SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
December 15, 2000
Date of Report (Date of earliest event reported): (November 30, 2000)
RIGHTCHOICE MANAGED CARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
001-15907 43-0303080
(Commission File Number) (I.R.S. Employer Identification No.)
1831 Chestnut Street, St. Louis, Missouri 63103-2275
(Address of principal executive offices)
(Zip Code)
314-923-4444
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Item 1. Changes in Control of Registrant.
Item 2. Acquisition or Disposition of Assets.
On November 30, 2000, RightCHOICE Managed Care, Inc., a
Missouri corporation ("RightCHOICE"), completed its
reorganization (the "Reorganization") pursuant to that certain
Agreement and Plan of Reorganization, dated as of March 14, 2000
(the "Reorganization Agreement"), by and among Blue Cross and
Blue Shield of Missouri ("BCBSMo"), RightCHOICE, The Missouri
Foundation For Health (the "Foundation"), and RightCHOICE Managed
Care, Inc., a Delaware corporation ("New RightCHOICE").
The parties entered into the Reorganization Agreement
pursuant to the Amended and Restated Settlement Agreement, dated
January 6, 2000 (the "Settlement Agreement"), by and among the
Attorney General of the State of Missouri, the Missouri
Department of Insurance, BCBSMo and RightCHOICE. The
Settlement Agreement resolved litigation between BCBSMo and
RightCHOICE and the State of Missouri over BCBSMo's operation of
RightCHOICE following BCBSMo's 1994 reorganization.
The Reorganization consisted of the following four steps
which were all completed on November 30, 2000: (i) BCBSMo
transferred to Healthy Alliance Life Insurance Company (HALIC),
a subsidiary of RightCHOICE, its insurance
contracts and cash and receivables equal to the liabilities
assumed by HALIC under the insurance contracts and an
amount necessary to meet statutory reserve requirements (the
"Transfer"), (ii) BCBSMo converted from a Missouri non-profit non-
stock health services corporation to a Missouri for-profit stock
corporation (the "Conversion"), (iii) BCBSMo reincorporated in
Delaware by merging with New RightCHOICE (which was wholly-owned
by the Foundation at that time) (the "Reincorporation") and
(iv) RightCHOICE merged with New RightCHOICE (the "Merger").
Immediately prior to the first step of the Reorganization, BCBSMo
paid $12.78 million to the Foundation in partial satisfaction of
claims by various parties, including the Missouri Attorney
General, the Missouri Department of Insurance and public interest
advocacy groups, that BCBSMo had a public purpose obligation.
Immediately after completion of the Reorganization, New
RightCHOICE paid the Foundation $175,000 in partial satisfaction
of any obligation BCBSMo may have had under Missouri law
resulting from its conversion from a non-profit non-stock health
services corporation to a for-profit stock corporation.
In the Merger, (i) each issued and outstanding share of
RightCHOICE class A common stock (which was publicly traded
on the New York Stock Exchange) was converted into one share of
New RightCHOICE common stock, (ii) each issued and outstanding
share of RightCHOICE class B common stock (which was owned by
BCBSMo immediately prior to the first step of the Reorganization
and by New RightCHOICE immediately prior to the Merger as a
result of the merger of BCBSMo and New RightCHOICE) was
cancelled, and (iii) the one issued and outstanding share of New
RightCHOICE common stock (which was owned by the Foundation) was
converted into 14,962,500 shares of New RightCHOICE common stock.
As a result of the Reorganization, the Foundation received
14,962,500 shares of New RightCHOICE common stock, representing
80.2% of the equity and 80.2% of the voting power of New
RightCHOICE (which is the same ownership interest, but a
decreased voting interest, that BCBSMo had in RightCHOICE
immediately prior to the Reorganization). New RightCHOICE's
common stock trades on the New York Stock Exchange under the
symbol "RIT."
