UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-13248
RIGHTCHOICE MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1674052
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1831 Chestnut Street, St. Louis, Missouri 63103-2275
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 923-4444
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
Title of each class Outstanding at September 30, 1997
Class A Common Stock, $0.01 par value 3,709,000 shares
Class B Common Stock, $0.01 par value 14,962,500 shares
RIGHTCHOICE MANAGED CARE, INC.
Third Quarter 1997 Form 10-Q
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Consolidated Statements of Income for the Three and Nine
Months
Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 31
ITEM 2. Changes in Securities 31
ITEM 3. Defaults Upon Senior Securities 31
ITEM 4. Submission of Matters to a Vote of Security Holders 31
ITEM 5. Other Information 31
ITEM 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 33
PART I.FINANCIAL INFORMATION
ITEM 1.Financial Statements
RIGHTCHOICE MANAGED CARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share data)
September 30, December 31,
1997 1996
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $9,903 $ 33,418
Investments available for sale 242,324 262,216
Receivables from members 57,454 54,767
Receivables from related parties 16,070 17,073
Deferred income taxes 5,051 591
Other assets 19,578 13,193
Total current assets 350,380 381,258
Property and equipment, net 60,559 51,248
Deferred income taxes 10,247 6,247
Investments in affiliates 9,362 9,370
Goodwill and intangible assets, net 81,725 84,021
Total assets $512,273 $532,144
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical claims payable $115,619 $ 111,833
Unearned premiums 50,050 52,699
Accounts payable and accrued expenses 63,015 68,844
Payables to related parties 16,194 17,149
Reserve for loss contract 8,197
Obligations for employee benefits 3,725 3,864
Income taxes payable 11,258 12,801
Obligations under capital leases 4,946 5,224
Total current liabilities 273,004 272,414
Reserve for loss contract 19,851
Long-term debt 47,000 62,000
Obligations for employee benefits 20,478 21,244
Obligations under capital leases 6,430 3,532
Total liabilities 366,763 359,190
Shareholders' Equity:
Common Stock:
Class A, $.01 par,
125,000,000 shares authorized,
3,737,500 shares issued,
3,709,000 and 3,714,400
shares outstanding, respectively 37 37
Class B, $.01 par, 100,000,000
shares authorized,
14,962,500 shares issued and
outstanding 150 150
Additional paid-in capital 132,640 132,640
Retained earnings 11,814 30,687
Treasury stock, 28,500 and 23,100
Class A shares, respectively, at cost (404) (326)
Unrealized net appreciation of
investments available for sale 1,273 9,766
Total shareholders' equity 145,510 172,954
Total liabilities and
shareholders' equity $512,273 $532,144
See accompanying Notes to Consolidated Financial Statements.
RIGHTCHOICE MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except shares and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Premium $163,726 $148,363 $485,714 $439,720
Fees and other income 16,766 15,425 47,241 43,416
Total revenues 180,492 163,788 532,955 483,136
Operating expenses:
Healthcare services 143,131 133,343 411,588 359,943
Commissions 7,524 6,590 21,879 19,409
General and administrative
(excludes depreciation and
amortization and excludes net inter-
company charges allocated to Blue
Cross and Blue Shield of Missouri
of $1,911, $2,663, $6,535, and
$9,186, respectively) 34,539 33,320 104,092 95,363
Depreciation and amortization 5,243 3,772 15,645 10,815
Charge for loss reserves 29,510 29,510
Amortization of loss reserves (1,462) (1,462)
Non-recurring relocation charges 74 540 2,970 3,283
Total operating expenses 218,559 177,565 584,222 488,813
Operating loss (38,067) (13,777) (51,267) (5,677)
Investment income:
Interest and dividends 4,262 3,416 12,008 10,515
Realized gains, net 524 135 16,584 3,122
Total investment income, net 4,786 3,551 28,592 13,637
Other:
Interest expense (1,056) (1,556) (3,378) (4,153)
Other (expense) income, net (185) 12 (488) 93
Total other, net (1,241) (1,544) (3,866) (4,060)
(Loss) income before provision
for income taxes (34,522) (11,770) (26,541) 3,900
(Benefit) provision for
income taxes (11,766) (3,914) (7,668) 2,247
Net (loss) income $(22,756) $(7,856) $(18,873) $1,653
Weighted average
common shares outstanding 18,672,000 18,677,000 18,673,000 18,679,000
(Loss) earnings per share $(1.22) $(.42) $(1.01) $.09
See accompanying Notes to Consolidated Financial Statements.
RIGHTCHOICE MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the nine months ended,
September 30,
1997 1996
Cash flows from operating activities:
Net (loss) income $(18,873) $1,653
Adjustments to reconcile net
(loss) income to net cash (used in)
provided by operating activities:
(Credit) provision for deferred
income tax benefits (3,786) 4,586
Depreciation and amortization 15,645 10,815
Undistributed losses of affiliates 374 48
Gain on sale of investments (16,584) (3,122)
Amortization of premiums and
accretion of discounts, net (49) 369
(Gain) loss on sale of property
and equipment (72) 47
(Increase) decrease in certain assets:
Receivables from members (2,687) 6,845
Receivables from related parties 1,003 12,227
Other assets (8,041) (8,853)
Increase (decrease) in certain liabilities:
Medical claims payable 3,786 27,099
Unearned premiums (2,649) (4,277)
Accounts payable and accrued expenses (5,829) (6,183)
Payables to related parties (955) (10,565)
Reserve for loss contract 28,048
Obligations for employee benefits (906) 439
Income taxes payable (1,543) (9,260)
Net cash (used in) provided by
operating activities (13,118) 21,868
Cash flows from investing activities:
Proceeds from matured investments:
Fixed maturities 535 5,725
Proceeds from investments sold:
Fixed maturities 220,797 188,381
Equity securities 40,734 20,432
Other 32,469
Investments purchased:
Fixed maturities (269,164) (188,774)
Equity securities (230) (22,341)
Other (1,784) (1,596)
Investment in Healthcare InterChange (366) (3,055)
Additional investment in Epoch (196)
Payment for purchase of
HealthLink HMO, net of cash acquired (198)
Redemption of HealthLink affiliate 500
Proceeds from property and
equipment sold 556 16
Property and equipment purchased (14,282) (14,240)
Net cash provided by (used in)
investing activities 9,265 (15,346)
Cash flows from financing activities:
Purchase of Class A Treasury stock (78) (60)
Repayment of borrowings under
revolving credit facility (15,000)
Payments of capital lease obligations (4,584) (3,561)
Net cash used in financing activities (19,662) (3,621)
Net (decrease) increase in cash and
cash equivalents (23,515) 2,901
Cash and cash equivalents at
beginning of period 33,418 21,132
Cash and cash equivalents at end of
period $9,903 $24,033
Supplemental Disclosure of Cash Information:
Interest paid $3,769 $3,962
Income taxes paid (refund
received), net (2,339) 6,602
Supplemental Schedule of Noncash
Investing and Financing Activities:
Equipment acquired through
capital leases $9,730 $867
Disposal of equipment under
capital leases 2,526
See accompanying Notes to Consolidated Financial Statements.
RightCHOICE Managed Care, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Financial Statement Presentation
The interim consolidated financial statements included herein
have been prepared by RightCHOICE Managed Care, Inc. (the
company) without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission (the SEC). Certain
information and footnote disclosures, normally included in the
financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted
pursuant to such SEC rules and regulations; however, the
management of the company believes that the disclosures herein
are adequate to make the information presented not misleading.
In the opinion of management, all adjustments, consisting only
of normal recurring adjustments necessary to present fairly
the consolidated financial position of the company with
respect to the interim consolidated financial statements, and
the consolidated results of its operations and its cash flows
for the interim periods then ended, have been included. The
results of operations for the interim periods are not
necessarily indicative of the results for the full year.
2. Contingencies
OPM audit
The company, through its subsidiary, HMO Missouri, Inc. (d/b/a
BlueCHOICE), contracts with the Office of Personnel Management
(OPM) to provide or arrange health services under the Federal
Employees Health Benefits Program (FEHBP) for federal
employees. OPM is the second largest customer group (after
MCHCP, discussed further herein) of BlueCHOICE. OPM conducts
periodic audits to, among other things, verify that the
premiums established under the OPM contract were established
in compliance with the community rating and other requirements
under the FEHBP.
On August 8, 1995, the company received a draft audit report
from the OPM regarding the audit, conducted in 1994, of the
FEHBP operations of BlueCHOICE for the years 1989 through
1994. The audit dealt primarily with a comparison of premium
rates charged to the FEHBP to rates charged by BlueCHOICE to
other similarly sized groups. The OPM draft audit report
indicates that BlueCHOICE has a potential liability of $7.5
million to the FEHBP. The company responded to the draft
report in November of 1995 following an in-depth analysis of
the issues. At this time, management is unable to determine
the final dollar amount which may be required to resolve the
audit findings; however, management believes that it has made
adequate provisions to cover the contingency, and the final
amount will not have a material impact on the financial
position of the company.
Subscriber class action litigation
On March 15, 1996, a suit was filed in the Circuit Court of
the City of St. Louis, Missouri, by Anthony J. Sarkis, Sr. and
James Hacking individually and on behalf of a purported class
of (i) subscribers in individual or group health plans insured
or administered by Blue Cross and Blue Shield of Missouri
(BCBSMo, the class B shareholder of the company) or the
company, and (ii) all persons and/or entities who benefited
from BCBSMo's tax-exempt status. The complaint names the
company, BCBSMo, HealthLink, Inc. (HealthLink, a subsidiary of
the company), and certain officers of the company as
defendants.
The plaintiffs' claims relate to an alleged conversion of
BCBSMo from a not-for-profit entity to a for-profit entity and
payment of excessive compensation to management. The complaint
further alleges that certain amendments to BCBSMo's Articles
of Incorporation were improper. The complaint also alleges the
purchase of HealthLink was at an excessive price and that
HealthLink operates under contracts providing for illegal
discounts by health care providers. The plaintiffs seek
restitution, compensatory damages and punitive damages in
unspecified amounts, as well as injunctive and other equitable
relief.
The company and the other defendants removed the case to the
United States District Court for the Eastern District of
Missouri on May 26, 1996, and filed an answer on May 31, 1996.
On August 8, 1996, the district court granted plaintiff's
motion to remand. In May 1997, plaintiffs filed an amended
petition alleging breach of contract by the company. The
company again removed the case to United States District Court
for the Eastern District of Missouri. Plaintiffs are taking
action to again have the case remanded to state court. BCBSMo
and the company believe the claims are without merit and
intend to vigorously defend the action.
Litigation with DOI and Attorney General
In August 1994, BCBSMo transferred certain assets to the
company in connection with an offering to the public of 20% of
the common stock of the company (such events are referred to
collectively as the Reorganization and Public Offering).
Although the Director of the Missouri Department of Insurance
(DOI) formally approved the Reorganization and Public Offering
on April 14, 1994, the Director and DOI subsequently claimed
that the Reorganization and Public Offering violated state
laws and that BCBSMo was obligated to transfer all of its
assets, including all of its RightCHOICE stock, to the State
of Missouri or a charity designated by the State of Missouri.
The Director and DOI threatened to bring legal action, seek a
receivership or terminate BCBSMo's insurance license unless
BCBSMo gave up its assets.
BCBSMo's extensive efforts to settle this dispute were
unsuccessful. On May 13, 1996, BCBSMo filed a declaratory
judgment action in the Circuit Court of Cole County, Missouri
(the Court) against the Director, DOI and the Missouri
Attorney General (the Attorney General was a necessary party
due to his sole authority to enforce nonprofit corporation
laws).
The Director and DOI filed an answer and counterclaims on June
13, 1996. The answer sets forth several affirmative defenses,
including alleged fraud and negligent misrepresentation with
respect to the application filed by BCBSMo seeking approval of
the Reorganization and Public Offering. The counterclaims
allege violations of certain health service corporation and
nonprofit corporation statutes. The Director and DOI's
counterclaims sought among other things: (i) permanent
injunctions against BCBSMo; (ii) imposition of a trust on
BCBSMo's assets for public benefit purposes; (iii) return of
profits from Medigap policies reinsured with a subsidiary; and
(iv) an accounting of all assets transferred by BCBSMo.
The Attorney General filed an answer and counterclaim on June
20, 1996, alleging that the Reorganization and Public
Offering, and the continued operations through the company and
its subsidiaries, exceed BCBSMo's statutory purposes. The
Attorney General requested a declaration that BCBSMo has
exceeded its lawful authority and seeks such relief as the
Court determines to be appropriate under the circumstances
based on a statute which authorizes judicial dissolution or
less drastic alternative relief in the Court's discretion.
On September 9, 1996 (the September 9 Order), the Court
granted BCBSMo's motion for summary judgment against the
Director and DOI, rejected all of the Director and DOI's
affirmative defenses (including allegations of fraud), issued
a permanent injunction against the Director and DOI and
declared that: (i) under Missouri law the Director and DOI
have no authority to demand that BCBSMo make a payment as a
result of the Reorganization and Public Offering; (ii) under
Missouri law the Director and DOI have no jurisdiction to take
any action, the practical effect of which is to amend, modify
or reverse the Director's April 14, 1994 final administrative
approval of the Reorganization and Public Offering; (iii)
under Missouri law the Director and DOI have no jurisdiction
to take any administrative action, including but not limited
to, revoking, suspending or refusing to renew BCBSMo's
Certificate of Authority based in any way on the
Reorganization and Public Offering and the consequences
thereof or BCBSMo's refusal to make a payment as the Director
and DOI have demanded; and (iv) (A) BCBSMo is a mutual benefit
type of nonprofit corporation rather than a public benefit
type of nonprofit corporation; (B) the Reorganization and
Public Offering were authorized under all laws applicable to
nonprofit health services corporations; and (C) BCBSMo does
not owe the State or any person or entity a "toll charge,"
"charitable asset settlement" or any other payment as a result
of the August 1994 Reorganization and Public Offering. On
December 30, 1996, the Court issued orders modifying the
findings and declarations set forth in (iv) above, on the
grounds that it was legally unnecessary to resolve such issues
since the Court had already ruled against the Director and DOI
for other reasons.
The September 9 Order permanently enjoined the Director and
DOI from, among other things, (i) revoking, suspending or
refusing to renew BCBSMo's insurance license based in any part
upon the Reorganization and Public Offering; (ii) commencing a
valuation of BCBSMo's assets and demanding a payment as a
result of the Reorganization and Public Offering; (iii)
commencing any administrative hearing or making any
administrative determination based in any part upon the
Reorganization and Public Offering; (iv) instituting any
seizure, receivership, conservatorship or similar action or
proceeding against BCBSMo based in any part upon the
Reorganization and Public Offering; and (v) taking any other
action, however denominated, against BCBSMo based in any part
upon the Reorganization and Public Offering. This injunctive
relief remains in place, but the Court's December 30 Orders
(described below) clarify that the injunction does not
prohibit the Director and DOI from asserting that the post-
Reorganization and Public Offering operations of BCBSMo may
violate the health services corporation laws (even though such
operations may have been affected by the Reorganization and
Public Offering).
On August 28, 1996, the Director and DOI filed an amended
answer asserting a new counterclaim that the Reorganization
and Public Offering were not reasonably designed to serve any
of BCBSMo's purposes as a health services corporation and
seeking a declaration that BCBSMo has exceeded or abused its
authority conferred upon it by law. Under this counterclaim,
the Director and DOI seek an order to rehabilitate BCBSMo or,
in the alternative, injunctive relief.
On October 18, 1996, the Attorney General filed a motion for
leave to file an amended counterclaim against BCBSMo seeking a
declaration that BCBSMo is a public benefit corporation, not a
mutual benefit corporation, and requesting an order that
BCBSMo amend its Articles of Incorporation accordingly. The
Court granted the Attorney General's motion for leave to file
the amended counterclaim, which remains pending.
On December 30, 1996, the court issued three orders (the
December 30 Orders): (i) denying BCBSMo's motion for summary
judgment against the Attorney General; (ii) granting the
Attorney General's motion for partial summary judgment against
BCBSMo; (iii) denying BCBSMo's supplemental motion for summary
judgment against the Director and DOI on their amended
counterclaim; (iv) granting the Director and DOI's motion for
summary judgment against BCBSMo on their amended counterclaim;
and (v) modifying, in part, the Court's previous September 9
Order as described above. The December 30 Orders declared
that (i) BCBSMo has continued to exceed or abuse its
statutorily permissible purposes and the authority conferred
on it by law; and (ii) BCBSMo is subject to judicial
dissolution proceedings, but that prior to ordering
dissolution, the Court is required to consider whether there
are alternatives to dissolution and whether dissolution is in
the public interest or is the best way of protecting the
interests of its members.
The Court also (i) certified the December 30 Orders and the
September 9 Order, as modified, for immediate appeal; (ii)
held in abeyance further proceedings on the Attorney General's
counterclaim pending appeal; and (iii) stayed the legal effect
of the order granting the Director and DOI summary judgment
pending the filing of an appeal bond (which BCBSMo promptly
filed). On January 9, 1997, BCBSMo filed a notice of appeal of
the December 30 Orders. On January 21, 1997, the Director and
DOI filed a notice of appeal of the September 9 Order, as
modified. Both appeals are pending; briefing will continue
through December 1997 and an appellate hearing is not likely
to be scheduled before January 1998.
Notwithstanding the December 30 Orders, the company still
believes that the counterclaims of the Director, DOI and the
Attorney General are without merit and that BCBSMo's legal
position is strong. If, however, BCBSMo does not prevail on
appeal in overturning the summary judgment in favor of the
Attorney General, it may be subject to dissolution proceedings
if the Court determines that no reasonable alternatives to
dissolution exist. Likewise, BCBSMo could be unsuccessful on
the appeal of the relief already granted against the Director
and DOI or in its defense of the Attorney General's amended
counterclaim. Any of the foregoing could have a material
adverse effect on the company and the market for the company's
stock. See also "Contingencies - Status of Blue Cross and Blue
Shield trademark licenses."
On November 3, 1997, BCBSMo filed an action in the Court
against the Missouri Attorney General seeking declarations
that (1) BCBSMo is a mutual benefit type of nonprofit
corporation under Chapter 355 of the Missouri Revised Statutes
and (2) BCBSMo does not hold its assets in constructive,
charitable, or other trust for the benefit of the public
generally, but rather holds its assets for the benefit of its
subscribers. The action was filed in response to continued
public and private statements by the Attorney General, the DOI
and others that BCBSMo is a public benefit type of nonprofit
corporation which holds its assets for the benefit of the
public generally. See above in this section, "Litigation with
DOI and Attorney General." The Attorney General has not yet
filed an answer or other response in this action.
BCBSMo believes its legal position is strong, that it
ultimately will be declared to be a mutual benefit type of
nonprofit corporation, and that it holds no assets for the
benefit of the public generally. If BCBSMo is declared to be
a mutual benefit type of nonprofit corporation that does not
hold its assets for the benefit of the public generally,
BCBSMo will be free to continue to exercise its ownership
interest in the company consistent with the best interests of
BCBSMo's subscribers, subject to any rulings made in the
litigation described above in this section, "Litigation with
the DOI and Attorney General."
If BCBSMo is declared to be a public benefit type of nonprofit
corporation or if it is declared that BCBSMo holds assets for
the benefit of the public generally, however, BCBSMo might be
required to exercise its ownership interest in the company
consistent with the best interests of the public at large,
which could result in a determination to dispose of some or
all of the company's shares at times and in quantities that
could be detrimental to the market for the company's stock.
Also, if this were to occur, either the DOI or the Attorney
General could take actions against BCBSMo based upon such
declarations (such as seeking the appointment of a receiver to
safeguard assets deemed dedicated to the public which could
result in the termination of the company's licenses to use the
"Blue Cross" and "Blue Shield" tradenames and service marks
and trigger a termination fee and a notice to members
thereunder) which, if successful, could have a material
adverse effect upon the company and the market for the
company's stock. See "Contingencies - Status of Blue Cross
and Blue Shield Trademark Licenses."
Status of Blue Cross and Blue Shield trademark licenses
BCBSMo has exclusive trademark licenses (the Primary
Licenses), and the company, Healthy Alliance Life Insurance
Company (HALIC) and BlueCHOICE have exclusive controlled
affiliate licenses (the Affiliate Licenses), with the national
Blue Cross and Blue Shield Association (BCBSA) giving them the
right to use the "Blue Cross" and "Blue Shield" names,
trademarks and service marks in connection with health
insurance products marketed and sold in BCBSMo's licensed
operating area (consisting of 85 counties in eastern and
central Missouri). The trademark licenses require BCBSMo, the
company and its controlled affiliates to pay license fees to
BCBSA for the use of the trademarks. The company believes that
the exclusive right to use the "Blue Cross" and "Blue Shield"
trademarks provides it and its controlled affiliates with a
significant marketing advantage in BCBSMo's licensed operating
area, the loss of which would have a material adverse effect
on the company and the market for the company's stock.
The Affiliate Licenses are derivative of the Primary Licenses
and automatically terminate if the Primary Licenses terminate.
Each trademark license provides that it automatically
terminates if, among other things: (i) DOI or another
regulatory agency assumes control of the licensee; or (ii) an
action is instituted against the licensee seeking
dissolution or liquidation or seeking the appointment of a
trustee, receiver or custodian, which is not dismissed within
60 days of being instituted. Each trademark license also
provides that it may be terminated by BCBSA if, among other
things, the licensee fails to meet certain quality control
standards or minimum capital or liquidity requirements.
According to their terms, if a trademark license is
terminated, BCBSMo, the company and its controlled affiliates
are jointly liable to BCBSA for payment of a termination fee
in an amount equal to $25 times the number of licensed
enrollees of the terminated entity and its licensed controlled
affiliates, and must give written notice of such termination
to their enrollees. The termination fee is reduced in
accordance with a formula set forth in the Primary Licenses if
another plan is licensed by BCBSA in BCBSMo's exclusive
service area.
Although the 60-day period contemplated by (ii) in the
immediately preceding paragraph would have expired on August
20, 1996, ongoing discussion with BCBSA did not give any
indication that BCBSMo's pending litigation against the
Attorney General, the Director and DOI described above (the
Litigation) would have any impact on the retention of the
licenses. On or about January 9, 1997, however, BCBSA notified
BCBSMo that the Primary Licenses and the Affiliate Licenses
had automatically terminated because a counterclaim in the
Litigation seeking dissolution of BCBSMo had been pending for
60 days. BCBSMo believes that the Litigation did not trigger
the automatic termination provisions of the licenses and that
such licenses remain in full force and effect, and has
strongly stated this position to BCBSA. BCBSMo based its
legal position upon, among other things: (i) the fact that the
Attorney General's claim against BCBSMo seeks alternatives to
dissolution, not the dissolution of BCBSMo; (ii) the fact that
the trial court stayed the legal effect of the rulings adverse
to BCBSMo in the Litigation pending their appeal and that
there is no threat of the type contemplated by the licenses
until the appeal is decided; (iii) Missouri franchise laws
that mandate 90 days prior written notice of termination of
the trademark licenses; and (iv) based upon the prior
statements, actions and inaction of BCBSA, equitable
principles of waiver, estoppel and laches prevent termination
of the licenses. BCBSA decided to resolve the issue without
litigation and to give BCBSMo, the company and its controlled
affiliates the uninterrupted right to use the "Blue Cross" and
"Blue Shield" names, trademarks and service marks by granting
them new interim and temporary licenses (thereby placing them
in substantially the same position as if no termination had
taken place). BCBSMo, the company and its controlled
affiliates agreed to accept the benefits and rights under such
new licenses, while reserving and in no manner waiving their
rights under the Primary Licenses and the Affiliate Licenses.
The interim licenses gave BCBSMo, the company and its
previously licensed controlled affiliates the right to
continue to use the trademarks from the effective date of the
purported automatic termination of the Primary Licenses and
the Affiliate Licenses until the date the temporary licenses
were approved by the board of BCBSA. On January 20, 1997, the
board of BCBSA granted new temporary licenses to BCBSMo, the
company and its previously licensed controlled affiliates to
continue to use the "Blue Cross" and "Blue Shield" names,
trademarks and service marks. The temporary licenses initially
provided that they would automatically terminate upon the
expiration or termination of the stay of the Litigation
entered on December 30, 1996. However, BCBSA subsequently
agreed to amend the temporary licenses to provide that even if
the stay expires or terminates, the temporary licenses
continue from BCBSA board meeting to board meeting with
continuation dependent upon the affirmative vote of the BCBSA
board at each meeting.
Pursuant to the temporary licenses, BCBSMo agreed not to bring
any action against BCBSA arising out of the purported
automatic termination or the granting of the interim and
temporary licenses for so long as BCBSMo remains a licensee,
whether temporary or permanent, of BCBSA. BCBSA also agreed
that the provisions of the Primary Licenses and the Affiliate
Licenses requiring payment of the $25 per enrollee termination
fee and notice of termination to each enrollee shall not apply
so long as BCBSMo remains a licensee, whether temporary or
permanent, of BCBSA.
BCBSA agreed to grant to BCBSMo, the company and its
previously licensed controlled affiliates full trademark
licenses if and when (i) the Litigation is resolved in a
manner that is in the best interests of BCBSA, the trademarks
and the other Blue plans, and (ii) BCBSMo, the company and its
previously licensed controlled affiliates are then in
compliance with the terms of such full licenses and with BCBSA
rules and regulations.
As a result of the issuance of the temporary licenses, BCBSMo,
the company, HALIC and BlueCHOICE have the right to continue
to use the "Blue Cross" and "Blue Shield" names, trademarks
and service marks However, if BCBSMo is not successful in its
appeal of the December 30 Orders issued in the Litigation and
the BCBSA board fails to take action at a subsequent board
meeting to continue the licenses, the company may lose the
right to use such names, trademarks and service marks, and
would trigger the obligation of the company and its affiliates
to pay the $25 per enrollee termination fee and provide
notification of termination to enrollees which would have a
material adverse effect on the company and the market for the
company's stock. See "Contingencies - Litigation with DOI and
Attorney General." At the present time, the company has no
reason to believe that the BCBSA board would fail to take such
action.
Litigation with MCHCP
On August 28, 1997, the company brought suit against the
Missouri Consolidated Health Care Plan (MCHCP) and its
trustees in the Circuit Court of Cole County, Missouri. MCHCP
is a Missouri public agency which purchases health care
coverage for employees of the State and of selected public
entities which have been admitted into the MCHCP. In 1995,
the company, after bidding on certain Requests for Proposal
from MCHCP, was awarded a contract to furnish various managed
care products to employees of the State and to public
entities. The contract was for an initial one-year term with
four one-year renewal terms. The respective rights of the
parties to renew the contract and the applicable rates for any
such renewal term are presently in dispute. MCHCP has
purported to renew the contract for the years 1997 and 1998.
In its lawsuit, the company contends that under the language
of the applicable contract, MCHCP has express and implied
duties to negotiate the amount of any rate increase that might
become effective for each succeeding one-year renewal term.
It is the company's position that if no agreements to the
negotiated rates can be reached, MCHCP's sole remedy is to
request bids from other insurers. It further contends that
MCHCP has breached that duty by renewing the contract from
year to year while allowing only limited rate increases,
without negotiation. The company further contends that MCHCP
has violated Missouri law by admitting numerous public
entities into the MCHCP without conducting any actuarial or
other appropriate analysis, thus compelling the company to
provide managed care services to public entities without
regard to the actuarial risk that they pose. The company also
contends that MCHCP violated the Missouri Administrative
Procedure Act in the manner in which it adopted the
regulations by which it administers its managed care program,
and that MCHCP has violated the Missouri Open Meetings and
Open Records Law in the manner in which it has conducted its
business.
The company contends in its lawsuit that it has been damaged
in the 1997 plan year in an amount in excess of $5 million,
and that it will have estimated losses during the 1998 plan
year under its contract with MCHCP in the amount of $13
million. The company further contends that if the contract is
renewed for the 1999 and 2000 plan years without requested
rate increases, it will have further losses. On August 29,
1997, the company reported the commencement of the litigation
and estimated losses (giving effect to all possible renewal
terms of the MCHCP contract without requested rate increases)
in the range of $30 million to $40 million. In the third
quarter of 1997, the company took a pre-tax charge of $29.5
million, which was based on actuarial estimates, including
projected limited rate increases, and projected enrollment and
medical cost trends accounted for through the year 2000 in
accordance with generally accepted accounting principles.
There can be no assurance that the amount of the reserve taken
in the third quarter would be sufficient to cover all losses
which may be associated with the MCHCP contract, which losses
could have a material adverse effect on the company and the
market for the company's stock.
