duly
authorized and reserved for issuance upon such conversion by all necessary
corporate action and such Shares, when issued upon such conversion, will be
validly issued and will be fully paid and non-assessable; no holder of such
Shares will be subject to personal liability by reason of being such a holder;
and the issuance of such Shares upon such conversion will not be subject to the
preemptive or other similar rights of any securityholder of the Company.
(j) AUTHORIZATION OF SECURITIES. The Securities have been duly authorized
and, when executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Underwriters in accordance with
the terms of this Agreement, will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to the effect of (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium, liquidation,
conservatorship, readjustment of debt, fraudulent transfer and other similar
laws affecting the rights of creditors generally; and (ii) the discretion of any
court of competent jurisdiction in awarding equitable remedies, including,
without limitation, acceleration, specific performance or injunctive relief, and
the effect of general principles of equity embodied in New York statutes and
common law.
(k) DESCRIPTION OF THE SECURITIES AND THE INDENTURE. The Securities and
the Indenture will conform in all material respects to the respective statements
relating thereto contained in the Prospectus and will be in substantially the
respective forms filed or incorporated by reference, as the case may be, as
exhibits to the Registration Statement.
(l) AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized,
executed and delivered by the Company.
(m) AUTHORIZATION OF INDENTURE. The Indenture has been duly and validly
authorized by the Company and duly qualified under the Trust Indenture Act and,
when duly executed and delivered by the Company (assuming the due execution and
delivery thereof by the Trustee), will be a legal, valid and binding agreement
of the Company, enforceable against it in accordance with its terms, subject to
the effect of (i) bankruptcy, insolvency, reorganization, arrangement,
moratorium, liquidation, conservatorship, readjustment of debt, fraudulent
transfer and other similar laws affecting the rights of creditors generally; and
(ii) the discretion of any court of competent jurisdiction in awarding equitable
remedies, including, without limitation, acceleration, specific performance or
injunctive relief, and the effect of general principles of equity embodied in
New York statutes and common law.
(n) 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
6
<PAGE>
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities. The parties hereto
acknowledge that, in connection with the proposed acquisition of Cerulean
Companies, Inc., the Company intends to issue additional shares of Common
Stock in exchange for the shares of capital stock of Cerulean Companies, Inc.
(o) COMPLIANCE WITH MARGIN RULES. None of the execution, delivery and
performance of this Agreement, the issuance and sale of the Securities, the
application of the proceeds from the issuance and sale of the Securities and the
consummation of the transactions contemplated thereby as set forth in the
Prospectus, will violate Regulations T, U or X promulgated by the Board of
Governors of the Federal Reserve System or analogous foreign laws and
regulations.
(p) 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
consummation of the transactions contemplated hereby and in the Registration
Statement and compliance by the Company with its obligations hereunder and
under the Indenture 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 by the Company
or any of its subsidiaries 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.
(q) 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.
(r) 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 hereby or the performance by
the Company of
7
<PAGE>
its obligations hereunder; 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.
(s) ACCURACY OF EXHIBITS. There are no contracts or documents which are
required to be described in the Registration Statement, the Prospectus or the
documents incorporated by reference therein or to be filed as exhibits thereto
which have not been so described and filed as required.
(t) 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 Prospectus,
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.
(u) 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 hereunder in connection with the
offering or sale of the Securities by the Company hereunder, or the consummation
of the transactions contemplated hereby, 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.
(v) 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.
(w) 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 Blue Cross and Blue Shield Association ("BCBSA") and the
California Blue Cross License Addendum, dated as of June 10, 1998, between the
Company and 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
BCBSA as of the date hereof, or that will be required by BCBSA
8
<PAGE>
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.
(x) 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.
(y) 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 Prospectus
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 Prospectus, 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.
(z) 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 physician
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.
(aa) 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,
9
<PAGE>
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.
(bb) 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.
(cc) 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").
(dd) REGISTRATION RIGHTS. Except as disclosed in the Prospectus, there are
no holders of any security of the Company or any Subsidiary (debt or equity)
who have or will have any right to require the registration of such security by
virtue of the filing of the Registration Statement or the execution by the
Company of this Agreement.
(ee) ENVIRONMENTAL LAWS. Except as described in the Registration Statement
or 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.
SECTION 2. AGREEMENTS TO SELL AND PURCHASE; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby agrees to sell to each Underwriter and each
Underwriter, severally and not jointly, agrees to purchase from the Company, the
respective principal amounts of Initial Securities set forth in Schedule A, at
10
<PAGE>
__% of their principal amount at maturity plus accreted original issue discount,
if any, from June [ ], 1999 to the date of payment and delivery (the "PURCHASE
PRICE").
(b) ADDITIONAL SECURITIES. In addition, on the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to sell to the Underwriters the
Additional Securities, and the Underwriters shall have an option to purchase,
severally and not jointly, up to $42,750,000 principal amount at maturity of
Additional Securities at the Purchase Price, plus accreted original issue
discount, if any, from June [ ], 1999 to an Option Closing Date (as defined
below). If the Representatives, on behalf of the Underwriters, elect to
exercise such option, the Representatives shall so notify the Company in writing
not later than 30 days after the date hereof, which notice shall specify the
aggregate principal amount at maturity of Additional Securities to be purchased
by the Underwriters and the date on which such Additional Securities are to be
purchased. Such date may be the same as the Closing Time (as defined below) but
not earlier than the Closing Time nor later than ten business days after the
date of such notice. Additional Securities may be purchased in whole or in part
from time to time as provided in subsection (d) of this Section solely for the
purpose of covering over-allotments made in connection with the offering of the
Initial Securities. If any Additional Securities are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the aggregate
principal amount of Additional Securities that bears the same proportion to the
total aggregate principal amount of Additional Securities to be purchased as the
aggregate principal amount of Initial Securities set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total aggregate principal
amount of Initial Securities.
(c) TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions
of the Securities as soon after the Registration Statement and this Agreement
have become effective as in your judgment is advisable. The Company is
further advised by you that the Securities are to be offered to the public
initially at __% of their principal amount at maturity (the "PUBLIC OFFERING
PRICE") plus accreted original issue discount, if any, from June [ ], 1999
to the date of payment and delivery and to certain dealers selected by you at
a price that represents a concession not in excess of __% of their principal
amount at maturity, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of __% of their principal amount at
maturity, to certain other dealers.
(d) PAYMENT. The closing of the purchase and sale of the Securities,
including acknowledgment of the payment of the purchase price 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
Representatives and the Company, 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
Representatives and the Company (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.
11
<PAGE>
In addition, in the event that any or all of the Additional Securities
are purchased by the Underwriters, payment of the purchase price for, and
delivery of certificates for, such Additional Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representatives and the Company on the date specified in the notice described in
Section 2 or at such other time on the same or on such other date, in any event
not later than August [ ], 1999 (an "OPTION CLOSING DATE").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company not later than two
business days preceding the Closing Time against delivery to the Representatives
for the respective accounts of the Underwriters of the Securities to be
purchased by them. It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Securities, which it has agreed to
purchase. Morgan Stanley, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Securities, to be purchased by any Underwriter whose funds have
not been received by the Closing Time but such payment shall not relieve such
Underwriter from its obligations hereunder.
(e) DENOMINATIONS. Certificates for the Initial Securities and Additional
Securities shall be in definitive form and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Time or an Option Closing Time, as the case may be.
The certificates evidencing the Initial Securities and Additional Securities
shall be delivered to you on the Closing Date or an Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Securities to the
Underwriters duly paid, against payment of the Purchase Price therefor.
SECTION 3. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
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 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
Prospectus or any amended Prospectus 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 Prospectus 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.
12
<PAGE>
(b) FILING OF AMENDMENTS. The Company will give the 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 prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
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 Representatives or counsel for the
Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, 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 Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies
of the Registration Statement and each amendment thereto furnished to the
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
Underwriter, without charge, as many copies of each preliminary prospectus as
such 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 Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the 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 offer and sale of the
Securities as contemplated in this Agreement, the Indenture, the Securities and
the Prospectus. 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 Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus 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 Prospectus 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 Prospectus comply with such requirements, and
the Company will
13
<PAGE>
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 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 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) RESERVATION OF SHARES. The Company has authorized and reserved and,
as long as any Securities are outstanding, will authorize and reserve a
sufficient number of Shares for issuance upon conversion of the Securities.
(i) RESTRICTION ON SALE OF SECURITIES AND COMMON STOCK. During a period
of 90 days from the date of the Prospectus, the Company 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, lend or otherwise
transfer or of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or any other arrangement 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, (B) the Common Stock to be
sold by the Selling Stockholder under that certain U.S. Underwriting Agreement,
dated June [__], 1999, between the Company, Morgan Stanley, and each of the
underwriters named therein, and under that certain International Underwriting
Agreement dated June [__], 1999, between the Company, Morgan Stanley, and each
of the international underwriters named therein, (C) the issuance of securities
in connection with the acquisition of a business, including, without limitation,
upon consummation of that certain Agreement and Plan of Merger, dated July 9,
1998, between the Company, Water Polo Acquisition Corp. and Cerulean Companies,
Inc., (D) 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 Prospectus, (E) any shares of Common Stock issued
or options to purchase Common Stock granted pursuant to the Company's 1999 Stock
Incentive
14
<PAGE>
Plan, 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 Prospectus (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), (F) 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, or (G) the purchase of
securities from the Selling Stockholder.
(j) USE OF PROCEEDS. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is 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 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, any Agreement among Underwriters 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, (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 Prospectus 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 trustee, transfer agent or
registrar for the Securities, and (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.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or
Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
15
<PAGE>
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
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 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 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 Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(c) OPINION OF GENERAL COUNSEL FOR THE COMPANY. At Closing Time, the
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 Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit B hereto and to such further effect as counsel to
the Underwriters may reasonably request.
(d) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Latham & Watkins, counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other 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), inclusive, (ix)
(solely as to the information in the Prospectus under "Description of Capital
Stock"), (xii) through (xiv), inclusive, 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 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.
16
<PAGE>
(e) 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 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, and the Representatives shall have
received a certificate of the Chief Executive Officer 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.
(f) ACCOUNTANTS' COMFORT LETTER.
(i) PRICEWATERHOUSECOOPERS LLP. At the time of the execution of this
Agreement, the Representatives shall have received from
PricewaterhouseCoopers LLP a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the Company's
consolidated financial statements and certain financial information
contained in the Registration Statement and the Prospectus.
(ii) ERNST & YOUNG LLP. At the time of the execution of this
Agreement, the Representatives shall have received from Ernst & Young LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the Cerulean Companies, Inc. financial
statements and certain financial information of the Cerulean Companies,
Inc. contained in the Registration Statement and the Prospectus.
(g) BRING-DOWN COMFORT LETTERS.
(i) PRICEWATERHOUSECOOPERS LLP. At Closing Time, the Representatives
shall have received from PricewaterhouseCoopers LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (f)(i) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(ii) ERNST & YOUNG LLP. At Closing Time, the Representatives shall
have received from Ernst & Young LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (f)(ii) of
17
<PAGE>
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(h) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Representatives shall have received (i) an agreement substantially in the form
of Exhibit C hereto signed by each of the persons listed on Schedule C hereto,
and (ii) an agreement substantially in the form of Exhibit D hereto signed by
the Selling Stockholder.
(i) CONDITIONS TO PURCHASE OF ADDITIONAL SECURITIES. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Additional Securities, the representations
and warranties of the Company contained herein and the statements in any
certificates furnished by the Company shall be true and correct as of an Option
Closing Date and, at an Option Closing Date, the Representatives shall have
received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Option Closing
Date, of the Chief Executive Officer 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(e) hereof remains true and correct as of such Option Closing
Date.
(ii) 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 Underwriters, dated such Option Closing
Date, relating to the Additional Securities to be purchased on such Option
Closing Date and otherwise to the same effect as the opinion required by
Section 5(b) hereof.
(iii) 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 Underwriters, dated such
Option Closing Date, relating to the Additional Securities to be purchased
on such Option Closing Date and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion of
Latham & Watkins, counsel for the Underwriters, dated such Option Closing
Date, relating to the Additional Securities to be purchased on such Option
Closing Date and otherwise to the same effect as the opinion required by
Section 5(d) hereof.
(v) BRING-DOWN COMFORT LETTERS.
(1) PRICEWATERHOUSECOOPERS. A letter from
PricewaterhouseCoopers LLP, in form and substance satisfactory to the
Representatives and dated such Option Closing Date, substantially in
the same form and substance as the letter furnished to the
Representatives pursuant to Section 5(g)(i) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than three days prior to such Option Closing
Date.
(2) ERNST & YOUNG LLP. A letter from Ernst & Young LLP, in form
and substance satisfactory to the Representatives and dated such
Option Closing
18
<PAGE>
Date, substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(g)(ii)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than three
days prior to such Option Closing Date.
(j) ADDITIONAL DOCUMENTS. At Closing Time and at an Option Closing Date
counsel for the 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 in connection with the sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the Representatives
and counsel for the Underwriters.
(k) 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 Representatives 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 agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
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 Prospectus (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;
(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
19
<PAGE>
(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 relating to such
Underwriter furnished to the Company by any 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 Prospectus (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 Underwriter from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Securities, or any
person controlling such Underwriter, if (i) the Company shall sustain the burden
of proving that a copy of the 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 Underwriters to such person at or prior to
the written confirmation of the sale of such Securities to such person, (ii) the
Company shall have delivered the Prospectus (as then supplemented or amended) to
the Underwriters on a timely basis and in the requisite quantity to permit the
Underwriters to send or deliver such Prospectus to such person at or prior to
such written confirmation of the sale of such Securities and (iii) the untrue
statement contained in or omission from such preliminary prospectus was
corrected in the Prospectus (or the 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, and subject to the further
provisions of this paragraph, the indemnified parties may proceed against the
Company. 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, 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 shall seek to
satisfy such Final Judgment in full from the Company by making a written demand
upon the Company for such satisfaction. The indemnified parties shall, however,
be relieved of their obligation to first obtain a Final Judgment or to seek to
obtain payment from the Company with respect to 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
20
<PAGE>
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. Each 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, 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 Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information relating to such Underwriter furnished to the Company by
such Underwriter through Morgan Stanley expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
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 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
21
<PAGE>
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.
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 on the one hand and the
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 on the one hand and of the 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 on the one hand and the
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 total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet bear to the aggregate public offering
price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the 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 by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the 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 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 Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities
22
<PAGE>
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such 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
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 Underwriter, 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 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, as the case may be. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
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 submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, 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
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the 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.
23
<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 UNDERWRITERS. If one or more
of the Underwriters fail at Closing Time or an Option Closing Date to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "DEFAULTED SECURITIES"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
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 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
aggregate principal amount of the Securities to be purchased on such date, each
of the non-defaulting 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 Underwriters, or
(b) if the aggregate principal amount of Defaulted Securities exceeds 10%
of the aggregate principal amount of Securities to be purchased on such date,
this Agreement or, with respect to any Option Closing Date which occurs after
the Closing Time, the obligation of the Underwriters to purchase and of the
Company to sell the Additional Securities to be purchased and sold on such
Option Closing Date shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
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 either (i) the Representatives or (ii) the Company
shall have the right to postpone the Closing Time or an Option Closing Date, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "UNDERWRITER" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. 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
Underwriters shall be directed to the 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 1 WellPoint Way,
Thousand Oaks, California 91362, 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.)
24
<PAGE>
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company 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
Underwriters, the Company 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 Underwriters, the Company 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 Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 13. 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 14. 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.
(SIGNATURE PAGE FOLLOWS)
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters and the Company in accordance with its terms.
Very truly yours,
WELLPOINT HEALTH NETWORKS INC.
By:
------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
BEAR STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
By Morgan Stanley & Co. Incorporated
By:
------------------------------------
Name:
Title:
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
S-1
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
at Maturity of
Securities To
Name of Underwriter Be Purchased
------------------- ------------
<S> <C>
Morgan Stanley & Co. Incorporated.........................
Bear Stearns & Co. Inc....................................
Credit Suisse First Boston Corporation....................
-------------
Total................................................ $ 285,000,000
-------------
-------------
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
List of subsidiaries
1. Blue Cross of California
2. BC Life & Health Insurance Company
3. UNICARE Life & Health Insurance Company
4. UNICARE of Texas Health Plans, Inc.
5. WellPoint California Services, Inc.
[6. UNICARE Specialty Services, Inc.]
7. UNICARE National Services, Inc.
Sch B-1
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
Leonard D. Schaeffer
D. Mark Weinberg
Ronald A. Williams
Joan E. Herman
Clifton R. Gaus
David C. Colby
Thomas C. Geiser, Esq.
S. Louise McCrary
Sch C-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
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 UL&H on
Exhibit 1 hereto). 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 Prospectus under the caption "Description of
Capital Stock" (except for subsequent issuances, if any, under the Company's
1999 Stock Incentive Plan, 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 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 Underwriting Agreement has 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 Prospectus 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 issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
A-1
<PAGE>
(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
Prospectus, 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, and the
Trustee's Statement of Eligibility on Form T-1, 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 Prospectus
(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 Prospectus 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 Prospectus 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 Prospectus 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 (or to any
documents incorporated by reference therein) which have not been so filed.
(xii) Upon issuance and delivery of the Securities in accordance with
the Underwriting Agreement and the Indenture, the Securities shall be
convertible at the option of the holder thereof for shares of Common Stock in
accordance with the terms of the Securities and the Indenture; the shares of
Common Stock issuable upon conversion of the Securities have been duly
authorized and reserved for issuance upon such conversion by all necessary
corporate action; such shares, when issued upon such conversion, will be validly
issued and will be fully paid and non-assessable and no holder of such Common
Stock is or will be subject to personal liability by reason of being such a
holder.
A-2
<PAGE>
(xiii) The Securities are in the form contemplated by the
Indenture, have been duly authorized and, when executed and authenticated in
accordance with the provisions of the Indenture, will be entitled to the
benefits of the Indenture and will be valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to the effect of
(i) bankruptcy, insolvency, reorganization, arrangement, moratorium,
liquidation, conservatorship, readjustment of debt, fraudulent transfer and
other similar laws affecting the rights of creditors generally; and (ii) the
discretion of any court of competent jurisdiction in awarding equitable
remedies, including, without limitation, acceleration, specific performance or
injunctive relief, and the effect of general principles of equity embodied in
New York statutes and common law.
(xiv) The Indenture has been duly and validly authorized by the
Company and, when duly executed and delivered by the Company (assuming the due
execution and delivery thereof by the Trustee), will be a legal, valid and
binding agreement of the Company, enforceable in accordance with its terms,
subject to the effect of (i) bankruptcy, insolvency reorganization, arrangement,
moratorium, liquidation, conservatorship, readjustment of debt, fraudulent
transfer and other similar laws affecting the rights of creditors generally; and
(ii) the discretion of any court of competent jurisdiction in awarding equitable
remedies, including, without limitation, acceleration, specific performance or
injunctive relief, and the effect of general principles of equity embodied in
New York statutes and common law.
(xv) The Indenture has been duly qualified under the Trust Indenture
Act.
(xvi) The statements in the Prospectus under the captions "Description
of Debentures," "Description of Capital Stock," "Material U.S. Federal Income
Tax Considerations" and "Underwriters" (but only as to the description of the
Underwriting Agreement) insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein, are accurate in all
material respects.
(xvii) 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 Blue Cross of California's Health
Care Service Plan application with the California Department of Corporations
(which filing has been made); and the execution, delivery and performance of the
Underwriting Agreement, the Indenture 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 (including, without limitation, as an exhibit to the
documents incorporated by reference therein) 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.
A-3
<PAGE>
(xviii) 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 (including,
without limitation, as an exhibit to the documents incorporated by reference
therein) 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
Underwriting Agreement.
(xix) None of the execution, delivery and performance of the
Underwriting Agreement, the issuance and sale of the Securities, the application
of the proceeds from the issuance and sale of the Securities and the
consummation of the transactions contemplated thereby as set forth in the
Prospectus, violates Regulations T, U or X promulgated by the Board of Governors
of the Federal Reserve System or analogous foreign laws and regulations.
(xx) 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.
(xxi) 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 Prospectus
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 Prospectus 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
A-4
<PAGE>
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-5
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
State of Foreign
Name of Entity Incorporation Qualifications
------------- ------------- --------------
<S> <C> <C>
WellPoint Health Networks Inc. Delaware Arizona, California,
Nevada, New York
SUBSIDIARIES
------------
(1) Blue Cross of California California Massachusetts,
Michigan, Ohio,
Texas
(2) UNICARE Life & Health Insurance Company Delaware California, Florida,
Georgia, Illinois,
Massachusetts,
New Jersey,
New York, Ohio,
Texas and Virginia
(3) UNICARE of Texas Health Plans, Inc. Texas None
(4) WellPoint California Services, Inc. Delaware None
[(5) UNICARE Specialty Services, Inc. Delaware None]
(6) UNICARE National Services, Inc. Delaware None
(7) BC Life & Health Insurance Company California 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) Blue Cross of California 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 June 10, 1998, between
the Company, Blue Cross of California 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>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(h)]
Exhibit C
June [ ], 1999
MORGAN STANLEY & CO. INCORPORATED
BEAR STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
as Representatives of the several Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
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 Delaware corporation (the "COMPANY"),
understands that Morgan Stanley & Co. Incorporated ("MORGAN STANLEY"), Bear
Stearns & Co. Inc. ("BEAR STEARNS") and Credit Suisse First Boston Corporation
("CREDIT SUISSE") propose(s) to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with the Company providing for the public offering of
Zero Coupon Subordinated Convertible Debentures Due at 2019 (the "SECURITIES").
Capitalized terms used but not defined herein shall have the meaning given to
them in the Underwriting Agreement.
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 (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, and or otherwise
transfer or dispose of any shares of the 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
arrangement 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 other securities, in cash or otherwise.
Notwithstanding the provisions of the preceding sentence, the
undersigned shall be permitted to (a) sell shares of Common Stock to the Company
in connection with a "stock-for-stock" exercise of stock options granted under
the Company's existing stock option plans
C-1
<PAGE>
(providing that any resulting shares received by the undersigned upon such
exercise shall be subject to the terms of this letter), and (b) 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:
-----------------------------
Print Name:
-----------------------------
C-2
<PAGE>
[FORM OF LOCK-UP FROM SELLING STOCKHOLDER PURSUANT TO SECTION 5(h)]
Exhibit D
June [ ], 1999
MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
as Representatives of the several Underwriters
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Re: Proposed Public Offering by WellPoint Health Networks Inc.
----------------------------------------------------------
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY"), Bear, Stearns & Co. Inc. ("BEAR STEARNS") and Credit Suisse
First Boston Corporation ("CREDIT SUISSE") propose(s) to enter into an
Underwriting Agreement (the "UNDERWRITING AGREEMENT") with WellPoint Health
Networks Inc., a Delaware corporation (the "COMPANY"), providing for the public
offering of Zero Coupon Subordinated Convertible Debentures Due at 2019 (the
"SECURITIES"). Capitalized terms used but not defined herein shall have the
meaning given to them in the Underwriting Agreement.
In recognition of the benefit that such an offering will confer upon
the undersigned as a shareholder 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 120 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 (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, HOWEVER, that beginning on the 91st day after the date of
the Prospectuses, the Selling Stockholder may sell shares of Common Stock, in
one or more transactions, but only to the extent that (i) as of the time of any
such sale the Selling Stockholder owns 10% or more of the total issued and
outstanding Common Stock and (ii) such sale reduces the shares of Common Stock
owned by the Selling Stockholder to an amount not less than 10,000 shares less
than 10% of the total issued and outstanding common stock; PROVIDED, FURTHER,
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
D-1
<PAGE>
Section 3(i) of the Underwriting Agreement and the Selling Stockholder shall
be deemed to have been granted a waiver of the terms herein on the same terms
as any such waiver granted to the Company. The foregoing sentence shall not
apply (x) to the Securities to be sold under the Equity Offering, 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 sale of any Common
Stock by the Selling Stockholder to the Company.
Very truly yours,
THE CALIFORNIA HEALTHCARE FOUNDATION
Signature:
-----------------------------
Print Name:
-----------------------------
D-2
<PAGE>
Exhibit 4.4
- -------------------------------------------------------------------------------
WELLPOINT HEALTH NETWORKS INC.,
as Issuer,
$
--------------
ZERO COUPON CONVERTIBLE
SUBORDINATED DEBENTURES DUE 2019
----------------------------
INDENTURE
Dated as of July ___, 1999
----------------------------
The Bank of New York,
as Trustee
----------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- -----------
<S> <C> <C>
3.10 (a)(1)..................................................................................... 7.10
(a)(2)..................................................................................... 7.10
(a)(3)..................................................................................... N.A.**
(a)(4)..................................................................................... N.A.
(b)........................................................................................ 7.08; 7.10
(c)........................................................................................ N.A.
3.11 (a)........................................................................................ 7.11
(b)........................................................................................ 7.11
(c)........................................................................................ N.A.
3.12 (a)........................................................................................ 2.05
(b)........................................................................................ 13.03
(c)........................................................................................ 13.03
(d)........................................................................................ 7.06
3.13 (a)........................................................................................ 7.06
(b)(1)..................................................................................... N.A.