In connection with the Reorganization, New RightCHOICE
entered into a Blue Cross License Agreement and a Blue Shield
License Agreement (collectively, the "License Agreements") with
the Blue Cross and Blue Shield Association pursuant to which New
RightCHOICE has the exclusive right to use the Blue Cross and
Blue Shield names and service marks for all of the managed care
products and services that it offers in the eighty-five Missouri
counties, including the St. Louis, Missouri metropolitan area,
that comprise its service area. The License Agreements contain a
number of requirements, including certain ownership limitations
which provide that: (i) no institutional investor may
beneficially own 10% or more of the voting power of New
RightCHOICE, (ii) no noninstitutional investor may beneficially
own 5% or more of the voting power of New RightCHOICE, and
(iii) no person may beneficially own 20% or more of New
RightCHOICE's outstanding equity securities. Pursuant to an
addendum to the License Agreements (the "Addendum"), the
Foundation is exempt from these ownership limitations provided
that it meets the divestiture requirements set forth in the
Voting Trust and Divestiture Agreement described below. The
License Agreements are filed as exhibits to this Current Report
on Form 8-K, and the general description of the License
Agreements contained herein is qualified by reference to the text
of the License Agreements.
In connection with the Reorganization and the License
Agreements and Addendum, New RightCHOICE entered into a Voting
Trust and Divestiture Agreement, dated as of November 30, 2000
(the "Voting Trust Agreement"), by and among New RightCHOICE, the
Foundation and Wilmington Trust Company, as trustee. Under the
Voting Trust Agreement, 14,029,536 of the Foundation's 14,962,500
shares of New RightCHOICE common stock were deposited into a
voting trust. These shares will remain subject to the voting
trust until the Foundation sells them or the trust terminates.
Under the Voting Trust Agreement, the New RightCHOICE board of
directors will direct the trustee how to vote the shares
deposited, except that the Foundation will direct the trustee how
to vote the shares in the case of a proposed business combination
transaction involving New RightCHOICE in which the then existing
New RightCHOICE shareholders would own less than 50.1% of the
shares of the resulting company.
Under the Voting Trust Agreement, the Foundation must sell
the shares deposited in the voting trust so that it (i) owns less
than 50% of the outstanding shares of New RightCHOICE common
stock by November 30, 2003, subject to a possible one year
extension, and (ii) owns less than 20% of the outstanding shares
of New RightCHOICE common stock by November 30, 2005, subject to
a possible two-year extension. The voting trust terminates when
the Foundation owns less than 5% of the issued and outstanding
shares of New RightCHOICE common stock. The Voting Trust
Agreement is filed as an exhibit to this Current Report on Form 8-
K, and the general description of the Voting Trust Agreement
contained herein is qualified by reference to the text of the
Voting Trust Agreement.
In addition, in connection with the Reorganization, New
RightCHOICE entered into a Registration Rights Agreement, dated
as of November 30, 2000, by and between New RightCHOICE and the
Foundation (the "Registration Rights Agreement"). In general,
the Registration Rights Agreement requires New RightCHOICE to
register with the Securities and Exchange Commission the
Foundation's shares of New RightCHOICE common stock for sale to
the public over a period of time and grants New RightCHOICE the
right to buy the Foundation's shares of New RightCHOICE common
stock in some cases.
Under the Registration Rights Agreement, New RightCHOICE
will register with the Securities and Exchange Commission the
Foundation's shares of New RightCHOICE common stock for sale to
the public when requested by the Foundation, or when New
RightCHOICE registers the shares of New RightCHOICE common stock
for a public offering and the Foundation requests that its shares
be included in the registration. There are limits on New
RightCHOICE's obligation to register the Foundation's shares of
New RightCHOICE common stock.
New RightCHOICE has the option to purchase the
Foundation's shares of New RightCHOICE common stock at a price
based upon the market value of the stock at the time of purchase
on an ongoing basis after the Foundation owns less than 50% of
New RightCHOICE's outstanding shares, or whenever the Foundation
exercises its registration rights. New RightCHOICE has a right
of first refusal to purchase the Foundation's shares of New
RightCHOICE common stock at the price agreed to between the
Foundation and a qualified investor whenever the Foundation
desires to sell the shares in a private transaction to the
qualified investor. The Foundation will, if required by New
RightCHOICE, sell some of its shares of New RightCHOICE common
stock in an underwritten public offering before May 30, 2001 if
New RightCHOICE and the Foundation agree on the number of shares
the Foundation will sell and the other terms of the offering.
The Registration Rights Agreement is filed as an exhibit
to this Current Report on Form-8-K, and the general description
of the Registration Rights Agreement contained herein is
qualified by reference to the text of the Registration Rights
Agreement.