For its relief, the company seeks a permanent injunction
against the promulgation and implementation by MCHCP of any
rates for the 1998 plan year other than rates which are the
product of the negotiation process called for by the party's
contract, and for a decree of specific performance requiring
MCHCP to negotiate rates in good faith for the 1998 plan year
and later plan years. Absent such relief, the company prays
for a declaration that the contract is void and is of no
effect. The company also prays for damages in the amount of
its losses incurred, for its attorney fees, for relief for
violation of the Open Meetings Law, and for such other relief
as is appropriate.
Also on August 28, 1997, and in anticipation of the company's
suit, MCHCP filed suit against BCBSMo, the company and
HealthLink HMO, Inc., a wholly owned subsidiary of the company
(HealthLink HMO). MCHCP in its lawsuit contended that the
company and HealthLink HMO had committed anticipatory breaches
of their contracts with MCHCP, and had tortiously interfered
with MCHCP's contractual relations with its members. It
prayed only for equitable relief, in the form of a decree
compelling the company and HealthLink HMO to perform in
accordance with MCHCP's interpretation of the contracts'
terms.
Subsequently, HealthLink HMO and Continental Assurance Co.
(CNA) filed suit in the Circuit Court of Cole County, Missouri
against MCHCP. HealthLink HMO is a party to an HMO contract
with MCHCP similar to the contract of the company;
substantially all the underwriting risk under that contract is
borne by CNA under an agreement between HealthLink HMO and
CNA. HealthLink HMO and CNA seek relief similar to that
sought on behalf of the company, including a declaration that
their contract with MCHCP is void and of no effect.
The lawsuits are in the early discovery stages. The company
and HealthLink HMO are prosecuting their lawsuits for the
purpose of securing relief under their contracts with MCHCP.
The company and HealthLink HMO have represented to the Court
that they will continue to perform under their contracts until
there is a ruling by the Court on their claims or some other
material change in circumstances. The company and HealthLink
HMO anticipate that trial preparation will be complete so that
the lawsuits can be submitted to the trial court for decision
in 1998.
The company believes that its legal position in the litigation
with MCHCP is meritorious, but the outcome of that litigation
cannot be predicted with certainty. Should MCHCP prevail, the
company could be held contractually bound to serve the MCHCP
members through the year 2000 at the rates contracted for in
1995, with annual rate increases, if any, which are far less
than necessary to permit the company to recover its costs in
serving those members. Should MCHCP continue its policy of
indiscriminate admission of all applying public entities,
regardless of their loss histories, the losses to the company
could increase from year to year as the MCHCP public entity
membership grows, which losses could have a material adverse
effect on the company and the market for the company's stock.
Other contingencies
The company and BCBSMo received a market conduct report from
the DOI in April 1996. The company has formally responded to
the report. Certain of the criticisms made by the examiners
involve compliance issues, which the company is currently
addressing. The company has alleged in the action described
under "Litigation with DOI and Attorney General," that the
market conduct study was not conducted for legitimate purposes
of regulatory oversight but rather as a pretext to either
revoke or refuse to renew BCBSMo's license to operate as a
health services corporation and thus to improperly pressure
and coerce BCBSMo into making the payment in the nature and
amount described above under "Litigation with DOI and Attorney
General." The company is in the process of discussing
outstanding issues on the market conduct report which include
rates charged to groups of less than 25 members in 1994, the
first year of the Missouri Small Group Reform Law,
coordination of benefits, and co-payment issues. The DOI
believes the company should refund excess premium payments to
the small groups and should take certain actions relating to
coordination of benefits. In addition, the DOI is
investigating the way in which BCBSMo and the company
calculated co-payment amounts prior to January 1996. This
issue was the subject of a class action suit, titled Kelly v.
Blue Cross and Blue Shield of Missouri, and subsequent
settlement. BCBSMo settled the case in 1995 and paid the
majority of the total settlement amount of five million
dollars. The company believes it has resolved this issue
through the Kelly settlement; however, it cannot anticipate
the actions the DOI may take on this issue. Management
believes that it has made adequate provisions to cover the
contingency and that the final amount should not have a
material impact on the financial position of the company;
however, the company cannot anticipate the potential actions
of the DOI.
In addition to the matters described above, the company is a
party to litigation in the normal course of business,
including professional liability and litigation with former
executives of the company.
3. Transfer of Service Functions
In 1997, the company moved its St. Louis-based claims,
customer service, billing and provider services functions to
its Springfield, Missouri facility and a new facility in Cape
Girardeau, Missouri. Approximately 200 jobs were relocated to
Cape Girardeau with an additional 100 relocated to
Springfield. The move is expected to result in annual salary
and benefit cost savings of approximately $3.0 million, with
approximately $1.4 million expected in 1997. However, the
expected 1997 savings will be offset by higher than expected
staffing levels and additional resources needed to reduce
claims backlog resulting in an anticipated delay of $1.3
million of the savings from the relocation. In 1996,
beginning in the second quarter, the company incurred charges
to earnings of $4.5 million. The company expects to incur a
total of up to $3.5 million in 1997 for costs associated with
finalizing this relocation. A charge of $3.0 million was
incurred in the first three quarters of 1997 for this
relocation and is reflected in the non-recurring relocation
charges caption on the 1997 Consolidated Statement of Income.
4. Recently Issued Accounting Standards
During March 1997, the Financial Accounting Standards Board
(FASB) released Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS No. 128), which changed
the computation and disclosure of earnings per share. SFAS
No. 128 is effective for both interim and annual periods
ending after December 15, 1997 and earlier application is not
permitted. Under the company's current capital structure, the
adoption of SFAS No. 128 will not have a material impact on
the company's determination of earnings per share.
In addition, the FASB recently released SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure and
is effective for periods ending after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The standard will
require all companies to present all non-owner changes in
equity, e.g. market value adjustments to investments and
adjustments to the minimum pension liability, in a full set of
financial statements. The new rules will be effective
beginning first quarter of 1998 and companies will only be
required to report total comprehensive income for interim
periods. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that
those enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographic areas, and major customers.
The new rules will be effective for the 1998 fiscal year.
Abbreviated quarterly disclosure will be required beginning
first quarter of 1999, with both 1999 and 1998 information.
5. Changes in Long-Term Debt
Subsequent to the third quarter of 1997, the company amended
its revolving credit facility (the Credit Facility), the
material terms of which are as follows: (1) the borrowings
under the Credit Facility will bear interest at 2.75% above
the one month floating London Interbank Offered Rate (LIBOR),
(2) certain financial covenant calculations were modified and
the financial covenant requirements were adjusted, (3) the
maximum commitment of the Credit Facility was reduced to $50
million as of October 1, 1997 with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining
$30,000,000 commitment under the Credit Facility terminating
on August 10, 2000, (4) mandatory reductions to the
commitment, together with prepayments, are required upon the
happening of certain extraordinary events, (5) stricter limits
were placed on the company's ability to incur additional debt,
and (6) stricter limits were placed on capital expenditures as
well as the company's ability to make investments and
acquisitions.
6. Provision for Income Taxes
The company's effective income tax rates for the 1997 interim
periods presented in the Consolidated Statements of Income
were affected by gains from the liquidation of company-owned
life insurance policies as well as non-deductible goodwill
amortization. The effective rates for the 1996 interim
periods presented were also affected by non-deductible
goodwill amortization.
7. Reclassifications
Certain reclassifications have been made to the Consolidated
Financial Statements for 1996 to conform with the 1997
presentation.
1
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS, FINANCIAL CONDITION OR BUSINESS COULD DIFFER
MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION OR
BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE
SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR BUSINESS."
The following table sets forth premium revenue by product
group for the three and nine month periods ended September 30,
1997 and 1996 (unaudited):
Three Months Ended Nine Months Ended
September 30, September 30,
Product Group 1997 1996 1997 1996
(in thousands) (in thousands)
PPO:
Alliance PPO $ 48,038 $ 55,995 $150,102 $177,472
AllianceChoice POS 32,687 20,282 90,517 51,813
HMO (includes other POS) 46,515 35,848 133,277 101,859
Medicare supplement 24,064 24,377 73,522 74,129
Managed indemnity 2,682 3,976 9,949 12,481
Other specialty services 9,740 7,885 28,347 21,966
Total premium revenue 163,726 148,363 485,714 439,720
ASO/Self-funded and
other income 16,766 15,425 47,241 43,416
Total revenues $180,492 $163,788 $532,955 $483,136
The following table sets forth selected operating ratios. The
medical loss ratio is shown as a percentage of healthcare
services expense over premium revenue. All other ratios are
shown as a percentage of premium revenue and fees and other
income combined:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Operating revenues:
Premium revenue 90.7% 90.6% 91.1% 91.0%
Fees and other income 9.3% 9.4% 8.9% 9.0%
100.0% 100.0% 100.0% 100.0%
Operating expenses:
Medical loss ratio 87.4% 89.9% 84.7% 81.9%
Commission expense 4.2% 4.0% 4.1% 4.0%
General and administrative
expense (includes
depreciation and
amortization) 22.0% 22.6% 22.5% 22.0%
Membership
The following table sets forth membership data and the percent
change in membership:
September 30,
Product Group 1997 1996 %
Underwritten:
PPO:
Alliance PPO 152,502 201,477 (24.3)%
AllianceChoice POS 130,773 88,232 48.2
HMO:
Commercial (includes other POS) 131,374 98,311 33.6
BlueCHOICE Senior 5,788 5,292 9.4
BlueCHOICE Medicaid (MC+) 4,964 5,069 (2.1)
Medicare supplement 63,469 69,784 (9.0)
Managed indemnity 7,515 11,533 (34.8)
496,385 479,698 3.5
Self-funded:
PPO 90,137 112,025 (19.5)
HMO 13,471 16,484 (18.3)
ASO (includes HealthLink):
Workers' Compensation 340,222 272,562 24.8
Other ASO* 982,915 892,945 10.1
Total Membership 1,923,130 1,773,714 8.4%
* does not include 497,701 and 653,203 as of September 30,
1997 and September 30, 1996, respectively, relating to
additional third-party administrator members that are part of
The EPOCH Group, L.C., a joint venture with Blue Cross and
Blue Shield of Kansas City formed in December 1995.
Comparison of Results for Third Quarter 1997 to Third Quarter 1996
Revenues
Premium revenue increased 10.4% in the third quarter of 1997
in comparison to the third quarter of 1996. As described
below, components of premium revenue were affected by shifts
in product mix, rate increases, and other factors; and as a
result, such changes may not be indicative of future periods.
The company will continue to strive to establish its
commercial premium rates based on anticipated health care
costs. Depending on the level of future competition, customer
acceptance of the company's premium increases, future health
care cost trends or other factors, there can be no assurance
that the company will be able to price its products consistent
with health care cost trends.
PPO revenues increased $4.4 million - - $7.6 million due to a
7.6% increase in net premium rates partially offset by a $3.2
million decrease resulting from a 1.7% decrease in member
months. Net rates increased due in part to the company's
targeted general rate increases averaging 7% to 13% during
enrollment periods in the first three quarters of 1997. Net
rate increases are at the lower end of the targeted range due
in part to changes in deductibles, the timing of group
renewals throughout the year, and product mix changes such as
the continued shift in membership to AllianceChoice, a lower
cost, non-gatekeeper point-of-service (POS) product. Alliance
PPO membership decreased by 48,975 members from September 30,
1996 to September 30, 1997 while AllianceChoice POS membership
increased by 42,541 over the same time period. The company
also began offering its PPO product in Illinois at the end of
the first quarter of 1997. Included in the Alliance PPO
member count are 1,200 PPO Illinois members at September 30,
1997. The company anticipates future enrollment gains in the
central and southern regions of Illinois in the remainder of
1997 and throughout 1998.
HMO premium revenue increased $10.7 million or 29.8% - - $9.9
million due to a 30.1% increase in member months and $0.8
million resulting from a marginal increase in net premium
rates. Net premium rates have increased only slightly,
despite the company's targeted renewal rate increases of 7% to
13% during enrollment periods in the first three quarters of
1997, due to HMO competition in the company's HMO service
areas, the status of a large group (MCHCP) with which the
company is currently involved in litigation (see
"Contingencies - Litigation with MCHCP"), shifts in chosen
benefit levels, changes in the geographic mix of the HMO
business, and product mix shifts due to various new products.
Membership increases were driven primarily by the company's
BlueCHOICE Senior and HealthNet Blue POS products as well as
the company's efforts to expand geographically within the
State of Missouri. BlueCHOICE Senior gained 500 members
(9.4%) from September 30, 1996 to September 30, 1997.
HealthNet Blue POS gained 7,200 members (54.5%) over the same
time period. Through an arrangement with Freeman Hospitals
and Health System, beginning in July 1995, the BlueCHOICE HMO
and POS products are offered in the six-county area
surrounding Joplin, Missouri. As of September 30, 1997, there
were approximately 14,600 members enrolled in products sold
through this arrangement with Freeman, representing an
increase of 7,700 members over September 30, 1996. In
addition, the BlueCHOICE and BlueCHOICE POS programs became
available beginning in October 1996 in the southwest Missouri
area surrounding Springfield through an arrangement with
Primrose Health Care Services, a physician hospital
organization jointly owned by physicians and Cox Hospitals,
one of the leading tertiary care centers in the area. There
were 10,100 members enrolled in these programs at September
30, 1997, an increase of 8,400 over December 31, 1996.
Partially included in the aforementioned HMO membership
increases is an increase in the company's MCHCP membership of
13,600 between September 30, 1996 and September 30, 1997. The
company's future enrollment growth in these products and
geographic regions is dependent on network attractiveness,
continued cooperation with physician hospital organizations,
and other factors. There can be no assurance that these
objectives will be realized. Future enrollment growth in the
company's products offered to MCHCP and revenues generated
therefrom are also dependent on the litigation with MCHCP and
other factors (see "Contingencies - Litigation with MCHCP").
Premium revenue from Medicare supplement decreased by $0.3
million in the third quarter of 1997. Premium rates increased
8.2% partially offset by an 8.8% decrease in member months.
Membership declines are partially attributable to members
shifting to BlueCHOICE Senior, a Medicare-risk program, which
provides medical benefits at least as comprehensive as
Medicare benefits for persons eligible to receive Medicare
(parts A and B) at no or minimal additional cost to the
member. The company markets its BlueCHOICE Senior product as
part of its strategy to direct existing customers to more
intensely managed health care products.
Managed indemnity premium revenue decreased by $1.3 million
due to a 32.7% decline in member months in keeping with the
company's strategy to move towards more highly managed care
products.
Revenue from other specialty services increased $1.9 million
due to an 8.4% increase in member months and a 13.9% increase
in net premium rates. The company's drug product, AllianceRx,
continued to gain momentum with revenues increasing $1.6
million due to a 10.2% increase in member months in the third
quarter of 1997 as compared to the third quarter of 1996.
This product was introduced in November 1994 and is sold to
members on a separate product basis; prior to this, the drug
benefit was typically included as part of the basic PPO
medical program.
Fees and other income from administrative services only/self-
funded and network services increased by $1.3 million. This
increase is primarily due to increased 1997 revenues from
HealthLink, Inc. (HealthLink), the company's network rental
and managed care service subsidiary, of $2.2 million.
HealthLink's increases to fees and other income were partially
offset by decreases to revenue caused by a 19.6% decline in
PPO self-funded member months. The company expects further
declines in its self-funded membership as three large self-
funded group cancellations are effective as of January 1,
1998. As of September 30, 1997, these three groups encompassed
approximately 72,000 members, approximately 30,000 of which
are expected to enroll in HealthLink's self-funded ASO plans
in 1998.
Operating Expenses
The overall medical loss ratio decreased from 89.9% in the
third quarter of 1996 to 87.4% in the third quarter of 1997.
The overall medical loss ratio decreased in part due to an
increase in reserves in the third quarter of 1996 to reflect
greater than previously anticipated medical cost trends and
utilization. Year-to-date in 1997, the company's medical loss
ratio has increased relative to the comparable period in 1996
primarily as a result of 1) growth of lower margin products,
2) aggressive pricing in 1996 in order to retain and increase
membership, 3) higher drug and outpatient utilization, 4)
growth in regions outside of the metropolitan St. Louis area
that have less cost efficient networks, 5) an increase to
claims reserves of $3.0 million in 1997 for the estimate of
claims which had been incurred but not reported in 1996, and
6) the poor performance of MCHCP that has resulted in large
underwriting losses (see "Contingencies - Litigation with
MCHCP"). There can be no assurance that the company's
initiatives to control future increases in medical cost trends
to improve the medical loss ratio will be effective.
The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and
ancillary service providers have not yet yielded targeted
savings in the anticipated time frame. The drug cost trend
(as a percentage) has remained in the low teens, driven by a
combination of factors, including introduction of new drug
therapies; physicians' use of newer, more expensive drugs; and
physicians' decreased use of generic drugs in favor of
specific drugs promoted by pharmaceutical companies. Among
the medical cost control strategies targeted for 1998 are a
combination of changes in the pharmacy program to save costs
and increase member satisfaction through: allowing members to
make choices, albeit with a higher member copayment;
introducing a new three-tiered benefit design; and making
other adjustments to copayments, quantity limits and
exclusions. Physician education, utilization and prescribing
pattern analysis will be increased. The company will also
continue its hospital, physician and service recontracting
strategy, using the more detailed data and analysis available
through the company's information and operating strategy
(IOS), which is comprised of projects being implemented to
improve business processes and systems. There can be no
assurance that the company's initiatives to control future
increases in medical cost trends to improve the medical loss
ratio will be effective.
Commission expense increased by $0.9 million or 14.2% in the
third quarter of 1997 primarily related to increased
membership growth. The commission expense ratio edged up to
4.2% for the third quarter of 1997 as compared to 4.0% for the
third quarter of 1996.
General and administrative expenses (excluding depreciation
and amortization) increased by $1.2 million, or 3.7% in the
third quarter of 1997 as compared to the third quarter of
1996. This increase is primarily due to a $1.2 million
increase in HealthLink expenses.
Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment
priorities, and reducing legal, consulting, and non-essential
vendor expenses. The achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as claims processing relocated to the new customer
service centers. The staffing resources required to resolve
the claims backlog delayed the realization of $1.3 million of
anticipated overhead savings. The company's general and
administrative ratio (excluding depreciation and amortization)
improved to 19.1% for the third quarter of 1997 compared to
20.3% for the third quarter of 1996.
Depreciation and amortization expenses increased by $1.5
million in the third quarter of 1997 as compared to the third
quarter of 1996 primarily due to an increase of $1.4 million
of amortization expenses for completed components of the
company's information and operations strategy (IOS) project in
the third quarter of 1997 as compared to the third quarter of
1996. See "Outlook - Information Strategies" for more
information related to this project.
Non-recurring relocation charges in the third quarter of 1997
and 1996 include $0.1 million and $0.5 million, respectively,
related to costs associated with the relocation of the
company's St. Louis-based claims, customer service, billing,
and provider services functions to its Springfield, Missouri
facility and a new facility in Cape Girardeau, Missouri. The
company expects to incur up to an additional $0.5 million in
the fourth quarter of 1997 for costs to finalize this
relocation.
On August 29, 1997, the company announced that it would create
a loss reserve for its contract with the Missouri Consolidated
Health Care Plan (MCHCP) in the range of $30 million to $40
million as discussed elsewhere herein. The company's third
quarter 1997 operating loss reflects a $29.5 million loss
reserve provision relating to the MCHCP contract (see
"Contingencies - Litigation with MCHCP").
Operating Income
Operating income decreased $24.3 million in the third quarter
of 1997 in comparison to the third quarter of 1996. Operating
income, excluding the non-recurring relocation charges and the
charge for loss reserves, increased $4.8 million in the third
quarter of 1997 in comparison to the third quarter of 1996.
Net Investment Income
The third quarter 1997 net investment income of $4.8 million
represents a $1.2 million increase over the third quarter of
1996, inclusive of a $0.8 million increase in interest and
dividends. Interest increased in 1997 due to the company's
intention of maintaining a greater proportion of its
investments in fixed income securities.
Provision for Income Taxes
The company's effective income tax rate was 34.1% and 33.3%
for the third quarters of 1997 and 1996, respectively. The
company's effective income tax rate for 1997 and 1996 were
affected by non-deductible goodwill amortization.
Net Income
The company's net loss of $22.8 million, or $1.22 per share,
for the third quarter of 1997 represents a decrease of $14.9
million compared to the third quarter 1996 loss of $7.9
million, or $0.42 per share. Excluding the non-recurring
relocation charges and the charge for loss reserves, the
company's net loss for the third quarter of 1997 was $3.5
million, or $0.19 per share, compared to a net loss of $7.5
million, or $0.40 per share for the third quarter of 1996.
Comparison of Results for the Nine Months Ended September 30,
1997 to the Nine Months Ended September 30, 1996
Revenues
Premium revenue increased $46.0 million or 10.5% in the first
three quarters of 1997 in comparison to the first three
quarters of 1996. As described below, components of premium
revenue were affected by shifts in product mix, rate
increases, and other factors; and as a result, such changes
may not be indicative of future periods. The company will
continue to strive to establish its commercial premium rates
based on anticipated health care costs. Depending on the
level of future competition, customer acceptance of the
company's premium increases, future health care cost trends or
other factors, there can be no assurance that the company will
be able to price its products consistent with health care cost
trends.
PPO revenues increased $11.3 million primarily due to a 3.2%
increase in net premium rates coupled with a slight increase
in member months. Net rates increased due in part to the
company's targeted general rate increases averaging 7% to 13%
during enrollment periods in the first three quarters of 1997.
Net rate increases are significantly below the targeted levels
due in part to changes in deductibles, the timing of group
renewals throughout the year, and product mix changes such as
the continued shift in membership to AllianceChoice. Alliance
PPO membership decreased by 48,975 members from September 30,
1996 to September 30, 1997 while AllianceChoice POS membership
increased by 42,541 over the same time period. The company
also began offering its PPO product in Illinois at the end of
the first quarter of 1997. Included in the Alliance PPO
member count are 1,200 PPO Illinois members at September 30,
1997. The company anticipates future enrollment gains in the
central and southern regions of Illinois in the remainder of
1997 and throughout 1998.
HMO premium revenue increased $31.4 million or 30.8% - - $30.7
million due to a 31.9% increase in member months and $0.7
million due to a slight increase in net premium rates. Net
premium rates have increased only slightly, despite the
company's targeted renewal rate increases of 7% to 13% during
enrollment periods in the first three quarters of 1997, due to
HMO competition in the company's HMO service areas, the status
of a large group (MCHCP) with which the company is currently
involved in litigation (see "Contingencies - Litigation with
MCHCP"), shifts in chosen benefit levels, changes in the
geographic mix of the HMO business, and product mix shifts due
to various new products. Membership increases were driven
primarily by the company's BlueCHOICE Senior and HealthNet
Blue POS products as well as the company's efforts to expand
geographically within the State of Missouri. BlueCHOICE
Senior gained 500 members (9.4%) from September 30, 1996 to
September 30, 1997. HealthNet Blue POS gained 7,200 members
(54.5%) over the same time period. As of September 30, 1997,
there were approximately 14,600 members enrolled in BlueCHOICE
HMO and POS products in the six-county area surrounding
Joplin, Missouri, representing an increase of 7,700 members
over September 30, 1996. In addition, as of September 30,
1997, there were 10,100 members enrolled in BlueCHOICE HMO and
POS products in the southwest Missouri area surrounding
Springfield, an increase of 8,400 over December 31, 1996.
Partially included in the aforementioned HMO membership
increases is an increase in the company's MCHCP membership of
13,600 between September 30, 1996 and September 30, 1997. The
company's future enrollment growth in these products and
geographic regions is dependent on network attractiveness,
continued cooperation with physician hospital organizations,
and other factors. There can be no assurance that these
objectives will be realized. Future enrollment growth in the
company's products offered to MCHCP and revenues generated
therefrom are also dependent on the litigation with MCHCP and
other factors (see "Contingencies - Litigation with MCHCP").
Premium revenue from Medicare supplement decreased by $0.6
million in the first three quarters of 1997. Member months
decreased by 8.4% partially offset by an 8.3% increase in
premium rates. Membership declines are partially attributable
to members shifting to BlueCHOICE Senior.
Managed indemnity premium revenue decreased by $2.5 million
due to a 25.2% decline in member months in keeping with the
company's strategy to move towards more highly managed care
products.
Revenue from other specialty services increased $6.4 million
due primarily to a 16.0% increase in member months. The
company's drug product, AllianceRx, continued to gain momentum
with revenues increasing $5.6 million due to a 16.9% increase
in member months in the first three quarters of 1997 as
compared to the first three quarters of 1996.
Fees and other income from administrative services only/self-
insured and network services increased by $3.8 million. ASO
revenues from HealthLink increased by $7.3 million in the
first three quarters of 1997 as compared to the first three
quarters of 1996. HealthLink's 1997 and 1996 revenues
include $5.3 million and $1.5 million of revenues,
respectively from HealthLink HMO, Inc. (HealthLink HMO), which
was only 50% owned by HealthLink (and not consolidated with
the company's operations) prior to its May 31, 1996
acquisition from a subsidiary of Blue Cross and Blue Shield of
Kansas City. HealthLink's revenues also increased due to
membership gains in its PPO products of approximately 11.7% or
75,600 members from September 30, 1996 to September 30, 1997.
HealthLink's increases to fees and other income were partially
offset by decreases to revenue caused by higher stop loss
claims expenses for the company's self-insured groups in 1997
and the company's declining PPO self-funded membership. The
company expects further declines in its self-funded membership
as three large self-funded group cancellations are effective
as of January 1, 1998. As of September 30, 1997, these three
groups encompassed approximately 72,000 members, approximately
30,000 of which are expected to enroll in HealthLink's self-
funded ASO plans in 1998.
Operating Expenses
The overall medical loss ratio increased by 2.8% to 84.7% in
the first three quarters of 1997 in comparison to 81.9% in the
first three quarters of 1996 primarily as a result of 1)
growth of lower margin products, 2) aggressive pricing in 1996
in order to retain and increase membership, 3) higher drug and
outpatient utilization, 4) growth in regions outside of the
metropolitan St. Louis area that have less cost efficient
networks, 5) an increase to claims reserves of $3.0 million in
1997 for the estimate of claims which had been incurred but
not reported in 1996, and 6) the poor performance of MCHCP
that has resulted in large underwriting losses (see
"Contingencies - Litigation with MCHCP"). There can be no
assurance that the company's initiatives to control future
increases in medical cost trends to improve the medical loss
ratio will be effective.
The company's efforts in 1997 to modify its pharmacy benefits
management program and recontract with physicians and
ancillary service providers have not yet yielded targeted
savings in the anticipated time frame. The drug cost trend
(as a percentage) has remained in the low teens, driven by a
combination of factors, including introduction of new drug
therapies; physicians' use of newer, more expensive drugs; and
physicians' decreased use of generic drugs in favor of
specific drugs promoted by pharmaceutical companies. Among
the medical cost control strategies targeted for 1998 are a
combination of changes in the pharmacy program to save costs
and increase member satisfaction through: allowing members to
make choices, albeit with a higher member copayment;
introducing a new three-tiered benefit design; and making
other adjustments to copayments, quantity limits and
exclusions. Physician education, utilization and prescribing
pattern analysis will be increased. The company will also
continue its hospital, physician and service recontracting
strategy, using the more detailed data and analysis available
through the company's information and operating strategy
(IOS), which is comprised of projects being implemented to
improve business processes and systems. There can be no
assurance that the company's initiatives to control future
increases in medical cost trends to improve the medical loss
ratio will be effective.
Commission expense increased by $2.5 million or 12.7% in the
first three quarters of 1997 primarily related to increased
membership growth. The commission expense ratio remained
relatively flat at 4.1% for the first three quarters of 1997
compared to 4.0% for the first three quarters of 1996.
General and administrative expenses (excluding depreciation
and amortization) increased by $8.7 million, or 9.2%. This
increase is primarily due to a $4.7 million increase in
HealthLink general and administrative expenses in the first
three quarters of 1997 as compared to the first three quarters
of 1996, inclusive of a $3.3 million increase in HealthLink
HMO expenses.
Management previously announced its plans to improve the
company's overhead cost structure by streamlining operations,
focusing on the core business, reviewing investment
priorities, and reducing legal, consulting, and non-essential
vendor expenses. The achievement of overhead reduction goals
was delayed, in part, by higher-than-expected staffing levels
and additional resources needed to reduce claims backlog that
occurred as claims processing relocated to the new customer
service centers. The staffing resources required to resolve
the claims backlog delayed the realization of $1.3 million of
anticipated overhead savings. Excluding the $1.3 million of
expenses for staffing resources in 1997 related to this claims
backlog, the company's general and administrative ratio
(excluding depreciation and amortization) improved to 19.3%
for the first three quarters of 1997 compared to 19.7% for the
first three quarters of 1996.
