-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CRcvrzZ2I6QbBTFFYOY8ZQ0G+WeX/fvIQuxyJFrxCKTQnV6dNUSX16HVn877N26E cfMtcbvrA0AU+knuj1/Sgw== 0000912057-02-019908.txt : 20020513 0000912057-02-019908.hdr.sgml : 20020513 ACCESSION NUMBER: 0000912057-02-019908 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLPOINT HEALTH NETWORKS INC /DE/ CENTRAL INDEX KEY: 0001013220 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 954635504 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13083 FILM NUMBER: 02644138 BUSINESS ADDRESS: STREET 1: 1 WELLPOINT WAY CITY: THOUSAND OAKS STATE: CA ZIP: 91362 BUSINESS PHONE: 8187034000 MAIL ADDRESS: STREET 1: 1 WELLOINT WAY CITY: THOUSAND OAKS STATE: CA ZIP: 91362 FORMER COMPANY: FORMER CONFORMED NAME: BLUE CROSS OF CALIFORNIA /CA/ DATE OF NAME CHANGE: 19960508 10-Q 1 a2079138z10-q.htm FORM 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
o	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 001-13083

WELLPOINT HEALTH NETWORKS INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		95-4635504 (IRS Employer Identification No.)
1 WellPoint Way, Thousand Oaks, California (Address of principal executive offices)		91362 (Zip Code)

Registrant's telephone number, including area code (818) 234-4000

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 ý No o

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 May 9, 2002
Common Stock, $0.01 par value		145,014,876 shares

WellPoint Health Networks Inc.
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2002
Table of Contents

			PAGE
PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
		Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001	1
		Consolidated Income Statements for the Quarter Ended March 31, 2002 and 2001	2
		Consolidated Statement of Changes in Stockholders' Equity for the Quarter Ended March 31, 2002	3
		Consolidated Statements of Cash Flows for the Quarter Ended March 31, 2002 and 2001	4
		Notes to Consolidated Financial Statements	5
	ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	33
PART II. OTHER INFORMATION
	ITEM 6.	Exhibits and Reports on Form 8-K	34
SIGNATURES			36

ITEM 1. Financial Statements

WellPoint Health Networks Inc.
Consolidated Balance Sheets

				March 31, 2002			December 31, 2001
				(Unaudited)
				(In thousands, except share data)
*ASSETS*
Current Assets:
	Cash and cash equivalents			$	817,063		$	1,028,476
	Investment securities, at market value				4,511,777			3,832,982
	Receivables, net				1,141,981			841,722
	Deferred tax assets, net				119,412			79,063
	Other current assets				142,810			90,398

		Total Current Assets			6,733,043			5,872,641
Property and equipment, net					345,150			222,080
Intangible assets, net					813,982			430,488
Goodwill, net					1,643,457			661,346
Long-term investments, at market value					124,427			124,611
Deferred tax assets, net					—			54,486
Other non-current assets					144,208			106,481

			Total Assets	$	9,804,267		$	7,472,133

*LIABILITIES AND STOCKHOLDERS' EQUITY*
Current Liabilities:
	Medical claims payable			$	2,227,814		$	1,934,620
	Reserves for future policy benefits				71,517			62,739
	Unearned premiums				384,092			332,813
	Accounts payable and accrued expenses				895,028			783,026
	Experience rated and other refunds				256,973			255,570
	Income taxes payable				160,656			64,654
	Other current liabilities				757,153			632,383

		Total Current Liabilities			4,753,233			4,065,805
Accrued postretirement benefits					122,670			94,124
Reserves for future policy benefits, non-current					221,395			222,406
Long-term debt					1,173,584			837,957
Deferred tax liabilities					78,196			—
Other non-current liabilities					169,365			119,262

			Total Liabilities		6,518,443			5,339,554
Stockholders' Equity:
	Preferred Stock—$0.01 par value, 50,000,000 shares authorized, none issued and outstanding				—			—
	Common Stock—$0.01 par value, 300,000,000 shares authorized, 147,007,928 and 135,307,637 issued at March 31, 2002 and December 31, 2001, respectively				1,470			714
	Treasury stock, at cost, 3,152,959 and 7,474,305 shares at March 31, 2002 and December 31, 2001, respectively				(187,794	)		(465,805	)
	Additional paid-in capital				1,714,066			1,002,193
	Retained earnings				1,753,274			1,548,941
	Accumulated other comprehensive income				4,808			46,536

		Total Stockholders' Equity			3,285,824			2,132,579

			Total Liabilities and Stockholders' Equity	$	9,804,267		$	7,472,133

See the accompanying notes to the consolidated financial statements.