(b)(2)..................................................................................... 7.06
(c)........................................................................................ 13.02
(d)........................................................................................ 7.06
3.14 (a)........................................................................................ 4.02; 13.02
(b)........................................................................................ N.A.
(c)(1)..................................................................................... 13.04
(c)(2)..................................................................................... 13.04
(c)(3)..................................................................................... N.A.
(d)........................................................................................ N.A.
(e)........................................................................................ 13.05
(f)........................................................................................ 4.03
3.15 (a)........................................................................................ 7.01
(b)........................................................................................ 7.05; 13.02
(c)........................................................................................ 7.01
(d)........................................................................................ 7.01
(e)........................................................................................ 6.11
3.16 (a) (last sentence)........................................................................ 2.08
(a)(1)(A).................................................................................. 6.05
(a)(1)(B).................................................................................. 6.04
(a)(2)..................................................................................... N.A.
(b)........................................................................................ 6.07
3.17 (a)(1)..................................................................................... 6.08
(a)(2)..................................................................................... 6.09
(b)........................................................................................ 2.04
3.18 (a)........................................................................................ 13.01
</TABLE>
* Note: This Cross Reference Table shall not, for any purpose, be
deemed to be part of the Indenture.
** Note: N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.............................................................1
SECTION 1.01. DEFINITIONS................................................................................1
SECTION 1.02. OTHER DEFINITIONS..........................................................................7
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT..........................................8
SECTION 1.04. RULES OF CONSTRUCTION......................................................................8
ARTICLE 2. THE SECURITIES.........................................................................................9
SECTION 2.01. FORM AND DATING............................................................................9
SECTION 2.02. EXECUTION AND AUTHENTICATION...............................................................9
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT..............................................10
SECTION 2.04. PAYING AGENT TO HOLD MONEY AND SECURITIES IN TRUST........................................10
SECTION 2.05. HOLDER LISTS..............................................................................11
SECTION 2.06. EXCHANGE AND REGISTRATION OF TRANSFER OF SECURITIES; RESTRICTIONS ON TRANSFERS;
DEPOSITARY..............................................................................11
SECTION 2.07. REPLACEMENT SECURITIES....................................................................13
SECTION 2.08. OUTSTANDING SECURITIES; DETERMINATIONS OF HOLDERS'ACTION..................................14
SECTION 2.09. TEMPORARY SECURITIES......................................................................14
SECTION 2.10. CANCELLATION..............................................................................15
SECTION 2.11. PERSONS DEEMED OWNERS.....................................................................15
SECTION 2.12. CUSIP NUMBERS.............................................................................15
SECTION 2.13. RESTICTIONS ON TRANSFER...................................................................16
ARTICLE 3. REDEMPTION AND REPURCHASES............................................................................18
SECTION 3.01. RIGHT TO REDEEM; NOTICES TO TRUSTEE.......................................................18
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED....................................................18
SECTION 3.03. NOTICE OF REDEMPTION......................................................................18
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION............................................................19
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE...............................................................19
SECTION 3.06. SECURITIES REDEEMED IN PART...............................................................20
SECTION 3.07. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.............................................20
SECTION 3.08. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER..........................................21
SECTION 3.09. REPURCHASE AT OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE..............................26
SECTION 3.10. EFFECT OF REPURCHASE NOTICE OR FUNDAMENTAL CHANGE
REPURCHASE NOTICE.......................................................................27
SECTION 3.11. DEPOSIT OF PURCHASE PRICE OR FUNDAMENTAL CHANGE PURCHASE PRICE............................28
SECTION 3.12. SECURITIES REPURCHASED OR REDEEMED IN PART................................................28
SECTION 3.13. COVENANT TO COMPLY WITH SECURITIES LAWS UPON REPURCHASE
OF SECURITIES...........................................................................28
SECTION 3.14. REPAYMENT TO THE COMPANY..................................................................29
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 4. COVENANTS.............................................................................................29
SECTION 4.01. PAYMENT OF SECURITIES.....................................................................29
SECTION 4.02. FINANCIAL INFORMATION; SEC REPORTS........................................................29
SECTION 4.03. COMPLIANCE CERTIFICATE....................................................................30
SECTION 4.04. FURTHER INSTRUMENTS AND ACTS..............................................................31
SECTION 4.05. MAINTENANCE OF OFFICE OR AGENCY...........................................................31
SECTION 4.06. EXISTENCE.................................................................................31
SECTION 4.07. CALCULATION OF ORIGINAL ISSUE DISCOUNT....................................................32
ARTICLE 5. SUCCESSOR CORPORATION.................................................................................32
SECTION 5.01. WHEN THE COMPANY MAY MERGE OR TRANSFER ASSETS.............................................32
ARTICLE 6. DEFAULTS AND REMEDIES.................................................................................33
SECTION 6.01. EVENTS OF DEFAULT.........................................................................33
SECTION 6.02. ACCELERATION..............................................................................34
SECTION 6.03. OTHER REMEDIES............................................................................34
SECTION 6.04. WAIVER OF PAST DEFAULTS...................................................................35
SECTION 6.05. CONTROL BY MAJORITY.......................................................................35
SECTION 6.06. LIMITATION ON SUITS.......................................................................35
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT......................................................36
SECTION 6.08. COLLECTION SUIT BY TRUSTEE................................................................36
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM..........................................................36
SECTION 6.10. PRIORITIES................................................................................37
SECTION 6.11. UNDERTAKING FOR COSTS.....................................................................37
SECTION 6.12. WAIVER OF STAY, EXTENSION OR USURY LAWS...................................................38
ARTICLE 7. TRUSTEE...............................................................................................38
SECTION 7.01. DUTIES OF TRUSTEE.........................................................................38
SECTION 7.02. RIGHTS OF TRUSTEE.........................................................................39
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE..............................................................40
SECTION 7.04. TRUSTEE'S DISCLAIMER......................................................................41
SECTION 7.05. NOTICE OF DEFAULTS........................................................................41
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.............................................................41
SECTION 7.07. COMPENSATION AND INDEMNITY................................................................41
SECTION 7.08. REPLACEMENT OF TRUSTEE....................................................................42
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER...............................................................43
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.............................................................43
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.........................................44
ARTICLE 8. DISCHARGE OF INDENTURE................................................................................44
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES......................................................44
SECTION 8.02. REPAYMENT TO THE COMPANY..................................................................44
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 9. AMENDMENTS............................................................................................44
SECTION 9.01. WITHOUT CONSENT OF HOLDERS................................................................44
SECTION 9.02. WITH CONSENT OF HOLDERS...................................................................45
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.......................................................46
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS....................................46
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.....................................................46
SECTION 9.06. TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES...................................................47
SECTION 9.07. EFFECT OF SUPPLEMENTAL INDENTURES.........................................................47
ARTICLE 10. SUBORDINATION........................................................................................47
SECTION 10.01. AGREEMENT OF SUBORDINATION...............................................................47
SECTION 10.02. PAYMENTS TO HOLDERS......................................................................47
SECTION 10.03. SUBROGATION OF SECURITIES................................................................50
SECTION 10.04. AUTHORIZATION BY HOLDERS.................................................................51
SECTION 10.05. NOTICE TO TRUSTEE........................................................................51
SECTION 10.06. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS................................................52
SECTION 10.07. NO IMPAIRMENT OF SUBORDINATION...........................................................52
SECTION 10.08. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS...............................................................53
SECTION 10.09. REINSTATEMENT OF SUBORDINATION...........................................................53
SECTION 10.10. PERMITTED PAYMENTS.......................................................................53
SECTION 10.11. ARTICLE APPLICABLE TO PAYING AGENTS......................................................54
SECTION 10.12. TREATMENT OF CONVERSION PAYMENTS.........................................................54
SECTION 10.13. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT...........................54
ARTICLE 11. CONVERSION...........................................................................................55
SECTION 11.01. CONVERSION PRIVILEGE.....................................................................55
SECTION 11.02. CONVERSION PROCEDURE.....................................................................55
SECTION 11.03. FRACTIONAL SHARES........................................................................56
SECTION 11.04. TAXES ON CONVERSION......................................................................57
SECTION 11.05. COMPANY TO PROVIDE STOCK.................................................................57
SECTION 11.06. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK...................................................57
SECTION 11.07. ADJUSTMENT FOR RIGHTS OR WARRANTS........................................................58
SECTION 11.08. ADJUSTMENT FOR OTHER DISTRIBUTIONS.......................................................58
SECTION 11.09. WHEN ADJUSTMENT MAY BE DEFERRED..........................................................62
SECTION 11.10. WHEN NO ADJUSTMENT REQUIRED..............................................................62
SECTION 11.11. NOTICE OF ADJUSTMENT.....................................................................62
SECTION 11.12. VOLUNTARY INCREASE.......................................................................62
SECTION 11.13. NOTICE OF CERTAIN TRANSACTIONS...........................................................63
SECTION 11.14. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE................................63
SECTION 11.15. COMPANY DETERMINATION FINAL..............................................................64
SECTION 11.16. TRUSTEE'S ADJUSTMENT DISCLAIMER..........................................................64
</TABLE>
- iii -
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 11.17. SIMULTANEOUS ADJUSTMENTS.................................................................64
SECTION 11.18. SUCCESSIVE ADJUSTMENTS...................................................................64
SECTION 11.19. RIGHTS ISSUED IN RESPECT OF COMMON STOCK ISSUED UPON CONVERSION..........................64
SECTION 11.20. GENERAL CONSIDERATIONS...................................................................65
ARTICLE 12. SPECIAL TAX EVENT....................................................................................65
SECTION 12.01. OPTIONAL CONVERSION TO SEMIANNUAL COUPON DEBENTURE
UPON TAX EVENT.........................................................................65
SECTION 12.02. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED...........................................66
ARTICLE 13. MISCELLANEOUS........................................................................................67
SECTION 13.01. TRUST INDENTURE ACT......................................................................67
SECTION 13.02. NOTICES..................................................................................67
SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS..............................................68
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......................................68
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION............................................68
SECTION 13.06. SEPARABILITY CLAUSE......................................................................69
SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT, CONVERSION AGENT AND REGISTRAR...........................69
SECTION 13.08. GOVERNING LAW............................................................................69
SECTION 13.09. NO RECOURSE AGAINST OTHERS...............................................................69
SECTION 13.10. SUCCESSORS...............................................................................69
SECTION 13.11. MULTIPLE ORIGINALS.......................................................................70
</TABLE>
EXHIBIT A--Form of Security
- iv -
<PAGE>
INDENTURE, dated as of ________________________, 1999, between WellPoint
Health Networks Inc., a Delaware corporation (the "COMPANY"), and The Bank of
New York, a New York banking corporation, as trustee (the "TRUSTEE").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's Zero Coupon
Convertible Subordinated Debentures due 2019:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"BANKRUPTCY LAW" means Title 11, United States Code, or any similar
Federal or state law for the relief of debtors.
"BOARD OF DIRECTORS" means either the board of directors of the Company
or any duly authorized committee of such board.
"BUSINESS DAY" means each day of the year on which banking institutions
are not required or authorized to close in The City of New York or the city
in which the Corporate Trust Office is located.
"COMMON STOCK" means any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company. Subject to the
provisions of Section 11.14 hereof, however, shares issuable upon conversion
of the Securities shall include only shares of Common Stock, par value of
$.01 per share, of the Company as such shares exist on the date of this
Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which
are not subject to redemption by the Company; PROVIDED that if at any time
there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"COMPANY" means the party named as the "Company" in the first paragraph
of this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and,
<PAGE>
thereafter, shall mean such successor. The foregoing sentence shall
likewise apply to any subsequent such successor or successors.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by its Chairman of the Board, a Vice
Chairman, its President or a Vice President, and by its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be
principally administered, which office is, at the date as of which this
Indenture is dated, located at 101 Barclay Street, 21W, New York, NY 10286,
Attention: Corporate Trust Trustee Administration.
"CUSTODIAN" shall mean The Bank of New York, as custodian with respect
to the Securities in global form, or any successor entity thereto.
"DEFAULT" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"DEPOSITARY" means, with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.06 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.
"DESIGNATED SENIOR INDEBTEDNESS" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such Senior Indebtedness
shall be "Designated Senior Indebtedness" for purposes of this Indenture;
PROVIDED that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to
exercise the rights of Designated Senior Indebtedness.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"FUNDAMENTAL CHANGE" means the occurrence of any transaction or event in
connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute solely the right to
receive (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) consideration which is not all or substantially all common stock
listed (or, upon consummation of or immediately following such transaction or
event, which will be listed) on a United States national securities exchange
or approved for quotation on the NYSE or any similar United States system of
automated dissemination of quotations of securities prices.
"HOLDER" means a Person in whose name a Security is registered on the
Registrar's books.
2
<PAGE>
"INDEBTEDNESS" means, with respect to any Person, and without
duplication, (a) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof), (b) all reimbursement
obligations and other liabilities (contingent or otherwise) of such Person
with respect to letters of credit, bank guarantees or bankers' acceptances,
(c) all obligations and liabilities (contingent or otherwise) in respect of
leases of such Person (i) required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease obligations
on the balance sheet of such Person, or (ii) required, in conformity with
generally accepted accounting principles, to be accounted for as an operating
lease, provided either (A) such operating lease requires, at the end of the
term thereof, that such Person make any payment other than accrued periodic
rent in the event that such Person does not acquire the leased real property
and related fixtures subject to such lease, or (B) such Person has an option
to acquire the leased real property and related fixtures, whether such option
is exercisable at any time or under specific circumstances, (d) all
obligations of such Person (contingent or otherwise) with respect to an
interest rate swap, cap or collar agreement or other similar instrument or
agreement, (e) all direct or indirect guaranties or similar agreements by
such Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations or
liabilities of another Person of the kind described in clauses (a) through
(d), (f) any indebtedness or other obligations described in clauses (a)
through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have been
assumed by such Person and (g) any and all deferrals, renewals, extensions
and refundings of, or amendments, modifications or supplements to, any
indebtedness, obligation or liability of the kind described in clauses (a)
through (f).
"INDENTURE" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"ISSUE DATE" of any Security means the date on which the Security was
originally issued or deemed issued as set forth on the face of the Security.
"ISSUE PRICE" of any Security means, in connection with the original
issuance of such Security, the initial issue price at which the Security is
issued as set forth on the face of the Security.
"LEGAL HOLIDAY" is any day other than a Business Day. If any specified
date (including a date for giving notice) is a Legal Holiday, the action
shall be taken on the next succeeding date that is not a Legal Holiday, and
to the extent applicable no Original Issue Discount or interest, if any,
shall accrue for the intervening period.
"MARKET PRICE" means, as of any Repurchase Date or date of determination,
the average of the Sale Prices of the Common Stock for the five Trading Day
period ending on the third
3
<PAGE>
Business Day prior to the applicable Repurchase Date or date of
determination (if the third Business Day prior to the applicable Repurchase
Date or date of determination is a Trading Day or, if it is not a Trading
Day, then on the last Trading Day prior to such third Business Day),
appropriately adjusted to take into account the occurrence, during the period
commencing on the first of such Trading Days during such five Trading Day
period and ending on such Repurchase Date or date of determination, of any
event described in Sections 11.06, 11.07 or 11.08 hereof; subject, however,
to the conditions set forth in Sections 11.09 and 11.10 hereof.
"NASDAQ NATIONAL MARKET" means the electronic inter-dealer quotation
system operated by NASDAQ Stock Market, Inc., a subsidiary of the National
Association of Securities Dealers, Inc.
"NYSE" means The New York Stock Exchange, Inc.
"OFFICER" means the Chairman of the Board, any Vice Chairman, the
President, any Vice President, the Treasurer or the Secretary or any
Assistant Treasurer or Assistant Secretary of the Company.
"OFFICERS' CERTIFICATE" means a written certificate containing the
information specified in Sections 13.04 and 13.05, signed in the name of the
Company by its Chairman of the Board, a Vice Chairman, its President or a
Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary
or an Assistant Secretary, and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion containing the information
specified in Sections 13.04 and 13.05, from legal counsel who is acceptable
to the Trustee. The counsel may be an employee of, or counsel to, the Company
or the Trustee.
"ORIGINAL ISSUE DISCOUNT" of any Security means the difference between
the Principal Amount and the Issue Price of the Security as set forth on the
face of the Security. For purposes of this Indenture and the Securities,
accrual of Original Issue Discount shall be calculated on the basis of a
360-day year of twelve 30-day months.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"PRINCIPAL" or "PRINCIPAL AMOUNT" of a Security means the principal
amount at Stated Maturity as set forth on the face of such Security, or on
Schedule A thereto in the case of a Security in global form.
"REDEMPTION DATE" means a date specified for redemption of the
Securities in accordance with the terms of the Securities and Section 3.01 of
this Indenture.
"REDEMPTION PRICE" shall have the meaning set forth in paragraph 5 of
the Securities.
"REPRESENTATIVE" means the (a) indenture trustee or other trustee, agent
or representative for any Senior Indebtedness or (b) with respect to any
Senior Indebtedness that does not have any such trustee, agent or other
representative, (i) in the case of such Senior Indebtedness issued
4
<PAGE>
pursuant to an agreement providing for voting arrangements as among the
holders or owners of such Senior Indebtedness, any holder or owner of such
Senior Indebtedness acting with the consent of the required Persons necessary
to bind such holders or owners of such Senior Indebtedness and (ii) in the
case of all other such Senior Indebtedness, the holder or owner of such
Senior Indebtedness.
"SALE PRICE OF THE COMMON STOCK" means, on any date, the closing per
share sale price, or if no closing sale price is reported, the average bid
and ask prices or, if more than one, in either case, the average of the
average bid and average ask prices, on such date as reported in the composite
transactions for the principal United States securities exchange on which the
common stock is traded or, if the common stock is not listed on a United
States national or regional stock exchange, as reported by The NASDAQ
National Market.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Company's Zero Coupon Convertible Subordinated
Debentures due 2019; PROVIDED, HOWEVER, that if the Company exercises the
option provided for in Section 12.01 hereof, on and after the Option Exercise
Date all references herein to Securities shall be deemed to mean the
Semiannual Coupon Debentures, unless the context otherwise indicates.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding), rent and end of
term payments payable on or in connection with, and, to the extent not
included in the foregoing, all amounts payable as fees, costs, expenses,
liquidated damages, indemnities, repurchase and other put obligations and
other amounts to the extent accrued or due on or in connection with,
Indebtedness of the Company, whether outstanding on the date of this
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the
foregoing). Notwithstanding the foregoing, the term Senior Indebtedness shall
not include (i) Indebtedness evidenced by the Securities, (ii) Indebtedness
of the Company to any subsidiary of the Company, a majority of the voting
stock of which is owned, directly or indirectly, by the Company, (iii)
accounts payable or other indebtedness to trade creditors created or assumed
by the Company in the ordinary course of business and (iv) any particular
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to, or is PARI PASSU with, or is
subordinated or junior to, the Securities.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, a Subsidiary
of such Person organized under the laws of the United States of America, any
state thereof, or the District of
5
<PAGE>
Columbia that would constitute a "significant subsidiary" as such term is
defined under Rule 1-02 of Regulation S-X of the SEC.
"STATED MATURITY," when used with respect to any Security, means the
date specified in such Security as the fixed date on which an amount equal to
the Principal of such Security is due and payable.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of capital stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such
Person or one or more subsidiaries of such Person (or any combination
thereof).
"TAX EVENT" means that the Company has received an opinion from
independent tax counsel experienced in such matters to the effect that, as a
result of: (1) an amendment to, or change or announced prospective change in,
the laws or regulations of the U.S. or any political subdivision or taxing
authority thereof or therein; or (2) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority, in each case which
amendment or change is enacted, promulgated, issued or announced or which
interpretation is issued or announced or which action is taken, on or after
the date hereof, there is more than an insubstantial risk that interest,
including original issue discount, payable on the Securities either (a) would
not be deductible on a current accrual basis or (b) would not be deductible
under any other method, in either case in whole or in part, by the Company by
reason of deferral, disallowance or otherwise for U.S. federal income tax
purposes.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect on
the date of this Indenture, except as provided in Section 9.03.
"TRADING DAY" means a day during which trading in securities generally
occurs on the NYSE or, if the applicable security is not listed on the NYSE,
on the NASDAQ National Market, or if the applicable security is not quoted on
the NASDAQ National Market, on the principal other national or regional
securities exchange on which the applicable security is then listed or, if
the applicable security is not listed on a national or regional securities
exchange, on the principal other market on which the applicable security is
then traded.
"TRUST OFFICER" means any officer within the corporate trust department
of the Trustee, including any vice president, assistant vice president,
assistance secretary, assistant treasurer, trust officer or any other officer
of the Trustee who customarily performs functions similar to those performed
by the Persons who at the time shall be such officers, respectively, or to
whom any corporate trust matter is referred because of such person's
knowledge of and familiarity with the particular subject and who shall have
direct responsibility for the administration of this Indenture.
6
<PAGE>
"TRUSTEE" means the party named as the "Trustee" in the first paragraph
of this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor. The
foregoing sentence shall likewise apply to any subsequent such successor or
successors.
"VOTING STOCK" means stock of any class or classes, however designated,
having ordinary voting power for the election of a majority of the board of
directors of a corporation, other than stock having such power only by reason
of the occurrence of a contingency.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED
TERM IN SECTION
---- ----------
<S> <C>
"BCBSA" .................................................................... 2.13(a)
"CASH"...................................................................... 3.08(b)
"CERTIFICATE OF INCORPORATION............................................... 2.13(a)
"COMPANY NOTICE"............................................................ 3.08(e)
"COMPANY NOTICE DATE"....................................................... 3.08(c)
"CONVERSION AGENT".......................................................... 2.03
"CONVERSION DATE" .......................................................... 11.02
"CONVERSION RATE" .......................................................... 11.01
"DEFAULTED INTEREST"........................................................ 12.02(b)
"DISTRIBUTED SECURITIES".................................................... 11.08(a)
"EXPIRATION TIME"........................................................... 11.08(c)
"EXTRAPOLATED PURCHASE PRICE" .............................................. 2.13(a)
"EVENT OF DEFAULT".......................................................... 6.01
"FUNDAMENTAL CHANGE PURCHASE PRICE"......................................... 3.09(a)
"FUNDAMENTAL CHANGE REPURCHASE DATE"........................................ 3.09(a)
"FUNDAMENTAL CHANGE REPURCHASE NOTICE"...................................... 3.09(a)
"INTEREST PAYMENT DATE"..................................................... 12.01
"LICENSE ADDENDUM" ......................................................... 2.13(a)
"LICENSE AGREEMENT" ........................................................ 2.13(a)
"NOTICE OF DEFAULT"......................................................... 6.01
"OPTION EXERCISE DATE"...................................................... 12.01
"OVER-ALLOTMENT OPTION"..................................................... 2.02
"OWNERSHIP LIMIT" .......................................................... 2.13(a)
"PAYING AGENT".............................................................. 2.03
"PAYMENT BLOCKAGE NOTICE" .................................................. 10.02
"PURCHASE PRICE"............................................................ 3.08(a)
"PURCHASED SHARES".......................................................... 11.08(c)
"REGISTRAR"................................................................. 2.03
"REGULAR RECORD DATE"....................................................... 12.01
"REPURCHASE DATE"........................................................... 3.08(a)
"REPURCHASE NOTICE"......................................................... 3.08(a)
"RESTATED PRINCIPAL AMOUNT"................................................. 12.01
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
DEFINED
TERM IN SECTION
---- ----------
<S> <C>
"SEMIANNUAL COUPON DEBENTURE"............................................... 12.01
"SPECIAL RECORD DATE"....................................................... 12.02(a)
"TAX EVENT DATE"............................................................ 12.01
"TENDER EXPIRATION TIME".................................................... 11.08(d)
"TENDER PURCHASED SHARES"................................................... 11.08(d)
"TRIGGER EVENT"............................................................. 11.19
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture Securities" means the Securities.
"Indenture Security Holder" means a Holder.
"Indenture to be Qualified" means this Indenture.
Indenture Trustee" or "Institutional Trustee" means the Trustee.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rules have the
meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles as
in effect from time to time;
(3) "or" is not exclusive;
(4) "including" means including, without limitation; and
(5) words in the singular include the plural, and words
in the plural include the singular.
8
<PAGE>
ARTICLE 2.
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Securities and the Trustee's certificate of authentication for the
Securities shall be substantially in the form of EXHIBIT A, which is a part
of this Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage, PROVIDED that any such
notation, legend or endorsement required by usage is in a form acceptable to
the Company. The Company shall provide any such notations, legends or
endorsements to the Trustee in writing. Each Security shall be dated the date
of its authentication.
Any Security in global form shall represent such of the outstanding
Securities as shall be specified therein and shall provide that it shall
represent the aggregate amount of outstanding Securities from time to time
endorsed thereon and that the aggregate amount of outstanding Securities
represented thereby may from time to time be increased or reduced to reflect
transfers or exchanges permitted hereby. Any endorsement of a Security in
global form to reflect the amount of any increase or decrease in the amount
of outstanding Security represented thereby shall be made by the Trustee or
the Custodian, at the direction of the Trustee, in such manner and upon
instructions given by the Holder of such Security in accordance with this
Indenture. Payment of Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price, Fundamental Change Purchase Price
or interest, if any, on any Security in global form shall be made to the
Holder of such Security.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
The Securities shall be executed on behalf of the Company by its
Chairman of the Board, one of its Vice Chairmen, its President or one of its
Vice Presidents, and attested by its Treasurer or Secretary or one of its
Assistant Treasurers or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper Officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did
not hold such offices at the date of authentication of such Securities.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
duly executed by the Trustee by manual signature of an authorized signatory,
and such certificate upon any Security shall be conclusive evidence, and the
only evidence, that such Security has been duly authenticated and delivered
hereunder.