Also, in connection with the Reorganization, New
RightCHOICE entered into an Indemnification Agreement, dated as
of November 30, 2000, by and between New RightCHOICE and the
Foundation. Under the indemnification agreement, the Foundation
will indemnify New RightCHOICE and its affiliates from any income
tax liabilities that they may incur as a result of the
reorganization. In addition, the Foundation will indemnify the
officers, directors and advisors of New RightCHOICE against
claims arising out of the reorganization or the events that gave
rise to the litigation between Blue Cross and Blue Shield of
Missouri and the State of Missouri.
The Indemnification Agreement is filed as an exhibit to
this Current Report on Form 8-K, and the general description of
the Indemnification Agreement contained herein is qualified by
reference to the text of the Indemnification Agreement.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Account.
Not applicable.
Item 5. Other Events.
IRS Private Letter Ruling Update.
The material federal income tax consequences of the
Reorganization were described in the Prospectus/Proxy Statement,
dated October 4, 2000, included as a part of the Form S-4
Registration Statement of New RightCHOICE (File No. 333-34750).
As stated therein, BCBSMo had requested a private letter ruling
from the Internal Revenue Service (the "IRS") with respect to the
Conversion and the Transfer. Subsequent to the closing of the
Reorganization, the IRS issued a private letter ruling to BCBSMo
in which it reordered the steps of the Reorganization for
purposes of its analysis. The private letter ruling concluded
that the Conversion will be tax free to BCBSMo and the Foundation
and that no gain or loss will be recognized by New RightCHOICE or
HALIC in the Transfer.
In a letter dated November 30, 2000, PricewaterhouseCoopers
LLP reaffirmed its tax opinion described in the Prospectus/Proxy
Statement. On that same date, PricewaterhouseCoopers LLP issued
a tax opinion to BCBSMo that stated, assuming the IRS issues the
private letter ruling as requested, the Transfer will not result
in federal income tax to BCBSMo, RightCHOICE or the holders
of RightCHOICE class A common stock. Subsequently, in a
letter dated December 14, 2000, PricewaterhouseCoopers LLP
confirmed that the IRS issued the private letter ruling as
requested with no material modifications. Copies of these
documents are filed as Exhibits to this Current Report on Form 8-
K, and the general description of these documents contained
herein is qualified by reference to the text of the documents.
Litigation Update.
On November 3, 1997, BCBSMo had filed a declaratory judgment
action in the Circuit Court of Cole County, Missouri. The
purpose of that action was to obtain a declaratory judgment on
the question whether BCBSMo was a public benefit corporation or a
mutual benefit corporation. The Attorney General of Missouri was
the initial defendant in the lawsuit. The Missouri Department of
Insurance and a class of Blue Cross and Blue Shield subscribers
represented by Anthony Sarkis also became parties to the action.
The circuit court certified the action as a class action. Mr.
Sarkis, on behalf of the class, sought a declaration that BCBSMo
was a mutual benefit corporation (rather than a public benefit
corporation) and that BCBSMo was precluded from transferring its
assets to a "charitable trust."
The Attorney General and BCBSMo filed motions for summary
judgment. On November 3, 2000, the Circuit Court of Cole County
entered a Final Order and Judgment in the case. It sustained the
position of the Attorney General of Missouri that BCBSMo was a
public benefit corporation, holding its assets for the benefit of
the general public, rather than a mutual benefit corporation,
holding its assets for the benefit of its subscribers.
This ruling was consistent with the positions taken by all
the parties to the Settlement Agreement among the Attorney
General, the Missouri Department of Insurance, BCBSMo and
RightCHOICE.
On December 12, 2000, Mr. Sarkis, on behalf of the
subscriber class, appealed this ruling to the Missouri Court of
Appeals for the Western District. If the judgment of the circuit
court is reversed, New RightCHOICE, as successor to BCBSMo, could
be obligated to pay substantial money damages. It is also
possible that if such a judgment were entered following this
appeal, a court could order that the reorganization be rescinded,
although New RightCHOICE believes that this would be unlikely.
If orders like those described above were entered, it would have
a material adverse effect on New RightCHOICE.
Item 6. Resignations of Registrant's Directors.
Not applicable.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired:
The financial statements required by Item 7(a) of this
Current Report on Form 8-K will be filed not later than
60 days after the date that this Current Report on
Form 8-K must be filed.