WellPoint Health Networks Inc.
Consolidated Income Statements
(Unaudited)

		Quarter Ended March 31,
		2002		2001
		(In thousands, except earnings per share)
Revenues:
	Premium revenue	$	3,698,659	$	2,433,128
	Management services and other revenue		184,437		129,524
	Investment income		59,914		52,801

			3,943,010		2,615,453
Operating Expenses:
	Health care services and other benefits		2,982,604		1,965,473
	Selling expense		155,725		111,737
	General and administrative expense		542,089		357,587

			3,680,418		2,434,797

Operating Income			262,592		180,656
	Interest expense		16,485		8,179
	Other expense, net		10,923		13,326

Income before Provision for Income Taxes			235,184		159,151
	Provision for income taxes		94,084		62,648

Net Income		$	141,100	$	96,503

Earnings Per Share		$	1.01	$	0.77

Earnings Per Share Assuming Full Dilution		$	0.97	$	0.74

Weighted Average Shares Outstanding			139,089		125,970

Fully Diluted Weighted Average Shares Outstanding			145,856		131,422

See the accompanying notes to the consolidated financial statements.

WellPoint Health Networks Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)

					Common Stock
					Issued			In Treasury										Accumulated Other Comprehensive Income
			Preferred Stock		Issued			In Treasury					Additional Paid-in Capital			Retained Earnings
			Preferred Stock		Shares	Amount		Shares		Amount			Additional Paid-in Capital			Retained Earnings					Total
			(In thousands)
Balance as of December 31, 2001			$	—	71,391	$	714	7,474		$	(465,805	)	$	1,002,193		$	1,548,941	$	46,536		$	2,132,579
Stock grants to employees and directors								(28	)		1,544											1,544
Stock issued for employee stock option and stock purchase plans								(756	)		39,755			17,519								57,274
Stock repurchased, at cost								2,000			(122,265	)										(122,265	)
Stock issued under RightCHOICE purchase					2,718		27	(5,537	)		358,977			687,109			62,979					1,109,092
100% Stock Dividend on March 15, 2002					72,899		729							(729	)							—
Net losses from treasury stock reissued														7,974			254					8,228
Comprehensive income (loss)
	Net income																141,100					141,100
	Other comprehensive income, net of tax
		Change in unrealized valuation adjustment on investment securities, net of reclassification adjustment																	(42,170	)		(42,170	)
		Minimum pension liability adjustment, net of tax																	442			442

Total comprehensive income (loss)																	141,100		(41,728	)		99,372

Balance as of March 31, 2002			$	—	147,008	$	1,470	3,153		$	(187,794	)	$	1,714,066		$	1,753,274	$	4,808		$	3,285,824

See the accompanying notes to the consolidated financial statements.

WellPoint Health Networks Inc.
Consolidated Statements of Cash Flows
(Unaudited)

					Quarter Ended March 31,
					2002			2001
					(In thousands)
Cash flows from operating activities:
	Net income				$	141,100		$	96,503
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization, net of accretion				26,398			20,367
		(Gain) Loss on sales of assets, net				(9,496	)		3,741
		Amortization of deferred gain on sale of building				(1,107	)		(1,107	)
		Fair value adjustment of interest rate swaps on notes payable				(4,108	)		—
		Accretion of interest on zero coupon convertible subordinated debentures and 6³/8% Notes				830			754
		(Increase) decrease in certain assets:
			Receivables, net			(81,186	)		(81,758	)
			Other current assets			(39,452	)		(3,314	)
			Other non-current assets			(11,314	)		1,999
		Increase (decrease) in certain liabilities:
			Medical claims payable			138,702			(6,347	)
			Reserves for future policy benefits			5,763			(3,756	)
			Unearned premiums			(36,002	)		12,752
			Accounts payable and accrued expenses			26,795			36,855
			Experience rated and other refunds			1,403			882
			Income taxes payable			64,450			50,147
			Other current liabilities			58,074			21,265
			Accrued postretirement benefits			2,600			1,135
			Other non-current liabilities			14,518			(1,307	)