The Trustee shall authenticate and deliver Securities for original issue
in an aggregate Principal Amount of $285,000,000 upon a Company Order without
any further action by the Company (or an aggregate Principal Amount not to
exceed $327,750,000 if the over-allotment option ("OVER-ALLOTMENT OPTION")
set forth in Section 2 of the Underwriting Agreement dated
9
<PAGE>
___________, 1999 (as amended from time to time by the parties thereto) by
and between the Company and the Underwriters is exercised in full). The
aggregate Principal Amount of Securities outstanding at any time may not
exceed the amount set forth in the foregoing sentence, except as provided in
Section 2.07 hereof.
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("REGISTRAR"), an
office or agency where Securities may be presented for purchase or payment
("PAYING AGENT") and an office or agency where Securities may be presented
for conversion into Common Stock ("CONVERSION AGENT"). The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars, one or more additional paying
agents and one or more additional conversion agents. The term Paying Agent
includes any additional paying agent. The term Conversion Agent includes any
additional conversion agent, including any named pursuant to Section 4.05
hereof.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar (if not the Trustee
or an Affiliate of the Trustee). The agreement shall implement the provisions
of this Indenture that relate to such agent and the relevant Security. The
Company shall notify the Trustee of the name and address of any such agent.
If the Company fails to maintain a Registrar, Paying Agent or Conversion
Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.07 hereof. The Company or an
Affiliate of the Company may act as Paying Agent, Registrar, Conversion Agent
or co-registrar.
The Company initially appoints the Trustee as Registrar, Conversion
Agent and Paying Agent in connection with the Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY AND SECURITIES IN TRUST.
Except as otherwise provided herein, prior to or on each due date of
payments in respect of any Security, the Company shall deposit with the
Paying Agent a sum of money or securities sufficient to make such payments
when such payments are due. The Company shall require the Paying Agent (if
not the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Holders or the Trustee all money and securities held
by the Paying Agent for the making of payments in respect of the Securities
and shall notify the Trustee of any default by the Company in making any such
payment. At any time during the continuance of any such default, the Paying
Agent shall, upon the written request of the Trustee, forthwith pay to the
Trustee all money and securities so held in trust. If the Company or an
Affiliate of the Company acts as Paying Agent, it shall segregate the money
and securities held by it as Paying Agent and hold it as a separate trust
fund. The Company at any time may require the Paying Agent to pay all money
and securities held by it to the Trustee and to account for any funds and
securities disbursed by it. Upon doing so, the Paying Agent shall have no
further liability for such money or securities.
10
<PAGE>
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Holders. If the Trustee is not the Registrar, the Company shall cause to
be furnished to the Trustee at least semiannually on February 10 and August
10 a listing of Holders dated within 15 days of the date on which the list is
furnished and at such other times as the Trustee may request in writing a
list, in such form and as of such date as the Trustee may reasonably require,
of the names and addresses of Holders.
SECTION 2.06. EXCHANGE AND REGISTRATION OF TRANSFER OF SECURITIES;
RESTRICTIONS ON TRANSFERS; DEPOSITARY.
(a) Upon surrender for registration of transfer of any Security at
any office or agency of the Company designated as Registrar or co-registrar
pursuant to Section 2.03 hereof and satisfaction of the requirements for such
transfer set forth in this Section 2.06, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations and of a like aggregate Principal Amount and bearing such
restrictive legends as may be required by this Indenture.
Securities may be exchanged for a like aggregate Principal Amount of
Securities of other authorized denominations. Securities to be exchanged
shall be surrendered at any office or agency to be maintained by the Company
designated as Registrar or co-registrar pursuant to Section 2.03 hereof and
the Company shall execute and register, and the Trustee shall authenticate
and deliver in exchange therefor, the Security or Securities which the Holder
making the exchange shall be entitled to receive, bearing registration
numbers not contemporaneously outstanding.
All Securities presented for registration of transfer or for exchange
into like Securities, repurchase, redemption or conversion into Common Stock
or payment shall (if so required by the Company, the Trustee, the Registrar
or any co-registrar) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company and
the Trustee, duly executed by the Holder or such Holder's attorney duly
authorized in writing.
No service charge shall be charged to the Holder for any exchange for
like Securities or registration of transfer of Securities, but the Company
may require payment of a sum sufficient to cover any tax, assessments or
other governmental charges that may be imposed in connection therewith.
None of the Company, the Trustee, the Registrar or any co-registrar
shall be required to exchange for like Securities or register a transfer of
(a) any Securities for a period of 15 days next preceding the mailing of
notice of Securities to be redeemed, or (b) any Securities or portions
thereof selected or called for redemption, or (c) any Securities or portion
thereof surrendered for conversion into Common Stock, or (d) any Securities
or portion thereof surrendered for repurchase or redemption (and not
withdrawn) pursuant to Sections 3.08 or 3.09 hereof, respectively.
11
<PAGE>
All Securities issued upon any transfer or exchange for like Securities
shall be valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture as the Securities
surrendered upon such exchange or transfer.
(b) So long as the Securities are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, all
Securities that are so eligible may be represented by a Security in global
form registered in the name of the Depositary or the nominee of the
Depositary, except as otherwise specified below. The transfer and exchange of
beneficial interests in such Security in global form shall be effected
through the Depositary in accordance with this Indenture and the procedures
of the Depositary therefor.
Transfers of interests in a Security in global form will be made in
accordance with the standing instructions and procedures of the Depositary
and its participants. The Trustee shall make appropriate endorsements to
reflect increases or decreases in the Principal Amounts of such Securities in
global form as set forth on the face of the Security in global form to
reflect any such transfers.
Except as provided below, beneficial owners of a Security in global form
shall not be entitled to have certificates registered in their names, will
not receive or be entitled to receive physical delivery of certificates in
definitive form and will not be considered Holders of such Securities in
global form.
(c) Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in this Section 2.06(c)), a Security in global
form may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee or to a successor Depositary or a nominee of such successor
Depositary.
The Depositary shall be a clearing agency registered under the Exchange
Act. The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Securities in global form. Initially, a
Security in global form shall be issued to the Depositary, registered in the
name of Cede & Co., as the nominee of the Depositary, and deposited with the
Custodian for Cede & Co.
If at any time the Depositary for a Security in global form notifies the
Company that it is unwilling or unable to continue as Depositary for such
Security, the Company may appoint a successor Depositary with respect to such
Security. If a successor Depositary for the Security is not appointed by the
Company within 90 days after the Company receives such notice, the Company
will execute, and the Trustee, upon receipt of an Officers' Certificate for
authentication and delivery of Securities, will authenticate and deliver,
Securities in certificated form, in an aggregate Principal Amount equal to
the Principal Amount of the Security in global form, in exchange for such
Security in global form.
Securities in certificated form issued in exchange for all
or a part of a Security in global form pursuant to this Section 2.06 shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect participants
or otherwise, shall instruct the Trustee. Upon execution and authentication,
the Trustee shall
12
<PAGE>
deliver such Securities in certificated form to the Persons in whose names
such Securities in certificated form are so registered.
At such time as all interests in a Security in global form have been
redeemed, converted, exchanged, repurchased or canceled for Securities in
certificated form, or transferred to a transferee who receives Securities in
certificated form, such Security in global form shall be, upon receipt
thereof, canceled by the Trustee in accordance with the standing procedures
and instructions existing between the Custodian and Depositary. At any time
prior to such cancellation, if any interest in a Security in global form is
exchanged for Securities in certificated form, redeemed, converted,
exchanged, repurchased by the Company or canceled, or transferred for part of
a Security in global form, the Principal Amount of such Security in global
form shall, in accordance with the standing procedures and instructions
existing between the Custodian and the Depositary, be reduced or increased,
as the case may be, and an endorsement shall be made on such Security in
global form, by the Trustee or the Custodian, at the direction of the
Trustee, to reflect such reduction or increase.
SECTION 2.07. REPLACEMENT SECURITIES.
If (a) any mutilated Security is surrendered to the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company
or the Trustee that such Security has been acquired by a bona fide purchaser,
the Company shall execute and, upon its written request, the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in
lieu of any such destroyed, lost or stolen Security, a new Security of like
tenor and Principal Amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be repurchased
or redeemed by the Company pursuant to Article 3 hereof, the Company in its
discretion may, instead of issuing a new Security, pay, repurchase or redeem
such Security, as the case may be.
Upon the issuance of any new Securities under this Section 2.07, the
Company may, as a condition to such issuance, require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses
of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 2.07 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the
mutilated destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all benefits of this Indenture equally
and proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section 2.07 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
13
<PAGE>
SECTION 2.08. OUTSTANDING SECURITIES; DETERMINATIONS OF HOLDERS' ACTION.
Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those paid pursuant to Section 4.01 hereof, those replaced or
paid pursuant to Section 2.07 hereof and those described in this Section 2.08
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate thereof holds the Security; PROVIDED, HOWEVER, that
in determining whether the Holders of the requisite Principal Amount of
Securities have given or concurred in any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the
Company or any Affiliate of the Company shall be disregarded and deemed not
to be outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trust Officer actually
knows to be so owned shall be so disregarded unless written notice of such
ownership is received by the Trustee at the Corporate Trust Office of the
Trustee in accordance with Section 13.02 hereof and such notice references
the Securities and this Indenture. Subject to the foregoing, only Securities
outstanding at the time of such determination shall be considered in any such
determination (including, without limitation, determinations pursuant to
Articles 6 and 9 hereof).
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds, in accordance with this Indenture, on a
Redemption Date, or on the Business Day following a Repurchase Date or a
Fundamental Change Repurchase Date, or on Stated Maturity, money or
securities, if permitted hereunder, sufficient to pay Securities payable on
that date, then on and after that date such Securities shall cease to be
outstanding and Original Issue Discount and interest, if any, on such
Securities shall cease to accrue; PROVIDED, that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made.
If a Security is converted in accordance with Article 11 hereof, then
from and after such conversion such Security shall cease to be outstanding
and Original Issue Discount and interest, if any, shall cease to accrue on
such Security.
SECTION 2.09. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities.
If temporary Securities are issued, the Company shall cause definitive
Securities to be prepared without unreasonable delay. After the preparation
of definitive Securities, the
14
<PAGE>
temporary Securities shall be exchangeable for definitive Securities upon
surrender of the temporary Securities at the office or agency of the Company
designated for such purpose pursuant to Section 2.03 hereof, without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like Principal Amount of definitive Securities
of authorized denominations. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture
as definitive Securities.
SECTION 2.10. CANCELLATION.
All Securities surrendered for payment, purchase, conversion, redemption
or registration of transfer or exchange for the Securities shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly canceled by the
Trustee. The Company may not issue new Securities to replace Securities it
has paid for or delivered to the Trustee for cancellation or that any Holder
has converted pursuant to Article 11 hereof. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as
provided in this Section 2.10, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be disposed of
by the Trustee in accordance with its customary procedures.
SECTION 2.11. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of Principal Amount, Issue
Price, accrued Original Issue Discount, Redemption Price, Purchase Price,
Fundamental Change Purchase Price and interest, if any, in respect thereof,
for the purpose of conversion and for all other purposes whatsoever, whether
or not such Security be overdue, and none of the Company, the Trustee or any
agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 2.12. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; PROVIDED, that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" numbers.
15
<PAGE>
SECTION 2.13. RESTICTIONS ON TRANSFER.
(a) Pursuant to the Company's Restated Certificate of Incorporation
(the "CERTIFICATE OF INCORPORATION"), the Company's Capital Stock (as defined
in the Certificate of Incorporation) is subject to certain restriction on
ownership and transfer. These provisions have been implemented in connection
with the License Agreement dated as of August 4, 1997 (the "LICENSE
AGREEMENT") by and between the Company and the Blue Cross Blue Shield
Association (the "BCBSA"), as amended by that certain California Blue Cross
License Addendum dated as of June 12, 1998 (the "LICENSE ADDENDUM"). Subject
to certain limited exceptions, Beneficial Ownership (as defined in the
Certificate of Incorporation) of 5% or more (or, in the case of certain
institutional investors as specified in the License Agreement, 10% or more)
of the outstanding shares of any class of Capital Stock will exceed the
ownership limit set forth in the Certificate of Incorporation (the "OWNERSHIP
LIMIT"). These provisions have been designed to insure that the Company will
not violate the terms of the License Agreement and the License Addendum.
Pursuant to the terms of the letter of even date herewith, the Company and
the BCBSA have agreed to certain provisions with respect to the treatment of
the Securities for purposes of computing the Beneficial Ownership of Capital
Stock of any Holder. For these purposes, a Holder of any particular Principal
Amount of Securities will be deemed to Beneficially Own shares of Common
Stock on any particular date equal to the greater of (i) the number of shares
of Common Stock issuable in the event of conversion for that particular
Principal Amount of Securities at the conversion Rate in effect on such date
or (ii) the quotient determined by dividing the Extrapolated Purchase Price
(as defined below) for that particular Principal Amount of Securities at the
particular date by the Market Price (calculated as if that particular date
were a Repurchase Date). For these purposes, the "EXTRAPOLATED PURCHASE
PRICE" shall be the sum of the Issue Price of the particular Principal Amount
of Securities PLUS the amount of the Original Issue Discount accrued to and
including such date. The purchase by any Holder of any Securities shall
constitute acknowledgment and acceptance by such Holder of such restrictions
on ownership and transfer.
(b) Any Securities shall bear a legend in substantially the
following form:
The Securities represented by this certificate are subject to
restrictions on ownership and transfer. No Holder shall Beneficially
Own shares of Capital Stock in excess of the Ownership Limit (as
defined in Article VII, Section 14 of the Restated Certificate of
Incorporation of the Corporation). Subject to certain limited
specific exemptions, Beneficial Ownership of 5% or more (or, in the
case of certain institutional investors as specified in the License
Agreement, 10% or more) of the outstanding shares of any class of
Capital Stock will exceed the Ownership Limit. For these purposes of
computing the Beneficial Ownership of Capital Stock, a Holder of any
particular Principal Amount of Securities will be deemed to
Beneficially own shares of Common Stock on any particular date equal
to the greater of (i) the number of shares of Common Stock issuable
in the event of conversion for that
16
<PAGE>
particular Principal Amount of Securities at the Conversion Rate in
effect on such date or (ii) the quotient determined by dividing the
Extrapolated Purchase Price (as defined below) for that particular
Principal Amount of Securities at that particular date by the Market
Price (calculated as if that particular date were a Repurchase
Date). For these purposes, the "Extrapolated Purchase Price" shall
be the sum of the Issue Price of the particular Principal Amount of
Securities plus the amount of the Original Issue Discount accrued to
and including such date. These provisions have been designed to
ensure that the Corporation will not violate the terms of the
License Agreement between the Corporation and the Blue Cross and
Blue Shield Association (the "BCBSA"). The Corporation maintains at
its principal executive office a copy of the applicable requirements
of the BCBSA relating to such restrictions on ownership and
transfer, as such requirements may be amended from time to time,
which are open to inspection by the stockholders, at all reasonable
times during office hours. Any Holder who attempts to Beneficially
Own Securities in violation of this limitation must immediately
notify the Corporation. Except as otherwise noted, all capitalized
terms in this legend have the meaning ascribed to them in the
Corporation's Restated Certificate of Incorporation, as the same may
be amended from time to time, a copy of which, including the
restrictions on ownership and transfer, will be sent without charge
to each Holder who so requests. Upon the occurrence of any event
that would cause any Holder to exceed the Ownership Limit, all
Securities and shares of Capital Stock Beneficially Owned by such
Holder in excess of the Ownership Limit will automatically be deemed
Excess Shares and be transferred immediately to the Share Escrow
Agent and be subject to the provisions of the Corporation's Restated
Certificate of Incorporation and the Share Escrow Agent Agreement, a
copy of which the Corporation maintains at its principal executive
offices. The foregoing summary of the restrictions on ownership and
transfer is qualified in its entirety by reference to the
Corporation's Restated Certificate of Incorporation. The purchase by
or transfer to any Holder of any Securities shall constitute
acknowledgment and acceptance by such holder of such restrictions on
ownership and transfer.
(c) Any stock certificate representing the Common Stock
issued upon conversion of a Security shall bear any legend then used by the
Company pertaining to the foregoing restriction on ownership and Transfer.
17
<PAGE>
ARTICLE 3.
REDEMPTION AND REPURCHASES
SECTION 3.01. RIGHT TO REDEEM; NOTICES TO TRUSTEE.
The Company, at its option, may redeem the Securities in accordance with
the provisions of paragraphs 5 and 7 of the Securities. If the Company elects
to redeem Securities pursuant to paragraph 5 of the Securities, it shall
notify the Trustee in writing of the Redemption Date, the Principal Amount of
Securities to be redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 in the case of any redemption of the Securities, at least 30
days before the Redemption Date unless a shorter notice shall be satisfactory
to the Trustee.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities held in definitive form are to be
redeemed pursuant to Section 3.01, the Trustee shall select the definitive
Securities to be redeemed PRO RATA or by lot or by a method the Trustee
considers fair and appropriate (as long as such method is not prohibited by
the rules of any securities exchange or quotation system on which the
Securities are then listed or quoted). The Trustee shall make the selection
at least 25 days, but not more than 65 days, before the Redemption Date from
outstanding definitive Securities not previously called for redemption. The
Trustee may select for redemption portions of the Principal Amount of
Securities that have denominations larger than $1,000. Securities and
portions of them the Trustee selects shall be in Principal Amounts of $1,000
or an integral multiple of $1,000. Except as expressly stated otherwise,
provisions of this Indenture that apply to definitive Securities called for
redemption also apply to portions of definitive Securities called for
redemption. The Trustee shall notify the Company promptly of the definitive
Securities or portions of definitive Securities to be redeemed.
Any interest in a Security held in global form by and registered in the
name of the Depositary or its nominee to be redeemed in whole or in part will
be redeemed in accordance with the procedures of the Depositary.
If any Security selected for partial redemption is converted in part
before termination of the conversion right with respect to the portion of the
Security so selected, the converted portion of such Security shall be deemed
(so far as may be) to be the portion selected for redemption. Securities
which have been converted during a selection of Securities to be redeemed may
be treated by the Trustee as outstanding for the purpose of such selection.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 20 days but not more than 60 days before a Redemption Date, the
Company shall mail a notice of redemption by first-class mail, postage
prepaid, to each Holder of Securities to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
18
<PAGE>
(1) the Redemption Date;
(2) the Redemption Price;
(3) the Conversion Rate;
(4) the name and address of the Paying Agent and Conversion
Agent;
(5) that Securities called for redemption may be converted
at any time before the close of business on the last Trading Day prior to the
Redemption Date;
(6) that Holders who want to convert Securities must satisfy
the requirements set forth in paragraph 9 of the Securities;
(7) that Securities called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(8) if fewer than all the outstanding Securities are to be
redeemed, the certificate number and Principal Amounts of the particular
Securities to be redeemed;
(9) that Original Issue Discount and interest, if any, on
Securities called for redemption will cease to accrue on and after the
Redemption Date; and
(10) the CUSIP number or numbers for the Securities.
The notice, if mailed in the manner herein provided, shall be conclusively
presumed to have been duly given, whether or not the Holder receives such
notice. In any case, failure to give such notice by mail or any defect in the
notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption
of any other Security.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is given, pursuant to Section 3.03 hereof,
Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price stated in the notice except for Securities
which are converted in accordance with the terms of this Indenture.
Upon the later of the Redemption Date or the date such Securities are
surrendered to the Paying Agent, such Securities shall be paid at the
Redemption Price stated in the notice.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Prior to 10 a.m., New York City time, on the Redemption Date, the
Company shall deposit with the Paying Agent (or if the Company or an
Affiliate of the Company is the Paying
19
<PAGE>
Agent, shall segregate and hold in trust) money sufficient to pay the
Redemption Price of all Securities to be redeemed on that date other than
Securities or portions of Securities called for redemption which prior
thereto have been delivered by the Company to the Trustee for cancellation or
have been converted into Common Stock, and on or after the Redemption Date
(unless the Company shall default in the payment of the Securities at the
Redemption Price), Original Issue Discount and interest, if any, on the
Securities or portion of Securities called for redemption shall cease to
accrue and such Securities shall cease after the close of business on the
Business Day immediately preceding the Redemption Date to be convertible into
Common Stock and, except as provided in Section 8.02 hereof, to be entitled
to any benefit or security under this Indenture, and the Holders thereof
shall have no right in respect of such Securities except the right to receive
the Redemption Price thereof and unpaid interest to (but excluding) the
Redemption Date. The Paying Agent shall as promptly as practicable return to
the Company any money, with interest, if any, thereon, not required for that
purpose because of conversion of Securities. If such money is then held by
the Company in trust and is not required for such purpose, it shall be
discharged from such trust.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder a new
Security in an authorized denomination equal in Principal Amount to the
unredeemed portion of the Security surrendered.
SECTION 3.07. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Securities, the Company may arrange
for the purchase and conversion into Common Stock of any Securities called
for redemption by an agreement with one or more investment bankers or other
purchasers to purchase such Securities by paying to the Paying Agent in trust
for the Holders, on or before the close of business on the Redemption Date,
an amount that, together with any amounts deposited with the Paying Agent by
the Company for the redemption of the Securities, is not less than the
Redemption Price to the Redemption Date, of such Securities. Notwithstanding
anything to the contrary contained in this Article 3, the obligation of the
Company to pay the Redemption Price of such Securities shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, any Securities not duly
surrendered for conversion by the Holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and (notwithstanding anything to the contrary
contained in Article 11) surrendered by such purchasers for conversion, all
immediately prior to the close of business on the Redemption Date, subject to
payment of the above amount as aforesaid. The Paying Agent shall hold and pay
to the Holders whose Securities are selected for redemption any such amount
paid to it in the same manner as it would money deposited with it by the
Company for the redemption of Securities. Without the Paying Agent's prior
written consent, no arrangement between the Company and such purchasers for
the purchase and conversion of any Securities shall increase or otherwise
affect any of the powers, duties, responsibilities or obligations of the
Paying Agent as set forth in this Indenture, and the Company agrees to
indemnify the Paying Agent from, and hold it harmless against, any loss,
liability or expense arising out of or in connection with any such
arrangement for the purchase
20
<PAGE>
and conversion of any Securities between the Company and such purchasers,
including the costs and expenses incurred by the Paying Agent in the defense
of any claim or liability arising out of or in connection with the exercise
or performance of any of its powers, duties, responsibilities or obligations
under this Indenture.
SECTION 3.08. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER.
(a) GENERAL. Securities shall be repurchased by the Company
pursuant to paragraph 6 of the Securities as of ___________, 2002,
___________, 2009 and _________, 2014 (each, a "REPURCHASE DATE"), at the
purchase price specified therein (each, a "PURCHASE PRICE") at the option of
the Holder thereof, upon:
(1) delivery to the Paying Agent by the Holder of a written
notice of purchase (a "REPURCHASE NOTICE") at any time from the opening of
business on the date that is 20 Business Days prior to a Repurchase Date
until the close of business on such Repurchase Date, stating:
(A) the certificate number of the Security which the
Holder will deliver to be repurchased;
(B) the portion of the Principal Amount of the Security
which the Holder will deliver to be repurchased, which portion must be $1,000
in Principal Amount or a multiple thereof;
(C) that such Security shall be repurchased as of the
Repurchase Date pursuant to the terms and conditions specified in paragraph 6
of the Securities and in this Indenture; and
(D) if the Company elects, pursuant to a Company
Notice, to pay the Purchase Price to be paid as of such Repurchase Date, in
whole or in part, in Common Stock but such portion of the Purchase Price
shall ultimately be payable to such Holder in Cash because any of the
conditions to the payment of the Purchase Price in Common Stock are not
satisfied prior to or on the Repurchase Date, as set forth in Section 3.08(d)
hereof, whether such Holder elects (x) to withdraw such Repurchase Notice as
to some or all of the Securities to which such Repurchase Notice relates
(stating the Principal Amount and certificate numbers of the Securities as to
which such withdrawal shall relate), or (y) to receive Cash in respect of the
entire Purchase Price for all Securities (or portions thereof) to which such
Repurchase Notice relates; and
(2) delivery of such Security to the Paying Agent prior to,
on or after the Repurchase Date (together with all necessary endorsements) at
the offices of the Paying Agent, such delivery being a condition to receipt
by the Holder of the Purchase Price therefor; PROVIDED, HOWEVER, that such
Purchase Price shall be so paid pursuant to this Section 3.08 only if the
Security so delivered to the Paying Agent shall conform in all respects to
the description thereof in the related Repurchase Notice.