(b) Pro forma financial information:
The pro forma financial information required by
Item 7(b) of this Current Report on Form 8-K will be
filed not later than 60 days after the date that this
Current Report on Form 8-K must be filed.
(c) Exhibits Required by Item 601 of Regulation S-K:
Exhibit No. Description
2.1 Agreement and Plan of Reorganization, dated as
of March 14, 2000, by and among Blue Cross and
Blue Shield of Missouri, a Missouri nonprofit
health services corporation, RightCHOICE Managed
Care, Inc., a Missouri corporation, The Missouri
Foundation For Health, a Missouri nonprofit
public benefit corporation, and RightCHOICE
Managed Care, Inc., a Delaware corporation
(incorporated by reference to Exhibit 2 of
Registrant's Registration Statement on Form S-4
(File No. 333-34750)).
3.1 Certificate of Incorporation of RightCHOICE
Managed Care, Inc. (incorporated by reference to
Exhibit 3(a) of Registrant's Registration
Statement on Form S-4 (File No. 333-34750)).
3.2 Bylaws of RightCHOICE Managed Care Inc.
(incorporated by reference to Exhibit 3(b) of
Registrant's Registration Statement on Form S-4
(File No. 333-34750)).
8.1 Opinion of PricewaterhouseCoopers LLP as to tax
matters.
9.1 Voting Trust and Divestiture Agreement, dated as
of November 30, 2000, by and between RightCHOICE
Managed Care, Inc., a Delaware corporation, The
Missouri Foundation For Health, a Missouri non-
profit corporation, and Wilmington Trust
Company, a Delaware banking corporation, as
trustee.
10.1 Blue Cross License Agreement, dated November 30,
2000, by and between the Blue Cross and Blue
Shield Association and RightCHOICE Managed Care,
Inc., a Delaware corporation.
10.2 Blue Shield License Agreement, dated
November 30, 2000, by and between the Blue Cross
and Blue Shield Association and RightCHOICE
Managed Care, Inc., a Delaware corporation.
10.3 Missouri Blue Cross/Blue Shield License
Addendum, dated as of November 30, 2000, by and
between the Blue Cross and Blue Shield
Association and RightCHOICE Managed Care, Inc.,
a Delaware corporation.
10.4 Blue Cross Controlled Affiliate License
Agreement, dated November 30, 2000, by and among
RightCHOICE Managed Care, Inc., a Delaware
corporation, Healthy Alliance Life Insurance
Company and the Blue Cross and Blue Shield
Association.
10.5 Blue Shield Controlled Affiliate License
Agreement, dated November 30, 2000, by and among
RightCHOICE Managed Care, Inc., a Delaware
corporation, Healthy Alliance Life Insurance
Company and the Blue Cross and Blue Shield
Association.
10.6 Blue Cross Controlled Affiliate License
Agreement, dated November 30, 2000, by and among
RightCHOICE Managed Care, Inc., a Delaware
corporation, HMO Missouri, Inc. and the Blue
Cross and Blue Shield Association.
10.7 Blue Shield Controlled Affiliate License
Agreement, dated November 30, 2000, by and among
RightCHOICE Managed Care, Inc., a Delaware
corporation, HMO Missouri, Inc. and the Blue
Cross and Blue Shield Association.
10.8 Parental Guarantee of RightCHOICE Managed Care,
Inc., a Delaware corporation, dated November 30,
2000.
10.9 Registration Rights Agreement, dated as of
November 30, 2000, by and between RightCHOICE
Managed Care, Inc., a Delaware corporation, and
The Missouri Foundation For Health, a Missouri
nonprofit corporation.
10.10 Indemnification Agreement, dated as of
November 30, 2000, by and between RightCHOICE
Managed Care, Inc., a Delaware corporation, and
The Missouri Foundation For Health, a Missouri
nonprofit corporation.
10.11 Share Escrow Agent Agreement, dated as of
November 30, 2000, by and between RightCHOICE
Managed Care, Inc., a Delaware corporation, and
U.S. Trust Company, National Association, as
share escrow agent.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Letter from PricewaterhouseCoopers LLP, dated
November 30, 2000.
99.2 Letter from PricewaterhouseCoopers LLP, dated
December 14, 2000.
