SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
March 15, 1999
Date of Report (Date of earliest event reported): (March 11, 1999)
RIGHTCHOICE MANAGED CARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
MISSOURI
(State or Other Jurisdiction of Incorporation)
1-13248 43-1674052
(Commission File Number) (I.R.S. Employer Identification No.)
1831 Chestnut Street, St. Louis, Missouri 63103-2275
(Address of principal executive offices) (Zip Code)
314-923-4444
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Item 1. Changes in Control of Registrant.
Not applicable.
Item 2. Acquisition or Disposition of Assets.
Not applicable.
Item 3. Bankruptcy or Receivership.
Not applicable.
Item 4. Changes in Registrant's Certifying Account.
Not applicable.
Item 5. Other Events.
EXTENSION OF BLUE CROSS AND BLUE SHIELD LICENSES
On March 11, 1999, the Board of Directors of the Blue Cross
Blue Shield Association unanimously voted to extend the Company's
licenses to use the Blue Cross and Blue Shield service marks
until June 17, 1999. The status of the Company's licenses to use
the Blue Cross and Blue Shield service marks is described further
herein.
EXECUTION OF AMENDMENT TO SETTLEMENT AGREEMENT AND FILING OF
JOINT MOTION SEEKING APPROVAL OF SETTLEMENT AGREEMENT AS AMENDED
On March 12, 1999, the Company, Blue Cross and Blue Shield
of Missouri, the Attorney General of the State of Missouri and
the Missouri Department of Insurance (1) entered into an
Amendment to Settlement Agreement modifying the Settlement
Agreement entered into by the above named parties dated September
20, 1999, and (2) together with the amici curiae, filed a Joint
Motion By All Parties and the Amici Curiae to Approve Settlement
Agreement requesting that the Circuit Court of Cole County
approve the Settlement Agreement, as amended by the Amendment.
The status of the litigation relating to the Reorganization and
Public Offering, including the Settlement Agreement and the
Amendment, are described further herein.
STATUS OF LITIGATION RELATING TO THE REORGANIZATION AND PUBLIC
OFFERING
On March 12, 1999, RightCHOICE Managed Care, Inc. (the
"Company"), Blue Cross and Blue Shield of Missouri ("BCBSMo"),
the parent company of the Company, the Attorney General of the
State of Missouri (the "Missouri Attorney General") and the
Missouri Department of Insurance (the "DOI") (the Company,
BCBSMo, the Missouri Attorney General and the DOI, collectively,
the "Settlement Parties") entered into an Amendment to Settlement
Agreement (the "Amendment") which modifies the Settlement
Agreement (described below) previously entered into by and among
the Settlement Parties. The Settlement Parties entered into, and
agreed to the terms of, the Amendment in response to the Report
issued by the Special Master (the "Special Master's Report")
(described below) appointed by the Circuit Court of Cole County,
Missouri (the "Circuit Court") which recommended that the
Settlement Agreement "not be approved in its present form" and
further recommended that the Settlement Parties and the amici
curiae meet and confer and engage in a good faith effort to
address the concerns noted in the Special Master's Report.
The Amendment provides for, among other things, (i) BCBSMo
to pay $12.78 million to the independent public health care
foundation (the "Foundation") that will be created if the terms
of the Settlement Agreement are implemented, (ii) changes in the
qualifications and manner of selecting the Foundation's initial
Board of Directors, (iii) changes in the manner and time in which
the Foundation may, and must, sell the shares of RightCHOICE
common stock that it will own if the terms of the Settlement
Agreement are implemented, (iv) the Foundation to vote up to, but
not including, 5% of the shares of RightCHOICE common stock that
it will own outside of the voting trust that will be established
if the terms of the Settlement Agreement are implemented, and (v)
a clarification that the Foundation will not be prohibited from
interacting with the Missouri General Assembly on matters within
the Foundation's purpose or expertise.
The principal terms of the Settlement Agreement, as amended by
the Amendment, include the following:
o BCBSMo would, through a series of transactions set forth in
the Settlement Agreement and the related exhibits, (i) transfer
its insurance-related assets, contracts and agreements and
related liabilities to a wholly owned subsidiary of the Company;
(ii) convert to a for-profit corporation; (iii) reincorporate in
Delaware; and (iv) merge with the Company. The outstanding
common stock of the resulting entity (referred to herein as "new
RightCHOICE") would be owned approximately 20 percent by the
public shareholders and approximately 80 percent by the
Foundation (which equals the current aggregate ownership
interests of the public shareholders and BCBSMo, respectively, in
the equity of the Company).
o BCBSMo would pay $12.78 million to the Foundation.
o The Foundation would be required to liquidate its shares of
new RightCHOICE stock over a prescribed period of time and use
the proceeds for health care purposes. The Foundation would be
required to reduce its ownership of new RightCHOICE stock to less
than 50 percent of the total outstanding stock of new RightCHOICE
within three years of the closing of the reorganization, subject
to possible extension as provided in the Amendment (but not to
exceed four years) and to less than 20 percent of the total
outstanding stock of new RightCHOICE within five years of the
closing of the reorganization, subject to possible extension as
provided in the Amendment (but not to exceed seven years). All
but up to 5 percent of the shares of new RightCHOICE stock owned
by the Foundation would be subject to a voting trust that would,
with certain exceptions, effectively vest voting control of such
shares of new RightCHOICE stock owned by the Foundation in the
board of directors of new RightCHOICE.
o As a for-profit direct licensee for the Blue Cross and Blue
Shield names and trademarks, new RightCHOICE would be required to
include certain "basic protections" in its charter documents, and
it would be required to be independent from the direction,
control and influence of the Foundation. The "basic protections"
would include limitations on the amount of new RightCHOICE stock
that may be owned by certain categories of shareholders -- (i) no
"institutional" shareholder may own 10 percent or more of the
voting power of new RightCHOICE, (ii) no "non-institutional"
shareholder may own 5 percent or more of the voting power of new
RightCHOICE, and (iii) no shareholder may own 20 percent or more
of the equity of new RightCHOICE (with certain exceptions in the
case of the Foundation as described above). The charter
documents of new RightCHOICE would include certain provisions
whereby any shares owned by a shareholder in excess of the
applicable ownership limits could be redistributed by new
RightCHOICE.
The consummation of the transactions contemplated by the
Settlement Agreement, as amended by the Amendment, is subject to
a number of significant conditions and contingencies, including
approval by the Circuit Court, various regulators and the
shareholders of the Company, the receipt of rulings from the IRS
or tax opinions regarding the tax-free nature of the
transactions, and the satisfactory resolution of certain other
litigation involving the Company and BCBSMo (including the Sarkis
Litigation described in the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1998, which was dismissed
by the St. Louis Circuit Court on November 4, 1998, but is on
appeal).
BCBSMo, the Missouri Attorney General, the DOI and amici
curiae filed with the Circuit Court on March 12, 1999 a Joint
Motion By All Parties and the Amici Curiae to Approve Settlement
Agreement (the "Joint Motion") acknowledging their approval of
the terms of the Settlement Agreement, as amended by the
Amendment, and requesting the Circuit Court to approve the
Settlement Agreement, as amended by the Amendment.
In addition, on March 12, 1999, BCBSMo filed with the
Circuit Court Objections of Plaintiff Blue Cross and Blue Shield
of Missouri to Report of the Special Master asserting inter alia
that the Special Master made certain erroneous factual and
unsound legal conclusions in the Special Master's Report and
requesting the Circuit Court to approve the Settlement Agreement,
as amended by the Amendment.
The Amendment is attached hereto as Exhibit 99(a) and is
incorporated herein by reference. The BCBSMo press release
issued March 12, 1999 announcing execution of the Amendment and
the filing of the Joint Motion is attached hereto as Exhibit
99(b). The summary of the Settlement Agreement, as amended by
the Amendment, set forth herein is qualified in its entirety by
reference to the Settlement Agreement and the exhibits thereto,
which are included as exhibits to the Company's Current Report on
Form 8-K filed with the SEC on September 23, 1998, and the
Amendment, which is included as Exhibit 99(a) to this Report.
The underlying litigation related to the Reorganization and
Public Offering (as described below) giving rise to the
Settlement Agreement and the Amendment remains pending in the
Supreme Court of Missouri on appeal from prior partial summary
judgments in the case (as described below). The Supreme Court
has stayed the briefing schedule before it, and the parties are
to report to it on the status of the settlement proceedings in
the Circuit Court by April 15, 1999.
The following is a summary of the events that have preceded
the Amendment described above and which gave rise to the
Settlement Agreement.