21
<PAGE>
If a Holder, in such Holder's Repurchase Notice (and, in any written
notice of withdrawal of a portion of such Holder's Securities previously
submitted for repurchase pursuant to a Repurchase Notice, the portion that
remains subject to the Repurchase Notice), fails to indicate such Holder's
choice with respect to the election set forth in clause (D) of Section
3.08(a)(1), such Holder shall be deemed to have elected to receive Cash in
respect of the entire Purchase Price for all Securities subject to such
Repurchase Notice in the circumstances set forth in such clause (D).
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.08, a portion of a Security if the Principal Amount of such portion
is $1,000 or an integral multiple of $1,000. Provisions of this Indenture
that apply to the purchase of all of a Security also apply to the repurchase
of such portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of
this Section 3.08 shall be consummated by the delivery of the consideration
to be received by the Holder promptly following the later of the Repurchase
Date and the time of delivery of the Security.
Notwithstanding anything herein to the contrary, any Holder delivering
to the Paying Agent the Repurchase Notice contemplated by this Section
3.08(a) shall have the right at any time prior to the close of business on
the Repurchase Date to withdraw such Repurchase Notice by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section
3.10 hereof.
The Paying Agent shall promptly notify the Company of the receipt by it
of any Repurchase Notice or written notice of withdrawal thereof.
(b) COMPANY'S RIGHT TO ELECT MANNER OF PAYMENT OF PURCHASE PRICE.
The Company may elect with respect to any Repurchase Date to pay the Purchase
Price in respect of the Securities to be purchased pursuant to Section
3.08(a) as of such Repurchase Date, in U.S. legal tender ("CASH") or Common
Stock, or in any combination of Cash and Common Stock, subject to the
conditions set forth in Sections 3.08(c) and (d). The Company shall
designate, in the Company Notice delivered pursuant to Section 3.08(e),
whether the Company will repurchase the Securities for Cash or Common Stock,
or, if a combination thereof, the percentages of the Purchase Price of
Securities in respect of which it will pay in Cash and/or Common Stock;
PROVIDED that the Company will pay Cash for fractional interests in shares of
Common Stock. For purposes of determining the existence of potential
fractional interests, all Securities subject to repurchase by the Company
held by a Holder shall be considered together (no matter how many separate
certificates are to be presented). Each Holder whose Securities are
repurchased pursuant to this Section 3.08 shall receive the same percentage
of Cash and/or Common Stock in payment of the Purchase Price for such
Securities, except (i) as provided in Section 3.08(d) with regard to the
payment of Cash in lieu of fractional interests in shares of Common Stock and
(ii) in the event that the Company is unable to repurchase the Securities of
a Holder or Holders for Common Stock because any necessary qualifications or
registrations of the Common Stock under applicable federal or state
securities laws cannot be obtained, the Company may repurchase the Securities
of such Holder or Holders for Cash. The Company may not change its election
with respect to the consideration (or components or percentages of components
thereof)
22
<PAGE>
to be paid once the Company has given its Company Notice to Holders except
pursuant to this Section 3.08(b) or Section 3.08(d).
At least one Business Day before the Company Notice Date
(as defined in Section 3.08(c)), the Company shall deliver an Officers'
Certificate to the Trustee specifying:
(i) the manner of payment selected by the Company,
(ii) the information required by Section 3.08(e),
(iii) if the Company elects to pay the Purchase Price, or a
specified percentage thereof, in Common Stock, that the conditions to such
manner of payment set forth in Section 3.08(d) have been or will be complied
with, and
(iv) whether the Company desires the Trustee to give the Company
Notice required by Section 3.08(e).
(c) REPURCHASE WITH CASH. At the option of the Company, the
Purchase Price of Securities in respect of which a Repurchase Notice pursuant
to Section 3.08(a) has been given, or a specified percentage thereof, may be
paid by the Company with Cash equal to the aggregate Purchase Price, or such
specified percentage thereof, as the case may be, of such Securities. If the
Company elects to repurchase Securities with Cash, a Company Notice as
provided in Section 3.08(e) shall be sent to Holders (and to beneficial
owners as required by applicable law) not less than 20 Business Days prior to
the Repurchase Date (the "COMPANY NOTICE DATE").
(d) PAYMENT BY ISSUANCE OF COMMON STOCK. At the option of the
Company, the Purchase Price of Securities in respect of which a Repurchase
Notice pursuant to Section 3.08(a) has been given, or a specified percentage
thereof, may be paid by the Company by the issuance of a number of shares of
Common Stock equal to the quotient obtained by dividing (i) the amount of
Cash to which the Holders would have been entitled had the Company elected to
pay all or such specified percentage, as the case may be, of the Purchase
Price of such Securities in Cash by (ii) the Market Price of a share of
Common Stock, subject to the next succeeding paragraph.
The Company will not issue a fractional share of Common Stock in payment
of the Purchase Price. Instead the Company will pay Cash for the current
market value of the fractional share. The current market value of a fraction
of a share shall be determined by multiplying the Market Price by such
fraction and rounding the product to the nearest whole cent. It is understood
that if a Holder elects to have more than one Security repurchased, the
number of shares of Common Stock shall be based on the aggregate amount of
Securities to be repurchased.
If the Company elects to repurchase the Securities by the issuance of
shares of Common Stock, a Company Notice as provided in Section 3.08(e) shall
be sent to the Holders (and to beneficial owners as required by applicable
law) not later than the Company Notice Date.
The Company's right to exercise its election to repurchase the
Securities pursuant to Section 3.08 through the issuance of shares of Common
Stock shall be conditioned upon:
23
<PAGE>
(i) the Company having given timely Company Notice of election to
purchase all or a specified percentage of the Securities with Common Stock as
provided herein;
(ii) the registration of the shares of Common Stock to be issued
in respect of the payment of the specified percentage of the Purchase Price
under the Securities Act; unless the shares of Common Stock so issued can be
freely resold by the Holder (unless such Holder is the Company or an
Affiliate of the Company) receiving such shares without registration under
the Securities Act;
(iii) any necessary qualification or registration under applicable
state securities laws or the availability of an exemption from such
qualification and registration; and
(iv) the receipt by the Trustee of an Officers' Certificate and an
Opinion of Counsel each stating that (A) the terms of the issuance of the
Common Stock are in conformity with this Indenture and (B) the shares of
Common Stock to be issued by the Company in payment of the specified
percentage of the Purchase Price in respect of Securities have been duly
authorized and, when issued and delivered pursuant to the terms of this
Indenture in payment of the specified percentage of the Purchase Price in
respect of Securities, will be validly issued, fully paid and nonassessable,
and, in the case of such Officers' Certificate, stating that conditions (i),
(ii) and (iii) above have been satisfied and, in the case of such Opinion of
Counsel, stating that conditions (ii) and (iii) above have been satisfied.
Such Officers' Certificate shall also set forth the number of shares of
Common Stock to be issued for each $1,000 Principal Amount of Securities and
the Sale Price of a share of Common Stock on each Trading Day during the
period during which the Market Price is calculated and ending on the
Repurchase Date. The Company may elect to pay the Purchase Price (or any
portion thereof) in Common Stock only if the information necessary to
calculate the Market Price is reported in a daily newspaper of national
circulation. If such conditions are not satisfied with respect to a Holder or
Holders prior to or on the Repurchase Date and the Company elected to
repurchase the Securities to be repurchased as of such Repurchase Date
pursuant to this Section 3.08 through the issuance of shares of Common Stock,
the Company shall pay the entire Purchase Price in respect of such Securities
of such Holder or Holders in Cash.
(e) NOTICE OF ELECTION. The Company's notices of election to
repurchase with Cash or Common Stock, or any combination thereof, shall be
sent to the Holders (and to beneficial owners as required by applicable law)
in the manner provided in Section 13.02 hereof at the time specified in
Section 3.08(c) or (d) hereof, as applicable (each, a "COMPANY NOTICE").
Such Company Notices shall state the manner of payment elected and shall
contain the following information:
In the event the Company has elected to pay a Purchase Price (or a
specified percentage thereof) with Common Stock, the Company Notice shall:
(1) state that each Holder will receive Common Stock with a
Market Price determined as of a specified date prior to the Repurchase Date
equal to such specified
24
<PAGE>
percentage of the Purchase Price of the Securities held by such Holder
(except any Cash amount to be paid in lieu of a fractional share); and
(2) set forth the method of calculating the Market Price and
state that because the Market Price of Common Stock will be determined prior
to the Repurchase Date, the Holders will bear the market risk with respect to
the value of the Common Stock to be received from the date such Market Price
is determined to the Repurchase Date.
In any case, each Company Notice shall include a form of Repurchase
Notice to be completed by a Holder and shall state:
(i) the Purchase Price and Conversion Rate;
(ii) the name and address of the Paying Agent and the Conversion
Agent;
(iii) that Securities as to which a Repurchase Notice has been
given may be converted only if the applicable Repurchase Notice has been
withdrawn in accordance with the terms of this Indenture;
(iv) that Securities must be surrendered to the Paying Agent to
collect payment;
(v) that the Purchase Price for any Security as to which a
Repurchase Notice has been given and not withdrawn will be paid promptly
following the later of the Repurchase Date and the time of surrender of such
Security as described in clause (iv) above;
(vi) the procedures the Holder must follow under Section 3.08
hereof;
(vii) briefly, the conversion rights of the Securities; and
(viii) the procedures for withdrawing a Repurchase Notice
(including, without limitation, for a conditional withdrawal pursuant to the
terms of Section 3.08(a)(1)(D) or Section 3.10 hereof).
At the Company's request, the Trustee shall give the Company Notice in
the Company's name and at the Company's expense; PROVIDED, HOWEVER, that, in
all cases, the text of the Company Notice shall be prepared by the Company.
(f) COVENANTS OF THE COMPANY. All shares of Common Stock delivered
upon conversion or repurchase of the Securities shall be newly issued shares
or treasury shares, shall be fully paid and nonassessable and shall be free
from preemptive rights and free of any lien or adverse claim.
The Company shall use its best efforts to list or cause to have quoted
all such shares of Common Stock on each United States national securities
exchange or over-the-counter or other domestic market on which the Common
Stock is then listed or quoted.
25
<PAGE>
(g) PROCEDURE UPON PURCHASE. On the Business Day following the
Repurchase Date, the Company shall deposit with the Paying Agent Cash (in
respect of a Cash purchase under Section 3.08(c) hereof or for fractional
interests, as applicable), or shares of Common Stock, or a combination
thereof, as applicable, sufficient to pay the aggregate Purchase Price in
respect of the Securities to be repurchased pursuant to this Section 3.08.
As soon as practicable after the Repurchase Date, the Company shall deliver
to each Holder entitled to receive Common Stock, through the Paying Agent, a
certificate for the number of full shares of Common Stock, as applicable,
issuable in payment of such Purchase Price and Cash in lieu of any fractional
interests. The Person in whose name the certificate for Common Stock is
registered shall be treated as a holder of record following the Repurchase
Date. Subject to Section 3.08(d) hereof, no payment or adjustment will be
made for dividends on the Common Stock the record date for which occurred on
or prior to the Repurchase Date.
(h) TAXES. If a Holder of a Security is paid in Common Stock, the
Company shall pay any documentary, stamp or similar issue or transfer tax due
on such issue of shares of Common Stock. However, the Holder shall pay any
such tax which is due because the Holder requests the shares of Common Stock
to be issued in a name other than the Holder's name. The Paying Agent may
refuse to deliver the certificates representing the Common Stock being issued
in a name other than the Holder's name until the Paying Agent receives a sum
sufficient to pay any tax which will be due because the shares of Common
Stock are to be issued in a name other than the Holder's name. Nothing
herein shall preclude any income tax withholding required by law or
regulations.
SECTION 3.09. REPURCHASE AT OPTION OF THE HOLDER UPON A FUNDAMENTAL
CHANGE.
(a) If a Fundamental Change shall occur at any time prior to
__________, 2019, each Holder of Securities shall have the right, at such
Holder's option, to require the Company to repurchase any or all of Holder's
Securities on the date that is 45 days after the date of the Company's notice
of such Fundamental Change (the "FUNDAMENTAL CHANGE REPURCHASE DATE") (or if
such date is not a Business Day, the next succeeding Business Day). The
Securities may be repurchased in integral multiples of $1,000 of Principal
Amount. The Company shall repurchase such Securities at a price (the
"FUNDAMENTAL CHANGE PURCHASE PRICE") equal to the Issue Price plus accrued
Original Issue Discount and interest, if any, to the Fundamental Change
Repurchase Date. No Securities may be repurchased at the option of the
Holders as a result of a Fundamental Change if there has occurred and is
continuing an Event of Default (other than a default in the payment of the
Fundamental Change Purchase Price with respect to such Securities).
(b) The Company, or at its request (which must be received by the
Trustee at least three Business Days prior to the date the Trustee is
requested to give such notice as described below) the Trustee in the name of
and at the expense of the Company, shall mail to all Holders of record of the
Securities a notice (a "FUNDAMENTAL CHANGE REPURCHASE NOTICE") of the
occurrence of a Fundamental Change and of the repurchase right arising as a
result thereof on or before the tenth day after the occurrence of such
Fundamental Change. The Company shall promptly furnish the Trustee a copy of
such notice.
(c) For a Security to be so repurchased at the option of the
Holder, the Paying
26
<PAGE>
Agent must receive such Security with the form entitled "Option to Elect
Repurchase Upon a Fundamental Change" on the reverse thereof duly completed,
together with such Security duly endorsed for transfer, on or before the 45th
day after the date of such notice (or if such 45th day is not a Business Day,
the immediately preceding Business Day). All questions as to the validity,
eligibility (including time of receipt) and acceptance of any Security for
repurchase shall be determined by the Company, whose determination shall be
final and binding.
SECTION 3.10. EFFECT OF REPURCHASE NOTICE OR FUNDAMENTAL CHANGE
REPURCHASE NOTICE.
Upon receipt by the Company of the Repurchase Notice or Fundamental
Change Repurchase Notice specified in Section 3.08(a) hereof or Section
3.09(b) hereof, as applicable, the Holder of the Security in respect of which
such Repurchase Notice or Fundamental Change Repurchase Notice, as the case
may be, was given shall (unless such Repurchase Notice or Fundamental Change
Repurchase Notice is withdrawn as specified in the following two paragraphs)
thereafter be entitled to receive solely the Purchase Price or Fundamental
Change Purchase Price, as the case may be, with respect to such Security.
Such Purchase Price or Fundamental Change Purchase Price shall be paid to
such Holder promptly following the later of (x) the Repurchase Date or the
Fundamental Change Repurchase Date, as the case may be, with respect to such
Security (provided the conditions in Section 3.08(a) hereof or Section
3.09(c) hereof, as applicable, have been satisfied) and (y) the time of
delivery of such Security to the Paying Agent by the Holder thereof in the
manner required by Section 3.08(a) hereof or Section 3.09(c) hereof, as
applicable. Securities in respect of which a Repurchase Notice or Fundamental
Change Repurchase Notice, as the case may be, has been given by the Holder
thereof may not be converted for shares of Common Stock on or after the date
of the delivery of such Repurchase Notice (or Fundamental Change Repurchase
Notice, as the case may be), unless such Repurchase Notice (or Fundamental
Change Repurchase Notice, as the case may be) has first been validly
withdrawn as specified in the following two paragraphs.
A Repurchase Notice or Fundamental Change Repurchase Notice, as the case
may be, may be withdrawn by means of a written notice of withdrawal delivered
to the office of the Paying Agent at any time prior to the close of business
on the Repurchase Date or the Fundamental Change Repurchase Date, as the case
may be, to which it relates specifying:
(1) the certificate number of the Security in respect of
which such notice of withdrawal is being submitted,
(2) the Principal Amount of the Security with
respect to which such notice of withdrawal is being
submitted, and
(3) the Principal Amount, if any, of such Security which
remains subject to the original Repurchase Notice or Fundamental Change
Repurchase Notice, as the case may be, and which has been or will be
delivered for purchase or redemption by the Company.
A written notice of withdrawal of a Repurchase Notice may be in the form
of (i) a conditional withdrawal contained in a Repurchase Notice pursuant to
the terms of Section 3.08(a)(1)(D) hereof or (ii) a conditional withdrawal
containing the information set forth
27
<PAGE>
in Section 3.08(a)(1)(D) hereof and the preceding paragraph and contained in
a written notice of withdrawal delivered to the Paying Agent as set forth in
the preceding paragraph.
There shall be no repurchase of any Securities pursuant to Section 3.08
hereof (other than through the issuance of Common Stock in payment of the
Purchase Price, including Cash in lieu of any fractional shares) or
repurchase pursuant to Section 3.09 hereof if there has occurred (prior to,
on or after, as the case may be, the giving, by the Holders of such
Securities, of the required Repurchase Notice or Fundamental Change
Repurchase Notice, as the case may be) and is continuing an Event of Default
(other than a default in the payment of the Purchase Price or Fundamental
Change Purchase Price, as the case may be, with respect to such Securities).
SECTION 3.11. DEPOSIT OF PURCHASE PRICE OR FUNDAMENTAL CHANGE PURCHASE
PRICE.
At or before 10 a.m., New York City time, on the Business Day following
a Repurchase Date or a Fundamental Change Repurchase Date, as the case may
be, the Company shall deposit with the Trustee or with the Paying Agent (or,
if the Company or an Affiliate of the Company is acting as the Paying Agent,
shall segregate and hold in trust as provided in Section 2.04 hereof) an
amount of money and/or securities, if permitted hereunder, sufficient to pay
the aggregate Purchase Price or Fundamental Change Purchase Price, as the
case may be, of all the Securities or portions thereof which are to be
purchased as of such Repurchase Date or Fundamental Change Repurchase Date,
as the case may be.
SECTION 3.12. SECURITIES REPURCHASED IN PART.
Any Security that is to be repurchased only in part shall be surrendered
at the office of the Paying Agent (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing) and the Company
shall execute and the Trustee shall authenticate and deliver to the Holder of
such Security, without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder in aggregate Principal
Amount equal to, and in exchange for, the portion of the Principal Amount of
the Security so surrendered which is not repurchased.
SECTION 3.13. COVENANT TO COMPLY WITH SECURITIES LAWS PON REPURCHASE OF
SECURITIES.
In connection with any repurchase of Securities under Sections 3.08 or
3.09 hereof, the Company shall (i) comply with Rule 13e-4 (which term, as
used herein, includes any successor provision thereto) under the Exchange
Act, if applicable, (ii) file the related Schedule 13E-4 (or any successor
schedule, form or report) under the Exchange Act, if applicable, and (iii)
otherwise comply with all Federal and state securities laws so as to permit
the rights and obligations under Sections 3.08 and 3.09 to be exercised in
the time and in the manner specified in Sections 3.08 and 3.09.
28
<PAGE>
SECTION 3.14. REPAYMENT TO THE COMPANY.
The Trustee and the Paying Agent shall return to the Company any Cash or
shares of Common Stock that remain unclaimed as provided in paragraph 14 of
the Securities, together with interest or dividends, if any, thereon, held by
them for the payment of a Purchase Price or Fundamental Change Purchase
Price, as the case may be; PROVIDED, HOWEVER, that to the extent that the
aggregate amount of Cash or shares of Common Stock deposited by the Company
pursuant to Section 3.11 hereof exceeds the aggregate Purchase Price or
Fundamental Change Purchase Price, as the case may be, of the Securities or
portions thereof which the Company is obligated to repurchase as of the
Repurchase Date or Fundamental Change Repurchase Date, as the case may be,
then promptly after the Business Day following the Repurchase Date or
Fundamental Change Repurchase Date, as the case may be, the Trustee and the
Paying Agent shall return any such excess to the Company together with
interest or dividends, if any, thereon.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall promptly pay or cause to be paid all payments in
respect of the Securities on the dates and in the manner provided in the
Securities or pursuant to this Indenture. Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price,
Fundamental Change Purchase Price and interest, if any, shall be considered
paid on the applicable date due or, in the case of a Purchase Price or
Fundamental Change Purchase Price, on the Business Day following the
applicable Repurchase Date or Fundamental Change Repurchase Date, as the case
may be, if on such date the Trustee or the Paying Agent holds, in accordance
with this Indenture, money or securities, if permitted hereunder, sufficient
to pay all such amount then due.
The Company shall pay interest on overdue amounts at the rate set forth
in paragraph 1 of the Securities and it shall pay interest on overdue
interest at the same rate compounded semiannually (to the extent that the
payment of such interest shall be legally enforceable), which interest on
overdue interest shall accrue from the date such amounts became overdue and
shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.
SECTION 4.02. FINANCIAL INFORMATION; SEC REPORTS.
The Company will deliver to the Trustee (a) as soon as available and in
any event within 90 days after the end of each fiscal year of the Company (i)
a consolidated balance sheet of the Company and its Subsidiaries as of the
end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and cash flows for such fiscal year, all
reported on by an independent public accountant of nationally recognized
standing and (ii) a report containing a management's discussion and analysis
of the financial condition and results of operations and a description of the
business and properties of the Company and (b) as soon as available and in
any event within 45 days after the end of each of the first three quarters of
each fiscal year of the Company (i) an unaudited consolidated financial
report for such quarter and (ii) a report containing a management's
discussion and analysis of the financial condition and
29
<PAGE>
results of operations of the Company; PROVIDED that the foregoing shall not
be required for any fiscal year or quarter, as the case may be, with respect
to which the Company files or expects to file with the Trustee an annual
report or quarterly report, as the case may be, pursuant to the third
paragraph of this Section 4.02.
At any time the Company is not subject to either Section 13 or 15(d) of
the Exchange Act, the Company shall at the request of any Holder (or holders
of Common Stock issued upon conversion of the Securities) provide to such
Holder (or holders of such Common Stock) and any prospective purchaser
designated by such Holders (or holders of such Common Stock), as the case may
be, such information, if any, required by Rule 144A(d)(4) under the
Securities Act.
The Company shall file with the Trustee, within 15 days after it files
such annual and quarterly reports, information, documents and other reports
with the SEC, copies of its annual report and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from the information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.03. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company, an Officers' Certificate in which one of
the two Officers signing such certificate is either the principal executive
officer, principal financial officer or principal accounting officer of the
Company, stating whether or not to the knowledge of the signers thereof the
Company is in Default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall
be in Default, specifying all such Defaults and the nature and status thereof
of which the signers may have knowledge.
The Company will deliver to the Trustee, as soon as possible and in any
event within five days, upon becoming aware of any Default in the performance
or observance of any covenant, agreement or condition contained in this
Indenture, or any Event of Default, an Officers' Certificate specifying with
particularity such Default or Event of Default and further stating what
action the Company has taken, is taking or proposes to take with respect
thereto.
Any notice required to be given under this Section 4.03 shall be
delivered to the Trustee at its Corporate Trust Office.
30
<PAGE>
SECTION 4.04. FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purposes of this Indenture.
SECTION 4.05. MAINTENANCE OF OFFICE OR AGENCY.
The Company will appoint in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of
transfer, exchange, purchase, redemption or conversion and where notices and
demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office or agency in the Borough of Manhattan,
The City of New York, shall be the Corporate Trust Office of the Trustee,
and shall be the office or agency for all of the aforesaid purposes unless
the Company shall appoint some other office or agency for such purposes and
shall give prompt written notice to the Trustee of the location, and any
change in the location, of such other office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes.
SECTION 4.06. EXISTENCE.
Subject to Article 5 hereof, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence under the laws of its jurisdiction of incorporation, and to
maintain all qualifications, permits and licenses (including, without
limitation, all licenses and certifications required pursuant to any health
maintenance organization regulation in connection with the ownership or
operation of health maintenance organizations and the conduct of the health
care, managed care and health insurance businesses and businesses incidental
thereto) necessary in the normal conduct of its business; PROVIDED, HOWEVER,
that the Company shall not be required to maintain any such qualification,
permit or license if the Company shall determine that the maintenance thereof
is no longer desirable in the conduct of the business of the Company and that
the loss thereof is not disadvantageous in any material respect to the
Holders.
31
<PAGE>
SECTION 4.07. CALCULATION OF ORIGINAL ISSUE DISCOUNT.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of Original Issue
Discount (including daily rates and accrual periods) accrued on the
outstanding Securities as of the end of such year and (ii) such other
specific information relating to such Original Issue Discount as may then be
relevant under the Internal Revenue Code of 1986, as amended from time to
time.
ARTICLE 5.
SUCCESSOR CORPORATION
SECTION 5.01. WHEN THE COMPANY MAY MERGE OR TRANSFER ASSETS.
The Company shall not consolidate with or merge with or into any other
Person (other than in a merger or consolidation in which the Company is the
surviving Person) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless:
(i) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an entirety shall be a corporation, limited
liability company, partnership or trust organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia, and shall expressly assume by an indenture supplemental hereto,
executed and delivered to the Trustee in form reasonably satisfactory to the
Trustee, the due and punctual payment of the Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price,
Fundamental Change Purchase Price or interest, if any, on the Securities,
according to their tenor, and the due and punctual performance of all of the
covenants and obligations of the Company under the Securities and this
Indenture, and shall have provided for conversion rights in accordance with
this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(iii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such
32
<PAGE>
supplemental indenture, comply with this Article 5 and that all conditions
precedent herein provided for relating to such transaction have been
satisfied.