Item 8. Change in Fiscal Year.
Not applicable.
Item 9. Regulation FD Disclosure.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: December 15, 2000.
RIGHTCHOICE MANAGED CARE, INC.
(Registrant)
By: /s/ Sandra A. Van Trease
Sandra A. Van Trease
President, Chief Operating
Officer and Chief Financial Officer
EXHIBIT INDEX
Exhibit Description
No.
2.1 Agreement and Plan of Reorganization, dated as of
March 14, 2000, by and among Blue Cross and Blue
Shield of Missouri, a Missouri nonprofit health
services corporation, RightCHOICE Managed Care, Inc.,
a Missouri corporation, The Missouri Foundation For
Health, a Missouri nonprofit public benefit
corporation, and RightCHOICE Managed Care, Inc., a
Delaware corporation (incorporated by reference to
Exhibit 2 of Registrant's Registration Statement on
Form S-4 (File No. 333-34750)).
3.1 Certificate of Incorporation of RightCHOICE Managed
Care, Inc. (incorporated by reference to Exhibit 3(a)
of Registrant's Registration Statement on Form S-4
(File No. 333-34750)).
3.2 Bylaws of RightCHOICE Managed Care Inc. (incorporated
by reference to Exhibit 3(b) of Registrant's
Registration Statement on Form S-4 (File No. 333-
34750)).
8.1 Opinion of PricewaterhouseCoopers LLP as to tax
matters.
9.1 Voting Trust and Divestiture Agreement, dated as of
November 30, 2000, by and between RightCHOICE Managed
Care, Inc., a Delaware corporation, The Missouri
Foundation For Health, a Missouri non-profit
corporation, and Wilmington Trust Company, a Delaware
banking corporation, as trustee.
10.1 Blue Cross License Agreement, dated November 30, 2000,
by and between the Blue Cross and Blue Shield
Association and RightCHOICE Managed Care, Inc., a
Delaware corporation.
10.2 Blue Shield License Agreement, dated November 30,
2000, by and between the Blue Cross and Blue Shield
Association and RightCHOICE Managed Care, Inc., a
Delaware corporation.
10.3 Missouri Blue Cross/Blue Shield License Addendum,
dated as of November 30, 2000, by and between the Blue
Cross and Blue Shield Association and RightCHOICE
Managed Care, Inc., a Delaware corporation.
10.4 Blue Cross Controlled Affiliate License Agreement,
dated November 30, 2000, by and among RightCHOICE
Managed Care, Inc., a Delaware corporation, Healthy
Alliance Life Insurance Company and the Blue Cross and
Blue Shield Association.
10.5 Blue Shield Controlled Affiliate License Agreement,
dated November 30, 2000, by and among RightCHOICE
Managed Care, Inc., a Delaware corporation, Healthy
Alliance Life Insurance Company and the Blue Cross and
Blue Shield Association.
10.6 Blue Cross Controlled Affiliate License Agreement,
dated November 30, 2000, by and among RightCHOICE
Managed Care, Inc., a Delaware corporation, HMO
Missouri, Inc. and the Blue Cross and Blue Shield
Association.
10.7 Blue Shield Controlled Affiliate License Agreement,
dated November 30, 2000, by and among RightCHOICE
Managed Care, Inc., a Delaware corporation, HMO
Missouri, Inc. and the Blue Cross and Blue Shield
Association.
10.8 Parental Guarantee of RightCHOICE Managed Care, Inc.,
a Delaware corporation, dated November 30, 2000.
10.9 Registration Rights Agreement, dated as of
November 30, 2000, by and between RightCHOICE Managed
Care, Inc., a Delaware corporation, and The Missouri
Foundation For Health, a Missouri nonprofit
corporation.
10.10 Indemnification Agreement, dated as of November 30,
2000, by and between RightCHOICE Managed Care, Inc., a
Delaware corporation, and The Missouri Foundation For
Health, a Missouri nonprofit corporation.
10.11 Share Escrow Agent Agreement, dated as of November 30,
2000, by and between RightCHOICE Managed Care, Inc., a
Delaware corporation, and U.S. Trust Company, National
Association, as share escrow agent.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Letter from PricewaterhouseCoopers LLP, dated November
30, 2000.
99.2 Letter from PricewaterhouseCoopers LLP, dated December
14, 2000.