In August 1994, BCBSMo transferred certain assets to the
Company in connection with an offering to the public of 20
percent of the common stock of the Company (such events are
referred to collectively as the "Reorganization and Public
Offering"). Although the Director of the DOI (the "Director")
formally approved the Reorganization and Public Offering on April
14, 1994, the Director and the 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 stock of the Company, to the State of Missouri or a
charity designated by the State of Missouri. The Director and
the 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 resolve the dispute without
litigation were unsuccessful. On May 13, 1996, BCBSMo filed a
declaratory judgment action in the Circuit Court against the
Director, the DOI and the Missouri Attorney General (the Missouri
Attorney General was a necessary party due to his sole authority
to enforce nonprofit corporation laws).
On June 13, 1996, the Director and the DOI filed an answer
and counterclaims. The answer set 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
alleged violations of certain health services corporation and
nonprofit corporation statutes. The Director's and the 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.
On June 20, 1996, the Missouri Attorney General filed an
answer and counterclaim alleging that the Reorganization and
Public Offering, and the continued operations through the Company
and its subsidiaries, exceeded BCBSMo's statutory purposes. The
Missouri Attorney General requested a declaration that BCBSMo
exceeded its lawful authority and sought such relief as the
Circuit Court would determine to be appropriate under the
circumstances based on a statute that authorizes judicial
dissolution or less drastic alternative relief in the Circuit
Court's discretion.
On September 9, 1996, the Circuit Court granted BCBSMo's
motion for summary judgment against the Director and the DOI,
rejected all of the Director's and the DOI's affirmative defenses
(including allegations of fraud), issued a permanent injunction
against the Director and the DOI and declared that: (i) under
Missouri law the Director and the DOI had 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 the DOI
had no jurisdiction to take any action, the practical effect of
which would be 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 the
DOI had 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 payment as the Director and the DOI
had demanded; and (iv) (A) BCBSMo was 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 did not owe the State of
Missouri 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 (the "September 9
Order"). On December 30, 1996, the Circuit Court issued orders
(the "December 30 Orders") modifying the findings and
declarations set forth in (iv) above, on the grounds that it was
legally unnecessary to resolve such issues because the Circuit
Court had already ruled against the Director and the DOI for
other reasons.
The September 9 Order permanently enjoined the Director and
the 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. Although the
injunctive relief described above remains in place, the Circuit
Court's December 30 Orders (described below) clarify that the
injunction does not prohibit the Director and the 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 the 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 sought a declaration that BCBSMo had exceeded or
abused the authority conferred upon it by law. Under this
counterclaim, the Director and the DOI sought an order to
rehabilitate BCBSMo or, in the alternative, injunctive relief.
On October 18, 1996, the Missouri Attorney General filed a
motion for leave to file an amended counterclaim against BCBSMo
that sought a declaration that BCBSMo was a public benefit
corporation, not a mutual benefit corporation, and requested an
order that BCBSMo amend its Articles of Incorporation
accordingly. The Circuit Court granted the Missouri Attorney
General's motion for leave to file the amended counterclaim,
which remains pending.
On December 30, 1996, the Circuit Court issued five orders
(the December 30 Orders): (i) denying BCBSMo's motion for
summary judgment against the Missouri Attorney General; (ii)
granting the Missouri Attorney General's motion for partial
summary judgment against BCBSMo; (iii) denying BCBSMo's
supplemental motion for summary judgment against the Director and
the DOI on their amended counterclaim; (iv) granting the
Director's and the DOI's motion for summary judgment against
BCBSMo on their amended counterclaim; and (v) modifying, in part,
the Circuit Court's previous September 9 Order as described
above. The December 30 Orders declared that (i) BCBSMo had
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 Circuit 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 Circuit 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 Missouri
Attorney General's counterclaim pending appeal; and (iii) stayed
the legal effect of the order granting the Director and the 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 the
DOI filed a notice of appeal of the September 9 Order, as
modified. Oral arguments were heard by the Missouri Court of
Appeals on February 24, 1998. On August 4, 1998, the Missouri
Court of Appeals entered its opinion affirming the judgments
entered December 30, 1996.
On September 20, 1998, the Company and certain of its
affiliates entered into various settlement agreements, described
above, with certain state agencies, including the Missouri
Attorney General and the DOI (the "Settlement Agreement"), which,
if consummated, would resolve the outstanding litigation and
regulatory disputes between the Company and its affiliates and
the State of Missouri, including the litigation related to the
Reorganization and the Public Offering, and create the
Foundation.
On September 22, 1998, the application of BCBSMo in the
Missouri Court of Appeals for rehearing and alternatively for
transfer of the case to the Supreme Court of Missouri was denied.
On October 7, 1998, BCBSMo requested that the Supreme Court of
Missouri accept transfer of the case.
On October 29, 1998, notwithstanding the fact that the
litigation relating to the Reorganization and Public Offering had
not yet been remanded to the Circuit Court, the Circuit Court,
"acting on its own motion," issued an Order (the "October 29
Order") providing for, among other things, the appointment of
Robert G. Russell as receiver/custodian pendente lite to, among
other things, take exclusive possession and control of all of the
issued and outstanding shares of the Company's common stock owned
by BCBSMo. The October 29 Order cited concerns by the Circuit
Court about the fairness of the transactions set forth in the
Settlement Agreement, alleged conflicts of interest and the need
for an independent examination of the proposed settlement and
related issues. The October 29 Order also approved the
engagement of legal counsel and an investment banker to advise
the receiver/custodian. Although the October 29 Order did not
constitute the appointment of a receiver/custodian over the
operations of either the Company or BCBSMo, had it not been void
from the beginning as alleged by BCBSMo and as declared by the
Circuit Court as described below, the October 29 Order could have
had several significant and adverse consequences, including the
automatic termination of the Company's Blue Cross and Blue Shield
licenses and a resultant event of default under the Company's
Credit Agreement. A copy of the October 29 Order is attached as
an exhibit to the Company's Current Report on Form 8-K filed with
the SEC on November 2, 1998.
On November 2, 1998, BCBSMo filed its Motion to Vacate Order
and its Memorandum in Support of Motion to Vacate in response to
the October 29 Order. BCBSMo alleged that (i) the Circuit Court
lacked jurisdiction to issue the October 29 Order because the
case was still pending before the Missouri Supreme Court, which
had not then ruled on the application of BCBSMo to transfer to
the Missouri Supreme Court; (ii) the Circuit Court issued the
order without notice and an opportunity to be heard; (iii) there
were no exigent circumstances that would warrant the appointment
of a receiver without due process; and (iv) that the appointment
of the receiver had the effect of frustrating the purpose for
which the receiver was to be appointed, namely, the preservation
of the nonprofit assets of BCBSMo. Copies of the Motion to
Vacate Order and Memorandum in Support of Motion to Vacate are
attached as exhibits to the Company's Current Report on Form 8-K
filed with the SEC on November 6, 1998.
On November 2, 1998, the Blue Cross and Blue Shield
Association (the "BCBSA") filed a complaint against the Company,
its subsidiaries and BCBSMo in the United States District Court
for the Northern District of Illinois alleging that the
appointment of the receiver/custodian pendente lite caused the
automatic termination of the licenses to use the service marks.
The complaint alleged service mark infringement and breach of
license agreements as a result of the Company's continued use of
the Blue Cross and Blue Shield service marks following the
issuance of the October 29 Order. The BCBSA later dismissed its
complaint.
On November 4, 1998, the Circuit Court issued an Order (the
"November 4 Order") vacating the October 29 Order and declaring
it to be void ab initio (or "from the beginning"). The Circuit
Court, in issuing the November 4 Order, acknowledged that the
significant and adverse consequences that could have resulted
from the October 29 Order were unintended. On November 4, 1998,
the Circuit Court also issued an Order (the "November 4 Special
Master Order") appointing Robert G. Russell as Special Master for
the purpose of collecting and analyzing information related to
the proposed settlement. The November 4 Special Master Order
also approved the engagement of legal counsel and such financial
advisors as are approved by the court to advise the Special
Master. The effect of the November 4 Order was to void the
October 29 Order as if it never existed. The Special Master has
expressed his interest in ensuring that the Company continues its
business in the normal course during his review. Copies of the
November 4 Order and the November 4 Special Master Order are
attached as exhibits to the Company's Current Report on Form 8-K
filed with the SEC on November 6, 1998.
On November 6, 1998, the Circuit Court entered an Order of
Reference (the "November 6 Order"), among other things, directing
the Special Master to collect and analyze information as to the
options and alternatives available to the Circuit Court for
disposition of the remaining issues in the litigation, including,
but not limited to, an examination of the Settlement Agreement.