The successor Person formed by such consolidation or into which the
Company is merged or the successor Person to which such conveyance, transfer
or lease is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same
effect as if such successor had been named as the Company herein; and
thereafter, except in the case of a lease, the Company shall be discharged
from all obligations and covenants under this Indenture and the Securities.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" occurs if:
(1) the Company defaults in the payment of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price or a Fundamental Change Purchase Price on any Security when
the same becomes due and payable at its Stated Maturity, upon redemption,
upon declaration, when due for repurchase by the Company or otherwise,
whether or not such payment shall be prohibited by Article 10 hereof;
(2) after exercise of the option provided for in Section
12.01 hereof following a Tax Event, the Company defaults in the payment of
interest upon any Security when such interest becomes due and payable, and
such default continues for a period of 30 days;
(3) failure of the Company to perform or comply with the
provisions of Section 11.02 hereof, and such failure continues for a period
of 10 days;
(4) the Company fails to comply with any of its agreements
or covenants in the Securities or this Indenture (other than those referred
to in clauses (1) through (3) above) and such failure continues for 60 days
after receipt by the Company of a Notice of Default;
(5) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization
of the Company under any Bankruptcy Law, and such decree or order shall have
continued undischarged and unstayed for a period of 60 consecutive days; or a
decree or order of a court having jurisdiction in the premises of the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy
or insolvency of the Company or of its property, or for the winding-up or
liquidation of its affairs, shall have been entered, and such decree or order
shall have remained in force undischarged and unstayed of a period of 60
consecutive days; or
(6) the Company shall institute proceedings to be
adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or
consent seeking reorganization under any Bankruptcy Law, or shall consent to
the filing of any such petition, or shall consent to the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of
it or of its property or shall make an
33
<PAGE>
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due.
A Default under clause (4) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
Principal Amount of the Securities at the time outstanding notify the Company
and the Trustee, of the Default and the Company does not cure such Default
(and such Default is not waived) within the time specified in clause (2)
above after actual receipt of such notice (a "NOTICE OF DEFAULT"). Any such
notice must specify the Default, demand that it be remedied and state that
such notice is a Notice of Default.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
Section 6.01(5) or (6) hereof) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in aggregate Principal
Amount of the Securities at the time outstanding by notice to the Company and
the Trustee, may declare the Issue Price and accrued Original Issue Discount
(or, if the Securities have been converted to Semiannual Coupon Debentures,
the Restated Principal Amount, plus accrued and unpaid interest) to the date
of declaration on all the Securities to be immediately due and payable. Upon
such a declaration, such Issue Price and accrued Original Issue Discount (or,
if the Securities have been converted to Semiannual Coupon Debentures, the
Restated Principal Amount, plus accrued and unpaid interest) shall become and
be due and payable immediately. If an Event of Default specified in Section
6.01(5) or (6) hereof occurs and is continuing, the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to
Semiannual Coupon Debentures, the Restated Principal Amount, plus accrued and
unpaid interest) on all the Securities shall become and be immediately due
and payable without any declaration or other act on the part of the Trustee
or any Holders. The Holders of a majority in aggregate Principal Amount of
the Securities at the time outstanding, by notice to the Company and the
Trustee (and without notice to any other Holder), may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment
or decree and if all existing Events of Default have been cured or waived
except nonpayment of the Issue Price and accrued Original Issue Discount (or,
if the Securities have been converted to Semiannual Coupon Debentures, the
Restated Principal Amount, plus accrued and unpaid interest) that have become
due solely as a result of acceleration and if all amounts due to the Trustee
under Section 7.07 hereof have been paid. No such rescission shall affect any
subsequent or other Default or Event of Default or impair any consequent
right.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to
Semiannual Coupon Debentures, the Restated Principal Amount, plus accrued and
unpaid interest) on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does not
possess any of the Securities or does not produce any of the Securities in
the proceeding. A delay or omission by the Trustee or any Holder in
exercising any right or remedy accruing upon an Event of Default
34
<PAGE>
shall not impair the right or remedy or constitute a waiver of, or
acquiescence in, the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding, by notice to the Company and the Trustee
(and without notice to any other Holder), may waive an existing Default or
Event of Default and its consequences except (1) an Event of Default
described in Section 6.01(l) or (2) hereof, (2) a Default in respect of a
provision that under Section 9.02 hereof cannot be amended without the
consent of each Holder affected or (3) a Default that constitutes a failure
to convert any Security in accordance with the terms of Article 11 hereof.
When a Default or Event of Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any consequent right.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with any law or this
Indenture or that the Trustee determines in good faith is unduly prejudicial
to the rights of other Holders or would involve the Trustee in personal
liability unless the Trustee is offered indemnity reasonably satisfactory to
it.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Company and the Trustee written
notice stating that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate Principal
Amount of the Securities at the time outstanding make a written request to
the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense satisfactory to
the Trustee;
(4) the Trustee does not comply with the request within 60
days after receipt of the notice, the request and the offer of security or
indemnity; and
(5) the Holders of a majority in aggregate Principal Amount
of the Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 60 day period.
A Holder may not use this Indenture to prejudice the rights of
any other Holder or to obtain a preference or priority over any other Holder.
35
<PAGE>
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, but subject to
Article 10, the right of any Holder to receive payment of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price, Fundamental Change Purchase Price or interest, if any, in
respect of the Securities held by such Holder, on or after the respective due
dates expressed in the Securities or any date of redemption, or to bring suit
for the enforcement of any such payment on or after such respective dates or
the right to convert the Securities in accordance with Article 11, shall not
be impaired or affected adversely without the consent of each such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default described in Section 6.01(1) or (2) hereof occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount owing
with respect to the Securities and the amounts provided for in Section 7.07
hereof.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the Principal Amount, Issue
Price, accrued Original Issue Discount, Redemption Price, Purchase Price,
Fundamental Change Purchase Price or interest, if any, in respect of the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of any such amount) shall be
entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Fundamental Change Purchase Price or interest, if any,
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 7.07 hereof.
36
<PAGE>
If the Trustee does not file a claim or proof of debt in the form
required in such proceedings prior to 30 days before the expiration of the
time to file such claims or proofs, then any holder or holders of Senior
Indebtedness or their representative or representatives shall have the right
to demand, sue for, collect, receive and receipt for the payments and
distributions in respect of the Securities which are required to be paid or
delivered to the holders of Senior Indebtedness as provided in this Article
and to file and prove all claims therefor and to take all such other action
in the name of the holders or otherwise as such holders of Senior
Indebtedness or the Representative thereof may determine to be necessary or
appropriate for the enforcement of the provisions of this Article.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claims of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to holders of Senior Indebtedness to the extent required by
Article 10 hereof;
THIRD: to Holders for amounts due and unpaid on the Securities for the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Fundamental Change Purchase Price or interest, if any,
as the case may be, ratably, without preference or priority of any kind,
according to such amounts due and payable on the Securities; and
FOURTH: the balance, if any, to the Company.
The Trustee may fix a proposed record date and payment date for any
payment to Holders pursuant to this Section 6.10 and shall notify the Company
in writing with respect to such proposed record date and payment date. At
least 15 days before such record date, the Company (or the Trustee at the
request of the Company) shall mail to each Holder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as Trustee, a court in its discretion may require the filing by any
party litigant (other than the Trustee) in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not
apply to a suit by the Trustee, any suit by a Holder for the enforcement of
37
<PAGE>
the payment of the Principal Amount, accrued Original Issue Discount,
Redemption Price, Purchase Price, Fundamental Change Purchase Price or
interest, if any, on or after the due date expressed in such Security or to
any suit for the enforcement of the right to convert the Security pursuant to
Article 11, or a suit by Holders of more than 10% in aggregate Principal
Amount of the Securities at the time outstanding.
SECTION 6.12. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury
or other law wherever enacted, now or at any time hereafter in force, which
would prohibit or forgive the Company from paying all or any portion of the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price or Fundamental Change Purchase Price in respect of
Securities, or any interest on any such amounts, as contemplated herein, or
which may affect the covenants or the performance of this Indenture; and the
Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such laws and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or her
own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However, in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
This Section 7.01(b) shall be in lieu of Section 315(a) of the TIA and such
Section 315(a) is hereby expressly excluded from this Indenture, as permitted
by the TIA.
38
<PAGE>
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this paragraph (c) does not limit the effect of paragraph
(b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
Subparagraphs (c)(1),(2) and (3) shall be in lieu of Sections 315(d)(1),
315(d)(2) and 315(d)(3) of the TIA and such Sections 315(d)(1), 315(d)(2) and
315(d)(3) are hereby expressly excluded from this Indenture, as permitted by
the TIA.
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section
7.01.
(e) The Trustee may refuse to perform any duty or exercise any
right or power or extend or risk its own funds or otherwise incur any
financial liability unless it receives indemnity reasonably satisfactory to
it against any loss, liability or expense.
(f) Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on any document reasonably
believed by it to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may
require a Company Order, an Officers' Certificate or an Opinion of Counsel.
The Trustee shall not be liable for any action it takes or omits to take in
good faith in reliance on a Company Order, Officers' Certificate or Opinion
of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) Subject to the provisions of Section 7.01(c), the Trustee
shall not be liable for any action it takes or omits to take in good faith
which it believes to be authorized or within its rights or powers.
(e) The Trustee may consult with counsel selected by it and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any
39
<PAGE>
action taken or suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture, unless the Holders shall
have offered to the Trustee reasonable security or indemnity reasonably
satisfactory to it against the costs, expenses and liabilities which may be
incurred therein or thereby.
(g) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney at the sole cost of the Company and shall
incur no liability or additional liability of any kind by reason of such
inquiry or investigation.
(h) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any negligent act on
the part of any agent or attorney appointed with due care by it hereunder.
(i) The Trustee shall not be deemed to have notice of any Default
or Event of Default unless a Trust Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such
a default is received by the Trustee at the Corporate Trust Office of the
Trustee in accordance with Section 13.02 hereof, and such notice references
the Securities and this Indenture.
(j) The rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in
each of its capacities hereunder, and to each agent, custodian and other
Person employed to act hereunder.
(k) The Trustee shall be under no obligation to expend or risk its
own funds or to exercise, at the request or direction of any of the Holders,
any of the rights or powers vested in it by this Indenture pursuant to this
Indenture.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any
Paying Agent, Registrar, Conversion Agent or co-registrar may do the same
with the like rights. However, the Trustee must comply with Sections 7.10 and
7.11 hereof.
40
<PAGE>
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities; it shall not be accountable for Company's
use of the proceeds from the Securities; and it shall not be responsible for
any statement in the prospectus for the Securities or in this Indenture or
the Securities (other than its certificate of authentication), the acts of a
prior Trustee hereunder, or the determination as to which beneficial owners
are entitled to receive any notices hereunder.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is actually known by a
Trust Officer or if written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the
Trustee in accordance with Section 13.02 hereof, and such notice references
the Securities and this Indenture, the Trustee shall give to each Holder
notice of the Default within 90 days after it occurs. Except in the case of a
Default described in Section 6.01(1) or (2) hereof, the Trustee may withhold
the notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Holders. The
second sentence of this Section 7.05 shall be in lieu of the proviso to
Section 315(b) of the TIA and such provision is hereby expressly excluded
from this Indenture, as permitted by the TIA. The Trustee shall not give
notice of a Default pursuant to Section 6.01(4) until at least 60 days have
passed since its occurrence.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 1, beginning with the May 1 following the
date of this Indenture, the Trustee shall mail to each Holder a brief report
dated as of such May 1 that complies with TIA Section 313(a), if required by
such Section 313(a). The Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Holders shall be
filed with the SEC and each securities exchange on which the Securities are
listed. The Company agrees to promptly notify the Trustee whenever the
Securities become listed on any securities exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company agrees:
(a) to pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(b) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the compensation
and the expense, advances and disbursements of its
41
<PAGE>
agents and counsel), except any such expense, disbursement or advance as may
be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any and all loss, damage, claims, liability or expense (including taxes other
than taxes based upon, measured by, or determined by the income of the
Trustee) incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
(whether asserted by the Company, any Holder or any other Person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Fundamental Change Purchase Price or interest, if any,
as the case may be, on particular Securities.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(5) or (6), the
expenses are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company; PROVIDED, HOWEVER,
that no such resignation shall be effective until a successor Trustee has
accepted its appointment pursuant to this Section 7.08. The Holders of a
majority in aggregate Principal Amount of the Securities at the time
outstanding may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with, or ceases to be
eligible under, Section 7.10 hereof;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or public officer takes charge or control of
the Trustee or its property or affairs; or
(4) the Trustee otherwise in the Company's reasonable
judgment becomes incapable of acting.
In addition, the Company may remove the Trustee if the Company
determines that the services provided by the Trustee hereunder may be
obtained at a substantially lower cost to the Company, determined in the sole
discretion of the Company.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint, by
resolution of its Board of Directors, a successor Trustee.
42
<PAGE>
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder, subject to the
lien provided for in Section 7.07 hereof. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts. No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee shall be
eligible under this Article.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in aggregate Principal Amount of the Securities at
the time outstanding may petition any court of competent jurisdiction for the
appointment of a successor Trustee at the expense of the Company.
If the Trustee fails to comply with Section 7.10 hereof, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all its corporate trust business (including the trust
created by this Indenture) or assets to, another corporation, the resulting,
surviving or transferee corporation without any further act shall be the
successor Trustee hereunder, PROVIDED such corporation shall be otherwise
eligible under this Article, without the execution or filing of any paper or
any further act on the part of any of the parties hereto. In case any
Securities shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA Sections
310(a)(1) and 310(b). The Trustee shall have a combined capital and surplus
of at least $50,000,000 (or if the Trustee is a member of a bank holding
company system, its bank holding company shall have a combined capital and
surplus of at least $50,000,000) as set forth in its most recent published
annual report of conditions. Nothing herein contained shall prevent the
Trustee from filing with the SEC the application referred to in the
penultimate paragraph of TIA Section 310(b). If at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 7.10,
it shall correct such ineligibility or resign immediately in the manner and
with the effect specified in this Article 7.
43
<PAGE>
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8.
DISCHARGE OF INDENTURE
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES.
When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07 hereof) for
cancellation or (ii) all outstanding Securities have become due and payable
and the Company deposits with the Trustee Cash and/or securities, as
permitted by the terms hereof, sufficient to pay at Stated Maturity the
Principal Amount of all outstanding Securities (other than Securities
replaced pursuant to Section 2.07 hereof), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture
shall, subject to Section 7.07 hereof, cease to be of further effect. The
Trustee shall join in the execution of a document prepared by the Company
acknowledging satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and Opinion of Counsel and at
the cost and expense of the Company.
SECTION 8.02. REPAYMENT TO THE COMPANY.
The Trustee and the Paying Agent shall return to the Company upon
written request any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for two years;
PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such return, shall, in the event that the Securities are
no longer held in global form, at the expense of the Company cause to be
published once in a newspaper of general circulation in The City of New York
or mail to each such Holder notice that such money or securities remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication or mailing, any unclaimed
money or securities then remaining will be returned to the Company. After
return to the Company, Holders entitled to the money or securities must look
to the Company for payment as general creditors unless an applicable
abandoned property law designates another Person.
ARTICLE 9.
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture and the Securities
without the consent of any Holder:
(1) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions
44
<PAGE>
with regard to matters or questions arising under this Indenture which shall
not materially adversely affect the interests of the Holders;
(2) to provide for the assumption of the Company's
obligations to the Holders of the Debentures in case of a merger or
consolidation or sale of all or substantially all of the Company's assets;
(3) to provide for uncertificated Securities in addition to
certificated Securities so long as such uncertificated Securities are in
registered form for purposes of the Internal Revenue Code of 1986, as amended;
(4) to make any change that does not adversely affect the
right of any Holder; or
(5) to make any change to comply with the TIA, or any
amendment thereto, or to comply with any requirement of the SEC in connection
with the qualification, if any, of the Indenture under the TIA.
SECTION 9.02. WITH CONSENT OF HOLDERS.
The Company and the Trustee, with the written consent of the Holders of
at least a majority in aggregate Principal Amount of the Securities at the
time outstanding, may amend this Indenture or the Securities. However,
without the consent of each Holder affected, an amendment or supplement to
this Indenture or the Securities may not:
(1) make any change to the Principal Amount of Securities
whose Holders must consent to an amendment;
(2) make any change to the manner or rate of accrual in
connection with Original Issue Discount or interest, if any, reduce the rate
of interest referred to in paragraph 1 of the Securities or extend the time
for payment of Original Issue Discount or interest, if any, on any Security;
(3) reduce the Principal Amount or the Issue Price of or
extend the Stated Maturity of any Security;
(4) reduce the Redemption Price, Purchase Price or
Fundamental Change Purchase Price of any Security;
(5) make any Security payable in money or securities other
than that stated in the Security;
(6) make any change in Article 10 hereof that adversely
affects the rights of any Holder;
(7) make any change in Sections 6.04 or 6.07 hereof or this
Section 9.02, except to increase the percentage of Holders referenced in
Sections 6.04 or 6.07 hereof, as applicable;
45
<PAGE>
(8) make any change that adversely affects the right of
Holders to convert any Security; or
(9) make any change that adversely affects the right of
Holders to require the Company to repurchase the Securities, or the right to
require the Company to repurchase the Securities upon a Fundamental Change,
in accordance with the terms thereof and this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section 9.02 or Section 9.01 hereof may not make
any change that adversely affects the rights under Article 10 hereof of any
holder of Senior Indebtedness then outstanding unless the requisite holders
of such Senior Indebtedness consent to such change pursuant to the terms of
such Senior Indebtedness.
After an amendment under this Section 9.02 becomes effective, the
Company shall mail to each Holder a notice briefly describing the amendment.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article 9 shall
comply with the TIA as then in effect, if then required to so comply.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS, WAIVERS AND ACTIONS.
Until an amendment, waiver or other action becomes effective, a consent
to it or any other action by a Holder of a Security is a continuing consent
by the Holder and every subsequent Holder of that Security or portion of the
Security that evidences the same obligation as the consenting Holder's
Security, even if notation of the consent, waiver or action is not made on
the Security. However, any such Holder or subsequent Holder may revoke the
consent, waiver or action as to such Holder's Security or portion of the
Security if the Trustee receives the notice of revocation before the date the
amendment, waiver or action becomes effective. After an amendment, waiver or
action becomes effective, it shall bind every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article 9 may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for outstanding Securities.
46
<PAGE>
SECTION 9.06. TRUSTEE TO SIGN SUPPLEMENTAL INDENTURES.
The Trustee shall sign any supplemental indenture authorized pursuant to
this Article 9 if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but
need not, sign such supplemental indenture. In signing such amendment the
Trustee shall be entitled to receive, and (subject to the provisions of
Section 7.01 hereof) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that such amendment is
authorized or permitted by this Indenture.
SECTION 9.07. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article 9,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT OF SUBORDINATION.
The Company covenants and agrees for itself and its successors, and each
Holder of Securities issued hereunder by such Holder's acceptance thereof
likewise covenants and agrees, that all Securities shall be issued subject to
the provisions of this Article 10, and each Person holding any such Security
whether upon original issue or upon transfer or assignment thereof, accepts
and agrees to be bound by such provisions.
The payment of the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price, Fundamental Change Purchase
Price, interest and any other amounts payable, if any, in respect of all
Securities issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full in Cash or other payment satisfactory to the holders of
Senior Indebtedness of all Senior Indebtedness of the Company, whether
outstanding at the date of this Indenture or thereafter incurred, or
thereafter created, assumed or guaranteed.
No provision of this Article 10 shall prevent the occurrence of any
Default or Event of Default hereunder.
SECTION 10.02. PAYMENTS TO HOLDERS.
No payment shall be made with respect to the payment of Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price, Fundamental Change Purchase Price, interest and any other
amounts payable, if any, on the Securities, except payments and distributions
made by the Trustee as permitted by Section 10.05, if:
(i) a default in any payment obligations in respect of Designated
Senior Indebtedness occurs and is continuing, without regard to any
applicable period of grace (whether at maturity or at a date fixed for
payment or by declaration or otherwise); or
47
<PAGE>
(ii) any other default occurs and is continuing with respect to
Designated Senior Indebtedness that permits the holders of such Designated
Senior Indebtedness as to which such default relates to accelerate its
maturity and the Trustee receives a notice of the default (a "PAYMENT
BLOCKAGE NOTICE") from a holder of Designated Senior Indebtedness or a
Representative of Designated Senior Indebtedness.
If the Trustee receives any Payment Blockage Notice pursuant to clause
(ii) above, no subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be the
basis for a subsequent Payment Blockage Notice (it being acknowledged that
(x) any action of the Company or any of its Subsidiaries occurring subsequent
to delivery of a Payment Blockage Notice that would give rise to any event of
default pursuant to any provision of Senior Indebtedness under which an event
of default previously existed (or was continuing at the time of delivery of
such Payment Blockage Notice) shall constitute a new event of default for
this purpose and (y) any breach of a financial covenant giving rise to a
nonpayment default for a period ending subsequent to the date of delivery of
the respective Payment Blockage Notice shall constitute a new event of
default for this purpose).
The Company may and shall resume payments on and distributions in
respect of the Securities:
(1) in case of a default referred to in clause (i) above,
the earlier of the date upon which the default is cured or waived in
accordance with the terms of the governing instrument or ceases to exist, or
(2) in the case of a default referred to in clause (ii)
above, the earlier of the date upon which the default is cured, waived in
accordance with the terms of the governing instrument or ceases to exist or
179 days pass after the applicable Payment Blockage Notice is received if the
maturity of such Designated Senior Indebtedness has not been accelerated,
unless this Article 10 otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company or distribution of assets of the Company
of any kind or character, whether in Cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization
or bankruptcy of the Company, whether voluntary or involuntary, or
insolvency, receivership or similar proceedings relating to the Company or
its property, or an assignment for the benefit of creditors or any marshaling
of the Company's assets or liabilities, all amounts due or to become due upon
all Senior Indebtedness of the Company shall first be paid in full in Cash or
other payment satisfactory to the holders of such Senior Indebtedness before
any payment is made on account of the Principal Amount, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price, Fundamental Change
Purchase Price, interest or any other amounts payable, if any, in respect of
the Securities (except payments made pursuant to Article 8 hereof from monies
deposited with the Trustee pursuant thereto prior to the happening of such
dissolution or winding-up or liquidation or reorganization
48
<PAGE>
or bankruptcy of the Company, whether voluntary or involuntary or insolvency,
receivership or similar proceedings relating to the Company or its property,
or an assignment of the benefit of creditors or any marshaling of the
Company's assets or liabilities), and upon any such dissolution or winding-up
or liquidation or reorganization or bankruptcy of the Company, whether
voluntary or involuntary or insolvency, receivership or similar proceedings
relating to the Company or its property, or an assignment of the benefit of
creditors or any marshaling of the Company's assets or liabilities, any
payment by the Company, or distribution of assets of the Company of any kind
or character, whether in Cash, property or securities, to which the Holders
of the Securities or the Trustee would be entitled, except for the provisions
of this Article 10, shall (except as aforesaid) be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the Holders of the
Securities or by the Trustee under this Indenture if received by them or it,
directly to the holders of Senior Indebtedness of the Company as their
interests may appear or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any such Senior Indebtedness may have been issued, as their
respective interests may appear to the extent necessary to pay all such
Senior Indebtedness in full in Cash or other payment satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness,
before any payment or distribution is made to the Holders of the Securities
or to the Trustee.
In the event that any Securities are declared due and payable before
their Stated Maturity pursuant to Section 6.02 hereof, then and in such event
the Company shall promptly notify holders of its Designated Senior
Indebtedness of such acceleration. The Company may not pay the Securities
until five days have passed after such acceleration occurs and may thereafter
pay the Securities only to the extent that this Article 10 permits the
payment at that time.
In the event that, notwithstanding the foregoing provisions, any payment
or distribution of assets of the Company of any kind or character, whether in
Cash, property or securities (including, without limitation, by way of setoff
or otherwise), prohibited by the foregoing provisions in this Section 10.02,
shall be received by the Trustee or the Holders of the Securities before all
Senior Indebtedness of the Company is paid in full in Cash or other payment
satisfactory to the holders of such Senior Indebtedness, such payment or
distribution shall be held in trust for the benefit of and shall be paid over
or delivered to the holders of Senior Indebtedness of the Company or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any such Senior
Indebtedness may have been issued, as their respective interests may appear,
as calculated by the Company, for application to the payment of all such
Senior Indebtedness remaining unpaid to the extent necessary to pay all such
Senior Indebtedness in full in Cash or other payment satisfactory to the
holders of such Senior Indebtedness, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
For purposes of this Article 10, the words "Cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article 10 with respect to the Securities to the payment of all Senior
Indebtedness of the Company which may at
49
<PAGE>
the time be outstanding; PROVIDED that (i) such Senior Indebtedness is
assumed by the new corporation, if any, resulting from any such
reorganization or readjustment, and (ii) the rights of the holders of such
Senior Indebtedness (other than leases that are not assumed by the Company or
the new corporation, as the case may be) are not, without the consent of such
holders, altered by such reorganization or readjustment. The consolidation of
the Company with, or the merger of the Company into, another corporation or
the liquidation or dissolution of the Company following the conveyance or
transfer of its property as an entirety, or substantially as an entirety, to
another corporation upon the terms and conditions provided for in Article 5
hereof shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 10.02 if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article 5 hereof.