Depreciation and amortization expenses increased to $15.6
million for the first three quarters of 1997 compared to $10.8
million for the first three quarters of 1996. The primary
cause for this $4.8 million increase is an additional $3.6
million of IOS amortization expense incurred in the first
three quarters of 1997 as compared to the first three quarters
of 1996. See "Outlook - Information Strategies" for more
information related to the IOS project.
Non-recurring relocation charges in the first three quarters
of 1997 and 1996 include $3.0 million and $3.3 million,
respectively, related to costs associated with the relocation
of the company's St. Louis-based claims, customer service,
billing, and provider services functions to its Springfield,
Missouri facility and a new facility in Cape Girardeau,
Missouri. The company expects to incur up to an additional
$0.5 million in the fourth quarter of 1997 for costs to
finalize this relocation.
On August 29, 1997, the company announced that it would create
a loss reserve for its contract with the Missouri Consolidated
Health Care Plan (MCHCP) in the range of $30 million to $40
million as discussed elsewhere herein. The company's 1997
year-to-date loss reflects a $29.5 million loss reserve
provision relating to the MCHCP contract. See "Contingencies
- - Litigation with MCHCP".
Operating Income
Operating income decreased $45.6 million in the first three
quarters of 1997 in comparison to the first three quarters of
1996. Excluding the non-recurring relocation charges and the
charge for loss reserves, operating income decreased by $16.4
million.
Net Investment Income
Net investment income in the first three quarters of 1997 was
$28.6 million, representing a $15.0 million increase over the
first three quarters of 1996, inclusive of a $13.5 million
increase in net realized gains. Realized gains in the first
three quarters of 1997 include a $5.7 million gain on the sale
of company-owned life insurance policies as well as additional
1997 net realized gains from the liquidation of equity
securities due to the company's intent to increase its
holdings of fixed income securities and the company's decision
to repay $15.0 million of its debt.
Provision for Income Taxes
The company's effective income tax rate was 28.9% and 57.6%
for the first three quarters of 1997 and the first three
quarters of 1996, respectively. The company's effective
income tax rate for 1997 was affected by gains from the
liquidation of company-owned life insurance policies as well
as non-deductible goodwill amortization. The 1996 effective
rate was also affected by non-deductible goodwill
amortization.
Net Income
The company's net loss for the first three quarters of 1997
was $18.9 million, or $1.01 per share, compared to net income
of $1.7 million, or $0.09 per share, for the first three
quarters of 1996. Excluding the non-recurring relocation
charges and the charge for loss reserves, the company had net
income of $2.2 million, or $0.12 per share, representing a
decrease of $1.6 million compared to the net income of $3.8
million, or $0.20 per share, for the first three quarters of
1996.
Liquidity and Capital Resources
The company's working capital as of September 30, 1997 was
$77.4 million, a decrease of $31.5 million from December 31,
1996. The decrease is partially attributable to a $15.0
million repayment of a portion of the $62.0 million of funds
that were borrowed in August 1995 from the company's reducing
revolving credit facility in conjunction with the company's
acquisition of HealthLink. Also, the company's charge to
accrue a loss reserve related to MCHCP resulted in a current
liability as of September 30, 1997 of $8.2 million. In
addition, the company capitalized $14.3 million of costs for
property and equipment purchases, $13.0 million of which
relates to capitalized IOS development costs. The company's
unrealized net appreciation of investments available for sale
decreased by $8.5 million in 1997 as most of the unrealized
gains existing at December 31, 1996 were realized in 1997 as
the company liquidated equity securities and company-owned
life insurance policies.
Net cash used in operations totaled $13.1 million for the nine
months ended September 30, 1997. The company's net loss was
$18.9 million which included (on a before tax basis) $16.6
million of realized gains from the sale of investments, $29.5
million for the MCHCP loss reserve charge, and $15.6 million
of depreciation and amortization expenses. In addition, other
assets, medical claims payable, receivables from members, and
net intercompany receivables were affected by the timing of
operating cash payments and receipts, as well as changes in
membership and utilization and claims payment trends.
Subsequent to the third quarter of 1997, the company amended
its revolving credit facility (the Credit Facility), the
material terms of which are as follows: (1) the borrowings
under the Credit Facility will bear interest at 2.75% above
the one month floating London Interbank Offered Rate (LIBOR),
(2) certain financial covenant calculations were modified and
the financial covenant requirements were adjusted, (3) the
maximum commitment of the Credit Facility was reduced to $50
million as of October 1, 1997 with $1.25 million quarterly
reductions through 1998 and subsequent $2.5 million quarterly
reductions through June 30, 2000, with the remaining
$30,000,000 commitment under the Credit Facility terminating
on August 10, 2000, (4) mandatory reductions to the
commitment, together with prepayments, are required upon the
happening of certain extraordinary events, (5) stricter limits
were placed on the company's ability to incur additional debt,
and (6) stricter limits were placed on capital expenditures as
well as the company's ability to make investments and
acquisitions.
On August 29, 1997, the company reported the commencement of
the litigation with MCHCP and estimated losses (giving effect
to all possible renewal terms of the MCHCP contract without
requested rate increases) in the range of $30 million to $40
million. In the third quarter of 1997, the company took a pre-
tax charge of $29.5 million, which was based on actuarial
estimates, including projected limited rate increases, and
projected enrollment and medical cost trends accounted for
through the year 2000 in accordance with generally accepted
accounting principles. There can be no assurance that the
amount of the reserve taken in the third quarter would be
sufficient to cover all losses which may be associated with
the MCHCP contract, which losses could have a material adverse
effect on the company and the market for the company's stock.
In addition, the company is seeking approval from the Missouri
Department of Insurance with regard to the statutory
capitalization of its HMO subsidiary.
Recent Developments
Information Strategies
In 1995, the company implemented a comprehensive information
and operations strategy (IOS) to assist in implementing the
company's managed care strategy of delivering the lowest cost
medical care consistent with quality outcomes. The company
believes that controlling medical costs in the future will be
highly dependent on readily accessing both member and provider
medical information at a detail level which provides real-time
analytical support. The company receives capital expenditure
authorizations from the Board of Directors to expend funds for
the project subject to periodic review by an ad-hoc committee
of the Board. In the first nine months of 1997, the company
incurred capitalized expenditures of $13.0 million on this
project. Cumulatively, since 1995, the company has incurred
capitalized expenditures of $34.8 million. While the IOS
project is initially dilutive to earnings per share, it is
believed that opportunities exist for significant medical and
administrative savings resulting from the program. There can
be no assurance that the ultimate impact of this IOS project
will contribute to earnings per share or reduce medical costs.
Year 2000 Issue
In January 1996, the company began converting its computer
systems to be year 2000 compliant (e.g. to recognize the
difference between 1999 and 2000 as one year instead of
negative 99 years). The company expects that at December 31,
1997, approximately 25% of the company's systems will be
compliant, with all systems expected to be compliant by March
31, 1999. The total cost of the project is estimated to be
between $8 million and $10 million. The company is expensing
all costs associated with these system changes. During 1996
and through September 30, 1997, $1.8 million had been
cumulatively expensed on this project.
Recently Issued Accounting Standards
During March 1997, the Financial Accounting Standards Board
(FASB) released Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS No. 128), which changed
the computation and disclosure of earnings per share. SFAS
No. 128 is effective for both interim and annual periods
ending after December 15, 1997 and earlier application is not
permitted. Under the company's current capital structure, the
adoption of SFAS No. 128 will not have a material impact on
the company's determination of earnings per share.
In addition, the FASB recently released SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure and
is effective for periods ending after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The standard will
require all companies to present all non-owner changes in
equity, e.g. market value adjustments to investments and
adjustments to the minimum pension liability, in a full set of
financial statements. The new rules will be effective
beginning first quarter of 1998 and companies will only be
required to report total comprehensive income for interim
periods. SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. The new rules will be effective for the 1998
fiscal year. Abbreviated quarterly disclosure will be
required beginning first quarter of 1999, with both 1999 and
1998 information.
Medicaid business
The company has made a decision to discontinue its Medicaid
product in the 18-county central Missouri region as of March
31, 1998. This determination was made due to what the company
believes were unreasonable demands and rate restrictions
mandated by the State of Missouri. As of September 30, 1997,
the company had approximately 5,000 members enrolled in its
Medicaid product.
Operating Outlook
The following statements are based on year-to-date 1997
activity and short-term expectations. The statements are
forward-looking and actual results may differ materially.
The company is no longer expecting to return to operating
profitability in 1997 due to a combination of pricing and
medical cost trend issues. In addition, 1998 will be a
transitional year with targeted improvements and the
expectation of entering 1999 with a strong operating base.
As of September 30, 1997, the small group rate restrictions in
the St. Louis market imposed by the Missouri Department of
Insurance as a condition of RightCHOICE's 1995 acquisition of
HealthLink have expired. RightCHOICE's small group business
comprises approximately 60% of the company's revenues. In
addition, the underwriting cycle has returned to double-digit
rate increases throughout much of the market. The company's
intention is to price its products to allow for a reasonable
profit while recognizing that the company's retention rates
may decrease if members choose competing plans offering
substantially lower rates. The company plans to focus on
providing members with the best possible service at the best
possible prices.
The company's performance targets for 1998 include: overall
premium revenue growth per member per month in the 9 percent
to 10 percent range, reflecting price increases in the high
teens to low twenties (in percentages) for some categories of
members, consistent with market trends; maintaining the
medical loss ratio in the low eighties, with an anticipated
net medical cost increase per member per month of
approximately 5 percent to 7 percent, inclusive of pharmacy
benefits, medical services, and the cost of government-
mandated benefits; continued reduction in core overhead
expenses, with amortization expense for IOS, investments in
programming to accommodate the year 2000, and other
initiatives contributing to a general and administrative
expense ratio in the low twenties.
The company's ability to deliver these performance targets is
dependent on achieving targeted sales to new members and
retention rates at higher prices, and realizing projected
medical and overhead cost savings.
Contingencies
See the description under the same caption in Note 2 of the
Notes to Consolidated Financial Statements, which description
is incorporated herein by reference.
Factors that May Affect Future Results of Operations,
Financial Condition or Business
In order to take advantage of the safe harbor provisions for
forward-looking statements contained in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, added to those
Acts by the Private Securities Litigation Reform Act of 1995,
the company is identifying important risks and uncertainties
that could cause the company's actual results of operations,
financial condition or business to differ materially from its
historical results of operations, financial condition or
business, or the results of operations, financial condition or
business contemplated by forward-looking statements made
herein or elsewhere orally or in writing. Factors that could
cause or contribute to such differences include, but are not
limited to, those factors described below.
Litigation with DOI and Attorney General
BCBSMo has filed an action against the Missouri Department of
Insurance (DOI), the Director of the DOI, and the Attorney
General seeking a declaratory judgment and other relief with
respect to the Reorganization and Public Offering, as
described under the same caption in Note 2 "Contingencies"
which is incorporated herein by reference. While BCBSMo has
prevailed on most issues, the Court has ruled that BCBSMo has
continued to exceed or abuse its statutorily permissible
purposes and is subject to judicial dissolution proceedings or
alternative remedies that are in the public interest and
consistent with the protection of its members. This issue and
the prior rulings favorable to BCBSMo are on appeal and
additional claims are pending at the trial court.
While the company believes, after reviewing these matters with
legal counsel, that BCBSMo's legal position is strong, the
risks and uncertainties of litigation are such that there can
be no assurance that BCBSMo will prevail on all remaining
claims, that the appellate court will affirm all the rulings
of the trial court favorable to BCBSMo and will reverse the
rulings of the trial court adverse to BCBSMo, that the DOI and
Attorney General will not pursue administrative action during
or after these proceedings, or that any such action would not
have a material adverse impact on the company or the market
for the company's stock.
BCBSMo has filed an action against the Missouri Attorney
General seeking declarations that (1) BCBSMo is a mutual
benefit type of nonprofit corporation under Chapter 355 of the
Missouri Revised Statutes and (2) BCBSMo does not hold its
assets in a constructive, charitable or other trust for the
benefit of the public generally, but rather holds its assets
for the benefit of its subscribers. This action was filed in
response to continued public and private statements by the
Attorney General, the DOI and others that BCBSMo is a public
benefit type of nonprofit corporation that holds its assets
for the benefit of the public generally.
While the company believes, after reviewing these matters with
legal counsel, that BCBSMo's legal position is strong, the
risks and uncertainties of litigation are such that there can
be no assurance that BCBSMo will prevail on all issues. If
it does not, it is possible that actions could be taken by
BCBSMo, the Attorney General, the DOI, the BCBSA or others
which could have a material adverse impact on the company or
the market for the company's stock, as described under the
same caption in Note 2 "Contingencies" which is incorporated
herein by reference.
Status of Blue Cross and Blue Shield Trademark Licenses
The company and certain of its subsidiaries have temporary
licenses to use the "Blue Cross" and "Blue Shield" names,
trademarks and service marks as described under the same
caption in Note 2 "Contingencies" which is incorporated herein
by reference. The company believes that the right to use the
Blue Cross and Blue Shield names and marks provide it with a
significant marketing advantage in its licensed service area.
As explained in Note 2, if BCBSMo's litigation against the DOI
and the Attorney General is not resolved in a manner that is
in the best interests of the BCBSA, the marks and the other
Blue plans, then the company's temporary licenses to use such
names and marks may be terminated (and a permanent license may
not be issued). The loss of such licenses and the obligation
of the company to pay the $25 per enrollee termination fee and
provide notice of termination to enrollees would have a
material adverse effect on the company and the market for the
company's stock. See "Factors that May Affect Future Results
of Operations, Financial Condition or Business - Litigation
with DOI and Attorney General."
Litigation with MCHCP
The company and MCHCP have filed lawsuits against one another
as described under the same caption in Note 2, "Contingencies"
which is incorporated herein by reference. While the company
believes that its legal position in the litigation with MCHCP
is meritorious, the outcome of that litigation cannot be
predicted with certainty. Should MCHCP prevail, the company
could be held contractually bound to serve the MCHCP members
through the year 2000 at the rates contracted for in 1995,
with annual rate increases, if any, which are far less than
necessary to permit the company to recover its costs in
serving those members. Should MCHCP continue its policy of
indiscriminate admission of all applying public entities,
regardless of their loss histories, the losses to the company
could increase from year to year as the MCHCP public entity
membership grows which losses could have a material adverse
effect on the company and the market for the company's stock,
as described under the same caption in Note 2, "Contingencies"
which is incorporated herein by reference.
Government Regulations and Health Care Reform
The company operates its managed health care business
principally through wholly owned subsidiaries whose business
is subject to extensive federal, state and local laws and
regulations. To date, these laws and regulations have not had
a significant negative impact on the growth of the company's
business. However, there can be no assurance that the company
will be able to obtain or maintain required governmental
approvals or licenses or that any regulatory reform such as
the Health Insurance Portability and Accountability Act of
1996 (HIPAA), Missouri's House Bill 335 (HB335), and mandatory
benefits (e.g. mandatory maternity benefits), which have all
increased the regulatory requirements imposed on the company
and its subsidiaries, will not have a material adverse effect
on the company's business or results of operations in the
future.
Competition and Consolidation
The health care industry is highly competitive. The company
has numerous types of competitors in its PPO, POS and HMO
operations, many of which have substantially greater financial
and other resources than the company. The company believes
that price competition among PPO, POS and HMO benefits plans
in the company's markets, particularly the St. Louis
metropolitan area, has recently intensified. Because the
company's existing business operations are confined to markets
within or contiguous to the state of Missouri, the company
currently is unable to subsidize losses in these markets with
profits from other markets. The company believes that certain
larger, national competitors are able to subsidize losses in
the Missouri market with profits from other markets in which
they operate and may pursue such a strategy in the company's
markets in an effort to increase their market share. Health
care providers are consolidating into larger health care
delivery enterprises and their increased bargaining power may
lead to a reduction in the gross margins of the company's
products and services. The company also faces competition in
its markets from a trend among some health care providers to
combine and form their own networks in order to contract
directly with employer groups and other prospective customers
for the delivery of health care services.
Escalating Health Care Costs
The company's profitability depends in large part on
predicting and effectively managing medical costs under its
managed care plans. A variety of external factors affecting
the delivery and cost of health care, including increased
costs and utilization of high-technology diagnostic testing
and treatments, the rising costs of malpractice insurance,
efforts in the medical community to avoid malpractice claims,
higher operating costs of hospitals and physicians, the aging
of the population and other demographic characteristics,
changes in federal and state health care regulations and major
epidemics may adversely affect the company's ability to
predict and control health care costs and claims. Other
relevant factors affecting the company's ability to control
health care costs include higher outpatient and drug
utilization and growth of business in regions with less cost
efficient networks.
Dependence on Sales to Individuals
Sales of the company's health care benefit products to
individuals comprise a substantial portion of the company's
business. The medical loss ratio attributable to some
components of the company's individual business is
significantly lower than that of the company's insured group
business. As a result, individual business accounts for a
proportionately greater percent of the company's operating
income. The company's overall margins would be adversely
impacted by a reduction in the relative percent of its
business represented by certain individual products or by an
increase in the medical loss ratio for individuals enrolled in
those products. The company believes that the success of the
individual business is more dependent than that of its group
business on the management of health care costs through
product design, pricing decisions and the application of
appropriate underwriting standards. There can be no assurance
that the profitability of this business will be sustained or
that the company will not experience unanticipated increases
in claims.
Potential Nonrenewal of Subscriber and Provider Agreements
The company's profitability is dependent upon its ability to
obtain and maintain contracts with employee groups and
individual consumers which generally are renewable annually.
The company's profitability is also dependent, in large part,
on its ability to contract on favorable terms with hospitals,
physicians and other health care providers. There can be no
assurance that the subscribers or providers will renew their
contracts or enter into new contracts with the company or, in
the case of provider contracts, will not seek terms that are
less profitable to the company in connection with any such
renewal.
Control by BCBSMo
BCBSMo has voting control on all stockholder actions,
including the sale or merger of the company, a sale of
substantially all of its assets and the election of all of the
company's directors. BCBSMo may have interests with respect
to its ownership of the company which diverge from those of
the company's public shareholders. There can be no assurance
that the company will not be adversely impacted by the control
which BCBSMo has with respect to matters affecting the
company.
Dependence on Key Management
The company depends to a significant extent on key management
members. Although the company has experienced turnover in
certain key management positions in the past, those positions
have been successfully filled. However, there can be no
assurance that the loss of current key management would not
result in a material adverse effect on the company's results
of operations, financial condition or business.
Variability of Quarterly Operating Results and Stock Price
The company's quarterly results of operations could be
adversely affected by the timing of new product and service
introductions, competitive pricing pressures, contract
renegotiations with customers and providers, fluctuations in
the medical loss ratio (due to changes in utilization, timing
of submission of claims presented for payment in the period
and the unpredictability of unusually large claims), increases
in commission expenses and general and administrative
expenses, changes in interest rates, acquisitions,
governmental and regulatory actions, overall market
conditions, and other factors. The company's stock price may
experience significant price and volume fluctuations in
response to these and other internal and external factors
which cause variations in its quarterly results of operations
and in the volatility of the stock markets generally.
Credit Agreement Restrictions
The company's revolving credit agreement with its existing
lenders contains certain restrictions on the company,
including requirements as to the maintenance of net worth and
certain financial ratios, restrictions on payment of cash
dividends or purchases of stock, restrictions on acquisitions,
dispositions and mergers and restrictions on additional
indebtedness and liens and certain other matters. There can
be no assurance that the company will be able to achieve and
maintain compliance with the prescribed financial ratio tests
or other requirements of the revolving credit agreement. The
failure to obtain any waivers or amendments that might be
needed to remain in compliance with such requirements would
reduce the company's flexibility to respond to adverse
industry conditions and could have a material adverse effect
on the company's results of operations, financial condition or
business.
Additional Factors
Additional risk and uncertainties that may affect future
results of operations, financial condition or business of the
company include, but are not limited to: demand for and
market acceptance of the company's products and services; the
effect of economic and industry conditions on prices for the
company's products and services and its cost structure; the
ability to develop and deliver new products and services and
adapt existing products and services to meet customer needs
and expectations; the ability to keep pace with technological
change including developing and implementing technological
advances timely and cost effectively in order to lower its
cost structure, to provide better service and remain
competitive; adverse publicity, news coverage by the media, or
negative reports by brokerage firms, industry and financial
analysts regarding the company, its parent or BCBSA or their
products or services which may have the effect of reducing the
reputation, goodwill or customer demand for, or confidence in,
the company's products or services; the ability to attract and
retain capital for growth and operations on competitive terms;
and changes in accounting policies and practices.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Note 2 to the Consolidated Financial Statements in Part I,
Item 1 contains a description of various pending and threatened claims,
including a description of the subscriber class action lawsuit
filed on March 15, 1996, litigation with the Missouri
Department of Insurance (DOI), the Director of the DOI, and
the Missouri Attorney General, litigation with the Missouri
Consolidated Health Care Plan (MCHCP), and other legal
proceedings, which descriptions are incorporated by reference
herein. Also, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors that
May Affect Future Results of Operations, Financial Condition
or Business."
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit
Number Exhibit
The following exhibits are submitted herewith:
3.2 Amended and Restated Bylaws of the Registrant dated October
27, 1997.
10.6.2 Amendment to Temporary Blue Cross License Agreement
between Blue Cross and Blue Shield Association
(BCBSA) and BCBSMo dated February 7, 1997.
10.7.2 Amendment to Temporary Blue Shield License Agreement
between BCBSA and BCBSMo dated February 7, 1997.
10.36.6 Sixth Amendment to the Credit Agreement dated as of
September 30, 1997.
10.51 Executive Employment Agreement of John A. O'Rourke dated
February 27, 1997.
11 Statement regarding computation of earnings per share.
27 Financial Data Schedule (Electronic Filing Only).
b) Reports on Form 8-K:
The company filed a report on Form 8-K dated August 29, 1997.
This filing was made in connection with the company's press
release relating to litigation with the Missouri Consolidated
Health Care Plan (MCHCP).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RIGHTCHOICE MANAGED CARE, INC.
Registrant
Date: November 12, 1997 By: [s] JOHN A. O'ROURKE
John A. O'Rourke
President and Chief Executive Officer
Date: November 12, 1997 By: [s] SANDRA VAN TREASE
Sandra Van Trease
Chief Financial Officer,
Executive Vice President
and Chief Operating Officer
Exhibit 3.2
As Amended by the Board of Directors
through October 27, 1997
BYLAWS OF
RIGHTCHOICE MANAGED CARE, INC.
Page
Article I Offices and Records 1
Article II Shareholders 1
Article III Board of Directors 6
Article IV Officers 13
Article V Indemnification 17
Article VI Stock 21
Article VII Corporate Finance 23
Article VIII General Provisions 24
ARTICLE I - OFFICES AND RECORDS
1.1 Registered Office and Registered Agent. The location of
the registered office and the name of the registered agent
of the Corporation in the State of Missouri shall be as
stated in the Articles of Incorporation or as shall be
determined from time to time by the Board of Directors and
on file in the appropriate office of the State of Missouri
pursuant to applicable provisions of law. Unless otherwise
permitted by law, the address of the registered office of
the Corporation and the address of the business office of
the registered agent shall be identical.
1.2 Corporate Offices. The Corporation may have such
corporate offices anywhere within or without the State of
Missouri as the Board of Directors from time to time may
determine or the business of the Corporation may require.
1.3 Books and Records. The Corporation shall keep correct
and complete books and records of account, including the
amount of its assets and liabilities, minutes of its
proceedings of its shareholders and Board of Directors (and
any committee having the authority of the Board) and the
names and places of residence of its officers. The
Corporation shall keep at its registered office or principal
place of business in the State of Missouri, or at the office
of its transfer agent in the State of Missouri, if any,
books and records in which shall be recorded the number of
shares subscribed, the names of the owners of the shares,
the numbers owned by them respectively. the amount of shares
paid, and by whom, and the transfer of such shares with the
date of transfer.
1.4 Inspection of Records. A shareholder may, upon written
demand, inspect the records of the Corporation, pursuant to
any statutory or other legal right, during the usual and
customary hours of business and in such manner as will not
unduly interfere with the regular conduct of the business of
the Corporation. A shareholder may delegate such
shareholder's right of inspection to a certified or public
accountant on the condition, to be enforced at the option of
the Corporation, that the shareholder and accountant agree
with the Corporation to furnish to the Corporation promptly
a true and correct copy of each report with respect to such
inspection made by such accountant. No shareholder shall
use, permit to be used or acquiesce in the use by others of
any information so obtained to the detriment competitively
of the Corporation, nor shall such shareholder furnish or
permit to be furnished any information so obtained to any
competitor or prospective competitor of the Corporation. The
Corporation as a condition precedent to any shareholder's
inspection of the records of the Corporation may require the
shareholder to indemnify the Corporation, in such manner and
for such amount as may be determined by the Board of
Directors, against any loss or damage which may be suffered
by it arising our of or resulting from any unauthorized
disclosure made or permitted to be made by such shareholder
of information obtained in the course of such inspection.
ARTICLE II - SHAREHOLDERS
2.1 Place of Meetings. All meetings of the shareholders
shall be held at the offices of the Corporation in the State
of Missouri, except such meetings as the Board of Directors
to the extent permissible by law expressly determines shall
be held elsewhere, in which case such meetings may be held,
upon notice thereof as hereinafter provided, at such other
place or places, either within or without the State of
Missouri, as the Board shall have determined, and as shall
be stated in such notice. Unless specifically prohibited by
law, any meeting may be held at any place and time, and for
any purpose, if consented to in writing by all of the
shareholders entitled to vote at such meeting.
2.2 Annual Meetings. An annual meeting of the shareholders
of the Corporation for the election of directors shall be
held on the second Tuesday in May of each year, if not a
legal holiday, and if a legal holiday, then on the next
business day following, at 10:00 a.m., or at such other date
and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting,
at which the shareholders entitled to vote thereon shall
elect directors to serve until expiration of their
respective term of office as specified in Section 3 of
Article VI of the Articles of Incorporation and until their
respective successors are duly elected and qualified, or
until their respective earlier resignation, removal or
death, and shall transact such other business as may
properly come before the meeting as provided in Bylaw 3.4.
2.3 Special Meetings.
(a) Special meetings of the shareholders may be held
for any purpose or purposes specified in the Corporation's
notice of meeting, unless otherwise prescribed by statute or
by the Articles of Incorporation. Only such business shall
be conducted at a special meeting as shall have been brought
before the meeting pursuant to the Corporation's notice of
meeting and therefore, no shareholder may submit a proposal
for consideration at a special meeting of shareholders,
except as may be permitted by the last sentence of section
(f) of Bylaw 3.4; provided, however, that if the special
meeting is called for the purpose of electing directors, a
shareholder may nominate a candidate or candidates, subject
to compliance with the provisions of section (c) of Bylaw
3.4. Except as otherwise required by law and subject to the
rights, if any, of the holders of any class or series of
stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of the
shareholders of the Corporation may be called only by the
Chairman of the Board of Directors, the President of the
Corporation or the Board pursuant to a resolution approved
by a majority of the whole Board.
(b) The "call" and the "notice" of any special meeting
of the shareholders shall be deemed to be synonymous.
2.4 Notice; Waiver of Notice.
(a) Written or printed notice of each meeting of the
shareholders whether annual or special , stating the place,
day and hour of the meeting and, in case of a special
meeting, the purpose or purposes thereof, shall be delivered
or given to each shareholder entitled to vote at such
meeting, as determined in accordance with Bylaw 2.8, not
less than ten (10) days or more than seventy (70) days
before the date of the meeting, either personally or by
mail, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting,
unless, as to a particular matter, other or further notice
is required by law, in which case such other or further
notice shall be given.
(b) Any notice to a shareholder of a shareholders'
meeting sent by mail shall be deemed to be delivered when
deposited in the United States mail with postage thereon
prepaid and addressed to the shareholder at such
shareholder's address as it appears on the records of the
Corporation.
(c) Whenever any notice is required to be given to any
shareholder under the provisions of these Bylaws, or of the
Articles of Incorporation or of any law, a written waiver
thereof, signed by the shareholder entitled to such notice,
whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
(d) To the extent provided by law, attendance of a
shareholder at any meeting shall constitute a waiver of
notice of such meeting except where a shareholder attends a
meeting for the express purpose of objecting to the
transaction of any business because the meeting is not
lawfully called or convened.
2.5 Presiding Officials. Every meeting of the
shareholders, for whatever purpose, shall be convened by the
President, the Secretary or the officer or any of the
persons who called the meeting. The meeting shall be
presided over by the officers specified in Bylaws 4.7, 4.8
and 4.9; provided, however, that the shareholders at any
meeting, upon the affirmative vote of the holders of a
majority of the represented shares (as defined in subsection
2.B(v) of Article IV of the Articles of Incorporation) of
the Corporation's capital stock entitled to vote at such
meeting, may select any persons of their choosing to act as
chairman and secretary of such meeting or any session
thereof.