The Special Master was also directed to address several concerns
of the Circuit Court that were originally outlined in the October
29 Order. The Special Master was further directed to investigate
issues concerning the Blue Cross and Blue Shield licenses and
trademarks and the Company's Credit Agreement. A copy of the
November 6 Order was attached as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
On November 19, 1998, the Blue Cross and Blue Shield license
agreements were reinstated with addenda that provide, among other
things, that the licenses will terminate unless extended by the
Board of Directors of the BCBSA which will vote upon the
extension at a meeting on March 11, 1999. As described below, the
BCBSA unanimously voted to extend the licenses until June 17,
1999.
On November 24, 1998, the Supreme Court of Missouri granted
the motion of BCBSMo to accept transfer of the litigation related
to the Reorganization and Public Offering. As a result of this
action, the opinion of the Missouri Court of Appeals dated August
4, 1998 (described above) has been vacated. The Missouri Supreme
Court will now decide the appeals as if they were original
appeals in that Court. If the Missouri Supreme Court had denied
the request for transfer, the opinion of the Missouri Court of
Appeals dated August 4, 1998 would have become final without
modification and the case would have been remanded to the Circuit
Court for further proceedings to determine the remedy for the
violation of BCBSMo's statutory purposes that, as described
above, the Circuit Court previously found to have occurred.
The Supreme Court of Missouri subsequently stayed the
briefing schedule in the proceeding before it in order to permit
the proceedings in the Circuit Court concerning review of the
Settlement Agreement to proceed.
The Special Master conducted hearings on December 4,
December 16 and December 22, 1998, and on February 4, 1999, at
which evidence related to the proposed settlement and other
subjects was addressed.
On February 10, 1999, the Special Master issued the Special
Master's Report. While the Special Master stated that "there are
many things to commend the Settlement Agreement for the [Circuit]
Court's approval," he had "serious concerns" with its terms that
prevented him from recommending approval. Among the concerns he
identified in the Special Master's Report were (i) whether the
Foundation would receive full value of the present assets of
BCBSMo; (ii) whether the contemplated method of divestiture of
the RightCHOICE shares to be held by the Foundation over time
pursuant to a Voting Trust and Divestiture Agreement and
Registration Rights Agreement would yield full value for the
shares; (iii) whether the proposed provisions for governance of
the Foundation were reasonable; and (iv) whether the provisions
for the purposes of the Foundation were justified.
On March 12, 1999, the Settlement Parties entered into the
Amendment in response to the Special Master's Report.
There can be no assurance that the transactions contemplated
by the Settlement Agreement, as amended by the Amendment, will be
consummated. The failure to consummate the transactions
contemplated by the Settlement Agreement, as amended by the
Amendment, or to otherwise resolve the litigation related to the
Reorganization and Public Offering in a manner satisfactory to
the Company could have a material adverse effect on the Company
and the market for its stock.
STATUS OF BLUE CROSS AND BLUE SHIELD LICENSES
On March 11, 1999, the Board of Directors of the BCBSA
unanimously voted to extend the Company's licenses to use the
Blue Cross and Blue Shield service marks until June 17, 1999.
The following is a summary of recent events regarding the
status of the Company's licenses to use the Blue Cross and Blue
Shield service marks that preceded the decision of the BCBSA
Board of Directors on March 11, 1999.
At a meeting held on November 19, 1998, the Board of
Directors of the BCBSA approved the reinstatement, effective as
of October 29, 1998, of the licenses to use the Blue Cross and
Blue Shield service marks, granted to the Company, BCBSMo, and
two wholly owned subsidiaries of the Company, Healthy Alliance
Life Insurance Company and HMO Missouri, Inc. The approval
clarified the rights of the Company and its licensed affiliates,
to continue uninterrupted, the use of the service marks following
actions taken by the BCBSA which resulted from the October 29
Order.
The October 29 Order provided for the appointment of Robert
G. Russell as Receiver/Custodian pendente lite to, among other
things, take exclusive possession and control of all of the
issued and outstanding shares of the Company's Class B Common
Stock, all of which is owned by BCBSMo. On November 2, 1998, the
BCBSA notified the Company and its licensed affiliates that their
licenses to use the Blue Cross and Blue Shield service marks had
terminated automatically pursuant to their terms on October 29,
1998 as a result of the October 29 Order and filed a Complaint
against the Company and its licensed affiliates alleging inter
alia service mark infringement and breach of license agreements
as a result of the continued use of the service marks following
the issuance of the October 29 Order (the "BCBSA Complaint"). On
November 4, 1998, after BCBSMo filed its Motion to Vacate Order
and its Memorandum in Support of Motion to Vacate in response to
the October 29 Order, the Court issued the November 4 Order (as
described above) which set aside the October 29 Order and
declared it to be void ab initio, or "void from the beginning."
As a result, the BCBSA dismissed the BCBSA Complaint.
Each of the reinstated license agreements approved by the
BCBSA included an addendum which provided, among other things,
that the licenses granted under such license agreements would be
reviewed by the BCBSA at the next regularly scheduled meeting of
the BCBSA Board of Directors on March 11, 1999. If on or before
March 11, 1999 the BCBSA did not extend the termination dates for
the license agreements until the next regularly scheduled meeting
of the BCBSA Board of Directors after March 11, 1999 or otherwise
modify the addenda, the license agreements would have terminated
on March 11, 1999.
On March 11, 1999, the Board of Directors of the BCBSA
modified the addenda to provide that the licenses granted under
such license agreements will be reviewed by the BCBSA at the next
regularly scheduled meeting of the BCBSA Board of Directors on
June 17, 1999. If on or before June 17, 1999 the BCBSA does not
extend the termination dates for the license agreements until the
next regularly scheduled meeting of the BCBSA Board of Directors
after June 17, 1999 or otherwise modify the addenda, the license
agreements will terminate on June 17, 1999. This "board-to-board"
extension of the license agreements has been adopted in
conjunction with the issuance of reinstated licenses granted to
other BCBSA licensees following a license termination. There can
be no assurances that the BCBSA will take the necessary and
appropriate action to extend the license agreements beyond June
17, 1999 or any time thereafter.
The licenses of the Company and its licensed affiliates, and
the addenda thereto effective as of October 29, 1998, are
attached as Exhibits 10.6.5 - 10.13.4 to the Company's Form 8-K
filed with the Securities and Exchange Commission on November 24,
1998 and are incorporated herein by reference.
Item 6. Resignations of Registrant's Directors.
Not applicable.
Item 7. Financial Statements
Pro Forma Financial Statements and Exhibits.
(a) - (b) Not applicable.
(c) Exhibits Required by Item 601 of Regulation S-K:
99(a) Amendment to Settlement Agreement.
99(b) Press Release dated March 12, 1999.
Item 8. Change in Fiscal Year.
Not applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: March 15, 1999.
RIGHTCHOICE MANAGED CARE, INC.
By: /s/ Sandra A. Van Trease
Sandra A. Van Trease
Chief Financial Officer, Senior
Executive Vice President and
Chief Operating Officer
EXHIBIT INDEX
Exhibit No. Description
99(a) Amendment to Settlement
Agreement, dated as of March 12, 1999, by and
among Jeremiah W. "Jay" Nixon, Attorney
General of the State of Missouri; the
Missouri Department of Insurance and A. W.
McPherson, its acting director; Blue Cross
and Blue Shield of Missouri; and RightCHOICE
Managed Care, Inc.
99(b) Press Release dated March 12, 1999.
Exhibit 99(a)
AMENDMENT TO SETTLEMENT AGREEMENT
This Amendment to Settlement Agreement (the "Amendment"),
dated as of March 12, 1999, is made and entered into by and among
Jeremiah W. "Jay" Nixon, Attorney General of the State of
Missouri (the "Attorney General"); the Missouri Department of
Insurance and A.W. McPherson, its acting director (referred to
collectively as the "Department of Insurance"); Blue Cross and
Blue Shield of Missouri ("Blue Cross Blue Shield"), a Missouri
not for profit health services corporation; and RightCHOICE
Managed Care, Inc. ("RightCHOICE"), a Missouri for profit general
business corporation (collectively, the "Parties" and
individually, a "Party").
RECITALS
A. On September 20, 1998, the Parties signed a Settlement
Agreement (the "Original Settlement Agreement"), a purpose of
which was to settle certain civil actions including Blue Cross
Blue Shield of Missouri, Plaintiff v. Jay Angoff, Director of the
Missouri Department of Insurance, and Jeremiah W. "Jay" Nixon,
No. CV196-619CC, which is now pending in the Circuit Court of
Cole County, Missouri.