				Net cash provided by operating activities		297,968			148,811

Cash flows from investing activities:
			Investments purchased			(1,697,465	)		(875,278	)
			Proceeds from investments sold			1,240,286			846,004
			Property and equipment purchased			(28,387	)		(17,658	)
			Proceeds from property and equipment sold			3,463			12
			Acquisition of new businesses, net of cash acquired			(310,967	)		(473,579	)

				Net cash used in investing activities		(793,070	)		(520,499	)

Cash flows from financing activities:
			Net (repayment) borrowing of long-term debt under the revolving credit facility			(10,000	)		500,000
			Net borrowing of long-term debt under 6³/8% Notes due 2012			348,905			—
			Proceeds from issuance of common stock			67,049			25,213
			Common stock repurchased			(122,265	)		—

				Net cash provided by financing activities		283,689			525,213

Net (decrease) increase in cash and cash equivalents						(211,413	)		153,525
Cash and cash equivalents at beginning of period						1,028,476			566,889

Cash and cash equivalents at end of period					$	817,063		$	720,414

See the accompanying notes to the consolidated financial statements.

WellPoint Health Networks Inc.
Notes to Consolidated Financial Statements
(Unaudited)

1. Organization

WellPoint Health Networks Inc. (the "Company" or "WellPoint") is one of the nation's largest publicly traded managed health care companies. As of March 31, 2002, WellPoint had approximately 13.0 million medical members and approximately 40.0 million specialty members. The Company offers a broad spectrum of network-based managed care plans. WellPoint provides these plans to the large and small employer, individual and senior markets. The Company's managed care plans include preferred provider organizations ("PPOs"), health maintenance organizations ("HMOs"), point-of-service ("POS") plans, other hybrid medical plans and traditional indemnity plans. In addition, the Company offers managed care services, including underwriting, actuarial service, network access, medical cost management and claims processing. The Company also provides a broad array of specialty and other products and services including pharmacy, dental, utilization management, vision, life insurance, preventive care, disability, behavioral health, medicare supplements, COBRA and flexible benefits account administration. The Company markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia, in various parts of Missouri (including the greater St. Louis area) under the name Blue Cross Blue Shield of Missouri and in various parts of the country under the name UNICARE or HealthLink. Historically, the Company's primary market for its managed care products has been California. The Company holds the exclusive right in California to market its products under the Blue Cross name and mark and in Georgia and in 85 counties in Missouri (including the greater St. Louis area) to market its products under the Blue Cross Blue Shield names and marks. The Company's customer base is diversified, with extensive membership among large and small employer groups and individuals and a growing presence in the Medicare and Medicaid markets.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements of WellPoint, in the opinion of management, reflect all material adjustments (which are of a normal recurring nature) necessary for a fair statement of its financial position as of March 31, 2002, the results of its operations for the quarter ended March 31, 2002 and 2001, cash flows for the quarter ended March 31, 2002 and 2001 and its changes in stockholders' equity for the quarter ended March 31, 2002. The results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year.

Stock Split

On March 15, 2002, WellPoint effected a two-for-one split of the Company's Common Stock. The stock split was in the form of a stock dividend of one additional share of WellPoint stock for each share held. Share and per share data for all periods presented herein have been adjusted to give effect to the stock split.

3. Acquisitions

In 1996, the Company began pursuing a nationwide expansion strategy through selective acquisitions and start-up activities in key geographic areas. More recently, the Company has focused on acquiring businesses that provide significant concentrations of members in strategic locations outside of California. In connection with this strategy, the Company completed its acquisitions of RightCHOICE Managed Care, Inc. ("RightCHOICE") in 2002 and Cerulean Companies, Inc. ("Cerulean") in 2001.