2.6 Quorum; Adjournment. Unless otherwise provided by law,
the Articles of Incorporation or these Bylaws, the
constitution of a quorum at any meeting of the shareholders
shall require (i) a majority of the outstanding shares (as
defined in subsection 2.B(v) of Article IV of the Articles
of Incorporation) of the Corporation's capital stock
entitled to vote at such meeting, represented in person or
by proxy, and (ii) a majority of the outstanding shares of
each of Class A Common Stock and Class B Common Stock
entitled to vote at such meeting, represented in person or
by proxy; provided, however, that in the event that less
than a quorum is represented at a meeting, the shares so
represented, by a majority vote (as defined in subsection
2.B(v) of Article IV of the Articles of Incorporation),
shall have the right successively to adjourn the meeting,
without notice to any shareholder not present at the
meeting, to a specified date no later than 90 days after
such adjournment. In all matters, every decision of a
majority of the outstanding shares (as defined in subsection
2.B(v) of Article IV of the Articles Of Incorporation) then
entitled to vote on the subject matter and represented in
person or by proxy at a meeting at which a quorum is present
shall be valid as an act of the shareholders, unless a
larger vote is required by law, by the Articles of
Incorporation or by these Bylaws; provided. however, that if
there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the
holders of a majority (or such higher proportion as may be
required by law) of the shares of each such class must be
voted affirmatively to approve any matter requiring such
separate class vote. Shares represented by a proxy which
directs that the shares be voted to abstain or to withhold a
vote on a matter shall be deemed to be represented at the
meeting as to such matter At any subsequent session of an
adjourned meeting at which a quorum is present in person or
by proxy, any business may be transacted which could have
been transacted at the initial session of the meeting if a
quorum had been present.
2.7 Proxies. At any meeting of the shareholders every
shareholder having the right to vote be entitled to vote in
person or by proxy executed in writing by such shareholder
or by such shareholder's duly authorized attorney in fact.
No proxy shall be valid after 11 months the date of its
execution, unless otherwise provided in the proxy.
2.8 Voting.
(a) Each shareholder shall have the number of votes
provided in the Articles of Incorporation for each share of
stock entitled to vote under the provisions of the Articles
of Incorporation and registered in such shareholder's name
on the books of the Corporation.
(b) Unless otherwise provided in the Articles of
Incorporation, cumulative voting is not permitted with
respect to the election of directors and, thus, no
shareholder entitled to vote in the election of directors
shall have the right to cast as many votes in the aggregate
as shall equal the number of votes held by the shareholder
in the Corporation, multiplied by the number of directors to
be elected at the election, for one candidate, or distribute
them among two or more candidates.
(c) No person shall be admitted to vote on any shares
of the Corporation belonging or hypothecated to the
Corporation.
(d) In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall
not be more than seventy (70) days nor less than ten (10)
days before the date of such meeting, nor more than seventy
(70) days prior to any other action. A determination of
shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(e) If the Board of Directors does not close the
transfer books or set a record date for the determination of
its shareholders entitled to notice of, and to vote at, a
meeting of shareholders in accordance with section (d) of
Bylaw 2.8, only those persons who are shareholders of record
at the close of business on the 20th day preceding the date
of such meeting shall be entitled to notice of, and to vote
at, such meeting and any adjournment of such meeting; except
that, if
prior to such meeting written waivers of notice of such
meeting are signed and delivered to the Corporation by all
of the shareholders of record at the time such meeting is
convened, only those persons who are shareholders of record
at the time such meeting is convened shall be entitled to
vote at such meeting. and any adjournment thereof.
2.9 Registered Shareholders. As contemplated by the
Articles of Incorporation, the term "shareholder" as used in
these Bylaws means a registered holder of shares of the
Corporation;
provided, however, that if permitted by law:
(a) shares standing in the name of another
corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws of such corporation
may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine;
(b) shares standing in the name of a deceased person
may be voted by such person's personal representative,
either in person or by proxy;
(c) shares standing in the name of a conservator or
trustee may be voted by such fiduciary, either in person or
by proxy, but no conservator or trustee shall be entitled,
as such fiduciary, to vote shares held by such conservator
or trustee without a transfer of such shares into the name
of such conservator or trustee;
(d) shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without
the transfer thereof into such receiver's name if authority
so to do be contained in an appropriate order of the court
by which such receiver was appointed; and
(e) a shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
2.10 Shareholders' Lists.
(a) A complete list of the shareholders entitled to
vote at each meeting of the shareholders, arranged in
alphabetical order, with the address of and the number of
voting shares of each class owned of record by each
shareholder of record as of the date determined pursuant to
section (d) or (e) of Bylaw 2.8, as the case may be, shall
be prepared by the officer of the Corporation having charge
of the stock transfer books of the Corporation, and shall,
for a period of ten (10) days prior to the meeting, be kept
on file at the registered office of the Corporation in the
State of Missouri and shall at any time during the usual
hours for business be subject to inspection by any
shareholder. Such list or a duplicate thereof shall also be
produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share
ledger or transfer book, or a duplicate thereof kept in the
State of Missouri, shall be prima facie evidence as to who
are the shareholders entitled to examine such list, share
ledger or transfer book or to vote at any meeting of
shareholders.
(b) Failure to comply with this Bylaw 2.10 shall not
affect the validity of any action taken at any such meeting.
2.11 Conduct of Meetings. The date and time of the opening
and the closing of the polls for each matter upon which the
shareholders will vote at a meeting shall be announced at
the meeting by the person presiding over the meeting. The
Board of Directors of the Corporation may, to the extent not
prohibited by law, adopt by resolution such rules and
regulations for the conduct of the meetings or any meeting
of shareholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations, the
chairman of the meeting of shareholders may prescribe such
rules, regulations and procedures and do all such acts as,
in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or
procedures. whether adopted by the Board or prescribed by
the chairman of the meeting, may, to the extent not
prohibited by law, include, without limitation, the
following: (i) the establishment of an agenda for the
meeting; (ii) the maintenance of order at the meeting; (iii)
limitations on attendance at or participation in the meeting
to shareholders of record of the Corporation, their duly
authorized proxies and such other persons as shall be
determined; (iv) restrictions on entry to the meeting after
a specified time; and (v) limitation on the time allotted to
questions or comments by participants. Unless otherwise
determined by the Board or the chairman of the meeting,
meetings of shareholders shall not be required to be held in
accordance with any rules of parliamentary procedure.
Notwithstanding the foregoing, the person presiding over a
meeting of the shareholders shall appoint not less than two
persons, who are not directors, as inspectors to receive and
canvass the votes given at such meeting and to certify the
result(s) to such presiding person.
2.12 Consent of Shareholders in Lieu of Meeting. Any action
required to be taken or which may be taken at a meeting of
the shareholders may be taken without a meeting if consents
in writing, setting forth the action so taken, shall be
signed by all of the shareholders entitled to vote with
respect to the subject matter thereof. Such consents shall
have the same force and effect as a unanimous vote of the
shareholders at a meeting duly held. The Secretary shall
file such consents with the minutes of the meetings of the
shareholders.
ARTICLE III - BOARD OF DIRECTORS
3.1 Number. The number of directors to constitute the
Board of Directors shall be not less than seven or more
than twelve. The Board of Directors shall have the
power to fix or change the number of directors, within
the minimum and maximum range, by resolution adopted by
a majority of the whole Board of Directors.
3.2 Powers of the Board. The property and business of the
Corporation shall be controlled and managed by the
directors, acting as a Board of Directors. The Board shall
have and is vested with all powers and authority, except as
may be expressly limited by law, the Articles of
Incorporation or these Bylaws, to do or cause to be done any
and all lawful things for and on behalf of the Corporation,
to exercise or cause to be exercised any or all of its
powers, privileges and franchises, and to seek the
effectuation of its objects and purposes. As used in these
Bylaws, the terms "whole Board" and "whole Board of
Directors" shall be exclusively defined by, and limited to
the meaning provided in, Section 2 of Article VI of the
Articles of Incorporation.
3.3 Classes. The Board of Directors shall be divided into
three classes, in accordance with the provisions of the
Articles of Incorporation.
3.4 Nomination of Directors and Presentation of Business at
Shareholder Meetings.
(a) Nominations of persons for election to the Board
of Directors and the proposal of business to be considered
by the shareholders may be made at an annual meeting of
shareholders (i) pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the Board or (iii)
by any shareholder who was a shareholder of record at the
time of the giving of notice provided for in this Bylaw 3.4,
who is entitled to vote thereof at the meeting and who
complied with the notice procedures set forth in this Bylaw
3.4.
(b) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant
to clause (iii) of section (a) of this Bylaw 3.4, the
shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at
the principal executive officers of the Corporation not less
than sixty (60) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that
notices for nominations may be delivered to the Secretary
not less than thirty (30) days prior to such anniversary;
and provided, further that in the event that the date of the
annual meeting is advanced by more than thirty (30) days or
delayed by more than sixty (60) days from such anniversary
date, notice by the shareholder to be timely must be so
delivered not later than the close of business on the later
of (i) the 60th day (in the case of nominations, the 30th
day) prior to such annual meeting or (ii) the 10th day
following the date on which public announcement of the date
of such meeting is first made. Such shareholder's notice
shall set forth as to each person whom the shareholder
proposes to nominate for election or reelection as a
director: (i) the name and address of the shareholder who
intends to make the nomination and of the person or persons
to be nominated; (ii) a representation that such shareholder
is a holder of record of stock of the Corporation entitled
to vote in the election of directors at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) the name and address of such shareholder as it appears
on the Corporation's books, and of the beneficial owner (as
such term is defined in 17 C.F.R. 240.l3d-3 ("Rule 13d-3")
under the Securities Exchange Act of 1934 ("Exchange Act")),
if any, on whose behalf the nomination is made; (iv) the
class and number of shares of the Corporation which are
owned beneficially (as such term is defined in Rule I 3d- 3
under the Exchange Act) and of record by the nominating
shareholder and each nominee proposed by such shareholder:
(v) a description of all arrangements or understandings
between the shareholder and each nominee and any other
person (naming such persons) pursuant to which the
nomination or nominations are to be made by the shareholder;
(vi) such other information regarding each nominee proposed
by such shareholder as would have been required to be
included in a proxy statement filed pursuant to 17 C.F.R.
240.14a-l et seq. ("Regulation 14A") as then in effect under
the Exchange Act had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (vii) the
consent of each nominee to serve as a director of the
Corporation if so elected. As to any other business that the
shareholder proposes to bring before the meeting, a
shareholder's notice to the Secretary shall set forth as to
each matter: (i) a brief description of the business desired
to be brought before the annual meeting: (ii) a
representation that such shareholder is a holder of record
of stock entitled to vote on the business proposed by such
shareholder and intends to appear in person or by proxy at
the meeting to present the proposed business to be brought
before the meeting; (iii) the name and address of the
shareholder proposing such business, as it appears on the
Corporation's books. and of the beneficial owner (as such
term is defined in Rule 13d-3 under the Exchange Act). if
any. on whose behalf the business is proposed; (iv) the
class and number of shares of the Corporation which are
owned beneficially (as such term is defined in Rule 13d-3
under the Exchange Act) and of record by the shareholder;
(v) the reason for conducting such business at the meeting
and any material interest of the shareholder or such
beneficial owner in such business; and (vi) all other
information with respect to each such matter as would have
been required to be included in a proxy statement filed
pursuant to Regulation 14A as then in effect under the
Exchange Act had proxies been solicited by the Board with
respect thereto. Notwithstanding anything in this section
(b) to the contrary, in the event that the number of
directors to be elected to the Board is increased and there
is no public announcement naming all of the nominees for
director or specifying the size of the increased Board made
by the Corporation at least forty (40) days prior to the
first anniversary of the preceding year's annual meeting. a
shareholder's notice shall also be considered timely, but
only with respect to nominees for any new positions created
by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not
later than the close of business on the 10th day following
the day on which such public announcement is first made by
the Corporation.
(c) Only such business shall be conducted at a special
meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of
Directors may be made at a special meeting of shareholders
with regard to which the Board has determined that directors
are to be elected (pursuant to the Corporation's notice of
meeting, (ii) by or at the direction of the Board, or (iii)
by any shareholder who is a shareholder of record at the
time of the giving of notice provided for in this Bylaw 3.4,
who shall be entitled to vote for the election of directors
at the meeting and who complies with the notice procedures
set forth in the last sentence of this section (c). In the
event the Corporation calls a special meeting of
shareholders for the purpose of electing one or more
directors to the Board, any such shareholder may nominate a
person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of
meeting, if the shareholder's notice setting forth the
information required by section (b) of this Bylaw 3.4 shall
be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of
business on the later of (i) the 30th day prior to such
special meeting or (ii) the 10th day following the day on
which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board to
be elected at such meeting.
(d) Only such persons who are nominated in accordance
with the procedures set forth in this Bylaw 3.4 shall be
eligible to serve as directors, and only such business shall
be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures
set for in this Bylaw 3.4. The chairman of the meeting of
shareholders shall have the power and duty to determine
whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the
procedures set forth in this Bylaw 3.4 and, if any proposed
nomination or business is not in compliance with this Bylaw
3.4, to declare that such defective nominations or proposal
shall be disregarded.
(e) For purposes of this Bylaw 3.4, "public
announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(f) Notwithstanding the foregoing provisions of this
Bylaw 3.4, (i) if any class or series of stock has the
right, voting separately by class or series, to elect
directors at an annual or special meeting of shareholders,
such directors shall be nominated and elected pursuant to
the terms of such class or series of stock; and (ii) a
shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with the respect to the matters set
forth in this Bylaw 3.4. To the extent this Bylaw 3.4 shall
be deemed by the Board of Directors or the Securities and
Exchange Commission, or adjudged by a court of competent
jurisdiction, to be inconsistent with the rights of
shareholders to request inclusion of a proposal in the
Corporation's proxy statement pursuant to 17 C.F.R. 240.14a-
8 ("Rule 14 a-8") under the Exchange Act, such rule shall
prevail.
3.5 Meetings of the Newly Elected Board. The members of
each newly elected Board of Directors (i) shall meet at such
time and place, either within or without the State of
Missouri, as shall be provided for by resolution of the
shareholders at the annual meeting, and no notice of such
meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum
shall be present, or (ii) if not so provided for by
resolution of the shareholders, or if a quorum shall not be
present, may meet at such time and place as shall be
consented to in writing by a majority of the newly elected
directors, provided that written or printed notice of such
meeting shall be given to each of the other directors in the
same manner as provided in these Bylaws with respect to the
giving of notice for special meetings of the Board except
that it shall not be necessary to state the purpose of the
meeting in such notice, or (iii) regardless of whether or
not the time and place of such meeting shall be provided for
by resolution of the shareholders at the annual meeting, may
meet at such time and place as shall be consented to in
writing by all of the newly elected directors.
Each director of the Corporation, upon such director's
election, shall qualify by accepting the office of director,
and such director's attendance at, or written approval of
the minutes of, any meeting of the Board subsequent to such
director's election shall constitute such director's
acceptance of such office; or such director may execute such
acceptance by a separate writing, which shall be placed in
the minute book.
3.6 Notice of Meeting; Waiver of Notice.
(a) Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such times and
places either within or without the State of Missouri as
shall from time to time be fixed by resolution adopted by
the whole Board. Any business may be transacted at a
regular meeting.
(b) Special Meetings.
(i) Except as otherwise required by law and
subject to the rights of the holders of Preferred Stock
or any series thereof, special meetings of the Board of
Directors may be called at any time by the Chairman of
the Board, the President or the Board pursuant to a
resolution approved by a majority of the whole Board
and shall be called by the Secretary on the written
request of any of the foregoing. The place may be
within or without the State of Missouri as designated
in the notice.
(ii) Written or printed notice of each special
meeting of the Board, stating the place, day and hour
of the meeting and the purpose or purposes thereof,
shall be mailed to each director at least three (3)
days before the day on which the meeting is to be held,
or shall be delivered to such director personally or
sent to such director by telegram at least two (2) days
before the day on which the meeting is to be held. If
mailed, such notice shall be deemed to be delivered
when it is deposited in the United States mail with
postage thereon prepaid, addressed to the director at
such director's residence or usual place of business.
If given by telegraph, such notice shall be deemed to
be delivered when it is delivered to the telegraph
company. The notice may be given by any person having
authority to call the meeting.
(iii) "Notice" and "call" with respect to such
meetings shall be deemed to be synonymous.
(c) Waiver of Notice. Whenever any notice is required
to be given to any director under the provisions of any law,
the Articles of Incorporation or these Bylaws, a waiver
thereof in writing signed by such director, whether before
or after the time stated therein, shall be deemed equivalent
to the giving of such notice. Attendance of a director at
any meeting shall constitute a waiver of notice of the
meeting except where a director attends such meeting for the
express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the
purpose of, any regular meeting of the Board of Directors
need be specified in the notice or waiver of notice of the
meeting.
3.7 Meetings by Conference Telephone or Similar
Communications Equipment. Unless otherwise provided by law,
the Articles of Incorporation or these Bylaws, members of
the Board of Directors of the Corporation, or any committee
designated by the Board, may participate in a meeting of the
Board or committee by means of conference telephone or
similar communications equipment whereby all persons
participating in the meeting can hear each other, and
participation in a meeting in such manner shall constitute
presence in person at the meeting.
3.8 Action Without a Meeting. Any action which is required
to be or may be taken at a meeting of the directors, or of
the executive committee or any other committee of the
directors, may be taken without a meeting if consents in
writing, setting forth the action so taken, are signed by
all of the members of the Board of Directors or of the
committee as the case may be. The consents shall have the
same force and effect as a unanimous vote at a meeting duly
held. The Secretary shall file such consents with the
minutes of the meetings of the Board or of the committee as
the case may be.
3.9 Quorum. At all meetings of the Board of Directors, a
majority of the whole Board shall, unless a greater number
as to any particular matter is required by law, the Articles
of Incorporation or these Bylaws, constitute a quorum for
the transaction of business. The act of a majority of the
directors present at any meeting of the Board at which a
quorum is present shall be the act of the Board, unless the
act of a greater number is required by law, the Articles of
Incorporation or these Bylaws.
3.10 Vacancies and Newly Created Directorships. Except for
directorships created pursuant to Article IV of the Articles
of Incorporation relating to the rights of holders of
Preferred Stock, or any series thereof, and except for
vacancies in such directorships, and unless otherwise
provided by law, the Articles of Incorporation or these
Bylaws, any vacancies in the Board of Directors for any
reason, and any newly created directorships resulting from
any increase in the number of directors, may be filled by
the Board, acting by a majority of the directors then in
office, although less than a quorum, or by a sole remaining
director, and any directors so chosen shall hold office
until the next election of the class for which such
directors shall have been chosen and until their respective
successors shall be elected and qualified or until their
respective earlier resignation, removal or death. No
decrease in the number of directors shall shorten the term
of any incumbent directors.
3.11 Committees.
(a) The Board of Directors may, by resolution or
resolutions adopted by a majority of the whole Board,
designate two or more directors of the Corporation to
constitute one or more committees (including, without
limitation, an executive committee). Each such committee,
to the extent provided in such resolution or resolutions,
shall have and may exercise all of the authority of the
Board in the management of the Corporation; provided,
however, that the designation of each such committee and the
delegation thereto of authority shall not operate to relieve
the Board, or any member thereof, of any responsibility
imposed upon it or such member by law.
(b) Each such committee shall keep regular minutes of
its proceedings, which minutes shall be recorded in the
minute book of the Corporation. The Secretary or an
Assistant Secretary of the Corporation may act as Secretary
for each such committee if the committee so requests.
3.12 Audit Committee. The Board of Directors at the annual
or any regular or special meeting of the directors shall ,
by resolution adopted by a majority of the whole Board,
designate and elect two or more directors to constitute an
Audit Committee and appoint one of the directors so
designated as the chairman of the Audit Committee.
Membership on the Audit Committee shall be restricted to
those directors who are independent of the management of the
Corporation and are free from any relationship that, in the
opinion of the Board, would interfere with the exercise of
independent judgment as a member of the committee.
Vacancies in the committee may be filled by the Board at any
meeting thereof. Each member of the committee shall hold
office until such committee member's successor has been duly
elected and qualified, or until such committee member's
resignation or removal from the Audit Committee by the
Board, or until such committee member otherwise ceases to be
a director. Any member of the Audit Committee may be
removed from the committee by resolution adopted by a
majority of the whole Board. The compensation, if any, of
members of the committee shall be established by resolution
of the Board.
The Audit Committee shall be responsible for: recommending
to the Board the appointment or discharge of independent
auditors; reviewing with the management and the independent
auditors the terms of engagement of independent auditors,
including the fees, scope and timing of the audit and any
other services rendered by the independent auditors;
reviewing with the independent auditors and management the
Corporation's policies and procedures with respect to
internal auditing, accounting and financial controls;
reviewing with the management the independent statements;
audit results and reports and the recommendation made by any
of the auditors with respect to changes in accounting
procedures and internal controls; reviewing the results of
studies of the Corporation's system of internal accounting
controls; and performing any other duties or functions
deemed appropriate by the Board. The Audit Committee shall
have the powers and rights necessary or desirable to fulfill
these responsibilities, including the power and right to
consult with legal counsel and to rely upon the opinion of
legal counsel. The Audit Committee is authorized to
communicate directly with the Corporation's financial
officers and employees, internal auditors and independent
auditors as it deems desirable and to have the internal
auditors or independent auditors perform any additional
procedures as it deems appropriate.
All actions of the Audit Committee shall be reported to the
Board at the next meeting of the Board. The minute books of
the Audit Committee shall at all times be open to the
inspection of any director.
The Audit Committee shall meet at the call of its chairman
or of any two members of the Audit Committee (or if there
shall be only one other member, then at the call of that
member). A majority of the Audit Committee shall constitute
a quorum for the transaction of business (or if there shall
only be two members, then both must be present), and the act
of a majority of those present at any meeting at which a
quorum is present (or if there shall be only two members.
then they must act unanimously) shall constitute the act of
the Audit Committee.
3.13 Compensation Committee. The Board of Directors at the
annual or any regular or special meeting shall, by
resolution adopted by a majority of the whole Board,
designate and elect two or more directors to constitute a
Compensation Committee. Membership on the Compensation
Committee shall be restricted to disinterested persons which
for this purpose shall mean any director who, during the
time such director is a member of the Compensation Committee
is not eligible, and has not at any time within one year
prior thereto been eligible, for selection to participate
(other than in a manner as to which the Compensation
Committee has no discretion, in any of the compensation
plans administered by the Compensation Committee. Vacancies
in the committee may be filled by the Board at any meeting.
Each member of the committee shall hold office until such
committee member's successor has been duly elected and
qualified, or until such committee member's resignation or
removal from the Compensation Committee by the Board, or
until such committee member otherwise ceases to be a
director or a disinterested person. Any member of the
Compensation Committee may be removed by resolution adopted
by a majority of the whole Board. The compensation, if any,
of the members of the Compensation Committee shall be
established by resolution of the Board.
The Compensation Committee shall, from time to time,
recommend to the Board the compensation and benefits of the
executive officers of the Corporation. The Compensation
Committee shall have the power and authority vested in the
Board by any benefit plan of the Corporation. The
Compensation Committee shall also make recommendations to
the Board with regard to the compensation of the Board and
its committees, with the exception of the Compensation
Committee.
All actions of the Compensation Committee shall be reported
to the Board at the next meeting of the Board. The minute
books or the Compensation Committee shall at all times be
open to the inspection of any director
The Compensation Committee shall meet at the call of the
chairman of the Compensation Committee or of any two members
of the Compensation Committee (or if there shall be only one
other member, then at the call of that member). A majority
of the Compensation Committee shall constitute a quorum for
the transaction of business (or if there shall be only two
members, then both must be present), and the act of a
majority of those present at any meeting at which a quorum
is present (or if there shall be only two members, then they
must act unanimously) shall be the act of the Compensation
Committee.
3.14 Alternate Committee Members. The Board of Directors, by
resolution adopted by a majority of the whole Board, may
designate one or more additional directors as alternate
members of any committee to replace any absent or
disqualified member at any meeting of that committee, and at
any time may change the membership of any committee or amend
or rescind the resolution designating the committee. In the
absence or disqualification of a member or alternate member
of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not the
member or members constitute a quorum. may unanimously
appoint another director to act at the meeting in the place
of any such absent or disqualified member, provided that the
director so appointed meets any qualifications stated in
these Bylaws or the resolution designating the committee or
any amendment thereto.
3.15 Committee Procedures. Unless otherwise provided in
these Bylaws or in the resolution designating any committee,
any committee may fix its rules or procedures, fix the time
and place; of its meetings and specify what notice of
meetings, if any, shall be given.
3.16 Limitation of Committee Powers. Notwithstanding any
other provision of these Bylaws, no committee of the Board
of Directors shall have the power or authority of the Board
with respect to (i) amending the Articles of Incorporation,
(ii) approving or recommending to shareholders any type or
form of Business Combination (as defined in Section 351.459
of The General and Business Corporation Law of Missouri as
in effect on January 1,1994), (iii) approving or
recommending to the shareholders a dissolution of the
Corporation or a revocation of a dissolution, (iv) amending
these Bylaws, (v) declaring a dividend or making any other
distribution to the shareholders, (vi) authorizing the
issuance of stock otherwise than pursuant to (he grant or
exercise of a stock option under employee stock options of
the Corporation or in connection with a public offering of
securities registered under the Securities Act of 1933, or
(viii) appointing any member of any committee of the Board.
3.17 Compensation of Directors and Committee Members.
Directors and members of all committees shall not receive
any stated salary for their services as such, unless
authorized by resolution of the Board of Directors. Also, by
resolution of the Board a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board or committee.
Nothing herein contained shall be construed to preclude any
director or committee member from serving the Corporation in
any other capacity and receiving compensation therefor.
3.18 Resignations. Any director may resign at any time upon
written notice to the Corporation. Such resignation shall
take effect at the time specified therein or, if no time is
specified therein, upon receipt thereof by the Corporation,
and, unless otherwise specified therein, the acceptance of
such resignation by the Corporation shall not be necessary
to make such resignation effective.
3.19 Removal of Directors. Directors may be removed only in
the manner provided in the Articles of Incorporation.
ARTICLE IV - OFFICERS
4.1 Designations.
(a) The officers of the Corporation shall be a
Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, a President, one or more Executive Vice
Presidents, one or more Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and one or more
Assistant Treasurers. The Board shall elect a Chairman of
the Board, a Vice Chairman of the Board, a President, a
Treasurer and a Secretary at its first meeting after each
annual meeting of the shareholders. The Board then, or from
time to time, may also elect one or more of the other
prescribed officers as it shall deem advisable, but need not
elect any officers other than a Chairman of the Board, a
Vice Chairman of the Board, a President, a Treasurer and a
Secretary. The Board may, if it desires, elect or appoint
additional officers and may further identify or describe any
one or more of the officers of the Corporation.
(b) The Chairman and the Vice Chairman of the Board of
Directors shall be chosen from among the Board, but the
other officers of the Corporation need not be members of the
Board. Any two or more offices may be held by the same
person.
(c) An officer shall be deemed qualified when such
person enters upon the duties of the office to which such
person has been elected or appointed and furnishes any bond
required by the Board of Directors; but the Board may also
require such person's written acceptance and promise faithfully
to discharge the duties of such office.
4.2 Term of Office. Each officer of the Corporation shall
hold such person's office at the pleasure of the Board of
Directors or for such other period as the Board may specify
at the time of such person's election or appointment, or
until such person's resignation, removal by the Board or
death, whichever first occurs. In any event, each officer of
the Corporation who is not reelected or reappointed at the
annual election of officers by the Board next succeeding
such person's election or appointment shall be deemed to
have been removed by the Board, unless the Board provides
otherwise at the time of such person's election or
appointment.
4.3 Other Agents. The Board of Directors from time to time
may appoint such other agents for the Corporation as the
Board shall deem necessary or advisable, each of whom shall
serve at the pleasure of the Board or for such period as the
Board may specify and shall exercise such powers, have such
titles and perform such duties as shall be determined from
time to time by the Board or by an officer empowered by the
Board to make such determinations.
4.4 Removal. Any officer or agent elected or appointed by
the Board of Directors, and any employee, may be removed or
discharged by the Board whenever in its judgment the best
interests of the Corporation would be served thereby, but
such removal or discharge shall be without prejudice to the
contract rights, if any, of the person so removed or
discharge.
4.5 Salaries and Compensation. Salaries and compensation
of all elected officers of the Corporation shall be fixed,
increased or decreased by the Board of Directors, but this
power, except as to the salary or compensation of the
Chairman of the Board and the President, may, unless
prohibited by law, be delegated by the Board to the Chairman
of the Board, the President or a committee. Salaries and
compensation of all appointed officers, agents and employees
of the Corporation may be fixed, increased and decreased by
the Board, but until action is taken with respect thereof by
the Board, the same may be fixed, increased or decreased by
the President or by such other officer or officers as may be
empowered by the Board to do so.