B. By order of the Circuit Court, Robert G. Russell was
appointed as a Special Master to review and evaluate the Original
Settlement Agreement and make recommendations to the Court.
C. In his Report of February 10, 1999, Special Master Russell,
after subjecting the Original Settlement Agreement to detailed
scrutiny, expressed certain concerns about the Original
Settlement Agreement, recommended that it not be approved in its
present form, and recommended that the Court withhold a final
ruling on the Original Settlement Agreement to give the parties
and the amici curiae an opportunity to engage in a good faith
effort to address the concerns noted in the Special Master's
Report.
D. The Parties and the amici curiae have met and conferred and
engaged in a good faith effort to address the concerns noted in
the Special Master's Report, most of which were also concerns
expressed by the amici curiae.
E. As a result of these good faith efforts, the Parties have
agreed to amend the Original Settlement Agreement as set forth
herein to address the concerns of the Special Master and the
amici curiae. The Original Settlement Agreement as amended by
this Amendment is hereinafter referred to as the "Amended
Settlement Agreement."
F. All of the concerns expressed by the amici curiae relative
to the Original Settlement Agreement have been addressed by such
amendments, and the amici curiae now fully support and urge
approval of the Amended Settlement Agreement.
G. The Original Settlement Agreement is fair, reasonable
and in the public interest, and the Amended Settlement Agreement
remains fair, reasonable and in the public interest and should be
approved by the Court.
AGREEMENT
In consideration of the foregoing, and the mutual covenants
and agreements contained in this Agreement, the Parties agree to
the following amendments to the Original Settlement Agreement:
1. The Original Settlement Agreement is hereby amended as
follows:
a. A new section shall be added and
designated as Section 4 and shall provide:
4. Payment for Public Purpose. On the
Closing Date (as defined below), but
prior to and separate from the
implementation of the Reorganization
Agreement (as defined below), Blue Cross
Blue Shield shall pay to the Foundation
the amount of $12,780,000 in partial
satisfaction of claims by various
parties, including the Attorney General,
Department of Insurance and amici
curiae, that Blue Cross Blue Shield has
a public purpose obligation, which
amount is to be used by the Foundation
to carry out its stated purposes.
b. Former Sections 4 through 18 shall be
redesignated as Sections 5 through 19 respectively
and former Section 19 shall be redesignated as
Section 21.
c. A new section shall be added and
designated as Section 20 and shall provide:
20. Nominating Committee Expenses.
After all of the Signing Conditions have
been satisfied or waived by the Parties,
the Attorney General and Department of
Insurance will review, approve and then
submit to Blue Cross Blue Shield for
payment, in an amount not to exceed
$50,000 in the aggregate, the reasonable
and necessary costs incurred in
connection with the search for qualified
candidates to serve on the Foundation
Board to be conducted by the Nominating
Committee, and Blue Cross Blue Shield
shall pay such amounts.
2. Exhibit A, Form of Articles of Incorporation of The
Missouri Foundation For Health, is hereby amended as follows:
a. Article IV, Section 4.3, shall be deleted in
its entirety and replaced with the following:
4.3 No part of the activities of the
Corporation may consist of carrying on
propaganda or otherwise attempting to
influence legislation, provided that such
restriction shall not be construed to
prohibit the Corporation from interacting
with, reporting to, educating, or advising
the General Assembly with respect to matters
within the purposes and expertise of the
Foundation.
b. Article IV, Section 4.5, shall be amended by
inserting at the very end of that Section the
following phrase: "provided that the Corporation
shall in no way be precluded from interacting
with, reporting to, educating, or advising the
General Assembly with respect to matters within
the purposes and expertise of the Foundation."
3. Exhibit B, Form of Bylaws The Missouri Foundation For
Health, is hereby amended as follows:
a. Article 4, Section 4.2.2, shall be deleted in
its entirety and replaced with the following:
4.2.2 Nomination and Election of
Members of the Board. The initial members of
the Board who shall serve until the Closing
Time (the "Pre-Closing Board") shall be
appointed by the Director of the Department
of Insurance and the Attorney General of the
State of Missouri. Of the initial members of
the Board who shall serve from and after the
Closing Time (the "Post-Closing Board"), ten
(10) Directors shall be appointed by the
Governor and five (5) Directors shall be
appointed by the Attorney General. These
appointments shall be made from a slate of
thirty-five (35) nominees, each of whom shall
be qualified to serve as a Director, that
will provided by the Nominating Committee
pursuant to Section 5.1.4. Either the
Governor or the Attorney General may reject
names from the slate due to a conflict of
interest or as being unqualified to serve as
Directors under Section 4.2.4, and the
Nominating Committee shall replace those
names on the slate with new, qualified
nominees. Each year subsequent to the
appointment of the initial members of the
Post-Closing Board at the annual meeting of
the Board, or at a special meeting of the
Board called for the purpose of filling one
or more specified Board vacancies, that
number of directors equal to the number of
directors of the class whose terms expire at
the end of such meeting (or, in the case of a
special meeting to fill one or more
vacancies, that number of directors equal to
the number of specified vacancies) shall be
elected by the Board from among the persons
nominated by the Community Advisory Committee
in accordance with Section 5.1.6, to hold
office for the terms as provided in Section
4.2.3.
b. Article 4, Section 4.2.4(b), shall be amended
by deleting the introductory phrase "Each Director
must have expertise and education in one or more
of the following area:" and inserting in its place
the following phrase "Each Director must have
expertise, education, and/or experience in one or
more of the following areas:"
c. A new section shall be added in Article 5,
which shall be designated Section 5.1.5 and shall
provide:
5.1.5 Nominating Committee. There shall be
a Nominating Committee which shall consist of
13 persons appointed by the Governor and the
Attorney General of the State of Missouri,
acting jointly, in consultation with
representatives of the American Association
of Retired Persons (Missouri Chapter), the
League of Women Voters of Missouri, the
Missouri Association for Social Welfare, the
Missouri Consumer Health Care WATCH
Coalition, and the Reform Organization of
Welfare. Following the appointment of the
Nominating Committee, the members thereof
shall, with all deliberate speed, produce a
slate of 35 persons, each of whom must be
qualified to serve as Directors of the
Corporation under Section 4.2.4 and none of
whom may be members of the Nominating
Committee, which slate shall be delivered to
both the Governor and the Attorney General.
Names rejected by either the Governor or the
Attorney General due to a conflict of
interest or as unqualified to serve under
Section 4.2.4 shall be replaced on the slate
by the Nominating Committee with new,
qualified nominees. The Nominating Committee
shall elect from its members a Chairperson,
and the Committee shall act by majority vote.
The Committee is authorized to take such
actions and engage the services of such
professionals as it deems reasonable and
necessary to accomplish its nominating
mission. Expenses of the Committee are to be
reported to the Attorney General and the
Director of the Department of Insurance for
their review and submission to Blue Cross and
Blue Shield of Missouri for payment.
Unnecessary or unreasonable expenses, in the
view of the Director of the Department of
Insurance and the Attorney General, and all
expenses which exceed an overall cap of
$50,000, will not be submitted for payment.
Once the initial 15 Directors have been
appointed and have taken office, the
Nominating Committee shall dissolve and its
members shall become the initial members of
the Community Advisory Committee.
d. The former Section 5.1.5 shall be deleted in
its entirety and replaced with the following
redesignated as Section 5.1.6:
5.1.6 Community Advisory Committee. There
shall be a Community Advisory Committee which
shall consist of not less than thirteen (13)
persons, none of whom may be members of the
Board. The initial members of the Community
Advisory Committee shall be the members of
the Nominating Committee. Members of the
Community Advisory Committee shall serve for
terms of three years. No member of the
Community Advisory Committee shall serve more
than two consecutive three-year terms.
Subsequent members of the Community Advisory
Committee, including the members appointed to
fill vacancies, shall be appointed by the
Governor and the Attorney General of the
State of Missouri, acting jointly, in
consultation with community representatives
from the communities to be served by the
Corporation, as provided in the Articles, and
shall reflect the broad and diverse interests
of such communities. The Community Advisory
Committee shall be responsible for (1)
advising the Board on no less than a annual
basis as to the efficacy of the Foundation's
programs from the communities' perspectives,
as well as the communities' priorities for
future efforts of the Foundations, and (2)
nominating persons to serve on the Board
subsequent to the appointment of the initial
members of the Post-Closing Board as provided
in Section 4.2.2. The Community Advisory
Committee shall nominate a number of
candidates equal to five (5) times the number
of vacancies to be filled. In arriving at
its nominations, the Community Advisory
Committee shall adhere to the following
process:
(1) The Community Advisory Committee
shall apply the selection criteria set
forth in Section 4.2, and shall not
nominate a candidate who would be unable
to serve pursuant to any other provision
of Section 4.2.