Nothing in this Section 10.02 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof. This Section 10.02
shall be subject to the further provisions of Section 10.05 hereof.
SECTION 10.03. SUBROGATION OF SECURITIES.
Subject to the payment in full in Cash or other payment satisfactory to
the holders of Senior Indebtedness of all Senior Indebtedness of the Company,
the rights of the Holders of the Securities shall be subrogated to the rights
of the holders of such Senior Indebtedness to receive payments or
distributions of Cash, property or securities of the Company applicable to
such Senior Indebtedness until the Principal Amount, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price, Fundamental Change
Purchase Price and interest, if any, in respect of the Securities shall be
paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Indebtedness of any Cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article 10, and no
payment over pursuant to the provisions of this Article 10, to or for the
benefit of the holders of such Senior Indebtedness by Holders of the
Securities or the Trustee, shall, as between the Company, its creditors other
than holders of its Senior Indebtedness, and the Holders of the Securities be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness; and no payments or distributions of Cash, property or
securities to or for the benefit of the holders of the Securities pursuant to
the subrogation provisions of this Article 10, which would otherwise have
been paid to the holders of Senior Indebtedness shall be deemed to be a
payment by the Company to or for the account of the Securities. It is
understood that the provisions of this Article 10 are and are intended solely
for the purpose of defining the relative rights of the Holders of the
Securities, on the one hand, and the holders of Senior Indebtedness, on the
other hand.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of its Senior Indebtedness and the Holders
of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase
Price, Fundamental Change Purchase Price and interest, if any, in respect of
the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the
50
<PAGE>
relative rights of the Holders of the Securities and creditors of the Company
other than the holders of its Senior Indebtedness, nor shall anything herein
or therein prevent the Trustee or the Holder of any Security from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article 10 of the
holders of Senior Indebtedness in respect of Cash, property or securities of
the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee, subject to the provisions of Section 7.01
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee, to the Holders of the Securities for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.04. AUTHORIZATION BY HOLDERS.
Each Holder of a Security by such Holder's acceptance thereof authorizes
and directs the Trustee in his behalf to take such action as may be necessary
or appropriate to effectuate the subordination provided in this Article 10
and appoints the Trustee such Holder's attorney-in-fact for any and all such
purposes.
SECTION 10.05. NOTICE TO TRUSTEE.
The Company shall give prompt written notice in a form of an Officers'
Certificate to a Trust Officer of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any
Paying Agent in respect of the Securities pursuant to the provisions of this
Article 10, but failure to give such notice shall not affect the
subordination of the Securities to the Senior Indebtedness as provided in
this Article 10. Notwithstanding the provisions of this Article 10 or any
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of
any payment of monies to or by the Trustee in respect of the Securities
pursuant to the provisions of this Article 10, unless and until a Trust
Officer shall have actually received written notice thereof at the Corporate
Trust Office from the Company (in the form of an Officers' Certificate) or a
holder or holders of Senior Indebtedness or a Representative or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 7.01 hereof, shall be entitled
in all respects to assume that no such facts exist; PROVIDED that if on a
date not fewer than two Business Days prior to the date upon which by the
terms hereof any such monies may become payable for any purpose (including,
without limitation, the payment of the Principal Amount, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price, Fundamental Change
Purchase Price, interest or any other amounts payable, if any, in respect of
any Security) the Trustee shall not have received, with respect to such
monies, the notice provided for in this Section 10.05, then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to
51
<PAGE>
receive such monies and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may
be received by it on or after such prior date.
Notwithstanding anything to the contrary herein set forth, nothing shall
prevent any payment of amounts deposited with the Trustee pursuant to Section
8.01 hereof so long as the Trustee had no notice that such amounts when so
deposited were prohibited pursuant to the provisions of Section 10.02 hereof.
The Trustee, subject to the provisions of Section 7.01, shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder or a Representative of Designated Senior
Indebtedness or a Representative of Senior Indebtedness of the Company (or a
trustee on behalf of such holder) to establish that such notice has been
given by a holder or a Representative of Designated Senior Indebtedness or a
Representative of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of any Person as
a holder of Senior Indebtedness of the Company to participate in any payment
or distribution pursuant to this Article 10, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of such Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under this Article
10, and if such evidence is not furnished the Trustee may defer any payment
to such Person pending judicial determination as to the right of such Person
to receive such payment.
SECTION 10.06. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 10 in respect of any Senior Indebtedness of
the Company at any time held by it, to the same extent as any other holder of
such Senior Indebtedness, and nothing in this Article 10 or elsewhere in this
Indenture shall deprive the Trustee of any of its rights as such holder. The
provisions of this Article 10 shall not apply to the Trustee's rights under
Section 7.07 hereof.
With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article 10, and no implied
covenants or obligations with respect to the holders of such Senior
Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness of the Company and, subject to the provisions of Section
7.01 hereof, the Trustee shall not be liable to any holder of such Senior
Indebtedness if it shall pay over or deliver to Holders of Securities, the
Company or any other Person money or assets to which any holder of Senior
Indebtedness of the Company shall be entitled by virtue of this Article 10 or
otherwise.
SECTION 10.07. NO IMPAIRMENT OF SUBORDINATION.
No right of any present or future holder of any Senior Indebtedness of
the Company to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by (i) any amendment of or addition or
supplement to any such Senior Indebtedness or any
52
<PAGE>
instrument or agreement relating thereto (unless otherwise expressly provided
therein), or (ii) any act or failure to act on the part of the Company or by
any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of the
instrument, regardless of any knowledge thereof which any such holder may
have or otherwise be charged with or (iii) a failure to act by any Holders of
Securities or the failure of such Holder to comply with this Indenture.
SECTION 10.08. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS.
Each Holder of Securities by such Holder's acceptance thereof,
acknowledges and agrees that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness of the Company, whether such Senior Indebtedness was
created, assumed or acquired before or after the issuance of the Securities,
to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness, and
no amendment or modification of the provisions contained herein shall
diminish the rights of such holder or holders unless such holder or holders
shall have agreed in writing thereto.
SECTION 10.09. REINSTATEMENT OF SUBORDINATION.
If, at any time, all or part of any payment of any Senior Indebtedness
theretofore made by the Company or any other Person is rescinded or must
otherwise be returned by the holders of such Senior Indebtedness for any
reason whatsoever (including, without limitation, the insolvency, bankruptcy
or reorganization of the Company or such other Person), these subordination
provisions shall continue to be effective or be reinstated, as the case may
be, all as though such payment had not been made.
SECTION 10.10. PERMITTED PAYMENTS.
Nothing contained in this Article 10 or elsewhere in this Indenture, or
in the Securities shall prevent (a) the Company at any time, except under the
conditions described in Section 10.02 hereof, from making payments at any
time of Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Fundamental Change Purchase Price or
interest or any other amounts payable, if any, in respect of the Securities,
or from depositing with the Trustee or any Paying Agent money for such
payments, or (b) the application by the Trustee or Paying Agent of any moneys
deposited with it under this Indenture to the payment of or on account of the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Fundamental Change Purchase Price or interest or any
other amounts payable, if any, in respect of the Securities to the Holders of
the Securities entitled thereto to the beneficiaries thereof, if such payment
would not have been prohibited by the provisions of Section 10.02 hereof.
53
<PAGE>
SECTION 10.11. ARTICLE APPLICABLE TO PAYING AGENTS.
If at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 10 shall (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in
this Article 10 in addition to or in place of the Trustee; PROVIDED, HOWEVER,
that the first paragraph of Section 10.05 hereof shall not apply to the
Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
SECTION 10.12. TREATMENT OF CONVERSION PAYMENTS.
Notwithstanding anything in this Indenture to the contrary, neither the
issuance and delivery of junior securities upon conversion of the Securities
in accordance with Article 11 nor the payment of Cash in lieu of fractional
shares of Common Stock in accordance with Article 11 shall be deemed to
constitute a payment or distribution on account of the Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price or Fundamental
Change Purchase Price or interest or any other amounts payable, if any, in
respect of the Securities. For the purposes of this paragraph, the term
"junior securities" means (a) shares of any stock of any class of the
Company, (b) securities of the Company which are subordinated in right of
payment to all Senior Indebtedness of the Company which may be outstanding at
the time of issuance or delivery of such securities to substantially the same
extent as, or to a greater extent than, the Securities are so subordinated as
provided in this Article 10, and (c) any securities into which the Securities
become convertible pursuant to Section 11.14 hereof which are securities of a
Person required to enter into a supplemental indenture pursuant to such
section (or Section 5.01 hereof) and are either (x) shares of any stock of
any class of such Person, or (y) securities of such Person which are
subordinated in right of payment to all Senior Indebtedness of such Person
which may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater extent than,
the Securities or, are so subordinated as provided in this Article 10.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness, and the holders of
the Securities, the right, which is absolute and unconditional, of the holder
of any Security to convert such Security in accordance with Article 11 hereof.
SECTION 10.13. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of Securities shall be entitled
to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
Person making such payment or distribution, delivered to the Trustee or to
the Holders of Securities, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other indebtedness of the Company, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 10.
54
<PAGE>
ARTICLE 11.
CONVERSION
SECTION 11.01. CONVERSION PRIVILEGE.
A Holder of a Security may convert such Security for Common Stock at any
time during the period stated in paragraph 9 of the Securities. The number of
shares of Common Stock issuable upon conversion of a Security per $1,000 of
Principal Amount thereof (the "CONVERSION RATE") shall be that set forth in
paragraph 9 in the Securities, subject to adjustment as herein set forth.
The Holders' right to convert Securities into shares of Common Stock is
subject to the Company's right to elect to instead pay such Holder the amount
of Cash set forth in the next succeeding sentence, in lieu of delivering such
shares of Common Stock; PROVIDED, HOWEVER, that if such payment of Cash is
not permitted pursuant to the provisions of this Indenture or the provisions
of any other agreement or instrument to which the Company is a party or by
which it is bound or otherwise, the Company shall deliver shares of Common
Stock (and Cash in lieu of fractional shares of Common Stock) in accordance
with this Article 11, whether or not the Company has delivered a notice
pursuant to Section 11.02 hereof to the effect that the Securities would be
paid in Cash. The amount of Cash to be paid pursuant to Section 11.02 hereof
for each $1,000 of Principal Amount of a Security upon conversion shall be
equal to the Sale Price of the Common Stock on the Trading Day immediately
prior to the related Conversion Date multiplied by the Conversion Rate in
effect on such Trading Day. The Company shall not pay Cash in lieu of
delivering shares of Common Stock upon the conversion of any Security
pursuant to the terms of this Article 11 (other than Cash in lieu of
fractional shares pursuant to Section 11.03 hereof) if there has occurred
(prior to, on or after, as the case may be, the Conversion Date or the date
on which the Company delivers its notice of whether such Security shall be
converted into shares of Common Stock or Cash pursuant to Section 11.02
hereof) and is continuing an Event of Default (other than a default in a Cash
payment upon conversion of such Securities), PROVIDED, HOWEVER, that this
sentence shall not apply in the event that an Event of Default occurs after
such Cash is paid.
A Holder may convert a portion of the Principal Amount of a Security if
the portion is $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to conversion of all of a Security also apply to
conversion of a portion of a Security.
SECTION 11.02. CONVERSION PROCEDURE.
To convert a Security a Holder must satisfy the requirements in
paragraph 9 of the Securities. The date on which the Holder of Securities
satisfies all those requirements is the conversion date (the "CONVERSION
DATE"). Within two Business Days following the Conversion Date, the Company
shall deliver to the Holder, through the Conversion Agent, written notice of
whether such Security shall be converted into shares of Common Stock or paid
in Cash. If the Company shall have notified the Holder that such Security
shall be converted into shares of Common Stock, the Company shall deliver to
the Holder no later than the seventh Business Day following the Conversion
Date a certificate for the number of full shares of Common Stock issuable
upon the conversion and Cash in lieu of any fractional share determined
pursuant to
55
<PAGE>
Section 11.03 hereof. Except as provided in Section 11.01 hereof, if the
Company shall have notified the Holder that such Security shall be paid in
Cash, the Company shall deliver to the Holder surrendering such Security the
amount of Cash payable with respect to such Security on the fifth Business
Day following such Conversion Date. Except as provided in Section 11.01
hereof, the Company may not change its election with respect to the
consideration to be delivered upon conversion of a Security once the Company
has notified the Holder in accordance with this paragraph. The Person in
whose name the certificate is registered shall be treated as the stockholder
of record on and after the Conversion Date; PROVIDED, HOWEVER, that no
surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such conversion
as the record holder or holders of such shares of Common Stock on such date,
but such surrender shall be effective to constitute the Person or Persons
entitled to receive such shares of Common Stock as the record holder or
holders thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open; such conversion
shall be at the Conversion Rate in effect on the date that such Security
shall have been surrendered for conversion, as if the stock transfer books of
the Company had not been closed. Upon conversion of a Security, such Person
shall no longer be a Holder of such Security.
No payment on the Securities or adjustment of the Conversion Rate will
be made for dividends on or other distributions with respect to any Common
Stock except as provided in this Article 11. On conversion of a Security,
that portion of accrued Original Issue Discount (or interest, if the Company
has exercised the option provided for in Section 12.01 hereof) attributable
to the period from the Issue Date (or, if the Company has exercised the
option provided for in Section 12.01 hereof, the later of (x) the date of
such exercise and (y) the date on which interest was last paid) to the
Conversion Date with respect to the converted Security shall not be canceled,
extinguished or forfeited, but rather shall be deemed to be paid in full to
the Holder thereof through delivery of the Common Stock (together with the
Cash payment, if any, in lieu of fractional shares) in exchange for the
Security being converted pursuant to the provisions hereof.
If a Holder converts more than one Security at the same time, the number
of shares of Common Stock issuable or Cash paid upon the conversion shall be
based on the total Principal Amount of the Securities converted.
Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder,
a new Security in an authorized denomination equal in Principal Amount to the
unconverted portion of the Security surrendered.
If the last day on which a Security may be converted is a Legal Holiday
in a place where a Conversion Agent is located, the Security may be
surrendered to that Conversion Agent on the next succeeding day that it is
not a Legal Holiday.
SECTION 11.03. FRACTIONAL SHARES.
The Company will not issue a fractional share of Common Stock upon
conversion of a Security. Instead the Company will deliver Cash for the
current market value of the fractional share. The current market value of a
fractional share shall be determined to the nearest
56
<PAGE>
1/10,000th of a share by multiplying the last reported sale price (determined
as set forth in the definition of Market Price) on the last Trading Day prior
to the Conversion Date of a full share by the fractional amount and rounding
the product to the nearest whole cent.
SECTION 11.04. TAXES ON CONVERSION.
If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion. However, the Holder shall pay any such tax which
is due because the Holder requests the shares to be issued in a name other
than the Holder's name. The Conversion Agent may refuse to deliver the
certificates representing the Common Stock being issued in a name other than
the Holder's name until the Conversion Agent receives a sum sufficient to pay
any tax which will be due because the shares are to be issued in a name other
than the Holder's name. Nothing herein shall preclude any tax withholding
required by law or regulations.
SECTION 11.05. COMPANY TO PROVIDE STOCK.
The Company shall, prior to issuance of any Securities hereunder, and
from time to time as may be necessary, reserve out of its authorized but
unissued Common Stock a sufficient number of shares of Common Stock to permit
the conversion of the Securities.
All shares of Common Stock delivered upon conversion of the Securities
shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive
rights and free of any lien or adverse claim.
The Company covenants that if any shares of Common Stock to be provided
for the purpose of conversion of Securities hereunder require registration
with or approval of any governmental authority under any federal or state law
before such shares may be validly issued upon conversion, the Company will in
good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
The Company further covenants that if at any time the Common Stock shall
be quoted or listed on the NASDAQ National Market or the NYSE or any other
automated quotation system or national securities exchange or the Company
will, if permitted by the rules of such automated quotation system or
exchange, list and keep listed, so long as the Common Stock shall be so
listed on such automated quotation system or exchange, all shares of Common
Stock issuable upon conversion of the Securities; PROVIDED, HOWEVER, that if
the rules of such automated quotation system or exchange permit the Company
to defer the listing of such Common Stock until the first conversion of the
Securities into Common Stock in accordance with the provisions of this
Indenture, the Company covenants to list such Common Stock issuable upon
conversion of the Securities in accordance with the requirements of such
automated quotation system or exchange at such time.
SECTION 11.06. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK.
In case the Company shall (i) pay a dividend, or make a distribution, in
shares of its Common Stock, on its Common Stock, (ii) subdivide its
outstanding Common Stock into a
57
<PAGE>
greater number of shares, or (iii) combine its outstanding Common Stock into
a smaller number of shares, the Conversion Rate in effect immediately prior
thereto shall be adjusted so that the Holder of any Security thereafter
surrendered for conversion shall be entitled to receive the number of shares
of Common Stock which such Holder would have owned or have been entitled to
receive after the occurrence of any of the events described above had such
Security been converted immediately prior to the occurrence of such event. If
any dividend or distribution of the type described in clause (i) above is not
so paid or made, the Conversion Rate shall again be adjusted to the
Conversion Rate which would then be in effect if such dividend as
distribution had not been declared. An adjustment made pursuant to this
Section 11.06 shall become effective immediately after the record date in the
case of a dividend and shall become effective immediately after the effective
date in the case of a subdivision or combination.
SECTION 11.07. ADJUSTMENT FOR RIGHTS OR WARRANTS.
In case the Company shall issue rights or warrants to all holders of its
Common Stock entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common Stock at a
price per share less than the Market Price per share of Common Stock at the
record date for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Rate in effect immediately prior thereto
shall be adjusted so that the same shall equal the Conversion Rate determined
by multiplying the Conversion Rate in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered to holders of Common Stock for subscription or purchase,
and of which the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the
number of shares of Common Stock which the aggregate offering price of the
total number of shares so offered would purchase at such Market Price. Such
adjustment shall be made successively whenever any such rights or warrants
are issued, and shall become effective immediately after the opening of
business on the day following the record date for the determination of the
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered after the expiration of such rights
or warrants, the Conversion Rate shall be readjusted to the Conversion Rate
which would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made on the basis of delivery of only the number
of shares of Common Stock actually delivered. If such rights or warrants are
not so issued, the Conversion Rate shall again be adjusted to be the
Conversion Rate which would then be in effect if such record date for the
determination of stockholders entitled to receive such rights or warrants had
not been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less than such
Market Price of such Common Stock, and in determining the aggregate offering
price of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such rights or warrants, the value
of such consideration, if other than Cash, to be determined by the Board of
Directors.
SECTION 11.08. ADJUSTMENT FOR OTHER DISTRIBUTIONS.
(a) In case the Company shall distribute to all holders of its
Common Stock
58
<PAGE>
(excluding any distribution in connection with the liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary) any shares of
any class of capital stock of the Company (other than Common Stock), or
evidences of indebtedness of the Company or of assets (other than Cash and
other than dividends, distributions or rights or warrants to subscribe for or
purchase any of its securities referred to in Section 11.07 hereof) (any of
the foregoing hereinafter in this Section 11.08(a) called the "DISTRIBUTED
SECURITIES"), then, the Conversion Rate shall be adjusted so that the same
shall equal the Conversion Rate determined by multiplying the Conversion Rate
in effect immediately prior to the date of such distribution by a fraction of
which the numerator shall be the Market Price per share of the Common Stock
on the record date mentioned below, and the denominator shall be the Market
Price per share of the Common Stock on such record date less the fair market
value on such record date (as determined by the Board of Directors of the
Company, whose determination shall be conclusive, and described in a
certificate filed with the Trustee) of the Distributed Securities so
distributed applicable to one share of Common Stock. Such adjustment shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the then fair market value (as so determined) of
the portion of the Distributed Securities so distributed applicable to one
share of Common Stock is equal to or greater than the Market Price of the
Common Stock on the record date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each Holder shall have the right to
receive upon conversion the amount of Distributed Securities such Holder
would have received had such Holder converted each Security immediately prior
to such record date. In the event that such distribution is not so paid or
made, the Conversion Rate shall again be adjusted to the Conversion Rate
which would then be in effect if such distribution had not been declared. If
the Board of Directors determines the fair market value of any distribution
for purposes of this Section 11.08(a) by reference to the actual or when
issued trading market for any securities, it must in doing so consider the
prices in such market over the same period used in computing the Market Price
of the Common Stock.
Notwithstanding the foregoing provisions of this Section 11.08(a), no
adjustment shall be made thereunder for any distribution of Distributed
Securities if the Company makes proper provision so that each Holder of a
Security who converts such Security (or any portion thereof) after the record
date for such distribution shall be entitled to receive upon such conversion,
in addition to the shares of Common Stock issuable upon such conversion, the
amount and kind of Distributed Securities that such Holder would have been
entitled to receive if such Holder had, immediately prior to such record
date, converted such Security for Common Stock; PROVIDED that, with respect
to any Distributed Securities that are convertible, exchangeable or
exercisable, the foregoing provision shall only apply to the extent (and so
long as) the Distributed Securities receivable upon conversion of such
Security would be convertible, exchangeable or exercisable, as applicable,
without any loss of rights or privileges for a period of at least 60 days
following conversion of such Security.
(b) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock Cash (excluding (x) any
quarterly Cash dividend on the Common Stock to the extent the aggregate Cash
dividend per share of Common Stock in any fiscal quarter does not exceed the
greater of (A) the amount per share of Common Stock of the next preceding
quarterly Cash dividend on the Common Stock to the extent such preceding
quarterly dividend
59
<PAGE>
did not require any adjustment of the Conversion Rate pursuant to this
Section 11.08(b) (as adjusted to reflect subdivisions or combinations of the
Common Stock), and (B) 3.75% of the average of the last reported sales price
of the Common Stock (determined as provided in the definition of Market
Price) during the ten Trading Days immediately prior to the date of
declaration of such dividend and (y) any dividend or distribution in
connection with the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary), then, in such case, unless the Company
elects to reserve such Cash for distribution to the Holders of the Securities
upon the conversion of the Securities so that any such Holder converting
Securities will receive upon such conversion in addition to the shares of
Common Stock to which such Holder is entitled, the amount of Cash which such
Holder would have received if such Holder had, immediately prior to the
record date for such distribution of Cash, converted its Securities for
Common Stock, the Conversion Rate shall be increased so that the same shall
equal the Conversion Rate determined by multiplying the Conversion Rate in
effect immediately prior to the record date by a fraction of which the
numerator shall be such Market Price of the Common Stock and the denominator
shall be the Market Price of the Common Stock on the record date less the
amount of Cash so distributed (and not excluded as provided above) applicable
to one share of Common Stock, such increase to be effective immediately prior
to the opening of business on the day following the record date; PROVIDED,
HOWEVER, that in the event that the portion of the Cash so distributed
applicable to one share of Common Stock is equal to or greater than the
Market Price of the Common Stock on the record date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have
the right to receive upon conversion the amount of Cash such Holder would
have received had such Holder converted each Security on the record date. If
such dividend or distribution is not so paid or made, the Conversion Rate
shall again be adjusted to be the Conversion Rate which would then be in
effect if such dividend or distribution had not been declared. If any
adjustment is required to be made as set forth in this Section 11.08(b) as a
result of a distribution that is a quarterly dividend, such adjustment shall
be based upon the amount by which such distribution exceeds the amount of the
quarterly Cash dividend permitted to be excluded pursuant hereto. If an
adjustment is required to be made as set forth in this Section 11.08(b) above
as a result of a distribution that is not a quarterly dividend, such
adjustment shall be based upon the full amount of the distribution.
(c) In case a tender or exchange offer made by the Company or any
Subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer shall involve the payment by the
Company or such Subsidiary of consideration per share of Common Stock having
a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive, and described in a resolution of such
Board of Directors at the last time (the "EXPIRATION TIME") tenders or
exchanges may be made pursuant to such tender or exchange offer (as it shall
have been amended)) at the Expiration Time that exceeds the Market Price of
the Common Stock on the Trading Day next succeeding the Expiration Time, the
Conversion Rate shall be increased so that the same shall equal the
Conversion Rate determined by multiplying the Conversion Rate in effect
immediately prior to the Expiration Time by a fraction of which (i) the
numerator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to holders of Common Stock
based on the acceptance (up to any maximum specified in the terms of the
tender or exchange offer) of all shares of Common Stock validly tendered or
exchanged and not
60
<PAGE>
withdrawn as of the Expiration Time, other than shares of Common Stock
tendered by the California HealthCare Foundation (the shares deemed so
accepted up to any such maximum, being referred to as the "PURCHASED SHARES")
and (y) the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) on the Expiration Time and the Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time, and (ii)
the denominator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) on the Expiration Time
multiplied by the Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such increase to become effective immediately
prior to the opening of business on the day following the Expiration Time. In
the event that the Company is obligated to purchase shares pursuant to any
such tender or exchange offer, but the Company is permanently prevented by
applicable law from effecting any such purchases or all such purchases are
rescinded, the Conversion Rate shall again be adjusted to be the Conversion
Rate which would then be effect if such tender or exchange offer had not been
made.