4.6 Delegation of Authority to Hire, Discharge and
Designate Duties. The Board of Directors from time to time
may delegate to the Chairman of the Board, the President or
other officer or executive employees of the Corporation,
authority to hire and discharge and to fix and modify the
duties and salary or other compensation of employees of the
Corporation under the jurisdiction of such person, and the
Board may delegate to such officer or executive employee
similar authority with respect to obtaining and retaining
for the Corporation the services of attorneys, accountants
and other experts.
4.7 Chairman of the Board. If a Chairman of the Board of
Directors is elected, such Chairman of the Board shall,
except as otherwise provided for in Bylaw 2.5, preside at
all meetings of the shareholders and directors at which such
Chairman of the Board may be present and shall perform such
other duties and have such other powers, responsibilities
and authority as may be prescribed elsewhere in these
Bylaws. The Board may delegate such other powers,
responsibilities and authority and assign such additional
duties to the Chairman of the Board, other than those
conferred by law exclusively upon the President or other
officer, as the Board may from time to time determine, and,
to the extent permissible by law, the Board may designate
the Chairman of the Board as the chief executive officer of
the Corporation with all of the duties, powers,
responsibilities and authority otherwise conferred upon the
President of the Corporation under Bylaw 4.8, or the Board
may from time to time divide the duties, powers,
responsibilities and authority for the general control and
management of the Corporation's business and affairs between
the Chairman of the Board and the President. If the
Chairman of the Board is designated as the chief executive
officer of the Corporation or to have the powers of the
chief executive officer coextensively with the President,
notice thereof shall be given to the extent and in the
manner as may be required by law.
4.8 President.
(a) Unless the Board of Directors otherwise provides,
the President shall be the chief executive officer of the
Corporation with such general executive duties, powers,
responsibilities and authority of supervision and management
as are usually vested in the office of the chief executive
officer of a corporation, and such President shall carry
into effect all directions and resolutions of the Board.
Except as otherwise provided for in Bylaw 2.5, the
President, in the absence of the Chairman of the Board or if
there be no Chairman of the Board, shall preside at all
meetings of the shareholders and the Board.
(b) The President may execute all bonds, notes,
debentures, mortgages and other contracts requiring the seal
of the Corporation, may cause the seal to be affixed
thereof, and may execute all other instruments, for and in
the name of the Corporation.
(c) Unless the Board of Directors otherwise provides,
the President, or any person designated in writing by the
President, shall have full power and authority on behalf of
the Corporation to (i) attend and to vote or take action at
any meeting of the holders of securities of corporations in
which the Corporation may hold securities, and at such
meeting shall possess and may exercise any and all rights
and powers incident to being a holder of such securities,
and (ii) execute and deliver waivers of notice and proxies
for and in the name of this Corporation with respect to
securities of any such corporation held by this Corporation.
(d) The President shall, unless the Board of Directors
otherwise provides, be an ex officio member of all standing
committees.
(e) The President shall perform such other duties and
have such other powers, responsibilities and authority as
may be prescribed elsewhere in these Bylaws or from time to
time by the Board of Directors.
(f) If a Chairman of the Board of Directors is elected
and designated as the chief executive officer of the
Corporation, as provided in Bylaw 4.7, the President shall
perform such duties and have such powers, responsibilities
and authority as may be specifically delegated to the
President by the Board or are conferred by law exclusively
upon the President and, in the absence or disability of the
Chairman of the Board or in the event of the Chairman of the
Board's inability or refusal to act, the President shall
perform the duties and exercise the powers of the Chairman
of the Board.
4.9 Executive Vice Presidents and Vice Presidents. In the
absence or disability of the President or in the event of
the President's inability or refusal to act, any Executive
Vice President or Vice President may perform the duties and
exercise the powers of the President, until the Board of
Directors otherwise provides. Executive Vice Presidents and
Vice Presidents shall perform such other duties and have
such other powers, responsibilities and authority as the
Board may from time to time prescribe.
4.10 Secretary and Assistant Secretaries.
(a) The Secretary shall attend all meetings of the
Board of Directors and, except as otherwise provided for in
Bylaw 2.5, all meetings of the shareholders. The Secretary
shall prepare minutes of all proceedings at such meetings
and shall preserve them in a minute book of the Corporation.
The Secretary shall perform similar duties for each standing
or temporary committee when requested by the Board or such
committee.
(b) The Secretary shall see that all books, records,
lists and information, or duplicates, required to be
maintained at the registered or other office of the
Corporation in the State of Missouri, or elsewhere, are so
maintained.
(c) The Secretary shall keep in safe custody the seal
of the Corporation, and shall have authority to affix the
seal of the Corporation to any instrument requiring a
corporate seal and, when so affixed, the Secretary may
attest the seal by the Secretary's signature.
(d) The Secretary shall have the general duties,
powers, responsibilities and authority of a secretary of a
corporation and shall perform such other duties and have
such other powers, responsibilities and authority as may be
prescribed elsewhere in these Bylaws or from time to time by
the Board of Directors or the chief executive officer of the
Corporation, under whose direct supervision the secretary
shall be.
(e) In the absence or disability of the Secretary or
in the event of the Secretary's inability or refusal to act,
any Assistant Secretary may perform the duties and exercise
the powers of the Secretary until the Board of Directors
otherwise provides. Assistant Secretaries shall perform
such other duties and have such other powers,
responsibilities and authority as the Board may from time to
time prescribe.
4.11 Treasurer and Assistant Treasurers.
(a) The Treasurer shall have responsibility for the
safekeeping of the funds and securities of the Corporation,
shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the
Corporation and shall keep or cause to be kept all other
books of account and accounting records of the Corporation.
The Treasurer shall deposit or cause to be deposited all
moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be
designated by the Board of Directors or by any officer of
the Corporation to whom such authority has been granted by
the Board.
(b) The Treasurer shall disburse, or permit to be
disbursed, the funds of the Corporation as may be ordered,
or authorized generally, by the Board of Directors, and
shall render to the chief executive officer of the
Corporation and the directors, whenever they may require, an
account of all transactions as treasurer and of those under
the Treasurer's jurisdiction, and of the financial condition
of the Corporation.
(c) The Treasurer shall have the general duties,
powers, responsibilities and authority of a treasurer of a
corporation and shall, unless otherwise provided by the
Board of Directors, be the chief financial and accounting
officer of the Corporation. The Treasurer shall perform
such other duties and shall have such other powers,
responsibilities and authority as may be prescribed
elsewhere in these Bylaws or from time to time by the Board.
(d) If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in a sum and
with one or more sureties satisfactory to the Board for the
faithful performance of the duties of the Treasurer's office
and for the restoration to the Corporation, in the case of
the Treasurer's death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other
property of whatever kind in the Treasurer's possession or
under the Treasurer's control which belong to the
Corporation.
(e) In the absence or disability of the Treasurer or
in the event of the Treasurer's inability or refusal to act,
any Assistant Treasurer may perform the duties and exercise
the powers of the Treasurer until the Board of Directors
otherwise provides. Assistant Treasurers shall perform such
other duties and have such other powers, responsibilities
and authority as the Board may from time to time prescribe.
4.12 Duties of Officers May Be Delegated. If any officer of
the Corporation is absent or unable to act, or for any other
reason that the Board of Directors may deem sufficient, the
Board may delegate, for the time being, some or all of the
functions, duties, powers, responsibilities and authority of
any officer to any other officer, or to any other agent or
employee of the Corporation or other responsible person,
provided a majority of the whole Board concurs.
ARTICLE V - INDEMNIFICATION
5.1 Indemnification in Actions by Third Parties. The
Corporation shall indemnify each person who has been or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative, investigative or appellate
(other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was serving in
an Indemnifiable Capacity against all liabilities and
expenses, including, without limitation, judgments, amounts
paid in settlement (provided that such settlement and all
amounts paid in connection therewith are approved in advance
by the Corporation in accordance with Bylaw 5.4, which
approval shall not be unreasonably withheld or delayed),
attorneys' fees, ERISA excise taxes or penalties, fines and
other expenses actually and reasonably incurred by such
person in connection with such action, suit or proceeding
(including, without limitation, the investigation, defense,
settlement or appeal of such action, suit or proceeding) if
such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful; provided,
however, that the Corporation shall not be required to
indemnify or advance expenses to any such person seeking
indemnification or advancement of expenses in connection
with an action, suit or proceeding initiated by such person
(including, without limitation, any cross-claim or
counterclaim) unless the initiation of such action, suit or
proceeding was authorized by the Board of Directors of the
Corporation or as otherwise provided in Bylaw 5.4. The
termination of any such action, suit or proceeding by
judgment, order, settlement, conviction or under a plea of
nolo contendere or its equivalent shall not, of itself,
create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed
to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe
that such person's conduct was unlawful.
5.2 Indemnification In Derivative Action. The Corporation
shall indemnify each person who has been or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason
of the fact that such person is or was serving in an
Indemnifiable Capacity against amounts paid in settlement
thereof (provided that such settlement and all amounts paid
in connection therewith are approved in advance by the
Corporation in accordance with Bylaw 5.4, which approval
shall not be unreasonably withheld or delayed) and all
expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action, suit or proceeding (including,
without limitation, the investigation, defense, settlement
or appeal of such action, suit or proceeding) if such person
acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of
the Corporation; provided, however, that no indemnification
under this Bylaw 5.2 shall be made in respect of any claim,
issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the
performance of such person's duty to the Corporation unless
and only to the extent that the court in which the action,
suit or proceeding is brought determines upon application
that, despite the adjudication of liability and in view of
all the circumstances of such case, the person is fairly and
reasonably entitled to indemnity for such expenses which the
court shall deem proper.
5.3 Indemnification for Success on the Merits or Otherwise.
Notwithstanding the other provisions of this Article V, to
the extent that a person who is or was serving in an
Indemnifiable Capacity has been successful on the merits or
otherwise in defense of any action, suit or proceeding
referred to in Bylaw 5.1 or 5.2 (including, without
limitation, the dismissal of any such action, suit or
proceeding without prejudice or, with the prior approval of
the Corporation in accordance with Bylaw 5.4, the settlement
of such action, suit or proceeding without admission of
fault or liability), or in defense of any claim, issue or
matter therein, such person shall be indemnified against any
amounts which may be approved by the Corporation to be paid
in settlement of any such action, suit or proceeding and
against expenses (including attorneys fees) actually and
reasonably incurred by such person in connection therewith.
5.4 Determination of Right to Indemnification. Prior to
indemnifying a person pursuant to the provisions of Bylaw
5.1 or 5.2, unless ordered by a court and except as
otherwise provided by Bylaw 5.3, the Corporation shall
determine that such indemnification is proper in the
circumstances because such person has met the specified
standard of conduct entitling such person to indemnification
as set forth under Bylaw 5.1 or 5.2. Any determination that
a person shall or shall not be indemnified under the
provisions of Bylaw 5.1 or 5.2 shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to the action, suit or
proceeding, (ii) if such quorum is not obtainable, or even
if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion,
or (iii) by the shareholders, and such determination shall
be final and binding upon the Corporation; provided,
however, that in the event such determination is adverse to
the person to be indemnified hereunder, such person shall
have the right to maintain an action in any court of
competent jurisdiction against the Corporation to determine
whether or not such person has met the requisite standard of
conduct and is entitled to such indemnification hereunder.
For the purposes of such court action, an adverse
determination as to the eligibility of a person for
indemnification made pursuant to any of clauses (i), (ii) or
(iii) of this Bylaw 5.4 shall not constitute a defense to
such action nor create a presumption regarding such persons
eligibility for indemnification hereunder. If such court
action is successful and the person is determined to be
entitled to such indemnification, such person shall be
reimbursed by the Corporation for all fees and expenses
(including attorneys' fees) actually and reasonably incurred
in connection with any such action (including, without
limitation, the investigation, defense, settlement or appeal
of such action).
5.5 Advancement of Expenses. Expenses (including attorneys'
fees) actually and reasonably incurred by a person who may
be entitled to indemnification hereunder in defending an
action, suit or proceeding, whether civil, criminal,
administrative, investigative or appellate, shall be paid by
the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an
undertaking by or on behalf of such person to repay such
amount unless it shall ultimately be determined that such
person is entitled to indemnification by the Corporation. In
no event shall any advance be made in instances where it is
reasonably determined that such person would not be entitled
to indemnification hereunder or that such person
deliberately breached such person's duty to the Corporation
or its shareholder (i) by the Board by a majority vote of a
quorum consisting of directors who were not parties to the
action, suit or proceeding, (ii) if such quorum is not
obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders,
and such determination shall be final and binding upon the
Corporation.
5.6 Non-Exclusivity. The indemnification and the
advancement of expenses provided by this Article V shall not
be exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled
under any statute, the Articles of Incorporation, these
Bylaws or any agreement, vote of shareholders or
disinterested directors, policy of insurance or otherwise,
both as to action in their official capacity and as to
action in another capacity while holding their respective
offices, and shall not limit in any way any right which the
Corporation may have to make additional indemnifications
with respect to the same or different persons or classes of
persons. The indemnification and advancement of expenses
provided by this Article V shall continue as to a person who
has ceased to serve in an Indemnifiable Capacity and shall
inure to the benefit of the heirs, executors and
administrators of such a person.
5.7 Insurance. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain
insurance on behalf of any person who is or was serving in
an Indemnifiable Capacity against any liability asserted
against such person and incurred by such person in any such
capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to
indemnify such person against such liability under the
provisions of this Article V. Notwithstanding anything in
this Article V to the contrary: (i) the Corporation shall
not be obligated to indemnify any person serving in an
indemnifiable Capacity for any amounts which have been paid
directly to such person by any insurance maintained by the
Corporation; and (ii) any indemnification provided pursuant
to this Article V (A) shall not be used as a source of
contribution to, or as a substitute for, or as a basis for
recoupment of any payments pursuant to, any indemnification
obligation or insurance coverage which is available from any
Other Enterprise, and (B) shall become operative, and
payments shall be required to be made thereunder, only in
the event and to the extent that the amounts in question
have not been fully paid by any indemnification obligation
or insurance coverage which is available from any Other
Enterprise.
5.8 Vesting of Rights. The rights granted or created hereby
shall be vested in each person entitled to indemnification
hereunder as a bargained-for contractual condition of such
person's serving or having served in an Indemnifiable
Capacity and, while this Article V may be amended or
repealed, no such amendment or repeal shall release,
terminate or adversely affect the rights of such person
under this Article V with respect to any act taken or the
failure to take any act by such person prior to such
amendment or repeal or with respect to any action, suit or
proceeding with respect to such act or failure to act filed
after such amendment or repeal.
5.9 Definitions. For purposes of this Article V, references
to:
(a) "the Corporation" shall, if and only if the Board
of Directors so determines, include, in addition to the
resulting or surviving corporation, any constituent
corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority
to indemnify a person who serves in an Indemnifiable
Capacity so that any person who is or was serving in an
Indemnifiable Capacity as to a constituent corporation shall
stand in the same position under the provisions of this
Article V with respect to the resulting or surviving
corporation as such person would if such person had served
the resulting or surviving corporation in the same capacity;
(b) "Other Enterprise" or "Other Enterprises"
shall include, without limitation, any other corporation,
partnership, limited liability company, joint venture,
trust, employee benefit plan or other enterprise;
(c) "fines" shall include any excise taxes
assessed against a person with respect to an employee
benefit plan;
(d) "defense" shall include investigations of any
threatened, pending or completed action, suit or proceeding
as well as appeals thereof and shall also include any
defensive assertion of a cross-claim or counterclaim;
(e) "serving at the request of the Corporation"
shall include any service by a person in an Indemnifiable
Capacity which imposes duties on, or involves services by,
such person with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in
good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interests of the
Corporation" as referred to in this Article V; and
(f) "Indemnifiable Capacity" shall include
service by a person as a director or officer of the
Corporation or, at the Corporation's request, service by a
person as a director, officer, trustee or in any other
comparable position of an Other Enterprise.
For the purpose of this Article V, unless the persons
described by Bylaw 5.4 making a determination as to
indemnification shall determine otherwise, any director or
officer of the Corporation who shall serve as a director,
officer, trustee or in any other comparable position of an
Other Enterprise of which the Corporation, directly or
indirectly, is a shareholder or creditor or in which the
Corporation is in any way interested, shall be presumed to
be serving as such at the request of the Corporation. In all
other instances where any person shall serve as a director,
officer, trustee or in any other comparable position of an
Other Enterprise, if it is not otherwise established that
such person is or was serving at the request of the
Corporation, the persons described by Bylaw 5.4 making a
determination as to indemnification shall determine whether
such person is or was serving at the request of the
Corporation, and it shall not be necessary to show any
actual or prior request for such service, which
determination shall be final and binding on the Corporation
and the person seeking indemnification.
5.10 Severability. If any provision of this Article V or the
application of any such provision to any person or
circumstance is held invalid, illegal or unenforceable for
any reason whatsoever. the remaining provisions of this
Article V and the application of such provision to other
persons or circumstances shall not be affected thereby and,
to the fullest extent possible, the court finding such
provision invalid, illegal or unenforceable shall modify and
construe the provision so as to render it valid and
enforceable as against all persons or entities and to give
the maximum possible protection to persons subject to
indemnification hereby within the bounds of validity,
legality and enforceability. Without limiting the generality
of the foregoing, if any person who is or was serving in an
Indemnifiable Capacity is entitled under any provision of
this Article V to indemnification by the Corporation for
some or a portion of the judgments, amounts paid in
settlement, attorneys' fees, ERISA excise taxes or
penalties, fines or other expenses actually and reasonably
incurred by any such person in connection with any
threatened, pending or completed action, suit or proceeding
(including, without limitation, the investigation, defense,
settlement or appeal of such action, suit or proceeding),
whether civil, criminal, administrative, investigative or
appellate, but not, however, for all of the total amount
thereof, the Corporation shall nevertheless indemnify such
person for the portion thereof to which such person is
entitled.
ARTICLE VI - STOCK
6.1 Payment for Shares of Stock. The Corporation shall not
issue shares of stock of the Corporation except for money
paid, labor done or property actually received or in
consideration of valid bona fide antecedent debts. No note
or obligation given by any shareholder, whether secured by
deed of trust, mortgage or otherwise, shall be considered as
payment of any part or any share or shares, and no loan of
money for the purpose of such payment shall be made by the
Corporation.
6.2 Certificates Representing Shares of Stock. The
certificates representing shares of stock of the Corporation
shall be issued in numerical order and shall be in such form
as may be prescribed by the Board of Directors in conformity
with law. The issuance of shares shall be entered in the
stock books of the Corporation as they are issued. Such
entries shall show the name and address of the person, firm,
partnership, corporation or association to whom each
certificate is issued. Each certificate shall have printed,
typed or written thereon the name or the person, firm,
partnership, corporation or association to whom it is issued
and the number of shares represented thereby. It shall be
signed by the President, an Executive Vice President or a
Vice President and by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer of the Corporation,
and sealed with the seal of the Corporation. Any or all
signatures on such certificate may be facsimiles and the
seal may be facsimile, engraved or printed. In case any such
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any such
certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the Corporation
with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
6.3 Transfers of Shares - Transfer Agent - Registrar.
Transfers of shares of stock shall be made on the stock
record or transfer books of the Corporation only by the
person named in the stock certificate, or by such
shareholder's attorney lawfully constituted in writing, and
upon surrender of the certificate therefor The stock record
book and other transfer records shall be in the possession
of the Secretary or of a transfer agent for the Corporation.
The Corporation, by resolution of the Board of Directors,
may from time to time appoint a transfer agent and, if
desired, a registrar, under such arrangements and upon such
terms and conditions as the Board deems advisable, but until
and unless the Board appoints some other person, firm or
corporation as its transfer agent (and upon the revocation
of any such appointment, thereafter until a new appointment
is similarly made) the Secretary of the Corporation shall be
the transfer agent of the Corporation without the necessity
of any formal action of the Board, and the Secretary, or any
person designated by the Secretary, shall perform all of the
duties of such transfer agent.
6.4 Closing of Transfer Books. The Board of Directors
shall have power to close the stock transfer books of the
Corporation for a period not exceeding seventy (70) days
preceding the date of any meeting of the shareholders, or
the date of payment of any dividend, or the date for the
allotment of rights, or the date when any change or
conversion or exchange of shares shall go into effect;
provided, however, that in lieu of closing the stock
transfer books, the Board of Directors may fix in advance a
date, not exceeding seventy (70) days preceding the date of
any meeting of shareholders, or the date for the payment of
any dividend, or the date for the allotment of rights, or
the date when any change or conversion or exchange of shares
shall go into effect, as a record date for the determination
of the shareholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend, or entitled to any
such allotment of rights, or entitled to exercise the rights
in respect of any such change, conversion or exchange of
shares. In such case only the shareholders who are
shareholders of record on the date of closing of the
transfer books or on the record date so fixed shall be
entitled to notice of, and to vote at, such meeting, and any
adjournment thereof, or to receive payment of such dividend,
or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of
any shares on the books of the Corporation after such date
of closing of the transfer books or such record date fixed
as aforesaid.
6.5 Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate for shares of stock of the
Corporation, another may be issued in its place upon proof
of such loss or destruction and upon the giving of a
satisfactory bond of indemnity to the Corporation and the
transfer agent and registrar, if any, in such sum as the
Board of Directors may provide; provided, however, that a
new certificate may be issued without requiring a bond when
in the judgment of the Board it is proper to do so.
6.6 Regulations. The Board of Directors shall have power
and authority to make all such rules and regulations as it
may deem expedient concerning the issue, transfer,
conversion and registration of certificates for shares of
stock of the Corporation, not inconsistent with the laws of
the State of Missouri, the Articles of Incorporation or
these Bylaws.
ARTICLE VII - CORPORATE FINANCE
7.1 Fixing of Capital - Transfers of Surplus. Except as may
be specifically otherwise provided in the Articles of
Incorporation, the Board of Directors is expressly empowered
to exercise all authority conferred upon it or the
Corporation by any law or statute, and in conformity
therewith, relative to:
(a) determining what part of the consideration
received for shares of the Corporation shall be stated
capital;
(b) increasing or decreasing stated capital;
(c) transferring surplus to stated capital;
(d) transferring stated capital to surplus;
(e) determining the consideration to be received
by the Corporation for its shares; and
(f) determining all similar or related matters;
provided, however, that any concurrent action or consent by
or of the Corporation and its shareholders, required to be
taken or given pursuant to law, shall be duly taken or given
in connection therewith.
7.2 Dividends.
(a) Dividends on the outstanding shares of the
Corporation, subject to the provisions of the Articles of
Incorporation and any applicable law, may be declared by the
Board of Directors at any meeting. Dividends may be paid in
cash, property or shares of the Corporations stock.
(b) Liquidating dividends or dividends
representing a distribution of paid-in surplus or a return
of capital shall be made only when and in the manner
permitted by law.
(c) A member of the Board of Directors shall be
fully protected in relying in good faith upon the books of
account of the Corporation or statements prepared by any of
the Corporation's officials as to the value and amount of
the assets, liabilities and earnings of the Corporation, or
any facts pertinent to the existence and amount of surplus
or other funds from which dividends might properly be
declared and paid.
7.3 Creation of Reserves. Before the payment of any
dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the
Board of Directors from time to time deems proper as a
reserve fund or funds to meet contingencies or for
equalizing dividends, repairing or maintaining any property
of the Corporation or any other purpose deemed by the Board
to be conducive to the interests of the Corporation, and the
Board may abolish any such reserve in the manner in which it
was created.
ARTICLE VIII - GENERAL PROVISIONS
8.1 Fiscal Year. The Board of Directors shall have power to
fix and from time to time change the fiscal year of the
Corporation. In the absence of action by the Board, the
fiscal year of the Corporation shall end each year on the
date which the Corporation treated as the close of its first
fiscal year, until such time, if any, as the fiscal year
shall be changed by the Board.
8.2 Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and the words:
"Corporate Seal - Missouri." The corporate seal may be used
by causing it, or a facsimile thereof, to be impressed or
affixed or in any manner reproduced. As provided in section
(c) of Bylaw 4.10, the Secretary of the Corporation shall
have the authority to affix and attest the corporate seal.
The Board of Directors may give general authority to any
other officer of the Corporation to affix the corporate seal
and, when so affixed, to attest the seal by such officer's
signature.
8.3 Depositories. The moneys of the Corporation shall be
deposited in the name of the Corporation in such bank or
banks or other depositories as the Board of Directors shall
designate, and shall be drawn out only by check or draft
signed by persons designated by resolution adopted by the
Board. Notwithstanding the foregoing, the Board may by
resolution authorize an officer or officers of the
Corporation to designate any bank or banks or other
depositories in which moneys of the Corporation may be
deposited, and to designate the persons who may sign checks
or drafts on any particular account or accounts of the
Corporation, whether created by direct designation of the
Board or by an authorized officer or officers as aforesaid.
8.4 Contracts with Officers or Directors or Their
Affiliates.
(a) No contract or transaction between the Corporation
and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership,
association or other organization in which one or more of
its directors or officers are directors or officers, or have
a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of
Directors or any committee thereof which authorizes the
contract or transaction, or solely because such persons or
their votes are counted for such purpose, if:
(i) The material facts as to such person's
relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of
Directors or such committee and the Board or such
committee in good faith authorized the contract or
transaction by the affirmative vote of a majority of
the disinterested directors, even though the
disinterested directors be less than a quorum; or
(ii) The material facts as to such person's
relationship or interest and as to the contract or
transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith
by vote of the shareholders: or
(iii) The contract or transaction is fair as to
the Corporation as of the time it is authorized or
approved by the Board of Directors, a committee
thereof, or the shareholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the
Board of Directors or a committee which authorizes the
contract or transaction.
8.5 Amendments. Except as may be specified in Article V of
these Bylaws, these Bylaws may from time to time be altered,
amended or repealed, or new Bylaws may be adopted, in the
manner provided in the Articles of Incorporation or by law.
8.6 Issuing Public Corporation; Control Share Acquisitions.
Unless the Articles of Incorporation otherwise provide, this
Corporation is an "issuing public corporation" for purposes
of Section 351.015 of The General and Business Corporation
Law of Missouri and any "control share acquisition," as
defined in Section 351.015 of The General and Business
Corporation Law of Missouri, of the shares of this
Corporation must be made in the manner provided by Section
351.407 of The General and Business Corporation Law of
Missouri and other applicable laws.
Exhibit 10.6.2
AMENDMENT TO TEMPORARY BLUE CROSS LICENSE AGREEMENT
Blue Cross and Blue Shield Association ("BCBSA") and the Blue
Cross Plan, known as Blue Cross and Blue Shield of Missouri (the
"Plan'), hereby agree to amend the Temporary Blue Cross License
Agreement dated February 7, 1997 between them by adding the
following as paragraph 7:
"7. In the event that this Temporary License terminates by
reason of paragraph 5(i), the Temporary Blue Cross License
Agreement attached hereto as Exhibit B shall immediately and
automatically take effect."
IN WITNESS WHEREOF, the parties have caused this Amendment to the
Temporary Blue Cross License Agreement to be executed, effective
as of the date of the last signature written below:
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ Patrick G. Hays
Title: President & CEO
Date: October 24, 1997
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ John A. O'Rourke
Title: President and Chief Executive Officer
Date: October 23, 1997
EXHIBIT B
TEMPORARY BLUE CROSS LICENSE AGREEMENT
This agreement is by and between Blue Cross and Blue
Shield Association ("BCBSA") and the Blue Cross Plan, known as
Blue Cross and Blue Shield of Missouri (the "Plan").
Preamble
WHEREAS, BCBSA is the owner of the BLUE CROSS and the
BLUE CROSS Design service marks (collectively the "Licensed
Marks");
WHEREAS, the Plan has had the right to use the Licensed
Marks as service marks for health care plans in its service area
and the right to use BLUE CROSS in its trade and/or corporate
name (the "Licensed Name");
WHEREAS, BCBSA informed the Plan that the Plan's Blue
Cross License Agreement automatically terminated as a result of
claims made in certain litigation (the "Litigation") pending
among and between the Plan; Jay Angoff in his official capacity
as Director of the Missouri Department of Insurance; and Jeremiah
"Jay" Nixon, in his official capacity as the Attorney General of
the State of Missouri (the "Automatic Termination");
WHEREAS, the Plan has told BCBSA that (i) the Plan
believes that the Litigation has not triggered the automatic
termination provisions of the Plan's Blue Cross License Agreement
and it contends that its Blue Cross License Agreement remains in
full force and effect; and (ii) to clarify its right to continue
to use the Licensed Marks and Licensed Name, the Plan wishes to
receive, and is willing to accept benefits and rights under, this
Temporary Blue Cross License Agreement;
WHEREAS, the Plan has been operating under a temporary
Blue Cross license,
WHEREAS, BCBSA has determined that it is in the best
interest of the Licensed Marks, BCBSA, and its member Plans to
grant the Plan this new temporary Blue Cross license;
NOW THEREFORE, in consideration of the foregoing and
the mutual agreements hereinafter set forth and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Agreement
1. BCBSA grants the Plan the temporary right to use the
Licensed Name in its trade and/or corporate name and the
temporary right to use the Licensed Marks in the sale, marketing,
and administration of health care plans and related services in
its licensed service area under the terms and conditions of this
Temporary Blue Cross License Agreement ("Temporary License").