(2) The Community Advisory Committee
shall be guided by a self-assessment of
the skills and experience of the
continuing members of the Board and by
consideration of the skills and
experience needed by the Board to
accomplish the mission and programmatic
objectives of the Corporation.
(3) The Community Advisory Committee
shall conduct a public outreach and
notification process.
(4) With respect to the vacancies to be
filled at each annual meeting of the
Board, the Community Advisory Committee
shall complete its process and shall
present its nominations in writing to
the Board no later than the first
business day of the calendar year in
which such annual meeting is to be held
(or such other date as the Board may
designate).
(5) With respect to any vacancy on the
Board occurring by reason of the death,
resignation or removal of any director,
the Community Advisory Committee shall
complete its process and nominate no
less than five (5) candidates no later
than the date requested by the Board,
which shall be no less than thirty (30)
days after written notification of the
vacancy has been delivered to the Chair
of the Community Advisory Committee.
4. Exhibit J, Form of Registration Rights Agreement, is
hereby amended as follows:
a. Section 1(y) shall be deleted in its entirety and
replaced with the following:
(y) "Initial Continuing Option Exercise
Date" means the first date on which the
Foundation holds less than fifty percent
(50%) of issued and outstanding shares
of Common Stock.
b. Section 1(ee) shall be deleted in its entirety and
replaced with the following:
(ee) "Piggy-Back Request" has the
meaning set forth in Section 3(c)
hereof.
c. Section 1(ff) shall be deleted in its entirety and
replaced with the following:
(ff) "Piggy-Back Rights" has the
meaning set forth in Section 3(b)
hereof.
d. A new section shall be added and designated as
Section 1(tt) and shall provide:
(tt) "Share-Rights" has the meaning
specified in Section 3(b) hereof.
e. Former Sections 1(tt), 1(uu) and 1(vv) shall be
redesignated as Sections 1(uu), 1(vv) and 1(ww),
respectively.
f. The first sentence of Section 2(b) shall be
deleted in its entirety and replaced with the
following:
(b) Following its receipt of a
Demand, the Company shall have the
right, but not the obligation (the
"Demand Option"), exercisable by
providing written notice thereof (the
"Demand Option Notice") to the
Foundation within fifteen (15) days, to
purchase all or (subject to the
penultimate sentence of this
Section 2(b)) any portion of the
Registrable Securities that are the
subject of such Demand (the "Demand
Option Securities") at a cash price per
share equal to the average closing sale
price per share of the Common Stock on
the NYSE during the ten (10) consecutive
trading days ending on the second (2nd)
trading day immediately preceding the
date of the Demand.
g. In the second sentence of Section 2(b), the
reference to "sixty (60) days" shall be deleted
and replaced with "thirty (30) days." As amended,
the second sentence of Section 2(b) shall provide:
The Demand Option Notice shall state the
number of Demand Option Securities that
the Company shall purchase pursuant to
the Demand Option, the aggregate
purchase price therefor, and the closing
date of the Company's purchase of the
Demand Option Securities, which shall
take place no later than thirty (30)
days after the date of the Demand Option
Notice.
h. In the last sentence of Section 2(b), the
reference to "one (1) of the three (3)" Demand
Registrations shall be deleted and the phrase "or
Section 2(d)(ii)" shall be inserted following the
phrase "Section of 2(d)(i)". As amended, the last
sentence of Section 2(b) shall provide:
In the event that the Company shall
purchase all of the Demand Option Shares
in accordance with this Section 2(b),
then the requested Demand Registration
related thereto shall not be deemed to
count as a Demand Registration described
in Section 2(d)(i) or Section 2(d)(ii)
hereof.
i. In Section 2(c), the phrase "and to cause such
Registration Statement to become effective" shall
be added to the end thereof. As amended,
Section 2(c) shall provide:
If the Company does not elect to
exercise the Demand Option, or elects to
purchase less than all of the Demand
Option Securities, the Company shall use
its best efforts to file a Registration
Statement for the Registrable
Securities, or remainder thereof,
identified in such Demand as soon as
practicable and to cause such
Registration Statement to become
effective.
j. Section 2(d)(i) shall be deleted in its entirety
and replaced with the following:
(i) if the Company shall have
previously effected a Demand
Registration at any time during the
immediately preceding one hundred eighty
(180) day period;
k. Section 2(d)(ii) shall be deleted in its entirety
and replaced with the following:
(ii) if the Company shall have
previously effected a Demand
Registration at any time during the
calendar year in which the Demand was
received;
l. In Section 2(d)(iii), the phrase "nine (9) month
period" shall be deleted and replaced with "one
hundred twenty (120) day period". As amended,
Section 2(d)(iii) shall provide:
(iii) if the Company shall have
previously effected a registration of
Common Stock to be issued and sold by
the Company at any time during the
immediately preceding one hundred twenty
(120) day period (other than a
registration on Form S-4, Form S-8 or
Form S-3 (with respect to dividend
reinvestment plans and similar plans) or
any successor forms thereto);
m. In Section 2(f), the phrase "or Section 2(d)(ii)"
shall be inserted after the phrase
"Section 2(d)(i)" and the reference to "one (1) of
the three (3)" Demand Registrations shall be
deleted. As amended, Section 2(f) shall provide:
(f) A requested Demand
Registration shall not be deemed to
count as a Demand Registration described
in Section 2(d)(i) or Section 2(d)(ii)
hereof if: (i) such registration has not
been declared effective by the SEC or
does not become effective in accordance
with the Securities Act, (ii) after
becoming effective, such registration is
materially interfered with by any stop
order, injunction or similar order or
requirement of the SEC or other
governmental agency or court for any
reason not attributable to the
Foundation and does not thereafter
become effective, (iii) the conditions
to closing specified in the underwriting
agreement, if any, entered into in
connection with such Demand Registration
are not satisfied or waived due to a
failure on the part of the Company, or
(iv) the Foundation shall have withdrawn
its Demand or otherwise determined not
to pursue such registration prior to the
filing of the Registration Statement
with the SEC for such Demand, provided
that the Foundation shall have
reimbursed the Company for all of its
Registration Expenses incurred in
connection with such Demand.
n. Section 2(g) shall be deleted in its entirety and
replaced with the following:
(g) Should a Registration
Statement filed pursuant to a Demand not
become effective due to the failure of
the Foundation to perform its
obligations under this Agreement or the
inability of the Foundation to reach
agreement with the underwriter(s) on
price or other customary terms for such
transaction, or in the event the
Foundation determines to withdraw or
does not pursue a request for
registration pursuant to a Demand (in
each of the foregoing cases, provided
that at such time the Company shall be
in compliance in all material respects
with its obligations under this
Agreement), then such registration shall
be deemed to count as a Demand
Registration described in
Section 2(d)(i) and Section 2(d)(ii)
hereof, unless the Foundation shall have
reimbursed the Company for all of its
Registration Expenses incurred in
connection with such Demand.
o. In Section 2(i), the phrase "or Section 2(d)(ii)"
shall be inserted after the phrase
"Section 2(d)(i)" throughout the Section and the
reference to "one (1) of three (3)" Demand
Registrations shall be deleted throughout the
Section. As amended, Section 2(i) shall provide:
(i) If the lead managing
underwriter (selected by the Company as
provided in Section 5 hereof) of an
Underwritten Offering made pursuant to a
Demand shall advise the Company in
writing (with a copy to the Foundation)
that marketing or other factors require
a limitation on the number of shares of
Common Stock which can be sold in such
offering within a price range acceptable
to the Foundation, then (i) if the
Company shall have elected to include
any securities to be issued and sold by
the Company in such Registration
Statement pursuant to Section 2(h)
hereof, then the Company shall reduce
the number of securities the Company
shall intend to issue and sell pursuant
to such Registration Statement such that
the total number of securities being
sold by the Foundation and the Company
shall be equal to the number which can
be sold in such offering within a price
range acceptable to the Foundation, and
(ii) if the Company shall not have
elected to include any securities in
such Registration Statement pursuant to
Section 2(h) hereof or if the reduction
referred to in the previous clause (i)
shall not be sufficient, then,
notwithstanding Section 2(d)(iv) hereof,
the Foundation shall reduce the number
of Registrable Securities requested to
be included in such offering to the
number that the lead managing
underwriter advises can be sold in such
offering within such price range and
such Demand shall count as a Demand
Registration described in
Section 2(d)(i) or Section 2(d)(ii)
hereof, provided that at least
$10,000,000 in gross sale proceeds shall
have been received by the Foundation
pursuant to such offering, otherwise
such requested Demand Registration shall
not be deemed to count as a Demand
Registration described in
Section 2(d)(i) or Section 2(d)(ii)
hereof (provided that the Foundation
shall have reimbursed the Company for
all of its Registration Expenses
incurred in the preparation, filing and
processing of the Registration
Statement).