On January 31, 2002, WellPoint completed its merger, through its wholly owned subsidiary, RWP Acquisition Corp., with RightCHOICE, the parent company of Blue Cross and Blue Shield of Missouri, which served approximately 2.2 million medical members as of January 31, 2002. Under the terms of the transaction, total consideration paid to all holders of RightCHOICE common stock and holders of employee stock options in the merger was $379.1 million in cash and 16.5 million shares of WellPoint Common Stock. The Company issued approximately 11.1 million shares from treasury stock and the remaining 5.4 million shares from newly issued shares of WellPoint Common Stock. The total purchase price of approximately $1,442.1 million was used to purchase net assets with a fair value of approximately $303.6 million. This acquisition was accounted for under the purchase method of accounting and, accordingly, the consolidated results of operations of the Company include the results of RightCHOICE from the date of acquisition. As a result of the acquisition of RightCHOICE, the Company estimates that it will incur $88.0 million in expenses primarily related to change-in-control payments to RightCHOICE management and transaction costs. Generally accepted accounting principles require that these expenses, which are not associated with the generation of future revenues and have no future economic benefit, be reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. Goodwill and other intangibles totaling $1,339.5 million includes $108.5 million of deferred and current tax liabilities relating to identified intangibles. With the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," goodwill and other intangible assets with indefinite useful lives are no longer amortized, but instead subject to impairment tests. Identified intangibles with definite useful lives are being amortized on a straight-line basis over 14 to 20 years. The valuation process is not yet complete and, as a result, the useful lives and method of amortization are only preliminary estimates. The estimated purchase price allocation between goodwill and identifiable intangible assets is $1,029.5 million and $310.0 million, respectively.

On March 15, 2001, the Company completed its acquisition of Cerulean, the parent company of Blue Cross Blue Shield of Georgia, Inc., which served approximately 1.9 million medical members in the state of Georgia as of March 31, 2001. This acquisition was accounted for under the purchase method of accounting and accordingly, the consolidated results of operations of the Company include the results of Cerulean from the date of acquisition. The cash purchase price was $700.0 million. As a result of the acquisition of Cerulean, the Company incurred $134.5 million in expenses primarily related to change in control payments to Cerulean management and transaction costs. Generally accepted accounting principles require that these expenses, which are not associated with the generation of future revenues and have no future economic benefit, be reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. Cash of $200.0 million and debt of $500.0 million were used to purchase net assets with a fair value of approximately $334.8 million. Goodwill and other intangibles totaling $602.9 million includes $149.1 million of deferred and current tax liabilities relating to identified intangibles. Other intangibles with definite useful lives are being amortized using a straight-line basis or the timing of related cash flows depending upon the expected amortization pattern over five to 25 years. The purchase price allocation between goodwill and identifiable intangible assets is $235.3 million and $367.6 million, respectively.

In accordance with the requirements of Statement of Financial Accounting Standards No. 141, "Business Combinations," ("SFAS No. 141") the following unaudited pro forma summary presents revenues, net income and per share data of WellPoint as if the acquisitions of Cerulean and RightCHOICE had occurred on January 1, 2001. The pro forma information includes the results of operations for the period prior to the acquisition, adjusted for interest expense on long-term debt incurred to fund the acquisitions, amortization of goodwill and intangible assets and the related income tax effects. The pro forma financial information for the quarter ended March 31, 2001 is presented under the requirements of APB Opinion No. 16, "Business Combinations," which allows for amortization of goodwill and other intangible assets with indefinite useful lives. The pro forma financial information for the quarter ended March 31, 2002 is presented under the requirements of SFAS

No. 141 which disallows the amortization of goodwill and other intangible assets with indefinite useful lives.

The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations had the Company been a single entity during the quarter ended March 31, 2002 and 2001, nor is it necessarily indicative of future results of operations. Pro forma earnings per share is based on 144.8 million and 142.5 million weighted average shares outstanding for the quarter ended March 31, 2002 and 2001, respectively. Pro forma earnings per share assuming full dilution is based on 151.9 million and 149.1 million weighted average shares outstanding for the quarters ended March 31, 2002 and 2001, respectively.