This Temporary License shall incorporate the terms, covenants,
conditions, and licensed service area of the Plan's Blue Cross
License Agreement (the "Full License"), a copy of which is
attached as Exhibit A, provided that paragraphs one through seven
of this Temporary License shall control to the extent they
conflict with any terms, conditions, or covenants of the Full
License. The terms "Agreement" and "License Agreement" as used
in the Full License shall be construed to include this Temporary
License.
2. This Temporary License supersedes and replaces in its
entirety the Plan's previous temporary license, which is
canceled.
3. So long as the Plan remains a licensee pursuant to any Blue
Cross license, the Plan shall not bring any claims, causes of
action, actions, suits, or demands whatsoever against BCBSA or
any of its Member Plans, whether at law or equity, whether in
judicial, arbitral, or alternative fora, and whether known or
unknown, that the Plan now has or may have had on behalf of
itself or any other person or entity at any time prior to and
including the date of this Temporary License, or hereafter shall
or may have or claim to have, arising out of or in any way
related to the Automatic Termination or any actions contemplated
or taken herein or related thereto.
4. The Plan covenants and warrants that during the term of this
Temporary License: (i) apart from the Litigation, it is in compliance
with all, and has no plans to engage in conduct that would violate
any, BCBSA rules and regulations, including all provisions of
this Temporary License; and (ii) there is no imminent risk of
dissolution of the Plan or of the appointment of a trustee,
interim trustee, receiver, or other custodian for any of the
Plan's business or property. If BCBSA in good faith determines
that there is an unacceptable risk of dissolution of the Plan or
of the appointment of a trustee, interim trustee, receiver, or
other custodian for any of the Plan's business or property,
BCBSA, upon reasonable notice and after affording the Plan an
opportunity to be heard, may terminate this Temporary License
pursuant to a vote of the BCBSA Board of Directors.
5. During the term of this Temporary License, the Plan shall
provide to BCBSA's General Counsel: (i) reasonable notice of all
court hearing in the Litigation; (ii) copies of all documents
filed by any party in the Litigation; and (iii) written reports
on the status of the Litigation. Both the frequency and content
of these written reports shall be determined by BCBSA's General
Counsel. The Plan shall also provide BCBSA's General Counsel
with such other information about the Litigation as he may
reasonably request.
6. The provisions of paragraph 15(d)(i) of the Full License
related to notice to customers, and the provisions of paragraph
15(d)(iii) of the Full License related to the re-establishment
fee, shall not apply as to the Automatic Termination or to the
termination of the Plan's previous temporary license so long as
the Plan remains a licensee pursuant to any Blue Cross license.
7. If not previously terminated, this Temporary License shall
automatically terminate at the conclusion of the next meeting of
the BCBSA Board of Directors that takes place more than fourteen
(14) days after the effective date of this Temporary License.
All provisions for termination of this Temporary License that
require a vote of the BCBSA Board of Directors shall be as
prescribed in Article VI, Section 5 of the BCBSA Bylaws in effect
as of the effective date of this Temporary License. -This
paragraph shall constitute notice that this Temporary License
will terminate at the conclusion of the next meeting of the BCBSA
Board of Directors that takes place more than fourteen (14) days
after the effective date of this Temporary License.
IN WITNESS WHEREOF, the parties have caused this Temporary Blue
Cross License Agreement to be executed.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ Patrick G. Hays
Title: President and CEO
Date: October 24, 1997
BLUE CROSS AND SHIELD OF MISSOURI
By: /s/ John A. O'Rourke
Title: President and Chief Executive Officer
Date: October 23, 1997
Exhibit 10.7.2
AMENDMENT TO TEMPORARY BLUE SHIELD LICENSE AGREEMENT
Blue Cross and Blue Shield Association ("BCBSA") and the Blue
Shield Plan, known as Blue Cross and Blue Shield of Missouri (the
"Plan'), hereby agree to amend the Temporary Blue Shield License
Agreement dated February 7, 1997 between them by adding the
following as paragraph 7:
"7. In the event that this Temporary License terminates by
reason of paragraph 5(i), the Temporary Blue Shield License
Agreement attached hereto as Exhibit B shall immediately and
automatically take effect."
IN WITNESS WHEREOF, the parties have caused this Amendment to the
Temporary Blue Shield License Agreement to be executed, effective
as of the date of the last signature written below:
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ Patrick G. Hays
Title: President & CEO
Date: October 24, 1997
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ John O'Rourke
Title: President & Chief Executive Officer
Date: October 20, 1997
EXHIBIT B
TEMPORARY BLUE SHIELD LICENSE AGREEMENT
This agreement is by and between Blue Cross and Blue
Shield Association ("BCBSA") and the Blue Shield Plan, known as
Blue Cross and Blue Shield of Missouri (the "Plan").
Preamble
WHEREAS, BCBSA is the owner of the BLUE SHIELD and the
BLUE SHIELD Design service marks (collectively the "Licensed
Marks");
WHEREAS, the Plan has had the right to use the Licensed
Marks as service marks for health care plans in its service area
and the right to use BLUE SHIELD in its trade and/or corporate
name (the "Licensed Name");
WHEREAS, BCBSA informed the Plan that the Plan's Blue
Shield License Agreement automatically terminated as a result of
claims made in certain litigation (the "Litigation") pending
among and between the Plan; Jay Angoff in his official capacity
as Director of the Missouri Department of Insurance; and Jeremiah
"Jay" Nixon, in his official capacity as the Attorney General of
the State of Missouri (the "Automatic Termination");
WHEREAS, the Plan has told BCBSA that (i) the Plan
believes that the Litigation has not triggered the automatic
termination provisions of the Plan's Blue Shield License
Agreement and it contends that its Blue Shield License Agreement
remains in full force and effect: and (ii) to clarify its right
to continue to use the Licensed Marks and Licensed Name, the Plan
wishes to receive, and is willing to accept benefits and rights
under, this Temporary Blue Shield License Agreement;
WHEREAS, the Plan has been operating under a temporary
Blue Shield license,
WHEREAS, BCBSA has determined that it is in the best
interest of the Licensed Marks, BCBSA, and its member Plans to
grant the Plan this new temporary Blue Shield license;
NOW THEREFORE, in consideration of the foregoing and
the mutual agreements hereinafter set forth and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
Agreement
1. BCBSA grants the Plan the temporary right to use the
Licensed Name in its trade and/or corporate name and the temporary
right to use the Licensed Marks in the sale, marketing, and
administration of health care plans and related services in its
licensed service area under the terms and conditions of this
Temporary Blue Shield License Agreement ("Temporary License").
This Temporary License shall incorporate the terms, covenants,
conditions, and licensed service area of the Plan's Blue Shield
License Agreement (the "Full License"), a copy of which is
attached as Exhibit A, provided that paragraphs one through seven
of this Temporary License shall control to the extent they
conflict with any terms, conditions, or covenants of the Full
License. The terms "Agreement" and "License Agreement" as used
in the Full License shall be construed to include this Temporary
License.
2. This Temporary License supersedes and replaces in its
entirety the Plan's previous temporary license, which is
canceled.
3. So long as the Plan remains a licensee pursuant to any Blue
Shield license, the Plan shall not bring any claims, causes of
action, actions, suits, or demands whatsoever against BCBSA or
any of its Member Plans, whether at law or equity, whether in
judicial, arbitrage, or alternative fora, and whether known or
unknown, that the Plan now has or may have had on behalf of
itself or any other person or entity at any time prior to and
including the date of this Temporary License, or hereafter shall
or may have or claim to have, arising out of or in any way
related to the Automatic Termination or any actions contemplated
or taken herein or related thereto.
4. The Plan covenants and warrants that during the term of this
Temporary License: (i) apart from the Litigation, it is in
compliance with all, and has no plans to engage in conduct that
would violate any, BCBSA rules and regulations, including all
provisions of this Temporary License; and (ii) there is no imminent
risk of dissolution of the Plan or of the appointment of a trustee,
interim trustee, receiver, or other custodian for any of the
Plan's business or property. If BCBSA in good faith determines
that there is an unacceptable risk of dissolution of the Plan or
of the appointment of a trustee, interim trustee, receiver, or
other custodian for any of the Plan's business or property,
BCBSA, upon reasonable notice and after affording the Plan an
opportunity to be heard, may terminate this Temporary License
pursuant to a vote of the BCBSA Board of Directors.
5. During the term of this Temporary License, the Plan shall
provide to BCBSA's General Counsel: (i) reasonable notice of all
court hearings in the Litigation; (ii) copies of all documents
filed by any party in the Litigation; and (iii) written reports
on the status of the Litigation. Both the frequency and content
of these written reports shall be determined by BCBSA's General
Counsel. The Plan shall also provide BCBSA's General Counsel
with such other information about the Litigation as he may
reasonably request.
6. The provisions of paragraph 15(d)(i) of the Full License
related to notice to customers, and the provisions of paragraph 1
5(d)(iii) of the Full License related to the re-establishment
fee, shall not apply as to the Automatic Termination or to the
termination of the Plan's previous temporary license so long as
the Plan remains a licensee pursuant to any Blue Shield license.
7. If not previously terminated, this Temporary License shall
automatically terminate at the conclusion of the next meeting of
the BCBSA Board of Directors that takes place more than fourteen
(14) days after the effective date of this Temporary License.
All provisions for termination of this Temporary License that
require a vote of the BCBSA Board of Directors shall be as
prescribed in Article VI, Section 5 of the BCBSA Bylaws in effect
as of the effective date of this Temporary License. -This
paragraph shall constitute notice that this Temporary License
will terminate at the conclusion of the next meeting of the BCBSA
Board of Directors that takes place more than fourteen (1 4) days
after the effective date of this Temporary License.
IN WITNESS WHEREOF, the parties have caused this Temporary Blue
Shield License Agreement to be executed.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: /s/ Patrick G. Hays
Title: President and CEO
Date: October 24, 1997
BLUE CROSS AND BLUE SHIELD OF MISSOURI
By: /s/ John O'Rourke
Title: President and Chief Executive Officer
Date: October 20, 1997
Exhibit 10.36.6
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Sixth
Amendment"), dated as of September 30, 1997, is entered into
by and among RIGHTCHOICE MANAGED CARE, INC. (the "Company"),
the several financial institutions party hereto (the
"Banks"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as administrative agent for itself and the
Banks (the "Administrative Agent") and NATIONSBANK, N.A.,
the successor to The Boatman's National Bank of St. Louis,
as co-agent for the Banks (the "Co-Agent"), and amends the
Credit Agreement dated as of August 10, 1995 among the
Company, the Banks, the Administrative Agent and the Co-
Agent, as amended by a First Amendment to Credit Agreement
dated as of November 14, 1995, a Consent and Second
Amendment to Credit Agreement dated as of December 29, 1995,
a Third Amendment to Credit Agreement dated as of August 9,
1996, a Fourth Amendment to Credit Agreement dated as of
November 13, 1996 and a Fifth Amendment to Credit Agreement
dated as of February 11, 1997 (as so amended, the
"Agreement").
RECITAL
The Company has requested that the Agreement be amended
on the terms and conditions set forth herein, and the Banks,
the Administrative Agent and the Co-Agent are willing to do
so.
NOW, THEREFORE, for valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Terms. All terms used herein shall have the
same meaning as in the Agreement unless otherwise defined
herein. All references to the Agreement shall mean the
Agreement as hereby amended.
2. Amendatory Provisions to Agreement. The
parties hereto agree that the Agreement is hereby amended as
follows:
(a) The definition of the term "Applicable
Margin" in Section 1.1 of the Agreement is amended and
restated in its entirety to read as follows:
"Applicable Margin" means, in the case of Loans
bearing interest at the Offshore Rate, 2.75% (or 275
basis points) and, in the case of Loans bearing
interest at the Base Rate, 1.75% (or 175 basis points).
(b) The definition of the term "Consolidated
Capital Expenditures" in Section 1.1 of the Agreement is
amended and restated in its entirety to read as follows:
"Consolidated Capital Expenditures" means, for any
period, the capital expenditures of the Company and its
Subsidiaries for such period, as the same are (or would
in accordance with GAAP be) set forth in the
consolidated statement of cashflow of the Company and
its Subsidiaries for such period.
(c) The definition of the term "EBITDA" in
Section 1.1 of the Agreement is amended and restated in its
entirety to read as follows:
"EBITDA" means, with respect to the Company and
its Subsidiaries for any applicable period, Net Income
for such period, plus, to the extent deducted in
determining Net Income for such period, the aggregate
amount of (i) Interest Expense; (ii) federal, state,
and local and foreign income taxes; (iii) depletion,
depreciation, and amortization of tangible and
intangible assets; (iv) solely with respect to the
Company's fiscal years ending December 31, 1996 and
1997, up to an aggregate of $7,000,000 of one-time
expenses incurred in connection with the relocation of
the Company's service center; and (v) the charge taken
by the Company during the fiscal quarter ending
September 30, 1997 for accruing a loss reserve in an
amount not to exceed $30,000,000 for the Missouri
Consolidated Health Care Plan ("MCHCP"), and less, (i)
the amount of any loss reserve amortization of this
MCHCP reserve during the applicable period and (ii) any
gain resulting from the reversal of any loss recorded
by the Company in connection with its pending
litigation with MCHCP.
(d) The definition of the term "Interest Payment
Date" in Section 1.1 of the Agreement is amended and
restated in its entirety to read as follows:
"Interest Payment Date" means, as to any Loan
other than a Base Rate Loan, the last day of each
Interest Period applicable to such Loan and, as to any
Base Rate Loan, the last Business Day of each calendar
month.
(e) The definition of the term "Interest Period"
in Section 1.1 of the Agreement is amended and restated in
its entirety to read as follows:
"Interest Period" means, as to any Offshore Rate
Loan, the period commencing on the Borrowing Date of
such Loan or on the Conversion/Continuation Date on
which the Loan is converted into or continued as an
Offshore Rate Loan, and ending on the date one month
thereafter;
provided that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall
be extended to the following Business Day unless, in the
case of an Offshore Rate Loan, the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
preceding Business Day;
(ii) any Interest Period pertaining to an Offshore
Rate Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Loan shall
extend beyond August 10, 2000.
(f) The definition of the term "Net Cash
Proceeds" in Section 1.1 of the Agreement is amended and
restated in its entirety to read as follows:
"Net Cash Proceeds" means with respect to any
Equity Issuance involving an offering of the securities
of the Company or any issuance by the Company or any
Subsidiary of debt securities, the excess of (i) the
gross cash proceeds received by such Person as a result
of such Equity Issuance or debt issuance over (ii) all
reasonable fees and expenses (including underwriting
discounts and legal, investment banking and accounting
and other professional fees) and disbursements actually
incurred in connection therewith.
(g) There shall be added to Section 1.1 of the
Agreement, in appropriate alphabetical sequence, a new
definition reading in its entirety as follows:
"Net Sales Proceeds" means with respect to any
sale or disposition of property by the Company or its
Subsidiaries, the excess of (i) the gross cash proceeds
received by the Company or such Subsidiary as a result
of such sale or disposition over (ii) all reasonable
fees and expenses (including underwriting discounts and
legal, investment banking and accounting and other
professional fees) and disbursements actually incurred
in connection therewith.
(h) Schedule 2.1 of the Agreement is amended and
restated in its entirety to read as set forth on Schedule
2.1 hereto.
(i) Immediately following the caption of Section
2.7 of the Agreement and before the beginning of the
existing text, there shall be added the following: "(a)".
The chart appearing in Section 2.7(a) of the Agreement is
amended and restated in its entirety to read as follows:
Date Maximum Commitment
October 1, 1997 $ 50,000,000
March 31, 1998 $ 48,750,000
June 30, 1998 $ 47,500,000
September 30, 1998 $ 46,250,000
December 31, 1998 $ 45,000,000
March 31, 1999 $ 42,500,000
June 30, 1999 $ 40,000,000
September 30, 1999 $ 37,500,000
December 31, 1999 $ 35,000,000
March 31, 2000 $ 32,500,000
June 30, 2000 $ 30,000,000
August 10, 2000 $ 0
(j) Immediately following Section 2.7(a) of the
Agreement, there shall be added the following:
"(b) There shall be a mandatory reduction of the
Commitments in the amounts set forth below not later
than one Business Day after the Company or any of its
Subsidiaries receives proceeds from any of the
following:
(i) all Net Sales Proceeds from any
sale or disposition by the Company or any of its
Subsidiaries of any property to the extent
required under Section 7.3(d) and Section 7.3(e);
(ii) all Net Cash Proceeds from any
Equity Issuance by the Company or any Subsidiary
(including without limitation, any Equity Issuance
to Blue Cross and Blue Shield of Missouri);
(iii) all Net Cash Proceeds received
by the Company or any Subsidiary from any issuance
of any debt securities or instruments permitted
hereunder (including without limitation, any debt
securities or instruments issued in favor of Blue
Cross and Blue Shield of Missouri but excluding
any indebtedness permitted pursuant to Section
7.6);
(iv) subject to applicable law and
restrictions, all indefeasible payments received
by the Company or any Subsidiary from the
settlement of, or prosecution of, the pending
litigation by the Company against MCHCP, net of
all reasonable fees and expenses (including legal,
accounting and other professional fees) and
disbursements actually incurred in connection
therewith; and
(v) all proceeds received by the Company
from the repayment by a Subsidiary of the Company
of any "surplus or contribution notes," as such
terms are defined in Chapter 375 of Title XXIV of
the Missouri statutes.
All such mandatory reductions of the Commitments shall
be applied to scheduled commitment reductions set forth
in Section 2.7 in the inverse order of maturity."
(k) Subsection (a) of Section 2.9 of the
Agreement is amended and restated in its entirety to read as
follows:
"(a) Each Loan shall bear interest on the
outstanding principal amount thereof from the
applicable Borrowing Date at a rate per annum equal to
the Offshore Rate or the Base Rate, as the case may be
(and subject to the Company's right to convert to other
Types of Loans under Section 2.4), plus, in each case,
the Applicable Margin."
(l) Subsection (b) of Section 2.10 of the
Agreement is amended and restated in its entirety to read as
follows:
"(b) Commitment Fees. The Company shall pay to
the Administrative Agent for the account of each Bank a
commitment fee on the average daily unused portion of
such Bank's Commitment, computed on a quarterly basis
in arrears on the last Business Day of each calendar
quarter, at a rate per annum equal to .50%. Such
commitment fee shall accrue and be payable quarterly in
arrears on the last Business Day of each June,
September, December and March through the Termination
Date, with the final payment to be made on the
Termination Date; provided that, in connection with any
reduction or termination of Commitments under Section
2.5 or Section 2.7, the accrued commitment fee
calculated for the period ending on such date shall
also be paid on the date of such reduction or
termination, with the immediately following quarterly
payment being calculated on the basis of the period
from such reduction or termination date to such
quarterly payment date. The commitment fees provided
in this subsection shall accrue at all times, including
at any time during which one or more conditions in
Article IV are not met."
(m) Section 6.1(b) of the Agreement is hereby
amended (i) by adding "and consolidating" after the word
"consolidated" in the fourth and sixth lines thereof and
(ii) by deleting the word "and" at the end thereof.
(n) Section 6.1(c) of the Agreement is hereby
amended by adding the following clause immediately prior to
the end thereof: ", copies of all financial statements for
such fiscal year filed by the Company or any Subsidiary with
any Governmental Authority and a copy of the reconciliation
by the Independent Auditor of the annual consolidated
financial statements described in clause (a) above with the
consolidating financial statements described in this clause
(c)."
(o) Section 6.1(d) of the Agreement is hereby
amended by deleting "statement of income" from the fifth
line thereof and substituting therefor "statements of income
and cash flows".
(p) Section 6.2(d) of the Agreement is hereby
amended by replacing the period at the end thereof with a
semicolon.
(q) There shall be added to the Agreement a new
Section 6.1(e) reading in its entirety as follows:
"(e) promptly after request by the Administrative
Agent or any Bank, copies of any detailed audit
reports, management letters or recommendations
submitted to the board of directors (or the audit
committee of the board of directors) of the Company by
its independent public accountants in connection with
the accounts or books of the Company or any of its
Subsidiaries, or any audit of any of them (except for
information submitted by such accountants in connection
with litigation involving the Company or any of its
Subsidiaries);
(r) There shall be added to the Agreement a new
Section 6.1(f) reading in its entirety as follows:
"(f) of the failure of the Company or any
Subsidiary to meet the applicable minimum capital
benchmark requirements of Blue Cross and Blue Shield."
(s) There shall be added to the Agreement a new
Section 6.2(f) reading in its entirety as follows:
"(f) as soon as available and in any event within
10 days after the end of each month, copies of all
publicly available documents in connection with the
litigation between the Missouri Department of Insurance
(the "DOI") and Blue Cross and Blue Shield of Missouri
described in the Company's 1996 Annual Report, the
pending litigation between the Company and MCHCP and
any other material litigation affecting the Company or
any of its Subsidiaries for which the Majority Banks
shall have requested such information."
(t) Section 6.3 of the Agreement is hereby
amended by adding thereto the following paragraph
immediately prior to the end thereof:
"Not less than ten days prior to the consummation
of any acquisition or Investment otherwise permitted by
Sections 7.5(d) or (e) hereof, (i) the Company shall
deliver to the Administrative Agent: (A) a written
description of such acquisition or Investment; and (B)
if requested by the Administrative Agent, copies of all
agreements and Governmental Approvals relating to such
acquisition or Investment and (ii) the Company shall
calculate and deliver to the Administrative Agent, a
certificate demonstrating compliance with the covenants
set forth in Section 7.5 on a proforma basis as though
such transaction had been consummated on the first day
of the Fiscal Quarter immediately prior to the date of
determination."
(u) Section 7.1(b) of the Agreement is amended
and restated in its entirety to read as follows:
"(b) At any time, its Adjusted Net Worth to be
less than the sum of (i) $125,000,000, plus (ii) 75% of
Net Income since September 30, 1997 to the extent the
same is a positive amount, plus (iii) 100% of the Net
Cash Proceeds of any Equity Issuance occurring after
September 30, 1997."
(v) Section 7.1(c) of the Agreement is amended
and restated in its entirety as follows:
"(c) At any time during the following periods, its
Debt to EBITDA Ratio to exceed the ratio set forth
below opposite such period:
Maximum
Period Permitted Ratio
9/30/97 - 12/31/97 2.85 to 1.00
1/01/98 - 3/31/98 7.00 to 1.00
4/01/98 - 6/30/98 7.00 to 1.00
7/01/98 - 9/30/98 5.10 to 1.00
10/01/98 - 12/31/98 4.00 to 1.00
1/01/99 - 3/31/99 3.15 to 1.00
4/01/99 - 6/30/99 2.50 to 1.00
7/01/99 and thereafter 2.00 to 1.00
(w) Section 7.1(d) of the Agreement is amended
and restated in its entirety as follows:
"(d) As of the end of any fiscal quarter of the
Company, its Fixed Charge Coverage Ratio to be less
than the ratio set forth below opposite such quarter:
Fiscal Minimum
Quarter Ended Permitted Ratio
9/30/97 1.40 to 1.00
12/31/97 1.40 to 1.00
3/31/98 0.80 to 1.00
6/30/98 0.75 to 1.00
9/30/98 1.00 to 1.00
12/31/99 1.10 to 1.00
3/31/99 1.25 to 1.00
6/30/99 1.45 to 1.00
9/30/99 1.50 to 1.00
12/31/99 1.55 to 1.00
3/31/00 1.75 to 1.00
6/30/00 and Thereafter 2.00 to 1.00
(x) Section 7.2 (j) of the Agreement is hereby amended
by deleting the figure "$5,000,000" and replacing it with
the figure "$1,000,000".
(y) Section 7.2(n) of the Agreement is hereby amended
by adding the following clause at the end thereof :
"provided that the aggregate face amount of such Letters of
Credit shall in no event exceed $1,000,000."
(z) Section 7.3 of the Agreement is amended and
restated in its entirety to read as follows:
"7.3 Disposition of Assets. The Company shall
not, and shall not suffer or permit any Subsidiary to,
directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a
series of transaction) any property (including accounts
and notes receivable, with or without recourse) or
enter into any agreement to do any of the foregoing,
except for the following ("Permitted Asset
Dispositions"):
(a) dispositions permitted by Section 7.2 or
Section 7.11(c);
(b) dispositions of inventory, or used, worn-out
or surplus equipment, all in the ordinary course of
business;
(c) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase
price of similar replacement equipment, or the proceeds
of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(d) dispositions of property by the Company or
any Subsidiary to the Company or to any Wholly-Owned
Subsidiary pursuant to reasonable business
requirements; provided that such dispositions are
conducted on an arms' length basis and for
consideration of cash, Marketable Securities or a
combination thereof and, to the extent such
consideration is received by the Company and not used
as set forth in Section 7.3(c), it is applied to reduce
the Commitments pursuant to Section 2.7(b); and
(e) dispositions not otherwise permitted
hereunder which are made for fair market value;
provided, that (i) at the time of any disposition no
Event of Default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such
disposition shall be paid in cash, and (iii) to the
extent that Net Sales Proceeds of all assets sold by
the Company and its Subsidiaries from October 1, 1997
through the Termination Date and to which this Section
7.3(e) applies exceed $2,000,000, such excess shall be
applied to reduce the Commitments pursuant to Section
2.7(b)."
(aa) Section 7.5(c) of the Agreement is amended by
adding the following clause at the end thereof: "provided
that except for extensions of credit in the ordinary course
of business and consistent with the Company's historical
practices, all such extensions of credit must be permitted
by Section 7.6(f) and provided, further, that both
immediately before and immediately after giving effect
thereto no Default exists hereunder;"
(bb) Section 7.5(d) of the Agreement is amended and
restated in its entirety to read as follows:
(d) investments incurred in order to consummate
Acquisitions; provided that (i) the amount of
investment by the Company or its Subsidiaries with
respect to any such Acquisition, together with the
amount of investment by the Company with respect to all
prior Acquisitions undertaken by the Company and its
Subsidiaries from October 1, 1997 (x) through December
31, 1998 shall not exceed $2,500,000 in total
consideration and (y) through the Termination Date
shall not exceed $5,000,000 in total consideration,
(ii) such Acquisitions are undertaken in accordance
with all applicable Requirements of Law and both before
and after giving effect thereto no Default exists
hereunder (including, without limitation, on a pro
forma basis, under Section 7.1 hereof); and (iii) the
prior, effective written consent or approval to such
Acquisition of the board of directors or equivalent
governing body of the acquiree is obtained; or
(cc) Section 7.5(e) of the Agreement is amended and
restated in its entirety to read as follows:
(e) investments in Joint Ventures from October 1,
1997 (i) through December 31, 1998 not to exceed
$1,000,000 in the aggregate and (ii) through the
Termination Date not to exceed $2,000,000 in the
aggregate;
(dd) Section 7.6(d) of the Agreement is hereby amended
by deleting the figure "$5,000,000" and replacing it with
the figure "$1,000,000".
(ee) Section 7.6(f) of the Agreement is hereby amended
and restated in its entirety to read as follows:
"(f) (i) indebtedness of any Subsidiary to the
Company outstanding as of October 1, 1997, (ii) up to
$30,000,000 of additional indebtedness of the Company's
Subsidiaries to the Company incurred from October 1,
1997 through December 31, 1997 and (iii) up to (x)
$10,000,000 of additional indebtedness of the Company's
Subsidiaries to the Company plus (y) any unused portion
of the availability under clause (ii) above, incurred
at any time thereafter; provided, however, that no
indebtedness permitted by clauses (ii) and (iii) shall
be incurred by a Subsidiary except to the extent
necessary to meet regulatory capital requirements or
capital requirements of Blue Cross and Blue Shield; and
(ff) Section 7.9 of the Agreement is hereby amended by
deleting the period at the end of clause (d) thereof and
replacing it with "; and" and by adding a new clause (e)
immediately thereafter reading in its entirety as follows:
"(e) the guarantee by the Company of up to
$1,500,000 of the indebtedness of HealthCare
Interchange Inc. outstanding as of September 30, 1997."