p. A new section shall be added and designated as
Section 3(a) and shall provide:
(a) The Company shall not file a
Registration Statement relating to the
public offering of Common Stock for sale
for cash for its own account for a
period of one hundred eighty (180) days
following the Closing Date without prior
written consent of the Foundation, which
consent shall not be unreasonably
withheld.
q. The former Section 3(a) shall be deleted in its
entirety and replaced with the following
redesignated as Section 3(b):
(b) Whenever the Company shall
propose to file a Registration Statement
under the Securities Act relating to the
public offering of Common Stock for sale
for cash for its own account, the
Company shall give written notice to the
Foundation at least fifteen (15)
Business Days prior to the anticipated
filing thereof, specifying the
approximate date on which the Company
proposes to file such Registration
Statement and the intended method of
distribution in connection therewith,
and advising the Foundation of the
Foundation's right to have any or all of
the Registrable Securities then held by
the Foundation included among the
securities to be covered by such
Registration Statement (the "Piggy-Back
Rights") and of the Foundation's right,
until such time as the Foundation holds
less than fifty percent (50%) of the
issued and outstanding shares of Common
Stock, to have any or all of the
Registrable Securities then held by the
Foundation included among the securities
to be covered by such Registration
Statement such that the Foundation shall
be entitled to receive, at its option,
up to fifty percent (50%) of the
proceeds from the issuance of shares of
Common Stock to the public (the "Share-
Rights").
r. The former Section 3(b) shall be redesignated as
Section 3(c) and the reference to "Section 3(c)"
therein shall be changed to "Section 3(d)" and the
reference to "Section 3(d)" therein shall be
changed to "Section 3(e)" and the phrase "or Share-
Rights" shall be inserted following the phrase
"Piggy-Back Rights". As amended, Section 3(c)
shall provide:
(c) Subject to Section 3(d) and
Section 3(e) hereof, in the event that
the Foundation has and shall elect to
utilize its Piggy-Back Rights or Share-
Rights, the Company shall include in the
Registration Statement the Registrable
Securities identified by the Foundation
in a written request (the "Piggy-Back
Request") given to the Company not later
than ten (10) Business Days prior to the
proposed filing date of the Registration
Statement. The Registrable Securities
identified in the Piggy-Back Request
shall be included in the Registration
Statement on the same terms and
conditions as the other shares of Common
Stock included in the Registration
Statement.
s. Former Section 3(c) shall be redesignated as
Section 3(d) and the phrase "or Share-Rights"
shall be inserted following the phrase "Piggy-Back
Rights". As amended, Section 3(d) shall provide:
(d) Notwithstanding anything in
this Agreement to the contrary, the
Foundation shall not have Piggy-Back
Rights or Share-Rights with respect to
(i) a Registration Statement on Form S-4
or Form S-8 or Form S-3 (with respect to
dividend reinvestment plans and similar
plans) or any successor forms thereto,
(ii) a Registration Statement filed in
connection with an exchange offer or an
offering of securities solely to
existing stockholders or employees of
the Company, (iii) a Registration
Statement filed in connection with an
offering by the Company of securities
convertible into or exchangeable for
Common Stock, (iv) a Registration
Statement filed in connection with the
redistribution of shares of Common Stock
held by the Foundation in excess of the
Ownership Limit pursuant to Article VI
of the Voting Trust and Divestiture
Agreement, or (v) a Registration
Statement filed in connection with a
private placement of securities of the
Company (whether for cash or in
connection with an acquisition by the
Company or one of its subsidiaries).
t. Former Section 3(d) shall be redesignated as
Section 3(e).
u. Former Section 3(e) shall be redesignated as
Section 3(f) and the phrase "or Share-Rights"
shall be inserted following the phrase "Piggy-Back
Rights". As amended, Section 3(f) shall provide:
(f) Nothing contained in this
Section 3 shall create any liability on
the part of the Company to the
Foundation if the Company for any reason
should decide not to file a Registration
Statement for which Piggy-Back Rights or
Share-Rights are available or to
withdraw such Registration Statement
subsequent to its filing, regardless of
any action whatsoever that the
Foundation may have taken, whether as a
result of the issuance by the Company of
any notice hereunder or otherwise.
v. Former Section 3(f) shall be redesignated as
Section 3(g) and the phrase "or Share-Rights"
shall be inserted following the phrase "Piggy-Back
Rights" and the phrase "or Section 2(d)(ii)" shall
be inserted following the phrase "Section 2(d)(i)"
and the reference to "one (1) of three (3)" Demand
Registrations shall be deleted. As amended,
Section 3(g) shall provide:
(g) A request made by the
Foundation pursuant to its Piggy-Back
Rights or Share-Rights to include
Registrable Securities in a Registration
Statement shall not be deemed to be a
Demand Registration described in
Section 2(d)(i) or Section 2(d)(ii)
hereof.
w. In Section 4(a), the phrase "(as defined below in
this Section 4(a))" shall be deleted and the
phrase "sixty (60) days" shall be deleted and
replaced with "thirty (30) days" and the sixth
sentence of Section 4(a) shall be deleted in its
entirety. As amended, Section 4(a) shall provide:
(a) At any time and from time to
time after the Initial Continuing Option
Exercise Date and thereafter during the
Effective Period, the Company shall have
the right, but not the obligation (the
"Continuing Option"), exercisable by
providing written notice thereof (the
"Continuing Option Notice") to the
Foundation, to purchase from the
Foundation all or any portion of the
Registrable Securities (the "Continuing
Option Securities") at a cash price per
share equal to the Continuing Option
Price (as defined below in this
Section 4(a)). The Continuing Option
Notice shall state the number of
Continuing Option Securities that the
Company shall purchase pursuant to the
Continuing Option, the aggregate
purchase price therefor, and the closing
date of the Company's purchase of the
Continuing Option Securities, which
shall take place within thirty (30) days
of the date of the Continuing Option
Notice. The Company shall pay for the
Continuing Option Securities that it
shall purchase pursuant to the
Continuing Option at the closing thereof
by wire transfer of immediately
available funds to a bank account
designated by the Foundation. At such
closing, the Foundation shall deliver to
the Company a certificate or
certificates representing the number of
Continuing Option Securities purchased
by the Company as specified in the
Continuing Option Notice, free and clear
of all liens, claims, security interests
and other encumbrances. The Company
shall be entitled to receive customary
representations and warranties from the
Foundation regarding such sale of
Continuing Option Securities (including
representations regarding good title to
such shares, free and clear of all
liens, claims, security interests and
other encumbrances). The term
"Continuing Option Price", as used
herein, shall mean (i) prior to the
consummation of a Demand Registration or
an offering pursuant to a Piggy-Back
Request, the greater of "A", "B" or "C",
and (ii) from and after the consummation
of a Demand Registration or an offering
pursuant to a Piggy-Back Request, the
greater of "A", or "B", where, for
purposes of the foregoing clauses (i)
and (ii), "A" shall mean the average
closing sale price per share of Common
Stock on the NYSE during the ten (10)
consecutive trading days ending on the
date that the Continuing Option Notice
with respect to such Continuing Option
shall have been provided, "B" shall mean
the average closing sale price per share
of Common Stock on the NYSE during the
ten (10) consecutive trading days ending
on the forty-fifth (45th) day prior to
the date that the Continuing Option
Notice with respect to such Continuing
Option shall have been provided, and "C"
shall equal the price per share received
by the Foundation in its most recent
sale of Private Placement Securities
pursuant to Section 11 hereof
(regardless of whether such Private
Placement Securities shall have been
sold to qualified investors or to the
Company).
x. In Section 6, the phrase "180 days" shall be
deleted and replaced with "one hundred twenty
(120) days". As amended, Section 6 shall provide:
Section 6. Blackout Periods. If the
Company determines in good faith that
the registration and distribution of
Registrable Securities (or the use of
the Registration Statement or related
Prospectus) resulting from a Demand
received from the Foundation would
(i) materially and adversely interfere
with any previously announced business
combination transaction involving the
Company pursuant to which the Company
would issue, in connection with such
transaction, shares of Common Stock to
some or all of the equity owners of the
counter-party to such business
combination transaction, or (ii) result
in the premature disclosure of any
pending financing, acquisition,
corporate reorganization or any other
corporate development involving the
Company or any of its subsidiaries, and,
in either such event, the Company shall
promptly give the Foundation written
notice of such determination, then the
Company shall be entitled to
(x) postpone the filing of the
Registration Statement otherwise
required to be prepared and filed by the
Company pursuant to Section 2 hereof, or
(y) elect that the effective
Registration Statement not be used, in
either case for a reasonable period of
time, but not to exceed one hundred
twenty (120) days after the date that
the Demand was made (a "Blackout
Period"). Any such written notice shall
contain a general statement of the
reasons for such postponement or
restriction on use and an estimate of
the anticipated delay. The Company
shall promptly notify the Foundation of
the expiration or earlier termination of
such Blackout Period.
y. In Section 9, the phrase "or Share-Rights" shall
be inserted after the phrase "Piggy-Back Rights"
and the word "or" before the phrase "Piggy-Back
Rights" shall be deleted and replaced with a
comma. As amended, Section 9 shall provide:
Section 9. Registration Expenses.