		Quarter Ended March 31,
		2002		2001
		(In thousands, except per share data)
Revenues		$	4,053,715	$	3,388,136
Net Income		$	133,842	$	106,026
Earnings Per Share
	Basic	$	0.92	$	0.74
	Diluted	$	0.88	$	0.71

4. Long-Term Debt

6³/8% Notes due 2012

On January 16, 2002, the Company issued $350.0 million aggregate principal amount at maturity of 6³/8% Notes due January 15, 2012 (the "2002 Notes"). The net proceeds of this offering totaled approximately $348.9 million. The net proceeds from the sale of the 2002 Notes were used to finance the RightCHOICE merger discussed in Note 3. The 2002 Notes bear interest at a rate of 6³/8% per annum, payable semi-annually in arrears on January 15 and July 15 of each year commencing July 15, 2002. Interest is computed on the basis of a 360-day year of twelve 30-day months. At March 31, 2002, the Company had $348.9 million (based upon the principal amount of $350.0 million less discount) of 2002 Notes outstanding. The related interest expense and amortization of discount for the quarter ended March 31, 2002 totaled $4.8 million.

The 2002 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2002 Notes redeemed will be equal to the greater of the following amounts: 1) 100% of the principal amount of the 2002 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2002 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis at the Treasury rate as determined by the Reference Treasury Dealer (J.P. Morgan Securities Inc. or Deutsche Banc Alex. Brown or their respective successors), plus 25 basis points. In each case, the redemption price will also include accrued and unpaid interest on the 2002 Notes to the redemption date.

6³/8% Notes due 2006

On June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 6³/8% Notes due June 15, 2006 (the "2001 Notes"). The net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2001 Notes were used for repayment of indebtedness under the Company's revolving credit facilities. The 2001 Notes bear interest at a rate of 6³/8% per annum, payable semi-annually in arrears on June 15 and December 15 of each year commencing December 15, 2001. Interest is computed on the basis of a 360-day year of

twelve 30-day months. At March 31, 2002, the Company had $449.1 million (based upon the principal amount of $450.0 million less discount) of 2001 Notes outstanding. The related interest expense and amortization of discount for quarter ended March 31, 2002 totaled $7.4 million.

The 2001 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2001 Notes redeemed will be equal to the greater of the following amounts: 1) 100% of the principal amount of the 2001 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2001 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis at the Treasury rate as determined by the designated Reference Treasury Dealer (Salomon Smith Barney Inc. or UBS Warburg LLC or their respective successors), plus 25 basis points. In each case, the redemption price will also include accrued and unpaid interest on the 2001 Notes to the redemption date.

The 2002 and 2001 Notes are unsecured obligations and rank equally with all of the Company's existing and future senior unsecured indebtedness. All existing and future liabilities of the Company's subsidiaries are and will be effectively senior to the 2002 and 2001 Notes. The indenture governing the 2002 and 2001 Notes contains a covenant that limits the Company's ability and that of the Company's subsidiaries to create liens on Company property or assets to secure certain indebtedness without also securing the 2002 and 2001 Notes.

Revolving Credit Facility

Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction bid process. The $750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and contains restrictive convenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control. The total amount outstanding under these facilities was $225.0 million as of March 31, 2002. The total amount outstanding under the Company's revolving credit facility as of December 31, 2001 was $235.0 million.

The agreement provides for interest on committed advances at rates determined by reference to the bank's base rate or to the London InterBank Offered Rate ("LIBOR") plus a margin determined by reference to the Company's unsecured long-term debt by specified rating agencies. Interest is determined using whichever of these methods is the most favorable to the Company. The effective interest rates were 2.15% and 2.76% at March 31, 2002 and December 31, 2001, respectively. Borrowings under the credit facility are made on a committed basis or pursuant to an auction-bid

process. A facility fee based on the facility amount, regardless of utilization, is payable quarterly. The facility fee rate is also determined by the unsecured debt ratings or the leverage ratio of the Company.

Zero Coupon Convertible Subordinated Debentures

On July 2, 1999, the Company issued $299.0 million aggregate principal amount at maturity of zero coupon convertible subordinated debentures due 2019 (the "Debentures"). The proceeds totaled approximately $200.8 million. The Debentures accrue interest at a yield to maturity of 2.0% per year compounded semi-annually. Holders have the option to convert the Debentures into the Company's common stock at any time prior to maturity at a rate of 13.594 shares per $1,000 principal amount at maturity. In lieu of delivering shares of common stock upon conversion of any Debentures, the Company may elect to pay cash for the Debentures in an amount equal to the last reported sales price of its common stock on the trading day preceding the conversion date. The Debentures are subordinate in right of payment to all existing and future senior indebtedness.