(gg) Section 7.11(e) of the Agreement is hereby amended
and restated in its entirety to read as follows:
"[intentionally deleted]".
(hh) Section 7.12 of the Agreement is hereby amended
(i) by deleting the semicolon and "and" at the end of the
clause (b) thereof and substituting a period therefor and
(ii) by deleting clause (c) in its entirety.
(ii) Section 7.17(a) of the Agreement is hereby amended
and restated to read in its entirety as follows:
(a) The Company shall not, and shall not suffer
or permit any Subsidiary to, make Consolidated Capital
Expenditures (excluding any capital expenditures with
respect to the development of a comprehensive
information and operations strategy ("IOS Project")) in
any fiscal year of the Company in excess of the amount
set forth below for such fiscal year:
Year Maximum Capital Expenditures (Non IOS)
1997 $1,500,000 plus all capital expenditures made
through 9/30/97
1998 $3,200,000
1999 $3,400,000
2000 $3,500,000; and
the Company shall not, and shall not suffer or permit
any Subsidiary to, make Consolidated Capital
Expenditures with respect to the IOS Project in any
fiscal year of the Company in excess of the amount set
forth below for such fiscal year:
Year Maximum IOS Capital Expenditures
1997 $ 6,500,000 plus all IOS capital expenditures
made through 9/30/97
1998 $10,000,000
1999 $ 4,500,000
2000 $ 4,500,000
provided, however, that to the extent that the
Consolidated Capital Expenditures in any year are less
than the maximum Consolidated Capital Expenditures
permitted by the schedules set forth above, such unused
portion may be carried over by the Company to the
following year of the applicable schedule.
(jj) Section 7.17(b) of the Agreement is hereby
deleted.
(kk) Section 8.1(l) of the Agreement is hereby amended
by inserting the phrase "(including, without limitation, the
license to use the "Blue Cross" and "Blue Shield" names)
after the word "franchise" in the fifth line thereof.
(ll) Section 8.1 of the Agreement is amended by
replacing the period at the end of subsection (o) thereof
with "; or" and adding the following subsection immediately
thereafter:
"(p) Reserve Default. The Company or any
Subsidiary thereof fails to meet the applicable minimum
statutory reserve requirements of the State of Missouri
or the Company or any Subsidiary thereof fails to meet
the applicable minimum capital benchmark requirements
of Blue Cross and Blue Shield and, in the latter case,
such deficiency shall not be cured within 45 days after
the occurrence thereof."
(mm) Section 10.4 of the Agreement is hereby amended
and restated in its entirety to read as follows:
"10.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions
contemplated hereby are consummated, pay or reimburse
BofA (including in its capacity as Administrative
Agent) within five Business Days after demand (subject
to subsection 4.1(e)) for all costs and expenses
incurred by BofA (including in its capacity as
Administrative Agent) and each Bank in connection with
the development, preparation, delivery, administration
and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or
therewith, and the consummation of the transaction
contemplated hereby and thereby including reasonable
Attorney Costs and reasonable fees and costs of Other
Professionals incurred by BofA (including in its
capacity as Administrative Agent) with respect thereto;
and; provided, however, prior to the occurrence of an
Event of Default, (i) Other Professionals shall be
retained only at the request of Majority Banks, (ii)
the selection of such Other Professionals and their
role shall be mutually acceptable to the Company and
the Administrative Agent and (iii) the Company's
liability for the fees and costs of Other Professionals
shall not exceed $100,000;
(b) pay or reimburse the Administrative
Agent, the Arranger and each Bank within five Business
Days after demand (subject to subsection 4.1(e)) for
all costs and expenses (including reasonable Attorney
Costs and all reasonable fees and costs of Other
Professionals) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of
any rights or remedies under this Agreement or any
other Loan Document during the existence of an Event of
Default or after acceleration of the Loans (including
in connection with any "workout" or restructuring
regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding). For purposes of
this Section 10.4, the term "Other Professionals"
means, collectively, all accountants and consultants
employed, retained or internally used by the
Administrative Agent, the Arranger or any Bank in
performing any of its rights, duties or obligation or
in asserting any of its rights or remedies under this
Agreement or any Loan Document."
3. Representations and Warranties. The Company
represents and warrants to the Banks, the Administrative
Agent and the Co-Agent:
3.1 Authorization. The execution, delivery and
performance of this Sixth Amendment by the Company has been
duly authorized by all necessary corporate action by the
Company and has been duly executed and delivered by the
Company.
3.2 Binding Obligation. This Sixth Amendment and the
Agreement are legal, valid and binding agreements of the
Company, enforceable in accordance with their respective
terms, except to the extent enforceability thereof may be
limited by applicable law relating to bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or limiting creditors' rights generally or by
the application of general principles of equity.
3.3 No Legal Obstacles to Agreements. Neither the
execution of this Sixth Amendment, the making by the Company
of any borrowings under the Agreement, nor the performance
of the Agreement by the Company has constituted or resulted
in or will constitute or result in a breach of the
provisions of any material agreement, or the violation of
any Requirement of Law, or result in the creation under any
material agreement of any security interest, lien, charge,
or encumbrance upon any of the assets of the Company, except
as contemplated by the Agreement. No approval or
authorization of any Governmental Authority is required to
be obtained by the Company to permit the execution, delivery
or performance by the Company of this Sixth Amendment, the
Agreement as amended hereby, or the transactions
contemplated hereby or thereby, or the making of any
borrowing by the Company under the Agreement, except as set
forth on Schedule 5.3 to the Agreement.
3.4 Incorporation of Certain Representations. The
representations and warranties set forth in Article V of the
Agreement are true and correct in all material respects on
and as of the date hereof as though made on and as of the
date hereof except to the extent such representations and
warranties expressly relate to an earlier date, in which
case such representations and warranties were true and
correct in all material respects on and as of such earlier
date.
3.5 Default. No Default or Event of Default under the
Agreement has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of
this Sixth Amendment shall be subject to the compliance by
the Company with its agreements herein contained, and to the
delivery of the following to Administrative Agent in form
and substance satisfactory to Administrative Agent:
4.1 Authorized Signatories. A certificate, signed by
the Secretary or an Assistant Secretary of the Company and
dated the date of this Sixth Amendment, as to the incumbency
of the person or persons authorized to execute and deliver
this Sixth Amendment and any instrument or agreement
required hereunder on behalf of the Company.
4.2 Authorizing Resolutions. A certificate, signed by
the Secretary or an Assistant Secretary of the Company and
dated the date of the Sixth Amendment, authorizing the
transactions contemplated by this Sixth Amendment.
4.3 Amendment Fee. Payment to the Administrative
Agent, for the pro rata benefit of each Bank approving this
Sixth Amendment, of an amendment fee in the amount of
$125,000.
4.4 Other Evidence. Such other evidence with respect
to the Company or any other person as the Administrative
Agent or any Bank may reasonably request to establish the
consummation of the transactions contemplated hereby, the
taking of all corporate action in connection with this Sixth
Amendment and the Agreement and the compliance with the
conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Agreements. Except as hereby
amended, the Agreement shall remain in full force and
effect.
5.2 Waivers. This Sixth Amendment is specific in time
and in intent and does not constitute, nor should it be
construed as, a waiver of any other right, power or
privilege under the Agreement, or under any agreement,
contract, indenture, document or instrument mentioned in the
Agreement; nor does it preclude any exercise thereof or the
exercise of any other right, power or privilege, nor shall
any future waiver of any right, power, privilege or default
hereunder, or under any agreement, contract, indenture,
document or instrument mentioned in the Agreement,
constitute a waiver of any other default of the same or of
any other term or provision.
5.3 Counterparts. This Sixth Amendment may be
executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute
one and the same instrument. This Sixth Amendment shall not
become effective until the Company, the Banks, the
Administrative Agent and the Co-Agent shall have signed a
copy hereof, and the HealthLink shall have consented hereto,
whether the same or counterparts, and the same shall have
been delivered to the Administrative Agent.
5.4 GOVERNING LAW. THIS SIXTH AMENDMENT, AND ANY
INSTRUMENT OR AGREEMENT REQUIRED HEREUNDER, SHALL BE
GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF
ILLINOIS; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE
BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
IN WITNESS WHEREOF, the parties hereto have caused this
Sixth Amendment to be duly executed and delivered by their
proper and duly authorized officers as of the day and year
first above written.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Sandra Van Trease
Title: EVP and COO
By: /s/ John A. O'Rourke
Title: President and CEO
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ Janice Hammond
Title: Vice President, Agency Specialist
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: /s/ Edward S. Han
Title: Vice President
NATIONSBANK, N.A., as Co-Agent
and as a Bank
By: /s/ Forest Scott Singhoff
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/ W.J. Brown
Title: Vice President
MERCANTILE BANK NATIONAL
ASSOCIATION
By: /s/ Ann L. Vazquez
Title: Vice President
BANK OF MONTREAL
By:
Title:
CONSENT OF GUARANTOR
The undersigned, as guarantor of the obligations of
RightChoice Managed Care Inc. (the "Company") under the
HealthLink Guaranty dated as of August 10, 1995, hereby
consents to the foregoing Sixth Amendment to Credit
Agreement dated as of even date herewith and confirms that
the HealthLink Guaranty remains in full force and effect
after giving effect thereto and represents and warrants that
there is no defense, counterclaim or offset of any type or
nature thereunder. Capitalized terms used herein have the
meanings specified in the foregoing Sixth Amendment.
Dated as of September 30, 1997
HEALTH LINK, INC.
By: /s/ John A. O'Rourke
Title: Chairman of the Board
SCHEDULE 2.1
COMMITMENTS AND PRO RATA SHARES
Bank Commitment Pro Rata Share
Bank of America
National Trust and
Savings Association $ 16,000,000 32%
NationsBank, N.A. $ 14,000,000 28%
Bank of Montreal $ 8,000,000 16%
The Bank of
Nova Scotia $ 8,000,000 16%
Mercantile
Bank National
Association $ 4,000,000 8%
TOTAL $ 50,000,000 100%
Exhibit 10.51
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") entered into on
this 27 day of February, 1997, by and between RIGHTCHOICE
MANAGED CARE, INC., a Missouri Corporation (hereinafter
"RightCHOICE") and JOHN A. O'ROURKE (hereinafter "O'ROURKE")
restates and amends, effective as of February 19, 1997, the terms
of that certain Employment Contract made and entered into as of
April, 1995, by and between HEALTHLINK, INC., an Illinois
Corporation (hereinafter "HEALTHLINK"), and O'ROURKE.
WHEREAS, RightCHOICE desires to employ O'ROURKE as
RightCHOICE's Chairman and Chief Executive Officer on the terms
and conditions hereinafter contained, and O'ROURKE desires such
employment.
NOW THEREFORE, in consideration of the premises and the
mutual covenants contained herein the parties agree as follows:
1. EMPLOYMENT
RightCHOICE shall employ O'ROURKE, and O'ROURKE shall
render full-time professional services consistent with those of
the Chairman and Chief Executive Officer of RightCHOICE (as
applicable as of the effective date of this Agreement) and such
other roles and responsibilities that may be reasonably required
of O'ROURKE by Blue Cross & Blue Shield of Missouri (hereinafter
"BCBSMo") during the term of this Agreement in accordance with
the terms and conditions hereinafter set forth.
2. SERVICES TO BE PROVIDED BY O'ROURKE
O'ROURKE shall render full-time professional services to
RightCHOICE and BCBSMo. His duties shall include, without
limitation, the following:
A. All professional services consistent with those of
the Chairman and Chief Executive Officer of RightCHOICE (as
applicable on January 1, 1997) and such other roles and
responsibilities that may be reasonably required of O'ROURKE by
BCBSMo.
B. All duties that may be reasonably requested by the
Board of Directors of RightCHOICE consistent with the position of
Chief Executive Officer of RightCHOICE (as applicable on January
1, 1997).
C. The selection, employment, control and termination
of all RightCHOICE employees. Such selection, employment control
and termination shall be performed in accordance with authorized
budgets, RightCHOICE policies and applicable laws..
D. Attending all meetings of the Board of Directors
of RightCHOICE, all meetings of committees of the Board when so
requested by the committee chairman, and any other meetings
reasonably requested by the Board of Directors.
E. Reporting to the Board of Directors at regular and
special meetings all significant items of RightCHOICE business
and making recommendations concerning disposition thereof.
3. APPLICABLE STANDARDS
O'ROURKE shall render the services required hereunder
in accordance with the terms of this Agreement, the Articles of
Incorporation, bylaws, policies and procedures of RightCHOICE,
all applicable federal, state and/or governmental laws and/or
regulations, and directives of the Board of Directors of
RightCHOICE.
4. COMPENSATION
As compensation for the services provided by O'ROURKE
pursuant to this Agreement, RightCHOICE shall pay O'ROURKE the
following amounts:
4.1. Base Salary.
RightCHOICE shall pay O'ROURKE base salary at the
rate of at least Three Hundred Twenty-Five Thousand Dollars
($325,000) per year. Such base salary shall be reviewed annually
by the Compensation Committee of the Board of Directors of
RIGHTCHOICE and shall be paid semi-monthly in equal installments
on the pay dates established by RightCHOICE for its employees.
4.2. Annual Incentive Plan Bonus
O'ROURKE shall be eligible to participate in the
Alliance Blue Cross Blue Shield Incentive Plan ("AIP") at an
initial target-performance level of Forty-Three Percent (43%) of
his pro-rated annual base salary in accordance with the terms of
such plan as modified by the Compensation Committee of the Board
of Directors of RightCHOICE from time to time.
4.3. Automobile.
While O'ROURKE utilizes his current company car,
RightCHOICE shall pay the expenses associated with such
automobile including maintenance, repair, gasoline, lease cost,
and other operating expenses. At the end of that period,
RightCHOICE shall provide O'ROURKE with an automobile allowance
in the same manner and to the same extent as provided to other
RightCHOICE senior executives.
4.4. Welfare Benefit Plans.
RightCHOICE shall provide O'ROURKE with long-term
total disability income protection, life insurance, accidental
death and dismemberment coverage, comprehensive health insurance,
travel insurance, and vacation days and personal sick pay days to
the same extent and in the same manner as provided for other
senior executives of RightCHOICE.
4.5. Qualified Plan Benefits.
O'ROURKE shall be entitled to participate in the
RightCHOICE 401(k) plan and defined benefit retirement plan, in
accordance with their terms, as both may be amended from time-to-
time, in the same manner and to the same extent as other senior
executives of RightCHOICE.
4.6. Dues.
RightCHOICE shall pay O'ROURKE's dues in such
professional associations, societies, service organizations, and
luncheon clubs and country clubs as are approved by RightCHOICE's
Compensation Committee as being in the best interest of
RightCHOICE.
4.7. Other Employee Benefits.
O'ROURKE shall be eligible to participate in the
RightCHOICE Equity Incentive Plan at an initial annual target
level of Fifty Percent (50%) of his pro-rated annual base
salary, and shall be eligible to participate in any other
employee benefit plans, including RightCHOICE's supplemental
executive retirement plan and deferred compensation plan, as each
may be amended from time-to-time, as approved by the Compensation
Committee of RightCHOICE's Board of Directors.
4.8. Automatic Vesting.
In the event of Involuntary Termination, or in the
event of termination as a result of O'ROURKE's death or
disability, or in the event of termination for Good Reason,
O'ROURKE's previously unvested Performance Bonuses and
Profitability Awards (as described and set forth in the previous
Employment Contract by and between HEALTHLINK and O'ROURKE), if
any, shall vest automatically on the date of such termination.
4.9. Tax Consequences.
Any tax consequences resulting to O'ROURKE from
the payment of any amounts pursuant to this Agreement shall be
the sole and exclusive responsibility of O'ROURKE without
contribution or reimbursement from RightCHOICE. The preceding
notwithstanding, HEALTHLINK shall pay all fees and income taxes
on earnings within the trust associated with the Irrevocable
Trust Agreement dated June 7, 1994.
5. TERM AND TERMINATION
5.1 Term.
This Agreement shall become effective as of
February 19, 1997, and shall continue in effect until terminated
in accordance with Section 5.2 hereof.
5.2. Termination of Agreement.
A. Written Agreement.
This Agreement may be terminated by the
mutual written agreement of the parties.
B. Termination of O'ROURKE by RightCHOICE.
RightCHOICE may terminate O'ROURKE's employment, effective
as of any date, by giving O'ROURKE, in accordance with Section 7
hereof, at least sixty (60) days in advance, a written Notice of
Termination, specifying the effective date of such termination.
C. Termination of Employment by O'ROURKE.
O'ROURKE may terminate his employment, effective as of any date,
by giving RightCHOICE, in accordance with Section 7 hereof, at
least sixty (60) days in advance, a written Notice of
Termination, specifying the effective date of such termination.
5.3. Severance.
A. Severance Benefits.
Subject to Sections 5.3(B), 5.3(C), 5.3(D)
and 5.3(H)(ii) hereof, O'ROURKE shall become eligible for
Severance Benefits in the event of: (a) O'ROURKE's Involuntary
Termination, or (b) O'ROURKE, after giving Notice of Termination
to RightCHOICE within seventy-five (75) days after first being
notified of or becoming aware of an event constituting Good
Reason which event is cited as Good Reason in such Notice of
Termination, and is not cured or reversed within ten (10) days
after RightCHOICE receives such Notice of Termination, terminates
his employment for Good Reason within the four (4) month period
commencing upon first being notified of or becoming aware of the
occurrence of Good Reason.
In the event that O'ROURKE becomes entitled
to Severance Benefits, subject to Sections 5.3(B), 5.3(C), 5.3(D)
and 5.3(H)(ii) hereof, RightCHOICE will: (i) pay to O'ROURKE an
amount equal to three (3) times O'ROURKE's annual base salary in
effect immediately prior to such Involuntary Termination or
termination for Good Reason, payable in thirty-six (36)
substantially equal monthly installments commencing as soon as
practicable following the Date of Termination; (ii) pay to
O'ROURKE for twelve (12) months starting on the Date of
Termination an amount equal to the portion of the monthly
premiums (to the extent such premiums are due) for O'ROURKE s
health, dental, vision, and life insurance that is equivalent to
the portion of the monthly premium for such coverage that
RightCHOICE pays on behalf of senior executives employed by
RightCHOICE during such twelve month period; and (iii) pay for
outplacement services for O'ROURKE of the type customarily
provided by RightCHOICE to senior executives at the time of such
Involuntary Termination or termination for Good Reason.
B. Suspension or Termination of Severance
Benefits; Nonentitlement.
(i) Dispute.
If at any time a party to this Agreement
notifies the other party that one party disputes the position of
the other party with respect to any provision of Section 5.3 of
this Agreement, then RightCHOICE may at any time elect to suspend
some or all payments thereunder with respect to O'ROURKE (or
elect not to commence such payments if payments have not yet
commenced) until such dispute is finally resolved either by
mutual written agreement of the parties or a binding arbitration
award. If pursuant to such resolution of the dispute,
retroactive payments are to be made to O'ROURKE or payments
representing reimbursements are to be made to RightCHOICE, then
unless otherwise provided under such resolution, such payments
shall bear interest at the rate provided in Section 1274(d)(2)(B)
of the Code commencing at the time such payments would have been
made absent dispute (in the case of retroactive payments) or
commencing at the time such payments were made (in the case of
reimbursements).
(ii) Subsequent Employment.
If at any time while O'ROURKE is
entitled to Severance Benefits hereunder, O'ROURKE is employed
(including employment by RightCHOICE or any Parent or Subsidiary,
or employment by any other employer or any form of self-
employment), then: (a) RightCHOICE may in its discretion at any
time following the date of commencement of such employment, pay
to O'ROURKE the aggregate remaining amounts to be paid to
O'ROURKE under Section 5.3(A)(i) hereof, in a lump sum; and/or
(b) payments under Section 5.3(A)(ii) and 5.3(A)(iii) hereof
shall cease as of the date of commencement of such employment,
but if payments thereunder are made by RightCHOICE subsequent to
such date then RightCHOICE may withhold the amount of such
payments from the amount otherwise to be paid pursuant to Section
5.3(A)(i) hereof, and O'ROURKE shall pay to RightCHOICE on demand
any such excess amount not so withheld, with such excess amount
to bear interest at the rate provided in Section 1274(d)(2)(B) of
the Code commencing thirty (30) days after such demand.
(iii) Disability.
If O'ROURKE is disabled during any
period while O'ROURKE is entitled to Severance Benefits
hereunder, then during any such period that O'ROURKE is Disabled,
any amounts payable under Section 5.3(A)(i) hereof, during such
period shall be reduced (but not to less than zero) by the
amounts, if any, paid or to be paid with respect to such period
to O'ROURKE pursuant to any long-term disability plan maintained
by RightCHOICE or an Affiliate.
(iv) Death.
If O'ROURKE dies during any period while
O'ROURKE is entitled to Severance Benefits hereunder, then a lump
sum amount equal to the total remaining amounts payable to
O'ROURKE at the time of O'ROURKE's death under Section 5.3(A)(i)
hereof, shall be paid to O'ROURKE's Designated Beneficiary;
provided, however, that such lump sum amount shall be reduced,
but not to less than zero, by any amounts, if any, payable on
account of O'ROURKE's death to any beneficiary other than
RightCHOICE or an Affiliate under any RightCHOICE or Affiliate
life insurance program.
(v) Criminal Charges.
If at any time after Severance Benefits
become payable hereunder and prior to the completion of the
payment of such benefits, RightCHOICE becomes aware that O'ROURKE
has been charged with a felony, then RightCHOICE may suspend such
payments until such criminal charge is resolved. RightCHOICE
shall resume payments and make any retroactive payments (with
interest on such retroactive payments at the rate provided in
Section 1274(d)(2)(B) of the Code) commencing at the time such
payments would have been made absent suspension under this
Section 5.3(B)(v) after such criminal charge is resolved;
provided, however, that such payments shall cease and no further
payments shall be made at any time O'ROURKE is convicted of, or
enters a guilty plea to, such crime by or before a court of
competent jurisdiction.
C. Limitations on Benefits.
In the event that the aggregate of any amounts
payable to or on behalf of O'ROURKE under this Agreement and
under any other plan, agreement or policy of RightCHOICE or any
Affiliate would otherwise result in the imposition of tax under
Section 4999 of the Code due to an excess parachute payment, as
determined by RightCHOICE's independent auditors, then the
amounts payable to or on behalf of O'ROURKE under the Agreement
shall be reduced to the extent necessary (but not below zero) so
that such aggregate amounts shall not be a parachute payment.
For purposes of determining any limitation under this Section
5.3(C): (a) no portion of any benefit the receipt or enjoyment
of which O'ROURKE'shall have effectively waived in writing shall
be taken into account, and (b) the value of any non-cash benefit
or any deferred payment or benefit shall be determined by the
RightCHOICE's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. If
RightCHOICE's independent auditors determine that payment that
would be a parachute payment has been made to O'ROURKE hereunder,
then the excess of (x )over (y); where (x) is equal to the amount
of such payment actually made hereunder, and (y) is equal to the
amount that could be paid hereunder without any amount payable
hereunder being a parachute payment, shall constitute a loan by
RightCHOICE to O'ROURKE, payable to RightCHOICE upon demand with
interest at the rate provided in Section 1274(d)(2)(B) of the
Code commencing as of the date or dates of payment by RightCHOICE
of such excess amount. The provisions of this Section 5.3(C)
shall not apply to any payments referenced in Section 5.4.
D. General Waiver and Release.
O'ROURKE acknowledges that in addition to other
conditions set forth in the Agreement, Severance Benefits shall
be conditioned upon the prior execution by O'ROURKE of a general
waiver and release (hereinafter referred to as "Waiver") as
described in this Section 5.3(D), and O'ROURKE shall not be
eligible for Severance Benefits unless and until O'ROURKE has
executed the Waiver within ninety (90) days following O'ROURKE's
termination of employment. The Waiver shall be substantially in
the form attached hereto as Exhibit A and shall generally waive
all claims O'ROURKE has or may have against RightCHOICE or a
Subsidiary or Parent, and any successors or predecessors thereto,
and shall release RightCHOICE and each Subsidiary and Parent, and
any successors and predecessors thereto, from all liability with
respect to any such claims; provided, however, that O'ROURKE
shall not waive, and there shall be no release with respect to,
any claim (other than a claim disputing the validity of this
Section 5.3(D) or the Waiver) of O'ROURKE to enforce any one or
more of the provisions of the Agreement.
E. Employee Statement.
O'ROURKE agrees to abide by the RightCHOICE Code
of Business Conduct.
F. Covenant Not To Disclose.
O'ROURKE acknowledges that during the course of
O'ROURKE's employment with RightCHOICE, O'ROURKE has or will have
access to and knowledge of certain information and data which
RightCHOICE considers confidential, and that the release of such
information or data to unauthorized persons could be detrimental
to RightCHOICE or a Subsidiary or Parent. As a consequence,
O'ROURKE hereby agrees and acknowledges that O'ROURKE owes a duty
to RightCHOICE not to disclose, and agrees that, during and after
the term of O'ROURKE's employment, without the prior written
consent of RightCHOICE, O'ROURKE will not communicate, publish or
disclose to any person anywhere or use any Confidential
Information (as defined below) for any purpose except where
necessary or appropriate to carry out O'ROURKE's duties or as
required by law or legal process. O'ROURKE will use his best
efforts at all times to hold in confidence and to safeguard any
Confidential Information from becoming known by any unauthorized
person and, in particular, will not permit any Confidential
Information to be read, duplicated or copied except where
necessary or appropriate to carry out O'ROURKE's duties or as may
be required by law or legal process. O'ROURKE will return to
RightCHOICE all Confidential Information in O'ROURKE's possession
or under O'ROURKE's control when the duties of O'ROURKE no longer
require O'ROURKE's possession thereof, or whenever RightCHOICE
shall so request, and in any event will promptly return all such
Confidential Information if O'ROURKE's employment with
RightCHOICE terminates and will not retain any copies thereof.
For the purpose of this Agreement, "Confidential Information"
shall mean any information or data used by or belonging or
relating to RightCHOICE or a Subsidiary or Parent which if
disclosed could be detrimental to RightCHOICE or a Subsidiary or
Parent, including, but not limited to, any such information
relating to RightCHOICE's or a Subsidiary's or Parent's, members
or insureds, trade secrets, proprietary data and information
relating to RightCHOICE's or a Subsidiary's or Parent's, past,
present or future business, price lists, client lists, processes,
procedures or standards, know-how, manuals, business strategies,
records, drawings, specifications, designs, financial
information, whether or not reduced to writing, or any other
information or data which RightCHOICE advises O'ROURKE is
Confidential Information.
G. Covenant Not to Compete.
(i) O'ROURKE agrees that during the term of
O'ROURKE's employment by RightCHOICE and for a period consisting
of the greater of: (i) the period over which any Severance
Benefits are to be paid under this Agreement (whether or not
payment is accelerated hereunder), or (ii) one year from and
after the termination of O'ROURKE's employment (such term of
employment and applicable subsequent period are referred to
collectively herein as the "Noncompetition Period"), O'ROURKE
will not directly or indirectly, without the express written
consent of RightCHOICE:
(a) own or have any interest in or act as an
officer, director, partner, principal, employee, agent,
representative, consultant to or independent contractor of, any
person, firm, corporation, partnership, business trust, limited
liability company or any other entity or business located in or
doing business in RightCHOICE's geographic market (as defined
below) which during the Noncompetition Period is engaged in
competition in any substantial manner with RightCHOICE, or a
Parent or Subsidiary of RightCHOICE, provided O'ROURKE in any
such capacity directly or indirectly performs services in an
aspect of such business which is competitive with RightCHOICE, or
a Parent or Subsidiary of RightCHOICE. Notwithstanding the
foregoing, O'ROURKE may invest in the stock of any publicly
traded company, but shall not hold more than two percent (2%) of
the issued and outstanding securities of any such company; or
(b) divert or attempt to divert clients,
customers or accounts of RightCHOICE which are clients, customers
or accounts during the Noncompetition Period; or
(c) hire, or attempt to solicit to hire, for
any other person, firm, company, corporation, partnership,
business trust, limited liability company or any other entity,
whether or not owned (in whole or in part) by O'ROURKE, any
current employee of RightCHOICE as of the time of such hire or
attempt to solicit to hire any former employee of RightCHOICE who
has been employed by RightCHOICE within the twelve-month period
immediately preceding the date of such hire or attempt to solicit
to hire.
(ii) With respect to O'ROURKE's obligations under
this Section 5.3(G), O'ROURKE acknowledges that RightCHOICE's
geographic market is the States of Missouri and Kansas and the
portion of the State of Illinois that is south of Interstate 80.
(iii) The restrictions contained in this
Section 5.3(G) are considered by the parties hereto to be fair,
reasonable and necessary for the protection of the legitimate
business interests of RightCHOICE.