(d) In case of a tender or exchange offer by a Person other than
the Company or any Subsidiary for an amount which increases the offeror's
ownership of Common Stock to more than 25% of the Common Stock outstanding
and shall involve the payment by such Person of consideration per share of
Common Stock having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive, and described in a
resolution of the Board of Directors at the last time (the "TENDER EXPIRATION
TIME") tenders or exchanges may be made pursuant to such tender or exchange
offer (as it shall have been amended)) at the Tender Expiration Time that
exceeds the Market Price of the Common Stock on the Trading Day next
succeeding the Tender Expiration Time, and in which, as of the Tender
Expiration Time the Board of Directors is not recommending rejection of the
offer, the Conversion Rate shall be increased so that the same shall equal
the Conversion Rate determined by multiplying the Conversion Rate in effect
immediately prior to the Tender Expiration Time by a fraction of which (i)
the numerator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to holders of Common Stock
based on the acceptance (up to a maximum specified in the terms of the tender
or exchange offer) of all shares of Common Stock validly tendered or
exchanged and not withdrawn as of the Tender Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the "TENDER
PURCHASED SHARES") and (y) the product of the number of shares of Common
Stock outstanding (less any Tender Purchased Shares) on the Tender Expiration
Time and the Market Price of the Common Stock on the Trading Day next
succeeding the Tender Expiration Time, and (ii) the denominator shall be the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the Tender Expiration Time multiplied by the Market
Price of the Common Stock on the Trading Day next succeeding the Tender
Expiration Time, such increase to become effective immediately prior to the
opening of business on the day following the Tender Expiration Time. In the
event that such Person is obligated to purchase shares pursuant to any such
tender or exchange offer, but such Person is permanently prevented by
applicable law from effecting any such purchases or all such purchases are
rescinded, the Conversion Rate shall again be adjusted to be the Conversion
Rate which would then be in effect if such tender or exchange offer had not
been made. Notwithstanding the foregoing, the adjustment described in this
Section 11.08(d) shall not be made if, as of the Tender Expiration
61
<PAGE>
Time, the offering documents with respect to such offer disclose a plan or
intention to cause the Company to engage in any transaction described in
Article 5 hereof.
SECTION 11.09. WHEN ADJUSTMENT MAY BE DEFERRED.
No adjustment in the Conversion Rate need be made unless the adjustment
would require an increase or decrease of at least 1% in the Conversion Rate.
Any adjustments that are made shall be carried forward and taken into account
any subsequent adjustment.
All calculations under this Article 11 shall be made to the nearest cent
or to the nearest 1/10,000th of a share, as the case may be.
SECTION 11.10. WHEN NO ADJUSTMENT REQUIRED.
No adjustment need be made for rights to purchase Common Stock pursuant
to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par value
of the Common Stock.
To the extent the Securities become convertible into Cash, assets,
property or securities (other than capital stock of the Company), no
adjustment need be made thereafter as to the Cash, assets, property or such
securities. Interest will not accrue on the Cash.
SECTION 11.11. NOTICE OF ADJUSTMENT.
Whenever the Conversion Rate is adjusted, the Company shall promptly
mail to Holders a notice of the adjustment. The Company shall file with the
Trustee and the Conversion Agent such notice. The certificate shall, absent
manifest error, be conclusive evidence that the adjustment is correct.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate except to exhibit the
same to any Holder desiring inspection thereof.
SECTION 11.12. VOLUNTARY INCREASE.
The Company may make such increases in the Conversion Rate, in addition
to those required by Sections 11.06, 11.07 and 11.08 hereof, as the Board of
Directors considers to be advisable to avoid or diminish any income tax to
holders of Common Stock or rights to purchase Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. To the extent permitted by
applicable law, the Company may from time to time increase the Conversion
Rate by any amount for any period of time if the period is at least 20 days,
the increase is irrevocable during the period and the Board of Directors
shall have made a determination that such increase would be in the best
interests of the Company, which determination shall be conclusive. Whenever
the Conversion Rate is so increased, the Company shall mail to Holders and
file with the Trustee and the Conversion Agent a notice of such increase. The
Company shall mail such notice at least 15 days before the date the increased
Conversion Rate takes effect. The notice shall state the increased Conversion
Rate and the period it will be in effect.
62
<PAGE>
SECTION 11.13. NOTICE OF CERTAIN TRANSACTIONS.
If:
(1) the Company makes any distribution or dividend that
would require an adjustment in the Conversion Rate pursuant to Section 11.06,
11.07 or 11.08 hereof; or
(2) the Company takes any action that would require a
supplemental indenture pursuant to Section 11.14 hereof; or
(3) there is a liquidation, dissolution or winding-up of the
Company;
then the Company shall mail to Holders and file with the Trustee and the
Conversion Agent a notice stating the proposed record date for a dividend or
distribution or the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. The Company shall file and mail the notice at
least 15 days before such date. Failure to file or mail the notice or any
defect in it shall not affect the validity of the transaction.
SECTION 11.14. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.
If any of the following events occur, namely (i) any reclassification or
change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), (ii) any consolidation,
merger or combination of the Company with another corporation as a result of
which holders of Common Stock shall be entitled to receive stock, securities
or other property or assets (including Cash) with respect to or in exchange
for such Common Stock, or (iii) any sale or conveyance of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including Cash) with
respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing corporation, as the case may be, shall execute with
the Trustee a supplemental indenture, providing that each Security shall be
convertible into the kind and amount of shares of stock and other securities
or property or assets (including Cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance by a holder of
a number of shares of Common Stock issuable upon conversion of such
Securities immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance. Such supplemental indenture shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder of Securities, at such Holder's address
appearing on the Security register provided for in Section 2.03 hereof.
The above provisions of this Section shall similarly apply to successive
reclassifications, consolidations, mergers, combinations, and sales.
63
<PAGE>
If this Section applies, none of Sections 11.06, 11.07 nor 11.08 hereof
apply.
SECTION 11.15. COMPANY DETERMINATION FINAL.
Any determination that the Company or the Board of Directors must make
pursuant to Sections 11.03, 11.06, 11.07, 11.08, 11.09, 11.10, 11.14 or 11.17
hereof is conclusive.
SECTION 11.16. TRUSTEE'S ADJUSTMENT DISCLAIMER.
The Trustee has no duty to determine when an adjustment under this
Article 11 should be made, how it should be made or what it should be. The
Trustee has no duty to determine whether a supplemental indenture under
Section 11.14 hereof need be entered into or whether any provisions of any
supplemental indenture are correct. The Trustee shall not be accountable for
and makes no representation as to the validity or value of any securities or
assets issued upon conversion of Securities. The Trustee shall not be
responsible for the Company's failure to comply with this Article 11, and
shall not be deemed to have knowledge of any adjustment unless and until it
shall have received a notice of adjustment pursuant to Section 11.11 hereof.
Each Conversion Agent shall have the same protection under this Section 11.16
as the Trustee.
SECTION 11.17. SIMULTANEOUS ADJUSTMENTS.
In the event that this Article 11 requires adjustments to the Conversion
Rate under more than one of Sections 11.06, 11.07, 11.08(a) or 11.08(b)
hereof, and the record dates for the distributions giving rise to such
adjustments shall occur on the same date, then such adjustments shall be made
by applying, first, the provisions of Section 11.08(a) hereof, second, the
provisions of Section 11.08(b) hereof, third, the provisions of Section 11.06
hereof and, fourth, the provisions of Section 11.07 hereof.
SECTION 11.18. SUCCESSIVE ADJUSTMENTS.
After an adjustment to the Conversion Rate under this Article 11, any
subsequent event requiring an adjustment under this Article 11 shall cause an
adjustment to the Conversion Rate as so adjusted.
SECTION 11.19. RIGHTS ISSUED IN RESPECT OF COMMON STOCK
ISSUED UPON CONVERSION.
Notwithstanding any other provision hereof, in the event that the
Company implements a stockholders' rights plan, such rights plan shall
provide that upon conversion of the Securities the Holders will receive, in
addition to the Common Stock issuable upon such conversion, such rights
whether or not such rights have separated from the Common Stock at the time
of such conversion.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of
the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("TRIGGER EVENT"):
(i) are deemed to be transferred with such shares of Common Stock,
64
<PAGE>
(ii) are not exercisable, and
(iii) are also issued in respect of future issuances of Common
Stock,
shall not be deemed distributed for purposes of Section 11.08(a) hereof until
the occurrence of the earliest Trigger Event. In addition, in the event of
any distribution of rights or warrants, or any Trigger Event with respect
thereto, that shall have resulted in an adjustment to the Conversion Rate
under Section 11.08(a) hereof, (1) in the case of any such rights or warrants
which shall all have been redeemed or repurchased without exercise by any
holders thereof, the Conversion Rate shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger
Event, as the case may be, as though it were a cash distribution, equal to
the per share redemption or repurchase price received by a holder of Common
Stock with respect to such rights or warrants (assuming such holder had
retained such rights or warrants), made to all holders of Common Stock as of
the date of such redemption or repurchase, and (2) in the case of any such
rights or warrants all of which shall have expired without exercise by any
holder thereof, the Conversion Rate shall be readjusted as if such issuance
had not occurred.
SECTION 11.20. GENERAL CONSIDERATIONS.
Whenever successive adjustments to the Conversion Rate are called for
pursuant to this Article 11, such adjustments shall be made to the Market
Price as may be necessary or appropriate to effectuate the intent of this
Article 11 and to avoid unjust or inequitable results as determined in good
faith by the Board of Directors.
ARTICLE 12.
SPECIAL TAX EVENT
SECTION 12.01. OPTIONAL CONVERSION TO SEMIANNUAL COUPON DEBENTURE UPON
TAX EVENT.
From and after the date (the "TAX EVENT DATE") of the occurrence of a
Tax Event, at the option of the Company, interest in lieu of future Original
Issue Discount shall accrue at ___% per annum on a principal amount per
Security (the "RESTATED PRINCIPAL AMOUNT") equal to the Issue Price plus
Original Issue Discount accrued to the date immediately prior to the Tax
Event Date or the date on which the Company exercises the option described
herein (to convert the Security into a Semiannual Coupon Debenture),
whichever is later (such date, the "OPTION EXERCISE DATE"). Such interest
shall accrue from the Option Exercise Date and shall be payable semiannually
on _________ and _________ of each year (each an "INTEREST PAYMENT DATE") to
Holders of record at the close of business on ______ or _________ (each a
"REGULAR RECORD DATE") immediately preceding such Interest Payment Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months and will accrue from the most recent date on which interest has
been paid or, if no interest has been paid, from the Option Exercise Date.
Within 15 days of the occurrence of a Tax Event, the Company shall mail a
written notice of such Tax Event by first-class mail to the Trustee.
65
<PAGE>
SECTION 12.02. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
(a) Interest on any Security that is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
person in whose name that Security is registered at the close of business on
the Regular Record Date for such interest at the office or agency of the
Company maintained for such purpose. Each installment of interest on any
Security shall be paid in same-day funds by transfer to an account maintained
by the payee located inside the United States. In the case of a permanent
global Security, interest payable on any Interest Payment Date will be paid
to the Depositary, Euroclear and/or CEDEL, as the case may be, with respect
to that portion of such permanent global Security held for its account by
Cede & Co. or the London office of a depositary, as the case may be, for the
purpose of permitting such party to credit the interest received by it in
respect of such permanent global Security to the accounts of the beneficial
owners thereof.
(b) Except as otherwise specified with respect to the Securities,
any interest on any Security that is payable, but is not punctually paid or
duly provided for, within 30 days following any Interest Payment Date (herein
called "DEFAULTED INTEREST") shall forthwith cease to be payable to the
registered Holder thereof on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the
Company, as its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities are
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment (which shall not be
less than 20 days after such notice is received by the Trustee),
and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid
in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the
date of proposed payment, such money when deposited to be held in
trust for the benefit of the persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10
days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder of Securities
at his address as it appears on the list of Holders maintained
pursuant to Section 2.05 hereof not less than 10 days prior to such
Special Record Date. The Trustee may, in its discretion, in the
name and at the expense of the Company, cause a similar notice to
be published at least once in an Authorized Newspaper in each place
of payment, but such publications shall not be a condition
precedent to the establishment of such
66
<PAGE>
Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to the
persons in whose names the Securities are registered at the close
of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest on
the Securities in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities
may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 2.06
hereof, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry
the rights to interest accrued and unpaid, and to accrue, which were carried
by such other Security.
ARTICLE 13.
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT.
This Indenture is hereby made subject to, and shall be governed by, the
provisions of the TIA required to be part of and to govern indentures
qualified under the TIA; PROVIDED, HOWEVER that this Section 13.01 shall not
require this Indenture or the Trustee to be qualified under the TIA prior to
the time such qualification is in fact required under the terms of the TIA,
nor shall it constitute any admission or acknowledgment by any party that any
such qualification is required prior to the time such qualification is in
fact required under the terms of the TIA. If any provision hereof limits,
qualifies or conflicts with another provision hereof which is required to be
included in an indenture qualified under the TIA, such required provision
shall control.
SECTION 13.02. NOTICES.
Any request, demand, authorization, notice, waiver, consent or
communication shall be in writing and delivered in Person or mailed by first
class mail, postage prepaid, addressed as follows or transmitted by facsimile
transmission (confirmed by overnight courier) to the following facsimile
numbers:
if to the Company:
WellPoint Health Networks Inc.
1 Wellpoint Way
Thousand Oaks, California 91362
Attn: General Counsel
Telephone Number: (805) 557-6110
Facsimile Number: (805) 557-6820
67
<PAGE>
if to the Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attn: Corporate Trust Trustee Administration
Telephone Number: (212) 875-5763
Facsimile Number: (212) 815-5915
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication given to a Holder shall be mailed to the
Holder, by first class mail, postage prepaid, at the Holder's address as it
appears on the registration books of the Registrar and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not received by the addressee.
If the Company mails a notice or communication to the Holders, it shall
mail a copy to the Trustee and each Registrar, Paying Agent, Conversion Agent
or co-registrar.
SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Trustee, the Registrar, the Paying Agent, the Conversion
Agent and anyone else shall have the protection of TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that each individual making such Officers'
Certificate or Opinion of Counsel has read such covenant or condition;
68
<PAGE>
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such Officers' Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such
individual, he or she has made such examination or investigation as is
necessary to enable him or her to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement that, in the opinion of such individual,
such covenant or condition has been complied with.
SECTION 13.06. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT, CONVERSION AGENT AND
REGISTRAR.
The Trustee may make reasonable rules for action by or a meeting of
Holders. The Registrar, Conversion Agent and the Paying Agent may make
reasonable rules for their functions.
SECTION 13.08. GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE
SECURITIES, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 13.09. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Holder shall waive and release all such liability. The waiver and release
shall be part of the consideration for the issue of the Securities.
SECTION 13.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
69
<PAGE>
SECTION 13.11. MULTIPLE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
(SIGNATURE PAGE FOLLOWS)
70
<PAGE>
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first written above.
Dated as of _____, 1999
WELLPOINT HEALTH NETWORKS INC.
By:
------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By:
------------------------------------
Name:
Title:
S - 1
<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THIS SECURITY BEARS ORIGINAL
ISSUE DISCOUNT. INFORMATION INCLUDING THE ISSUE PRICE, AMOUNT OF ORIGINAL
ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY WILL BE MADE
AVAILABLE TO HOLDERS UPON REQUEST TO R. DAVID KRETSCHMER OF THE COMPANY, AT
(805) 557-6070.
[FORM OF LEGEND FOR GLOBAL SECURITY]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) , ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
OWNERSHIP AND TRANSFER. NO HOLDER SHALL BENEFICIALLY OWN SHARES OF CAPITAL
STOCK IN EXCESS OF THE OWNERSHIP LIMIT (AS DEFINED IN ARTICLE VII, SECTION 14
OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE CORPORATION). SUBJECT TO
CERTAIN LIMITED SPECIFIC EXEMPTIONS, BENEFICIAL OWNERSHIP OF 5% OR MORE (OR,
IN THE CASE OF CERTAIN INSTITUTIONAL INVESTORS AS SPECIFIED IN THE LICENSE
AGREEMENT, 10% OR MORE) OF THE OUTSTANDING SHARES OF ANY CLASS OF CAPITAL
STOCK WILL EXCEED THE OWNERSHIP LIMIT. FOR THESE PURPOSES OF COMPUTING THE
BENEFICIAL OWNERSHIP OF CAPITAL STOCK, A HOLDER OF ANY PARTICULAR PRINCIPAL
AMOUNT OF SECURITIES WILL BE DEEMED TO BENEFICIALLY OWN SHARES OF COMMON
STOCK ON ANY PARTICULAR DATE EQUAL TO THE GREATER OF (I) THE NUMBER OF SHARES
OF COMMON STOCK ISSUABLE IN THE EVENT OF CONVERSION FOR THAT PARTICULAR
PRINCIPAL AMOUNT OF SECURITIES AT THE CONVERSION RATE IN EFFECT ON SUCH DATE
OR (II) THE QUOTIENT DETERMINED BY DIVIDING THE EXTRAPOLATED PURCHASE PRICE
(AS DEFINED BELOW) FOR THAT PARTICULAR PRINCIPAL AMOUNT OF SECURITIES AT THAT
PARTICULAR DATE BY THE MARKET PRICE (CALCULATED AS IF THAT PARTICULAR DATE
WERE A REPURCHASE DATE). FOR THESE PURPOSES, THE "EXTRAPOLATED PURCHASE
PRICE" SHALL BE THE SUM OF THE ISSUE PRICE OF THE PARTICULAR PRINCIPAL AMOUNT
OF SECURITIES PLUS THE AMOUNT OF THE ORIGINAL ISSUE DISCOUNT ACCRUED TO AND
INCLUDING SUCH DATE.
A - 1
<PAGE>
THESE PROVISIONS HAVE BEEN DESIGNED TO ENSURE THAT THE CORPORATION WILL NOT
VIOLATE THE TERMS OF THE LICENSE AGREEMENT BETWEEN THE CORPORATION AND THE
BLUE CROSS AND BLUE SHIELD ASSOCIATION (THE "BCBSA"). THE CORPORATION
MAINTAINS AT ITS PRINCIPAL EXECUTIVE OFFICE A COPY OF THE APPLICABLE
REQUIREMENTS OF THE BCBSA RELATING TO SUCH RESTRICTIONS ON OWNERSHIP AND
TRANSFER, AS SUCH REQUIREMENTS MAY BE AMENDED FROM TIME TO TIME, WHICH ARE
OPEN TO INSPECTION BY THE STOCKHOLDERS, AT ALL REASONABLE TIMES DURING OFFICE
HOURS. ANY HOLDER WHO ATTEMPTS TO BENEFICIALLY OWN SECURITIES IN VIOLATION OF
THIS LIMITATION MUST IMMEDIATELY NOTIFY THE CORPORATION. EXCEPT AS OTHERWISE
NOTED, ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANING ASCRIBED TO THEM
IN THE CORPORATION'S RESTATED CERTIFICATE OF INCORPORATION, AS THE SAME MAY
BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON
OWNERSHIP AND TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH HOLDER WHO SO
REQUESTS. UPON THE OCCURRENCE OF ANY EVENT THAT WOULD CAUSE ANY HOLDER TO
EXCEED THE OWNERSHIP LIMIT, ALL SECURITIES AND SHARES OF CAPITAL STOCK
BENEFICIALLY OWNED BY SUCH HOLDER IN EXCESS OF THE OWNERSHIP LIMIT WILL
AUTOMATICALLY BE DEEMED EXCESS SHARES AND BE TRANSFERRED IMMEDIATELY TO THE
SHARE ESCROW AGENT AND BE SUBJECT TO THE PROVISIONS OF THE CORPORATION'S
RESTATED CERTIFICATE OF INCORPORATION AND THE SHARE ESCROW AGENT AGREEMENT, A
COPY OF WHICH THE CORPORATION MAINTAINS AT ITS PRINCIPAL EXECUTIVE OFFICES.
THE FOREGOING SUMMARY OF THE RESTRICTIONS ON OWNERSHIP AND TRANSFER IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CORPORATION'S RESTATED
CERTIFICATE OF INCORPORATION. THE PURCHASE BY OR TRANSFER TO ANY HOLDER OF
ANY SECURITIES SHALL CONSTITUTE ACKNOWLEDGMENT AND ACCEPTANCE BY SUCH HOLDER
OF SUCH RESTRICTIONS ON OWNERSHIP AND TRANSFER.
A - 2
<PAGE>
WELLPOINT HEALTH NETWORKS INC.
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURE DUE 2019
<TABLE>
<S> <C>
No.
Issue Date: __________, 1999 Original Issue Discount: $_______
Issue Price: $________ (for each $1,000 Principal Amount)
(for each $1,000 Principal Amount)
CUSIP:
</TABLE>
WellPoint Health Networks Inc., a Delaware corporation, promises to pay
to _________________ or registered assigns, on __________, 2019 [the Principal
Amount of _______________________________ Dollars ($__________)] .(1)
This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on
the other side of this Security. This Security is convertible as specified on
the other side of this Security.
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, WellPoint Health Networks Inc. has caused this
instrument to be duly executed.
WELLPOINT HEALTH NETWORKS INC.
By _____________________________________
Name: __________________________________
Title: _________________________________
________________________________________
By _____________________________________
Name: __________________________________
Title: _________________________________
Dated: _________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK, as Trustee, certifies that this is one of the
Securities referred to in the within-mentioned Indenture.
By ___________________________________
Authorized Signatory
- ------------------------
(1) The global Security will read instead: "The Principal Amount then shown
on Schedule A hereto."
A - 3
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
WELLPOINT HEALTH NETWORKS INC.
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURE DUE 2019
1. INTEREST
This Security shall not bear interest except as specified in this
paragraph or in paragraph 10 hereof. If the Principal Amount hereof or any
portion of such Principal Amount is not paid when due (whether upon
acceleration pursuant to Section 6.02 of the Indenture, upon the date set for
payment of the Redemption Price pursuant to paragraph 5 hereof, upon the date
set for payment of a Purchase Price or Fundamental Change Purchase Price
pursuant to paragraph 6 hereof or upon the Stated Maturity of this Security),
then in each such case the overdue amount shall bear interest at the rate of
___% per annum, compounded semiannually (to the extent that the payment of
such interest shall be legally enforceable), which interest shall accrue from
the date such overdue amount was due to the date payment of such amount,
including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.
The Original Issue Discount (the difference between the Issue Price and
the Principal Amount of the Security) in the period during which a Security
remains outstanding, shall accrue at ___% per annum, on a semiannual bond
equivalent basis using a 360-day year composed of twelve 30-day months,
commencing on the Issue Date of this Security. Original Issue Discount shall
cease to accrue on the earlier of (a) the date on which the Principal Amount
hereof or any portion of such Principal Amount becomes due and payable and
(b) any Redemption Date, Conversion Date, Fundamental Change Repurchase Date,
Repurchase Date or other date on which such Original Issue Discount (or, if
such Securities have been converted to Semiannual Coupon Debentures following
the occurrence of a Tax Event, interest on such debentures) shall cease to
accrue in accordance with Section 2.08 of the Indenture.
2. METHOD OF PAYMENT
Subject to the terms and conditions of the Indenture, the Company will
make payments in respect of the Securities to the Persons who are registered
Holders of Securities at the close of business on the Business Day preceding
the Redemption Date or Stated Maturity, as the case may be, or at the close
of business on a Repurchase Date or Fundamental Change Repurchase Date, as
the case may be. Holders must surrender Securities to the Paying Agent to
collect such payments in respect of the Securities. The Company will pay cash
amounts in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may make
such cash payments by check payable in such money.
3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR
Initially, The Bank of New York., a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent, Conversion Agent and Registrar. The
Company may appoint and change
A - 4
<PAGE>
any Paying Agent, Conversion Agent, Registrar or co-registrar without notice,
other than notice to the Trustee. The Company or any of its Subsidiaries or
any of their Affiliates may act as Paying Agent, Conversion Agent, Registrar
or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture (the "INDENTURE"),
dated as of ____________________, 1999, between the Company and the Trustee.
Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture. The Securities are subject to all such
terms, and Holders are referred to the Indenture for a statement of those
terms.
The Securities are general unsecured obligations of the Company limited
to $327,750,000 aggregate Principal Amount (subject to Sections 2.02 and 2.07
of the Indenture). The Indenture does not limit other indebtedness of the
Company, secured or unsecured, including Senior Indebtedness of the Company.
5. REDEMPTION AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Securities. The Securities are
redeemable as a whole, or from time to time in part, at any time at the
option of the Company at the Redemption Prices set forth below, provided that
the Securities are not redeemable prior to __________, 2002.
The table below shows Redemption Prices of a Security per $1,000
Principal Amount on the dates shown below and at Stated Maturity, which
prices reflect accrued Original Issue Discount calculated to each such date.
The Redemption Price of a Security redeemed between such dates would include
an additional amount reflecting the additional Original Issue Discount
accrued since the next preceding date in the table to the actual Redemption
Date.