On October 6, 1999, the Board of Directors authorized the repurchase of some or all of the Company's Debentures for cash. The Company did not repurchase any Debentures during the quarter ended March 31, 2002 and year ended December 31, 2001.

As of March 31, 2002 and December 31, 2001, the Company had $154.6 million and $153.9 million (based upon the original issue price plus accrued interest), respectively, of Debentures outstanding. Accrued interest related to the Debentures was $8.2 million and $7.5 million, respectively, as of March 31, 2002 and December 31, 2001.

5. Earnings Per Share

The following is an illustration of the dilutive effect of the Company's potential common stock on earnings per share ("EPS"). There were no antidilutive securities in any of the periods presented.

	Quarter Ended March 31,
	2002		2001
	(In thousands except per share data)
Basic Earnings Per Share Calculation:
Numerator
Net Income	$	141,100	$	96,503

Denominator
Weighted average shares outstanding		139,089		125,970

Earnings Per Share	$	1.01	$	0.77

Earnings Per Share Assuming Full Dilution Calculation:
Numerator
Net Income	$	141,100	$	96,503
Interest expense on zero coupon convertible subordinated debentures, net of tax		483		480

Adjusted Net Income	$	141,583	$	96,983

Denominator
Weighted average shares outstanding		139,089		125,970
Net effect of dilutive stock options		3,804		2,489
Assumed conversion of zero coupon convertible subordinated debentures		2,963		2,963

Fully diluted weighted average shares outstanding		145,856		131,422

Earnings Per Share Assuming Full Dilution	$	0.97	$	0.74

6. Comprehensive Income

The following summarizes comprehensive income reclassification adjustments included in the statement of changes in stockholders' equity:

	Quarter Ended March 31, 2002
	(In thousands)
Holding loss on investment securities arising during the period (net of tax benefit of $31,048)	$	(50,621	)
Reclassification adjustment for realized gain on investment securities (net of tax expense of $4,516)		6,775
Holding gain related to swap transactions (net of tax expense of $1,161)		1,676
Net change in pension liability (net of tax expense of $295)		442

Net loss recognized in other comprehensive income (net of tax benefit of $25,076)	$	(41,728	)

7. Contingencies

From time to time, the Company and certain of its subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in the ordinary course of business. The Company, like HMOs and health insurers generally, excludes certain health care services from coverage under its HMO, PPO and other plans. The Company is, in its ordinary course of business, subject to the claims of its enrollees arising out of decisions to restrict treatment or reimbursement for certain services. The loss of even one such claim, if it results in a significant punitive damage award, could have a material adverse effect on the Company. In addition, the risk of potential liability under punitive damage theories may increase significantly the difficulty of obtaining reasonable settlements of coverage claims.

In June 2000, the California Medical Association filed a lawsuit in U.S. district court in San Francisco against BCC. The lawsuit alleges that BCC violated the RICO Act through various misrepresentations to and inappropriate actions against health care providers. In late 1999, a number of class-action lawsuits were brought against several of the Company's competitors alleging, among other things, various misrepresentations regarding their health plans and breaches of fiduciary obligations to health plan members. In August 2000, the Company was added as a party to Shane v. Humana, et al., a class-action lawsuit brought on behalf of health care providers nationwide. In addition to the RICO claims brought in the California Medical Association lawsuit, this lawsuit also alleges violations of ERISA, federal and state "prompt pay" regulations and certain common law claims. In October 2000, the federal Judicial Panel on Multidistrict Litigation issued an order consolidating the California Medical Association lawsuit, the Shane lawsuit and various other pending managed care class-action lawsuits against other companies before District Court Judge Federico Moreno in the Southern District of Florida for purposes of the pretrial proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the RICO Act, although the dismissal was made without prejudice to the plaintiffs' ability to subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt pay law claims. On March 26, 2001, the California Medical Association filed an amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations of California law. A hearing on the plaintiffs' motion to certify a class was held in early May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the litigation be completed by December 2001, with the exception of discovery related to expert witnesses, which was to be completed by March 15, 2002. In June 2001, the federal Court of Appeals for the 11th Circuit issued a stay of Judge Moreno's discovery order, pending a hearing before the Court of Appeals

on the Company's appeal of its motion to compel arbitration (which had earlier been granted in part and denied in part by Judge Moreno). The three-judge panel for the hearing was selected in December 2001. The hearing was held in January 2002 and, in March 2002, the Court of Appeals panel issued an opinion affirming Judge Moreno's earlier action with respect to the motion to compel arbitration. The Company has filed a motion requesting a rehearing of the matter before the entire 11^th Circuit Court of Appeals.