Except as otherwise provided herein, in
connection with all registrations of
Registrable Securities made pursuant to
a Demand Registration, Piggy-Back Rights
or Share-Rights, the Company shall pay
all Registration Expenses.
5. Exhibit L, Form of Voting Trust and Divestiture
Agreement, is hereby amended as follows:
a. In Recital E, the phrase ", subject to possible
extension as provided herein," shall be added
following the phrase "Closing Date (as defined
below)" and following the phrase "following the
Closing Date" and the phrase "in excess of the
Voting Trust Ownership Limit (as defined below)"
shall be added after the phrase "by the
Beneficiary". As amended, Recital E provides:
E. The Beneficiary has agreed to be
bound by the Basic Protections,
including (i) a requirement that the
Beneficiary deposit into the voting
trust established by this Agreement (the
"Voting Trust") all of the shares of
Capital Stock Beneficially Owned (as
defined below) by the Beneficiary in
excess of the Voting Trust Ownership
Limit (as defined below), and (ii) a
requirement that the Beneficiary reduce
its Beneficial Ownership (as defined
below) of each class of Capital Stock to
less than fifty percent (50%) of the
issued and outstanding shares of each
class of Capital Stock within three (3)
years following the Closing Date (as
defined below), subject to possible
extension as provided herein, and reduce
its Beneficial Ownership of each class
of Capital Stock to less than twenty
percent (20%) of the issued and
outstanding shares of each class of
Capital Stock within five (5) years
following the Closing Date, subject to
possible extension as provided herein.
b. In Article I, the definition of "Blackout Period"
shall be added as follows:
(h) "Blackout Period" has the meaning
set forth in Section 1 of the
Registration Rights Agreement.
c. In Article I, the definition of "Demand" shall be added as
follows:
(r) "Demand" has the meaning set forth
in Section 1 of the Registration Rights
Agreement.
d. In Article I, the definition of "Five Year
Divestiture Deadline" shall be deleted in its
entirety and replaced with the following:
(s) "Five Year Divestiture Deadline"
means the fifth anniversary of the
Closing Date, extended day for day, up
to a maximum of seven hundred thirty
(730) days, for each day the Company is
not required to file a Registration
Statement (i) in response to an actual
Demand pursuant to Section 2(d)(iii) of
the Registration Rights Agreement as a
result of the Company having previously
effected a registration of Common Stock,
provided that there shall be no such
extension if the Company is not required
to file a Registration Statement
pursuant to said Section 2(d)(iii)
because the Company previously effected
a registration of Common Stock wherein
the Beneficiary exercised its Share-
Rights and received proceeds from the
sale of its shares; or (ii) as a result
of the pendency of any Blackout Period.
e. In Article I, the definition of "Registration Statement"
shall be added as follows:
(z) "Registration Statement" has the
meaning set forth in Section 1 of the
Registration Rights Agreement.
f. In Article I, the definition of "Share-Rights"
shall be added as follows:
(bb) "Share-Rights" has the meaning set
forth in Section 1 of the Registration
Rights Agreement.
g. In Article I, the definition of "Three Year
Divestiture Deadline" shall be deleted in its
entirety and replaced with the following:
(dd) "Three Year Divestiture Deadline"
means the third anniversary of the
Closing Date, extended day for day, up
to a maximum of three hundred sixty five
(365) days, for each day the Company is
not required to file a Registration
Statement (i) in response to an actual
Demand pursuant to Section 2(d)(iii) of
the Registration Rights Agreement as a
result of the Company having previously
effected a registration of Common Stock,
provided that there shall be no such
extension if the Company is not required
to file a Registration Statement
pursuant to said Section 2(d)(iii)
because the Company previously effected
a registration of Common Stock wherein
the Beneficiary exercised its Share-
Rights and received proceeds from the
sale of its shares; or (ii) as a result
of the pendency of any Blackout Period.
h. In Article I, the definition of "Voting Power"
shall be added as follows:
(ff) "Voting Power" has the meaning set
forth in Section 1 of Article VII of the
Certificate of Incorporation.
i. In Article I, the definition of "Voting Trust
Ownership Limit" shall be added as follows:
(hh) "Voting Trust Ownership Limit"
means that number of shares of Capital
Stock one share lower than the number of
shares of Capital Stock which would
represent five percent (5%) of the
Voting Power of all shares of Capital
Stock issued and outstanding at the time
of determination.
j. In Article I, all sections shall be redesignated
accordingly because of the additional defined
terms.
k. The first and second sentences of Section 2.01
shall be deleted in their entirety and replaced
with the following:
Section 2.01 Delivery of Capital
Stock. Beneficiary shall make such
contributions to the Voting Trust of
shares of Capital Stock that Beneficiary
may Beneficially Own such that the
number of shares of Capital Stock
Beneficially Owned by the Beneficiary
outside of the Voting Trust shall never
exceed the Voting Trust Ownership Limit.
The Trustee acknowledges receipt of ____
[insert number of shares contributed at
closing pursuant to the Reorganization
Agreement] shares of Capital Stock
acquired by Beneficiary pursuant to the
Reorganization Agreement.
l. The last sentence of Section 5.04 shall be deleted
in its entirety. As amended, Section 5.04 shall
provide:
Section 5.04 Acquisition Proposals.
The Beneficiary shall not solicit or
encourage inquiries or proposals with
respect to, or provide any confidential
information to, or have any discussions,
meetings or other communications with,
any Person relating to an Acquisition
Proposal or a Change of Control
Proposal, provided, however, that the
Beneficiary may have discussions with
the counter-party to any Change of
Control Proposal after such Change of
Control Proposal shall have been
approved by the Board of Directors and
submitted to the stockholders of the
Company for a vote thereon, and provided
further, however, that the Beneficiary
may have discussions with any Person
concerning the sale or disposal of
shares of Capital Stock Beneficially
Owned by the Beneficiary in accordance
with Section 3.02 hereof and the
Registration Rights Agreement.
m. A new section designated as Section 5.07 shall be
added and shall provide:
Section 5.07 Communications. For so
long as the Beneficiary Beneficially
Owns twenty percent (20%) or more of the
issued and outstanding shares of Common
Stock, the Company shall consult with
the Beneficiary prior to soliciting any
Change of Control Proposal and shall
consult with the Beneficiary in the
event that the Company shall receive any
Change of Control Proposal. Beneficiary
shall comply with the same
confidentiality and non-disclosure
obligations that apply to directors and
officers of the Company with respect to
all information obtained by Beneficiary
in connection with any such
consultation. Nothing in this Agreement
shall be construed to limit the rights
of Beneficiary as a shareholder of the
Company from communicating with the
Board of Directors of the Company
regarding Change of Control Proposals
or, except as otherwise provided in
Section 5.03 hereof, any other matter
pertaining to the Company. The Company
and the Beneficiary shall keep
confidential the contents of all such
communications from the Beneficiary,
provided that either party may disclose
the contents of such communications if
required by law.
n. In Section 6.01, the phrase "the third anniversary
of the Closing Date" shall be deleted from the end
of the first sentence thereof and the phrase
"Three Year Divestiture Deadline" shall not be in
parenthesis or quotes or underlined therein. As
amended, Section 6.01 provides:
Section 6.01 Sale of Beneficiary's
Capital Stock by Third Anniversary.