(iv) O'ROURKE acknowledges that O'ROURKE's
experience and capabilities are such that, notwithstanding the
restrictions imposed in this Section 5.3(G), he can obtain
employment reasonably equivalent to his position with
RightCHOICE, and that an injunction against any violation of the
provision of this Section 5.3(G) will not prevent O'ROURKE from
earning a livelihood reasonably equivalent to that provided
through his position with RightCHOICE.
H. Certain Remedies.
(i) Recognizing that irreparable injury will
result to RightCHOICE in the event of the breach or threatened
breach of any of the foregoing covenants and assurances by
O'ROURKE contained in this Section 5.3, and that RightCHOICE's
remedies at law for any such breach or threatened breach will be
inadequate, if after written notice of breach delivered or mailed
to O'ROURKE, O'ROURKE takes no satisfactory action to remedy such
breach and abide by this Agreement, or absent such notice in the
event such breach cannot be remedied, then RightCHOICE, in
addition to such other rights or remedies which may be available
to it (including, without limitation, recovery of monetary
damages from O'ROURKE), shall be entitled to an injunction,
including a mandatory injunction, to be issued by any court of
competent jurisdiction ordering compliance with this Agreement or
enjoining and restraining O'ROURKE, and each and every person,
firm or company acting in concert or participation with O'ROURKE,
from the continuation of such breach and, in addition thereto,
O'ROURKE shall pay to RightCHOICE all ascertainable damages,
including costs and reasonable attorneys fees, sustained by
RightCHOICE by reason of the breach or threatened breach of said
covenants and assurances. In the event that any suit for
injunctive relief or damage is decided adversely to RightCHOICE,
RightCHOICE shall pay O'ROURKE's costs and reasonable attorney's
fees.
(ii) In addition to the remedies described in
Section 5.3(H)(i), in the event of a material breach of this
Agreement by O'ROURKE, RightCHOICE shall no longer be obligated
to pay any benefits to O'ROURKE under this Agreement.
(iii) The covenants and obligations of
O'ROURKE under this Section 5.3 are each independent covenants
and are in addition to and not in lieu of or exclusive of any
other obligations and duties of O'ROURKE to RightCHOICE, whether
express or implied in fact or in law.
I. Definitions.
The following definitions shall apply for
purposes of this Agreement:
(1) Cause. "Cause" shall mean the
occurrence of any one or more of the following events:
(i) RightCHOICE's becoming aware of, or
being notified of, O'ROURKE's conviction of, or O'ROURKE's entry
of a guilty plea to, a felony by or before a court of competent
jurisdiction
(ii) gross failure by O'ROURKE to
perform O'ROURKE's expected duties with RightCHOICE (other than
any such failure resulting from O'ROURKE's incapacity due to
physical or mental illness or any such actual or anticipated
failure occurring after, and not before, the issuance of a Notice
of Termination by O'ROURKE for Good Reason which is not
thereafter successfully disputed by RightCHOICE) which gross
failure occurs or continues after: (a) RightCHOICE delivers to
O'ROURKE a written demand for substantial performance that
specifically identifies the expected duties of O'ROURKE, the
manner in which RightCHOICE believes that O'ROURKE has not
substantially performed O'ROURKE's duties and the reasonable time
in which O'ROURKE must demonstrate that he is performing or has
resumed performance of such duties in order to avoid a
determination that a gross failure by O'ROURKE to perform such
duties has occurred; and (b) O'ROURKE has failed to demonstrate
that he is performing or has resumed performance of the duties
specified in such by the time specified in such notice;
(iii) RightCHOICE's becoming aware
of, or being notified of, the willful engaging by O'ROURKE in
conduct which RightCHOICE reasonably determines in good faith is
likely to be materially damaging or detrimental to RightCHOICE or
to a Subsidiary or Parent; or
(iv) RightCHOICE's becoming aware of, or
being notified of, a willful and material violation by O'ROURKE
of the RightCHOICE Code of Business Conduct
(2) Change in Control. "Change in Control"
shall mean the occurrence, while O'ROURKE is employed by
RightCHOICE and this Agreement is in effect, of any one or more
of the following events:
(i) the merger, consolidation or other
reorganization of RightCHOICE in which any class of the
outstanding common stock of RightCHOICE is converted into or
exchanged for a different class of securities of RightCHOICE, a
class of securities of any other issuer except an Affiliate, cash
or other property (provided, however, that, regardless of
anything to the contrary in this Agreement, the conversion or
exchange of Class B common stock of RightCHOICE into Class A
common stock of RightCHOICE shall not be deemed to be a Change in
Control);
(ii) the sale, lease or exchange of all
or substantially all of the assets of RightCHOICE or Parent to
any other corporation or entity (except an Affiliate);
(iii) the final adoption, in a
manner making such plan legally effective without any higher
level of approval or action, of a plan of complete liquidation
and dissolution of RightCHOICE or Parent;
(iv) the acquisition (other than
acquisition pursuant to any other clause of this definition) by
any person or entity (including without limitation a partnership,
limited partnership, syndicate or other group), of more that
fifty percent (50%) (based on total voting power) of any class of
RightCHOICE's or Parent's outstanding stock (or other equity
ownership interests); provided, however, that nothing in this
Section 5.3(H)(2)(iv) shall be construed as deeming a Change in
Control to have occurred if any person or entity that is
considered to own, directly or indirectly, more than fifty
percent (50%) (based on total voting power) of such class of
RightCHOICE's or Parent's outstanding stock (or other equity
ownership interests) prior to such acquisition, acquires
additional shares of such class of stock (or other equity
ownership interests);
(v) as a result of or in connection
with a contested election of directors of RightCHOICE, the
persons who were directors of RightCHOICE before such election
cease to constitute a majority of the directors of RightCHOICE;
(vi) as a result of or in connection
with an election of directors of Parent, the persons who were
directors of Parent before such election cease to constitute a
majority of the directors of Parent; or
(vii) RightCHOICE ceasing to have
class of its stock listed and actively traded on a nationally
recognized stock exchange.
In the event that no single transaction or event has occurred
that qualifies as a Change in Control under the foregoing
definition, in determining whether a Change in Control has
occurred, a series of transactions and/or events may be
considered to be a single transaction or event; provided,
however, that elections occurring during no more than eighteen
(18) months shall be aggregated for purposes of determining
whether a series of transactions or events qualifies as a Change
in Control under Section 5.3(H)(2)(v) or 5.3(H)(2)(vi). If a
series of transactions and/or events is deemed to constitute a
single transaction or event constituting a Change in Control
under the preceding sentence, such Change in Control will be
deemed to occur on the date of completion of the last transaction
or event included in the series of transactions and/or events
constituting such Change in Control or such earlier date after
the beginning of such series or transactions and/or events as
O'ROURKE elects. For purposes of this definition only, no entity
shall be considered a Parent or an Affiliate unless such entity
had that status prior to the transaction or event (or the first
in a series of transactions and/or events aggregated as a single
transaction or event pursuant to this paragraph) that would have
constituted a Change in Control if such entity did not qualify as
a Parent or an Affiliate.
(3) Code. "Code" shall mean the Internal Revenue
Code of 1986 as from time to time amended.
(4) Date of Termination. "Date of Termination"
shall mean the effective date of O'ROURKE's termination of
employment. If O'ROURKE delivers a Notice of Termination
hereunder to RightCHOICE, then the Date of Termination shall be
specified in the Notice of Termination and shall be no less than
thirty (30) days following the date such Notice of Termination is
delivered or mailed to RightCHOICE in accordance with Section 7
hereof; provided, however, that in such event RightCHOICE shall
have the right to accelerate such Date of Termination by written
notice of such acceleration delivered or mailed to O'ROURKE in
accordance with Section 7 hereof. If RightCHOICE delivers or
mails a Notice of Termination hereunder to O'ROURKE, then the
Date of Termination shall be the date specified by RightCHOICE in
such Notice of Termination.
(5) Designated Beneficiary. "Designated
Beneficiary" shall mean one or more individuals or legal entities
designated by O'ROURKE on Exhibit B of this Agreement, except
that, if there is no such effective beneficiary designation at
the time of O'ROURKE's death, then Designated Beneficiary shall
mean the legal representative of O'ROURKE's estate. Exhibit B to
this Agreement may be revoked by O'ROURKE at any time by written
instrument delivered to RightCHOICE, in which event a new
Exhibit B may be completed and executed by O'ROURKE and shall be
effective upon receipt by RightCHOICE prior to the date of
O'ROURKE's death.
(6) Disabled. "Disabled" shall mean O'ROURKE is
receiving, or is currently entitled to receive pursuant to a
determination made by RightCHOICE, benefits under RightCHOICE's
long-term disability plan, if any.
(7) Good Reason. "Good Reason" shall mean the
occurrence, without the written consent of O'ROURKE of any one or
more of the following events (provided, however, none of the
following events shall constitute Good Reason if at the time of
the occurrence of such event, or during the three-month period
prior to such occurrence, there is Cause):
(i) the assignment to O'ROURKE of any duties
or responsibilities inconsistent with O'ROURKE's status as
Chairman and Chief Executive Officer of RightCHOICE or a
substantial adverse alteration in the nature or status of
O'ROURKE's responsibilities, job title or position from those in
effect immediately prior to such alteration;
(ii) a reduction by RightCHOICE in the annual
base salary payable to O'ROURKE, or a change to the short-term
bonus formula that was applicable to O'ROURKE immediately prior
to such change that materially reduces the amount payable at
target-level of performance, or a change to the long-term
incentive formula that was applicable to O'ROURKE immediately
prior to such change that materially reduces the percentage of
O'ROURKE's annual base salary being provided at target-level
performance under the long-term incentive plan;
(iii) the relocation of O'ROURKE's
principal place of performing his duties as an executive of
RightCHOICE to a location in excess of seventy-five miles from
the location where O'ROURKE's principal place of performing his
duties as an executive of RightCHOICE was located immediately
prior to such relocation;
(iv) a material reduction in the benefits and
perquisites provided O'ROURKE by RightCHOICE immediately prior to
such reduction;
(v) RightCHOICE's termination of this
Agreement; or
(vi) Blue Cross & Blue Shield of Missouri's
replacement of their President and Chief Executive Officer with
an individual other than O'ROURKE.
(8) Involuntary Termination. "Involuntary
Termination" shall mean the termination of O'ROURKE's employment
by action of RightCHOICE for any reason other than Cause,
disability or death; provided, however, that O'ROURKE's
termination of employment by RightCHOICE shall not be an
Involuntary Termination if, immediately following such
termination, O'ROURKE is employed by another employer that is
obligated, by agreement, operation of law or otherwise, to abide
by and be bound by the provisions of the Agreement, and, in such
event, such employer shall be the successor of and to
RightCHOICE's rights and obligations under this Agreement.
(9) Notice of Termination. "Notice of
Termination" shall mean:
(i) a notice from O'ROURKE to RightCHOICE
advising RightCHOICE of O'ROURKE's decision to terminate
O'ROURKE's employment; or
(ii) a notice from RightCHOICE to O'ROURKE
advising O'ROURKE of RightCHOICE's decision to terminate
O'ROURKE's employment.
A Notice of Termination shall be delivered or mailed in
accordance with Section 7 of this Agreement. If a Notice of
Termination is from O'ROURKE to RightCHOICE and if O'ROURKE
believes such termination is for Good Reason, then such Notice of
Termination shall specify that such termination is a termination
for Good Reason, and shall set forth in reasonable detail the
facts and circumstances supporting such belief of O'ROURKE. If a
Notice of Termination is from RightCHOICE to O'ROURKE and if
RightCHOICE believes such termination is for Cause, then such
Notice of Termination shall specify that such termination is for
Cause and shall be set forth in reasonable detail in facts and
circumstances supporting such belief of RightCHOICE.
(10) Parent. "Parent" shall mean BCBSMo and any
other corporation or other legal entity (other than RightCHOICE)
owning, directly or indirectly, fifty percent (50%) or more
(based on total voting power) of the outstanding stock (or other
equity ownership interest) of RightCHOICE.
(11) Severance Benefits. "Severance Benefits"
shall mean the benefits described in Section 5.3(A) hereof.
(12) Subsidiary or Affiliate. "Subsidiary" or
"Affiliate" shall mean any corporation or other legal entity
(other than RightCHOICE) that is part of a group of corporations
and/or other legal entities under common control, which group
includes RightCHOICE and in which group each entity is deemed to
be under common control with the others if it is in an unbroken
chain of corporations and/or other legal entities each of which
is connected to a common parent entity by having fifty (50)
percent or more (based on total voting power) of its outstanding
stock (or other equity ownership interest) owned directly or
indirectly by that common parent entity; provided, however, that
no corporation or other entity shall be considered to be a
Subsidiary or Affiliate solely because of its direct or indirect
ownership of an interest in The Epoch Group, LC. For purposes of
clarity only (and without limiting the generality of the
foregoing definition), it is noted that the common parent entity
referred to in the foregoing definition qualifies as a Subsidiary
or Affiliate.
5.4 Sale of HEALTHLINK.
A. Prior to the effective date of this Agreement,
O'ROURKE was awarded a bonus (the "O'ROURKE Share") in connection
with the Closing, and one-third of the O'ROURKE Share was
deposited in escrow, subject to disbursement of one half of the
escrow balance on the first anniversary of Closing and the
remaining balance on the second anniversary of Closing to
O'ROURKE, if prior to the date of each such disbursement O'ROURKE
had met certain conditions. The first half of such escrow amount
was distributed to O'ROURKE prior to the date of this Agreement.
O'ROURKE will be entitled to the remainder of the escrow amount
if, as of the second anniversary of the Closing, he has not
voluntarily terminated employment with RightCHOICE and his
employment with RightCHOICE has not been involuntarily terminated
for cause as defined in Section 5.4(B)(iii) (in either case, an
"Event of Forfeiture"); provided, however, if (x) O'ROURKE dies
or becomes permanently and totally disabled (as defined in the
long term disability policy maintained by RightCHOICE for
O'ROURKE as of January 1, 1997, while employed by RightCHOICE,
(y) if RightCHOICE terminates O'ROURKE's employment without cause
as defined in Section 5.4(B), or (z) if the Agreement terminates
other than for an Event of Forfeiture, the entire balance of the
escrow shall be immediately disbursed to O'ROURKE or his estate,
as the case may be. If an Event of Forfeiture shall occur, the
escrow balance shall be immediately disbursed to RightCHOICE; and
(B) the escrow funds shall be invested in United
States Government obligations and the costs of the escrow shall
be paid from the escrowed funds. For purposes of Section 5.4(A)
only, termination for cause by RightCHOICE shall be limited to
(i) the commission of an act of actual fraud or willful
misconduct by O'ROURKE in the course of his employment which
materially adversely affects RightCHOICE, (ii) the violation by
O'ROURKE of the covenant not to compete contained in Section
5.3(G) of the Agreement, which violation shall continue for a
period of thirty (30) days following written notice from
RightCHOICE specifying such failure, or (iii) the commission of a
felony by O'ROURKE.
6. EFFECTS OF TERMINATION
Upon termination of this Agreement as hereinabove
provided, neither party shall have any further obligations
hereunder except for: (i) obligations accruing prior to the date
of termination of this Agreement, and (ii) obligations, promises
or covenants contained herein which are expressly made to extend
beyond the term of this Agreement.
7. NOTICE
Any notice, demand or communication required, permitted
or desired to be given under this Agreement shall be deemed
effectively given when personally delivered or mailed by first
class mail or certified mail, addressed as follows:
if to O'ROURKE:
John A. O'Rourke
138 Greenbriar Estates Drive
St. Louis, MO 63122
if to RightCHOICE:
RightCHOICE, Managed Care, Inc.
c/o Janice Forsyth
Corporate Counsel
1831 Chestnut Street
St. Louis, MO 63103
If either party changes its address during the term of this
Agreement, written notice of such change shall be mailed first
class to the other party.
8. MISCELLANEOUS
8.1. Successors.
This Agreement is personal and not assignable by
O'ROURKE, but it may be assigned by RightCHOICE, without notice
to or consent of O'ROURKE, provided such assignee agrees to abide
by and be bound by the provisions of the Agreement. In the event
of assignment by RightCHOICE, the Agreement shall thereafter be
enforceable by such assignee. During O'ROURKE's lifetime the
Agreement and all rights and obligations of O'ROURKE hereunder
shall be enforceable by and binding upon O'ROURKE's guardian or
other representative in the event that O'ROURKE is unable to act
on his own behalf for any reason whatsoever, and upon O'ROURKE's
death while this Agreement is in effect, this Agreement and all
rights and obligations of O'ROURKE hereunder shall inure to the
benefit of and be enforceable by and binding upon O'ROURKE's
Designated Beneficiary.
8.2. Articles and Other Headings.
The articles and other headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of the Agreement.
8.3. Waiver of Breach.
The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate
as, or be construed to be, a waiver of any subsequent breach of
the same or any other provision hereof.
8.4. Governing Law.
This Agreement supersedes all previous contracts
and constitutes the entire Agreement between the parties. No
oral statements or prior written material not specifically
incorporated herein shall be of any force and effect and no
changes or additions hereto shall be recognized unless
incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated in such
amendment(s). Both parties specifically acknowledge that in
entering into and executing this Agreement, they rely solely upon
the representation and agreements contained in this Agreement and
no others. This Agreement shall be interpreted, construed and
enforced pursuant to and in accordance with the Laws of the State
of Missouri, without regard to Missouri's choice of law
provisions.
8.5. Invalidity of Provisions.
In the event that any provision of the Agreement
is adjudicated to be invalid or unenforceable under applicable
law, the validity or enforceability of the remaining provisions
shall be unaffected. To the extent that any provision of the
Agreement is adjudicated to be invalid or unenforceable because
it is overbroad, that provision shall not be void but rather
shall be limited only to the extent required by applicable law
and shall be enforced as so limited.
8.6. Binding Arbitration.
Except for disputes arising under Section 5.4, any
dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration in
St. Louis, Missouri, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
8.7. Withholding of Taxes.
Company shall cause taxes to be withheld from
amounts paid pursuant to the Agreement as required by law.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the year and date first above written.
O'ROURKE RightCHOICE
BY: /s/ John A. O'Rourke BY: /s/ Norman J. Tice
John A. O'Rourke Norman J. Tice, Vice Chairman
EXHIBIT A
GENERAL WAIVER AND RELEASE
This General Waiver and Release ("Waiver") is made and
entered into by and among __________________ ("Officer") and
RightCHOICE Managed Care, Inc. including its affiliates,
officers, directors, agents and employees (the "Company").
WHEREAS, Officer's active employment ended on
_______________, 19 and Officer wants to begin receiving
benefits under the Officer Severance Agreement ("Severance
Agreement"), previously entered into between Officer and Company;
and
WHEREAS, among other conditions, the Severance Agreement
specifically requires Officer to execute this Waiver in order to
receive such severance benefits;
NOW THEREFORE, for and in consideration of the covenants and
undertakings herein set forth, and for other good and valuable
consideration, which each party hereby acknowledges, it is agreed
as follows:
1. Officer represents and warrants that, as of the date of
this Waiver, to the best of his knowledge, no circumstances exist
or have existed which could result in Officer's termination for
Cause or a suspension or termination of benefits under the
Severance Agreement as provided in the Severance Agreement.
2. Based on the representations and warranties provided by
Officer in clause No. 1 above, Company hereby acknowledges that
Officer's termination of employment with Company qualifies as
either an Involuntary Termination or a Proper Reason Termination
within the meaning of the Severance Agreement.
3. Officer agrees that he will not in any way disparage
the Company or its parent, subsidiary or other affiliated
entities, or their respective current or former officers,
directors and/or employees. Officer further agrees that he will
not make or solicit any comments, statements or the like to the
media or to others that may be considered to be derogatory or
detrimental to the good name or business reputation of any of the
aforementioned parties or entities. Company specifically
reserves the right to suspend or terminate benefits under the
Severance Agreement, if, subsequent to the execution of this
Waiver, Company becomes aware of information, or an event occurs,
which indicates noncompliance with this section or which would
otherwise result in a suspension or termination of such benefits
in accordance with the provisions of the Severance Agreement.
4. Officer agrees to, and does hereby, remise, release,
and forever discharge Company, and each and every one of its
parent, subsidiary and other affiliated entities, and their
respective agents, officers, executives, employees, successors,
predecessors, attorneys, trustees, directors, and assigns
(hereafter in this Section 4, all of the foregoing shall be
included in the term "Company"), from and with respect to all
matters, claims, charges, demands, damages, causes of action,
debts, liabilities, controversies, judgments, and suits of every
kind and nature whatsoever, foreseen or unforeseen, known or
unknown, which have arisen or may arise between Officer and
Company including, but not limited to, those in any way related
to Officer's employment and/or termination.
Officer further agrees that he will not file suit or
otherwise submit any other charge, claim, complaint, or action to
any agency, court, organization, or judicial forum (nor will he
permit any person, group of persons, or organization to take such
action on his behalf) against Company arising out of any actions
or non-actions that have occurred on the part of Company. Such
claims, complaints, and actions include, but are not limited to,
any based on alleged breach of an actual or implied contract of
employment between Officer and Company, or any claim based on
alleged unjust or tortious discharge (including any claim of
fraud, negligence, or intentional infliction of emotional
distress, any claim of discrimination and/or harassment based on
race, age, disability, taking a leave protected under the Family
and Medical Leave Act of 1993, and/or any other basis, any claim
of retaliation, any allegations of metal pain and suffering, loss
of reputation, humiliation or deprivation of Officer's legal
rights and any claim for lost salary, damages of any type or
description (including, without limitation, punitive,
compensatory or statutory), expenses of any type or description
(including, without limitation, attorney's fees)), any arising
under the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq.,
the Age Discrimination in Employment Act, 29 U.S.C. 621 et
seq., the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et
seq., the Rehabilitation Act of 1973, 29 U.S.C. 701 et seq.,
the Americans with Disabilities Act, 42 U.S.C. 2101, the Civil
Rights Act of 1871, 42 U.S.C. 1981, the Family and Medical
Leave Act of 1993, 19 U.S.C. 2601 et seq., the Missouri Human
Rights Act, 213.010 RSMo et seq., the Missouri Workers
Compensation law, 287 RSMo et seq., the Missouri Service Letter
Statute, 290.140 RSMo, or any other federal, state, or local
statutes or ordinances. Officer further agrees that in the event
that any person or entity should bring such a charge, claim,
complaint, or action on his behalf, he hereby waives and forfeits
any right to recovery under said claim and will exercise every
good faith effort to have such claim dismissed. Officer affirms
that he has no charge, claim, complaint or action against Company
pending in any government agency or court.
Notwithstanding the above, Officer shall not waive, and
there shall be no release with respect to, any claim (other than
a claim disputing the validity of section 3(D) of the Severance
Agreement or the provisions of this Waiver) of Officer to enforce
any one or more of the provisions of the Severance Agreement.
5. Pending Lawsuit. Officer agrees to make himself
available upon three days notice from Company, or its attorneys,
to be deposed, to testify at a hearing or trial or to accede to
any other reasonable request by Company in connection with any
lawsuit either currently pending against Company or any lawsuit
filed after Officer's separation that involves issues relating to
Officer's job responsibilities or to decisions made by him during
his employment with Company.
6. Injunctive Relief. In the event of a breach or
threatened breach of any of Officer's duties and obligations
under this Waiver, Company shall be entitled, in addition to any
other legal or equitable remedies Company may have in connection
therewith (including any right to damages that Company may
suffer), to a temporary, preliminary and/or permanent injunction
restraining such breach or threatened breach.
7. Invalidity of Provisions. In the event that any
provision of this Waiver is adjudicated to be invalid or
unenforceable under applicable law, the validity or
enforceability of the remaining provisions shall be unaffected.
To the extent that any provision of this Waiver is adjudicated to
be invalid or unenforceable because it is overbroad, that
provision shall not be void but rather shall be limited only to
the extent required by applicable law and enforced as so limited.
8. Knowing and Voluntary Waiver. Officer hereby
acknowledges that he is entering into this Waiver knowingly and
voluntarily and understands that he is waiving valuable rights he
may otherwise be entitled to.
9. Governing Law. This Waiver shall be construed and
governed by the laws of the State of Missouri, excluding its
choice of law provisions.
10. Gender. Provisions in this Waiver used in the
masculine gender shall also include the feminine gender, as
appropriate.
11. Successors and Assigns. This Waiver shall be binding
upon and inure to the benefit of any successors or assigns of
Officer or Company.
12. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings assigned to
them in the Severance Agreement.
13. Miscellaneous. The foregoing Waiver constitutes the
entire agreement among the parties and there are no other
understandings or agreements, written or oral, among them on this
subject. Separate copies of the document shall constitute
original documents which may be signed separately but which
together will constitute one single agreement. This Waiver will
not be binding on any party, however, until signed by all parties
or their representatives.
IN WITNESS WHEREOF, the undersigned have executed this
General Waiver and Release.
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT AS MY FREE ACT AND DEED.
Date: , Officer
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
I HAVE READ THIS GENERAL WAIVER AND RELEASE, UNDERSTANDING
ALL ITS TERMS, AND SIGN IT ON BEHALF OF COMPANY AS THE FREE ACT
AND DEED OF COMPANY.
Date:
COMPANY
By: /s/ Norman J. Tice
Name: Norman J. Tice
Title: Vice Chairman of the Board
Subscribed and sworn to before me, a Notary Public, this
day of
, .
Notary Public
My Commission Expires:
EXHIBIT B
DESIGNATION OF BENEFICIARY
PURSUANT TO OFFICER SEVERANCE AGREEMENT
Name of Officer John A. O'Rourke
Original Date of Agreement February 27, 1997
I hereby designate the following as my Designated Beneficiary. I
agree that unless instructed differently by me in writing below,
if I designate multiple beneficiaries they shall receive equal
shares of the total benefits payable upon my death. I
ACKNOWLEDGE THAT THIS BENEFICIARY DESIGNATION WILL APPLY ONLY TO
PAYMENT OF ANY SALARY CONTINUATION AMOUNTS THAT MAY BE PAYABLE
FOLLOWING MY DEATH AND DOES NOT AFFECT ANY BENEFICIARY
DESIGNATION I HAVE OR WILL MAKE WITH RESPECT TO ANY LIFE
INSURANCE OR OTHER BENEFITS I MAY OBTAIN THROUGH THE COMPANY OR
OTHERWISE.
NAME OF BENEFICIARY RELATIONSHIP ADDRESS
Denise O'Rourke Wife 138 Greenbriar
Date 2/27/97 Officer's Signature /s/ John A. O'Rourke
Receipt acknowledged on behalf of Company.
Date 5/27/97 RIGHTCHOICE MANAGED CARE, INC.
By /s/ Morry L. Berger
Exhibit 11
RightCHOICE Managed Care, Inc.
Computation of (Loss) Earnings per Share of Common Stock (1)
(Dollars and shares in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
PRIMARY
NET (LOSS) EARNINGS (applicable
to common stockholders) ($22,756) ($7,856) ($18,873) $1,653
Weighted average number of
common shares outstanding 18,672 18,677 18,673 18,679
Additional equivalent shares
issuable from assumed exercise
of common stock options 24 16 43 38
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,696 18,693 18,716 18,717
NET (LOSS) EARNINGS
PER COMMON SHARE ($1.22) ($0.42) ($1.01) $0.09
FULLY DILUTED (2)
NET (LOSS) EARNINGS (applicable)
to common stockholders) ($22,756) ($7,856) ($18,873) $1,653
Weighted average number of
common shares outstanding 18,672 18,677 18,673 18,679
Additional equivalent shares
issuable from assumed exercise
of common stock options 0 17 0 17
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,672 18,694 18,673 18,696
NET (LOSS) EARNINGS
PER COMMON SHARE ($1.22) ($0.42) ($1.01) $0.09
(1) As discussed in Footnote 4 to the Consolidated Financial Statements, the
company is required to implement a new methodology for determining earnings
per share in the fourth quarter of 1997. The impact of this methodology is
not expected to be material.
(2) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the RightCHOICE Managed Care, Inc. Form 10-Q for the
quarterly period ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,903
<SECURITIES> 242,324
<RECEIVABLES> 57,454
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 350,380
<PP&E> 102,411
<DEPRECIATION> 41,852
<TOTAL-ASSETS> 512,273
<CURRENT-LIABILITIES> 273,004
<BONDS> 58,376
0
0
<COMMON> 187
<OTHER-SE> 145,323
<TOTAL-LIABILITY-AND-EQUITY> 512,273
<SALES> 0
<TOTAL-REVENUES> 532,955
<CGS> 0
<TOTAL-COSTS> 584,222
<OTHER-EXPENSES> 488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,378
<INCOME-PRETAX> (26,541)
<INCOME-TAX> (7,668)
<INCOME-CONTINUING> (18,873)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,873)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