<TABLE>
<CAPTION>
ACCRUED
ORIGINAL ISSUE REDEMPTION
SECURITY DISCOUNT PRICE
REDEMPTION DATE ISSUE PRICE AT ____% (1) + (2)
--------------- ----------- -------------- ----------
<S> <C> <C> <C>
__________, 2002
__________, 2003
__________, 2004
__________, 2005
__________, 2006
__________, 2007
__________, 2008
__________, 2009
__________, 2010
__________, 2011
__________, 2012
__________, 2013
__________, 2014
</TABLE>
A - 5
<PAGE>
<TABLE>
<S> <C> <C> <C>
__________, 2015
__________, 2016
__________, 2017
__________, 2018
At maturity
</TABLE>
If converted to a Semiannual Coupon Debenture following the occurrence
of a Tax Event, this Security will be redeemable at the Restated Principal
Amount plus interest accrued and unpaid from, and including, the date of such
conversion to, but excluding, the Redemption Date.
6. REPURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; REPURCHASE AT
THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
(a) Subject to the terms and conditions of the Indenture, the
Company shall become obligated to repurchase, at the option of the Holder,
the Securities held by such Holder on the following Repurchase Dates and at
the following Purchase Prices per $1,000 Principal Amount, upon delivery of a
Repurchase Notice containing the information set forth in the Indenture, from
the opening of business on the date that is 20 Business Days prior to such
Repurchase Date until the close of business on such Repurchase Date and upon
delivery of the Securities to the Paying Agent by the Holder as set forth in
the Indenture. Such Purchase Prices may be paid, at the option of the
Company, in Cash or by the issuance and delivery of shares of Common Stock of
the Company, or in any combination thereof.
<TABLE>
<CAPTION>
REPURCHASE DATE PURCHASE PRICE
--------------- --------------
<S> <C>
__________________, 2002 $_______________
__________________, 2009 $_______________
__________________, 2014 $_______________
</TABLE>
Securities in denominations larger than $1,000 of Principal Amount may
be repurchased in part, but only in integral multiples of $1,000 of Principal
Amount.
(b) If prior to a Repurchase Date this Security has been converted
to a Semiannual Coupon Debenture following the occurrence of a Tax Event, the
Purchase Price will be equal to the Restated Principal Amount plus accrued
and unpaid interest from, and including, the date of conversion to, but
excluding, the Repurchase Date.
(c) At the option of the Holder and subject to the terms and
conditions of the Indenture, the Company shall become obligated to repurchase
the Securities held by such Holder and delivered to the Company or its
designated agent on or before 45 days after the date of the Company's notice
of a Fundamental Change occurring on or prior to __________, 2019 for a
Fundamental Change Purchase Price equal to the Issue Price plus accrued
Original Issue Discount and interest, if any, to the Fundamental Change
Repurchase Date which Fundamental Change Purchase Price shall be paid in
Cash. Securities in denominations larger than $1,000 of Principal Amount may
be repurchased in part in connection with a Fundamental Change, but only in
integral multiples of $1,000 of Principal Amount. If, prior to a Fundamental
Change Repurchase Date, this Security has been converted to a Semiannual
Coupon Debenture following
A - 6
<PAGE>
the occurrence of a Tax Event, the Purchase Price will be equal to the
Restated Principal Amount plus accrued and unpaid interest from, and
including, the date of conversion to, but excluding, the Fundamental Change
Repurchase Date.
(d) Holders have the right to withdraw any Repurchase Notice or
Fundamental Change Repurchase Notice, as the case may be, by delivering to
the Paying Agent a written notice of withdrawal in accordance with the
provisions of the Indenture.
(e) If Cash (and/or securities if permitted under the Indenture)
sufficient to pay a Purchase Price or Fundamental Change Purchase Price, as
the case may be, of all Securities or portions thereof to be repurchased as
of the Repurchase Date or the Fundamental Change Repurchase Date, as the case
may be, is deposited with the Paying Agent on the Business Day following the
Repurchase Date or the Fundamental Change Repurchase Date, as the case may
be, Original Issue Discount (or interest upon conversion to a Semiannual
Coupon Debenture following the occurrence of a Tax Event) ceases to accrue on
such Securities (or portions thereof) on and after such date, and the Holder
thereof shall have no other rights as such (other than the right to receive
the Purchase Price or Fundamental Change Purchase Price, as the case may be,
upon surrender of such Security).
7. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY
Notice of redemption at the option of the Company will be mailed at
least 20 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at the Holder's registered address. If
money sufficient to pay the Redemption Price of all Securities (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent prior to or on the Redemption Date, on and after such date Original
Issue Discount (or interest upon conversion to a Semiannual Coupon Debenture
following the occurrence of a Tax Event) ceases to accrue on such Securities
or portions thereof. Securities in denominations larger than $1,000 of
Principal Amount may be redeemed in part but only in multiples of $1,000 of
Principal Amount.
8. SUBORDINATION
The Securities are subordinated to all existing and future Senior
Indebtedness of the Company. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid.
The Indenture does not limit the present or future amount of Senior
Indebtedness that the Company may have. The Company agrees, and each Holder
by accepting a Security agrees, to the subordination and authorizes the
Trustee to give it effect and appoints the Trustee as attorney-in-fact for
such purpose.
9. CONVERSION
Subject to the next two succeeding sentences, a Holder of a Security may
convert this Security for Common Stock of the Company at any time prior to
maturity. If this Security is called for redemption, the Holder may convert
it at any time before the close of the last Trading Day prior to the
Redemption Date. A Security in respect of which a Holder has delivered a
notice of exercise of the option to require the Company to repurchase such
Security or to
A - 7
<PAGE>
repurchase such Security in the event of a Fundamental Change may be
converted only if the notice of exercise is withdrawn in accordance with the
terms of the Indenture.
The initial Conversion Rate is _______ shares of Common Stock per $1,000
Principal Amount, subject to adjustment in certain events described in the
Indenture. The Company will deliver Cash or a check in lieu of any fractional
share of Common Stock.
The Holders' right to convert Securities into shares of Common Stock is
subject to the Company's right to elect to instead pay such Holder the amount
of Cash set forth in the next succeeding sentence in lieu of delivering such
shares of Common Stock; PROVIDED, HOWEVER, that if such payment of Cash is
not permitted pursuant to the provisions of the Indenture or the provisions
of any other agreement or instrument to which the Company is a party or by
which it is bound or otherwise, the Company shall deliver shares of Common
Stock (and Cash in lieu of fractional shares of Common Stock) in accordance
with Article 11 of the Indenture, whether or not the Company has delivered a
notice pursuant to Section 11.02 to the effect that the Securities will he
paid in Cash. The amount of Cash to he paid for each $1,000 Principal Amount
of a Security shall be equal to the Sale Price of a share of Common Stock on
the Trading Day immediately prior to the related Conversion Date multiplied
by the Conversion Rate in effect on such Trading Day.
The Company shall not pay Cash in lieu of delivering shares of Common
Stock upon the conversion of any Security pursuant to the terms of Article 11
of the Indenture (other than Cash in lieu of fractional shares) if there has
occurred (prior to, on or after, as the case may be, the Conversion Date or
the date on which the Company delivers its notice of whether each Security
shall he converted into shares of Common Stock or Cash) and is continuing an
Event of Default (other than a default in such payment on such Securities),
provided, however, that this sentence shall not apply in the event that an
Event of Default occurs after such Cash is paid.
In the event the Company exercises its option pursuant to Section 12.01
of the Indenture to have interest in lieu of Original Issue Discount accrue
on the Security following a Tax Event, the Holder will be entitled on
conversion to receive the same number of shares of Common Stock such Holder
would have received if the Company had not exercised such option. If the
Company exercises such option, Securities surrendered for conversion during
the period from the close of business on any Regular Record Date next
preceding any Interest Payment Date to the opening of business of such
Interest Payment Date (except Securities to be redeemed on the next Interest
Payment Date) must be accompanied by payment of an amount equal to the
interest thereon that the registered Holder is to receive. Except where
Securities surrendered for conversion must he accompanied by payment as
described above, no interest on converted Securities will he payable by the
Company on any Interest Payment Date subsequent to the date of conversion.
To convert this Security a Holder must (1) complete and manually sign
the conversion notice on the back of this Security (or complete and manually
sign a facsimile of such notice) and deliver such notice to the Conversion
Agent, (2) surrender this Security to the Conversion Agent, (3) furnish
appropriate endorsements and transfer documents if required by the Conversion
Agent, the Company or the Trustee and (4) pay any transfer or similar tax, if
required.
A - 8
<PAGE>
A Holder may convert a portion of this Security if the Principal Amount
of such portion is $1,000 or an integral multiple of $1,000. No payment or
adjustment will be made for dividends on the Common Stock except as provided
in the Indenture. On conversion of this Security, that portion of accrued
Original Issue Discount attributable to the period from the Issue Date to the
Conversion Date with respect to the converted portion of this Security shall
not be canceled, extinguished or forfeited, but rather shall be deemed to be
paid in full to the Holder thereof through the delivery of the Common Stock
(together with any cash payment in lieu of fractional shares) in exchange for
the portion of this Security being converted pursuant to the terms hereof.
10. TAX EVENT
(a) From and after the date (the "TAX EVENT DATE") of the
occurrence of a Tax Event, at the option of the Company, interest in lieu of
future Original Issue Discount shall accrue at _____% per annum on a
principal amount per Security (the "RESTATED PRINCIPAL AMOUNT") equal to the
Issue Price plus Original Issue Discount accrued to the date immediately
prior to the Tax Event Date and shall be payable semiannually on _____ and
______ of each year (each an "INTEREST PAYMENT DATE") to Holders of record at
the close of business on ______ or ______ (each a "REGULAR RECORD DATE")
immediately preceding such Interest Payment Date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months and will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Tax Event Date.
(b) Interest on any Security that is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
person in whose name that Security is registered at the close of business on
the Regular Record Date for such interest at the office or agency of the
Company maintained for such purpose. Each installment of interest on any
Security shall be paid in same-day funds by transfer to an account maintained
by the payee located inside the United States. In the case of a permanent
global Security, interest payable on any Interest Payment Date will be paid
to the Depositary, Euroclear and/or Cedel, as the case may be, with respect
to that portion of such permanent global Security held for its account by
Cede & Co. or the London office of a depositary, as the case may be, for the
purpose of permitting such party to credit the interest received by it in
respect of such permanent global Security to the accounts of the beneficial
owners thereof.
(c) Except as otherwise specified with respect to the Securities,
any interest on any Security that is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein called "DEFAULTED
INTEREST") shall forthwith cease to be payable to the registered Holder
thereof on the relevant Regular Record Date by virtue of having been such
Holder, and such Defaulted Interest may be paid by the Company as provided
for in Section 12.02(b) of the Indenture.
11. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION
Any Securities called for redemption, unless surrendered for conversion
before the close of business on the last Trading Day prior to the Redemption
Date, may be deemed to be purchased from the Holders of such Securities at an
amount not less than the Redemption Price,
A - 9
<PAGE>
by one or more investment bankers or other purchasers who may agree with the
Company to purchase such Securities from the Holders, to convert them for
Common Stock and to make payment for such Securities to the Trustee in trust
for such Holders.
12. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form, without coupons, in denominations
of $1,000 of Principal Amount and integral multiples of $1,000. A Holder may
transfer or convert Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or
exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be
redeemed) or any Securities in respect of which a Repurchase Notice or
Fundamental Change Repurchase Notice has been given and not withdrawn
(except, in the case of a Security to be purchased in part, the portion of
the Security not to be purchased) or any Securities for a period of 15 days
before the mailing of notice of Securities to be redeemed.
13. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of
this Security for all purposes.
14. UNCLAIMED MONEY OR SECURITIES
The Trustee and the Paying Agent shall return to the Company upon
written request any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for two years,
PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such return, shall at the expense of the Company cause
to be published once in a newspaper of general circulation in The City of New
York or mail to each such Holder notice that such money or securities remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication or mailing, any unclaimed
money or securities then remaining will be returned to the Company. After
return to the Company, Holders entitled to the money or securities must look
to the Company for payment as general creditors unless an applicable
abandoned property law designates another Person.
15. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount of the
Securities at the time outstanding and (ii) certain Defaults and Events of
Defaults may be waived with the written consent of the Holders of a majority
in aggregate Principal Amount of the Securities at the time outstanding.
Subject to certain exceptions set forth in the Indenture, without the consent
of any Holder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, defect or inconsistency, or to provide for
the assumption of the Company's obligations to the Holders of the Securities
in case of a merger or consolidation or sale of all or substantially all of
the Company's assets; to provide
A - 10
<PAGE>
for uncertificated Securities in addition to or in place of certificated
Securities or to make any change that does not adversely affect the rights of
any Holder or to comply with any requirement of the SEC in connection with
the qualification of the Indenture under the TIA.
16. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) the Company defaults
in the payment of the Principal Amount, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price or a Fundamental Change Purchase
Price on any Security when the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration, when due for repurchase by the
Company or otherwise, whether or not such payment shall be prohibited by
Article 10 of the Indenture; (ii) after exercise of its option pursuant to
Section 12.01 of the Indenture following a Tax Event, the Company defaults in
the payment of interest upon any security when such interest becomes due and
payable, and such default continues for a period of 30 days; (iii) failure of
the Company to perform or comply with the provisions of Section 11.02 of the
Indenture, and such failure continues for a period of 10 days; (iv) the
Company fails to comply with any of its agreements or covenants in this
Security or the Indenture (other than those referred to in clauses (i)
through (iii) above) and such failure continues for 60 days after receipt by
the Company of a Notice of Default; and (v) certain events of bankruptcy or
insolvency as set forth in the Indenture. If an Event of Default occurs and
is continuing, the Trustee, or the Holders of at least 25% in aggregate
Principal Amount of the Securities at the time outstanding, may declare all
the Securities to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default which will result in the
Securities being declared due and payable immediately upon the occurrence of
such Events of Default.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in aggregate Principal Amount
of the Securities at the time outstanding may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders notice
of any continuing Default (except a Default in payment of amounts specified
in clause (i) and (ii) above) if it determines that withholding notice is in
their interests.
17. TRUSTEE DEALINGS WITH THE COMPANY
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise
deal with and collect obligations owed to it by the Company or its Affiliates
and may otherwise deal with the Company or its Affiliates with the same
rights it would have if it were not Trustee.
18. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Holder waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Securities.
A - 11
<PAGE>
19. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee manually signs the Trustee's Certificate of Authentication on the
other side of this Security.
20. ABBREVIATIONS
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
21. GOVERNING LAW
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS
SECURITY, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
WellPoint Health Networks Inc.
1 Wellpoint Way
Thousand Oaks, California 91362
Attention: General Counsel
A - 12
<PAGE>
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: WellPoint Health Networks Inc.
The undersigned registered holder of this Security hereby irrevocably
exercises the option to convert this Security, or portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated,
for shares of Common Stock of WellPoint Health Networks Inc. in accordance
with the terms of the Indenture referred to in this Security, and directs
that the shares issuable and deliverable upon such conversion, together with
any check in payment for fractional shares and any Securities representing
any unconverted principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated below. If
shares or any portion of this Security not converted are to be issued in the
name of a Person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Dated:
-------------------------------------------------
-------------------------------------------------
Signature(s)
Fill in for registration of shares
if to be delivered, and Securities
if to be issued other than to and in
the name of the registered holder:
- ------------------------------------------
(Name)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City, state and zip code)
Please print name and address
Principal amount to be converted
(if less than all):
$_________,000
Social Security or Other Taxpayer
Identification Number
A - 13
<PAGE>
[FORM OF OPTION TO ELECT REPURCHASE
UPON A FUNDAMENTAL CHANGE]
To: WellPoint Health Networks Inc.
The undersigned registered holder of this Security hereby acknowledges
receipt of a notice from WellPoint Health Networks Inc. (the "COMPANY") as to
the occurrence of a Fundamental Change with respect to the Company and
requests and instructs the Company to repurchase this Security, or the
portion hereof (which is $1,000 Principal Amount or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Security.
Dated:
-------------------------------------------------
-------------------------------------------------
Signature(s)
Principal amount to be repurchased
(if less than all):
$_______,000
Social Security or Other Taxpayer
Identification Number
A - 14
<PAGE>
ASSIGNMENT
For value received ________________________ hereby sell(s), assign(s)
and transfer(s) unto _____________________ (Please insert social security or
other Taxpayer Identification Number of assignee) the within Security, and
hereby irrevocably constitutes and appoints _____________ attorney to
transfer the said Security on the books of the Company, with full power of
substitution in the premises.
Dated: ___________________________
_______________________________________
_______________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor
Institution (a bank, a stock broker, a savings and loan
association or a credit union) with membership in an approved
signature guarantee program pursuant to Securities and Exchange
Commission Rule 17Ad-15) if shares of Common Stock are to be
issued, or Securities to be delivered, other than to or in the
name of the registered holder.
_______________________________________
Signature Guarantee
NOTICE: The above signatures of the holder(s) hereof must correspond with the
name as written upon the face of the Security in every particular without
alteration or enlargement or any change whatever.
A - 15
<PAGE>
[FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL SECURITY
TO REFLECT CHANGES IN PRINCIPAL AMOUNT]
Schedule A
Changes to Principal Amount of Global Security
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SECURITIES
BY WHICH THIS GLOBAL SECURITY
IS TO BE REDUCED OR INCREASED, AND
REASON FOR REMAINING PRINCIPAL AMOUNT OF NOTATION
DATE REDUCTION OR INCREASE THIS GLOBAL SECURITY MADE BY
---- ----------------------------------- ----------------------------- ---------
<S> <C> <C> <C>
</TABLE>
A - 16
<PAGE>
GIBSON, DUNN & CRUTCHER LLP
LAWYERS
ONE MONTGOMERY STREET
TELESIS TOWER
SAN FRANCISCO, CALIFORNIA 94104-4505
---------
(415) 393-8200
FACSIMILE: (415) 986-5309
______________________, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: WELLPOINT HEALTH NETWORKS, INC./FORM S-3 REGISTRATION STATEMENT
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: (i) the proposed offering by California HealthCare Foundation
(the "Selling Shareholder") of up to 10,350,000 shares (the "Shares") of the
Common Stock of the Company, par value $.01 per share (the "Common Stock");
and (ii) the proposed offering by the Company of up to $327,750,000 aggregate
principal amount at maturity of Zero Coupon Convertible Debentures due 2019
(the "Debentures") and the shares of Common Stock issuable upon conversion of
the Debentures (the "Conversion Shares").
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:
(1) The Shares have been duly and validly authorized by the Company,
and when issued and delivered in accordance with the terms of the applicable
underwriting agreements will be fully paid and non-assessable shares of
Common Stock;
<PAGE>
(2) The Debentures have been duly and validly authorized by the
Company, and when issued and delivered in accordance with the terms of the
applicable underwriting agreement, will be valid and binding obligations of
the Company entitled to the benefits of the Indenture, dated as of
_____________, by and between the Company and the Bank of New York, as
trustee under which the Debentures were issued (the "Indenture"); and
(3) The Conversion Shares, when issued and delivered in accordance with
the terms of the Indenture, will be validly issued, fully paid and
non-assessable.
Our opinions set forth in numbered paragraphs 2 and 3 above are subject
to the following assumptions, qualifications, limitations and exceptions
being true and correct at or prior to the time of the delivery of any of the
Conversion Shares: (a) at the time any of the Debentures are offered or sold,
(i) the Registration Statement on Form S-3 to which this opinion is an
exhibit (the "Registration Statement") will be effective, and (ii) all
applicable "Blue Sky" and state securities laws will have been complied with;
and (b) the Indenture has been qualified under the Trust Indenture Act of
1933, as amended.
Our opinion set forth in numbered paragraph 2 above is subject to the
effect of (i) applicable bankruptcy, reorganization, insolvency, moratorium
and other similar laws and court decisions of general application (including,
without limitation, statutory or other laws regarding fraudulent or
preferential transfers) relating to, limiting or affecting the enforcement of
creditors' rights generally, (ii) general principles of equity that may limit
the enforceability of any of the remedies, covenants or other provisions of
the Debentures and the Indenture, and (iii) the application of principles of
equity (regardless of whether enforcement is considered in proceedings at law
or in equity) as such principles relate to, limit or effect the enforcement
of creditors' rights generally.
We express no opinion as to (i) any provision of the Debentures or the
Indenture regarding the remedies available to any person (A) to take action
that is arbitrary, unreasonable or capricious or is not taken in good faith
or in a commercially reasonable manner, whether or not such action is
permitted under the Debentures or the Indenture, or (B) for violations or
breaches that are determined by a court to be non-material or without
substantially adverse effect upon the ability of the Company to perform its
material obligations under the Debentures or the Indenture; or (ii) any
provision of the Debentures or the Indenture that may provide for interest on
interest or penalty interest.
This opinion is limited to California, New York and federal law.
This opinion may not be quoted in whole or in part without our prior
written consent.
2
<PAGE>
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 relating to the issuance of the Shares and
in the prospectus relating to the issuance of the Debentures and the
Conversion Shares, each of which forms a part of the Registration Statement.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
3
<PAGE>
EXHIBIT 12.1 -- STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO FIXED
CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------- QUARTER ENDED
1994 1995 1996 1997 1998 MARCH 31, 1999
--------- --------- --------- --------- --------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations before
income taxes................................... $ 339.4 $ 297.0 $ 337.2 $ 386.4 $ 392.0 $ 116.6
Interest on borrowings.......................... -- -- 36.6 36.6 26.9 6.1
Interest portion of rentals..................... 5.0 4.4 5.4 11.1 14.5 3.4
--------- --------- --------- --------- --------- ------
Earnings...................................... $ 344.4 $ 301.4 $ 379.2 $ 434.1 $ 433.4 $ 126.1
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
Interest on borrowings.......................... $ -- $ -- $ 36.6 $ 36.6 $ 26.9 $ 6.1
Interest portion of rentals..................... 5.0 4.4 5.4 11.1 14.5 3.4
--------- --------- --------- --------- --------- ------
Fixed Charges................................. $ 5.0 $ 4.4 $ 42.0 $ 47.7 $ 41.4 $ 9.5
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
Ratio of earnings to fixed charges.............. 68.9 68.5 9.0 9.1 10.5 13.3
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 (File No: 333-80153) of our report dated February 11, 1999
relating to the financial statements, which appears in WellPoint Health Networks
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. We also
consent to the references to us under the headings "Experts" and "Summary
Consolidated Financial and Operating Data" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
June 25, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-3 No. 333-80153) and related
Prospectus of WellPoint Health Networks Inc. for the registration of shares of
its common stock and to the incorporation by reference therein of our report
dated February 5, 1999, with respect to the consolidated financial statements of
Cerulean Companies, Inc. included in Amendment No. 5 to the Registration
Statement (Form S-4 No. 333-64955) filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
June 22, 1999
<PAGE>
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S.employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-------------
WELLPOINT HEALTH NETWORKS INC.
(Exact name of obligor as specified in its charter)
Delaware 95-4635504
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1 WellPoint Way
Thousand Oaks, California 91362
(Address of principal executive offices) (Zip code)
-------------
Zero Coupon Convertible Subordinated Debentures due 2019
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Name Address
-------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 10th day of June, 1999.
THE BANK OF NEW YORK
By: /s/ ILIANA A. ARCIPRETE
---------------------------------
Name: ILIANA A. ARCIPRETE
Title: ASSISTANT TREASURER
-3-
<PAGE>
- -------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
In Thousands
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin... $4,508,742
Interest-bearing balances............................ 4,425,071
Securities:
Held-to-maturity securities.......................... 836,304
Available-for-sale securities........................ 4,047,851
Federal funds sold and Securities purchased under
agreements to resell................................. 1,743,269
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............39,349,679
LESS: Allowance for loan and
lease losses............603,025
LESS: Allocated transfer risk
reserve..................15,906
Loans and leases, net of unearned income,
allowance, and reserve............................. 38,730,748
Trading Assets......................................... 1,571,372
Premises and fixed assets (including capitalized
leases).............................................. 685,674
Other real estate owned................................ 10,331
Investments in unconsolidated subsidiaries and
associated companies................................. 182,449
Customers' liability to this bank on acceptances
outstanding.......................................... 1,184,822
Intangible assets...................................... 1,129,636
Other assets........................................... 2,632,309
-----------
Total assets........................................... $61,688,578
-----------
-----------
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices.................................. $25,731,036
Noninterest-bearing........................10,252,589
Interest-bearing...........................15,478,447
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................. 18,756,302
Noninterest-bearing...........................111,386
Interest-bearing...........................18,644,916
Federal funds purchased and Securities sold under
agreements to repurchase............................. 3,276,362
Demand notes issued to the U.S.Treasury................ 230,671
Trading liabilities.................................... 1,554,493
Other borrowed money:
With remaining maturity of one year or less.......... 1,154,502
With remaining maturity of more than one year
through three years................................ 465
With remaining maturity of more than three years..... 31,080
Bank's liability on acceptances executed and
outstanding.......................................... 1,185,364
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 2,743,590
-----------
Total liabilities...................................... 55,971,865
-----------
-----------
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 764,443
Undivided profits and capital reserves................. 3,807,697
Net unrealized holding gains (losses) on
available-for-sale securities........................ 44,106
Cumulative foreign currency translation adjustments.... (34,817)
-----------
Total equity capital................................... 5,716,713
-----------
Total liabilities and equity capital................... $61,688,578
-----------
-----------
</TABLE>
-5-
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of my
knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of
our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System
and is true and correct.
Thomas A. Reyni ]
Alan R. Griffith ] Directors
Gerald L. Hassell ]
-6-