The Beneficiary hereby covenants and
agrees that it shall sell, convey, or
otherwise dispose of shares of Capital
Stock (so that the Beneficiary is no
longer a Beneficial Owner of such
shares of Capital Stock) so that the
Beneficiary Beneficially Owns less than
fifty percent (50%) of the issued and
outstanding shares of each class of
Capital Stock on or prior to the Three
Year Divestiture Deadline. Any such
disposition shall comply with the terms
of this Agreement, the Registration
Rights Agreement, the Certificate of
Incorporation and the Bylaws.
o. In Section 6.02, the phrase "the fifth anniversary
of the Closing Date" shall be deleted from the end
of the first sentence thereof and the phrase "Five
Year Divestiture Deadline" shall not be in
parenthesis and quotes or underlined therein. As
amended, Section 6.02 provides:
Section 6.02 Sale of Beneficiary's
Capital Stock by Fifth Anniversary. The
Beneficiary hereby covenants and agrees
that it shall sell, convey or otherwise
dispose of shares of Capital Stock (so
that the Beneficiary is no longer a
Beneficial Owner of such shares of
Capital Stock) so that the Beneficiary
Beneficially Owns less than twenty
percent (20%) of the issued and
outstanding shares of each class of
Capital Stock on or prior to the Five
Year Divestiture Deadline. Any such
disposition shall comply with the terms
of this Agreement, the Registration
Rights Agreement, the Certificate of
Incorporation and the Bylaws.
6. Exhibit E, Agreement and Plan of Reorganization, is
hereby amended as follows:
a. Section 1.05(j)(3) shall be deleted in its
entirety and replaced with the following:
(3) Exchange Procedure for Foundation. The
Foundation authorizes and directs New RIT to issue
_____ shares of New RIT Stock issuable in exchange
for the outstanding share of New RIT Stock
pursuant to Section 1.05(c) hereof directly to the
trustee designated by the Voting Trust and
Divestiture Agreement (as defined in Section 3.09
hereof) to be held in the voting trust established
by the Voting Trust and Divestiture Agreement.
New RIT shall issue to the Foundation a
certificate or certificates representing the
remaining _____ shares of New RIT Stock issuable
in exchange for the outstanding share of New RIT
Stock pursuant to Section 1.05(c) hereof.
b. Section 3.13 shall be deleted in its entirety.
c. In Section 3.16, the phrase "in partial settlement
of the Litigation, and" shall be deleted. As
amended, Section 3.16 provides:
3.16 Payment to Foundation. Immediately
following the Closing, New RIT shall pay One
Hundred Seventy-Five Thousand Dollars
($175,000) to the Foundation in partial
satisfaction of any obligation of BCBSMo
under Section 355.621 of The General and
Business Corporation Law of Missouri
resulting from the Charter Conversion
Transaction.
7. If the Amended Settlement Agreement is approved by the
Court, the Original Settlement Agreement and all exhibits thereto
shall be amended and restated in their entirety to reflect the
amendments set forth herein, and such amended and restated
documents shall include such conforming changes as are necessary
or appropriate to properly incorporate the amendments set forth
herein.
8. The Parties agree that this Amendment modifies,
supplements, supersedes and forms a part of the Original
Settlement Agreement. Except as expressly provided herein, the
terms and conditions of the Original Settlement Agreement shall
remain unchanged and in full force and effect. The terms and
conditions of this Amendment shall control over any conflicting
or inconsistent terms and conditions in the Original Settlement
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties hereto have set forth their
hand and seal as of the date above written.
/s/ Jay Nixon
Jeremiah W. (Jay) Nixon
Attorney General of Missouri
Missouri Department of Insurance
By: /s/ A. W. McPherson
A. W. McPherson
Acting Director, Missouri Department of Insurance
Blue Cross and Blue Shield of Missouri
By: /s/ John A. O'Rourke
John A. O'Rourke, President
RightCHOICE Managed Care, Inc.
By: /s/ John A. O'Rourke
John A. O'Rourke, President and
Chief Executive Officer
Exhibit 99(b)
CONTACT: Clara Kinner (314) 923-6268
Deb Wiethop (314) 923-4767
BLUE CROSS AND BLUE SHIELD OF MISSOURI, RIGHTCHOICE, CONSUMER
GROUPS AND STATE MOVE SETTLEMENT FORWARD
Parties Ask Court to Approve Modified Settlement Agreement
ST. LOUIS, March 12, 1999 -- Blue Cross and Blue Shield of
Missouri, parent company of RightCHOICE Managed Care, Inc.,
(NYSE:RIT), the Missouri Attorney General, the Missouri
Department of Insurance, and almost 100 consumer organizations
representing more than 1 million Missourians have successfully
reached consensus on changes to the September 20, 1998,
settlement agreement that is intended to resolve outstanding
litigation and regulatory issues, create the largest health
care foundation in Missouri and move RightCHOICE forward as a
consolidated, fully for-profit Blue Cross and Blue Shield
licensee.
The parties today jointly filed a motion to approve the
modified settlement agreement in Cole County Circuit Court.
"We've taken another important and positive step in the
process toward completing the settlement," said John A.
O'Rourke, chairman, president and chief executive officer of
RightCHOICE, and president and chief executive officer of Blue
Cross and Blue Shield of Missouri. "The modified agreement is
the result of the good faith effort by all parties to address
the concerns identified by the Special Master and the consumer
groups. In his February 10 report, the Special Master
encouraged us to meet with the consumer groups to engage in
efforts to address those concerns."
The changes resulted from negotiations among the parties
and the consumer groups following the report by Special Master
Robert G. Russell, who was appointed by Cole County Circuit
Court Judge Thomas Brown III to review the settlement
agreement.
The modifications relate principally to the assets to be
received by the Missouri Foundation for Health and to the
manner in which the foundation's shares of RightCHOICE stock
can be sold over time.
The modified settlement agreement calls for Blue Cross
and Blue Shield of Missouri to reorganize and be merged with
RightCHOICE Managed Care and for the creation of the state's
largest health care foundation. The foundation will receive
an additional $12.78 million in cash from Blue Cross and Blue
Shield of Missouri, which currently has sufficient cash and
investments to provide for the payment. Following the
transactions, the foundation will become the owner of
approximately 80 percent of the stock of the new RightCHOICE.
The foundation will liquidate its stock in an orderly manner
over a period of time not to exceed seven years under a
divestiture plan. The proceeds will be used to meet the
health care needs of under- and un-insured Missourians.
The modified agreement also removes certain restrictions
in the voting trust, and changes the qualifications and manner
of selecting the foundation's initial board of directors.
"The core benefits that the original settlement
transaction contemplated continue under the modified
agreement. The assets of Blue Cross and Blue Shield of
Missouri will be applied consistently with its long-standing
non-profit purposes. In addition, the modified settlement
allows RightCHOICE to continue as a strong, viable provider of
health care benefits to our members, using the highly
recognized and valued Blue Cross and Blue Shield names and
trademarks. Further, the transaction is not expected to
dilute RightCHOICE earnings or shareholders' equity," O'Rourke
stated.
As a result of the reorganization, RightCHOICE or its
subsidiaries will absorb the remaining assets and related
liabilities of Blue Cross and Blue Shield of Missouri and will
become a consolidated, fully for-profit company and the direct
licensee for the Blue Cross and Blue Shield names and
trademarks.
The settlement agreement must be approved by the court,
RightCHOICE shareholders and the Blue Cross and Blue Shield
Association. The agreement also requires Blue Cross to obtain
an expert tax opinion and/or ruling from the IRS on the tax
aspects of the transactions.
All parties have indicated they are committed to moving
forward as quickly as possible to satisfy the conditions to
complete the settlement agreement.
In a separate action, the Blue Cross and Blue Shield
Association yesterday unanimously voted to extend until its
next board meeting on June 17, 1999, the Blue Cross and Blue
Shield of Missouri and RightCHOICE license agreements to use
the Blue Cross and Blue Shield names and trademarks,
continuing these agreements on a "board-to-board" basis.
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995: Estimates and other statements
set forth herein that are not historical facts are forward-
looking statements that involve risks and uncertainties.
These risks and uncertainties include, but are not limited to:
the possibility that court approval of the modified settlement
agreement, referenced above, would not be obtained, or if
obtained, could include conditions that are not acceptable to
the parties; the possibility that all remaining contingencies
and conditions to the parties' obligations to effect the
proposed settlement transaction would not be met or otherwise
satisfied; governmental and regulatory action or legislation;
pending litigation; actions by the Blue Cross and Blue Shield
Association relating to the license to use the Blue Cross and
Blue Shield names, trademarks and service marks; market
competition and consolidation; escalating health care costs;
dependence on sales to individuals; recontracting efforts and
potential of non-renewal of subscriber and provider
agreements; voting control by the parent company; variability
of operating results and stock price; and additional factors
and other risks detailed in the company's Securities and
Exchange Commission filings.
Blue Cross and Blue Shield of Missouri and its for-profit
subsidiary, RightCHOICE Managed Care, Inc., are the largest
providers of health care benefits in Missouri. The company's
web site address is www.abcbs.com.
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