In March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious interference with contractual relations and existing and prospective business expectancies. The lawsuit seeks class-action status. The Company has filed a motion with the federal Judicial Panel on Multidistrict Litigation requesting that the proceedings in this case be consolidated with a similar action brought against other managed care companies that has previously been consolidated with the Shane lawsuit.

In July 2001, two individual physicians seeking to represent a class of physicians, hospitals and other providers brought suit in the Circuit Court of Madison County, Illinois against HealthLink, Inc., which is now a subsidiary of the Company as a result of the RightCHOICE transaction. The physicians allege that HealthLink breached the contracts with these physicians by engaging in the practices of "bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an unspecified amount. Discovery in the matter is currently being conducted and a hearing regarding class certification has been scheduled for December 16, 2002. A similar lawsuit was brought by physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract with Blue Cross and Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and their "unnamed subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege that the plans have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri has not been formally named or served as a defendant in this suit.

Prior to the Company's accquisition of the GBO, John Hancock Mutual Life Insurance Company ("John Hancock") entered into a number of reinsurance arrangements with respect to personal accident insurance and the occupational accident component of workers' compensation insurance, a portion of which was originated through a pool managed by Unicover Managers, Inc. Under these arrangements, John Hancock assumed risks as a reinsurer and transferred certain of such risks to other companies. These arrangements have become the subject of disputes, including a number of legal proceedings to which John Hancock is a party. The Company believes that it has a number of defenses to avoid any ultimate liability with respect to these matters and believes that such liabilities were not transferred to the Company as part of the GBO acquisition. However, if the Company were to become subject to such liabilities, the Company could suffer losses that might have a material adverse effect on its financial condition, results of operations or cash flows.

The financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the Company in particular, is at present unknown.

Certain of such legal proceedings are or may be covered under insurance policies or indemnification agreements. Based upon information presently available, management of the Company believes that the final outcome of all such proceedings should not have a material adverse effect on the Company's results of operations, cash flows or financial condition.

8. Business Segment Information

As of December 31, 2001, the Company's primary internal business divisions were focused on large employer group business, individual and small employer group business, and senior and specialty business. As a result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company has changed effective February 1, 2002. As a result of these changes, the Company now has the following two reportable segments: Health Care business and Specialty business. The Health Care segment is managed geographically and continues to provide a broad spectrum of network-based health plans, including HMOs, PPOs, POS plans, other hybrid plans and traditional indemnity products to large and small employers and individuals. The Specialty business is maintained as a separate segment providing an array of other products, including pharmacy, dental, workers' compensation managed care services, life insurance, preventive care, disability insurance and behavioral health. Corporate includes net investment income, general and administrative expense and interest expense not allocable to the reportable segments.

The following tables present segment information for the Health Care and Specialty segments for the quarter ended March 31, 2002 and 2001, respectively, as if the Company's new organizational structure had been effective on January 1, 2001.

Quarter Ended March 31, 2002

	Health Care		Specialty		Corporate			Consolidated
	(In thousands)
Premium revenue	$	3,575,725	$	122,934	$	—		$	3,698,659
Management services revenue		153,716		30,721		—			184,437

Total revenue from external customers		3,729,441		153,655		—			3,883,096
Segment net income (loss)	$	145,652	$	4,276	$	(8,828	)	$	141,100

Segment assets	$	7,383,732	$	592,801	$	1,827,734		$	9,804,267

Quarter Ended March 31, 2001

	Health Care		Specialty		Corporate		Consolidated
	(In thousands)
Premium revenue	$	2,332,080	$	101,048	$	—	$	2,433,128
Management services revenue		100,818		28,706		—		129,524

Total revenue from external customers		2,432,898		129,754		—		2,562,652
Segment net income	$	90,460	$	5,767	$	276	$	96,503

Segment assets	$	3,520,398	$	602,460	$	2,766,658	$	6,889,516

9. Hedging Activities

The Company maintains an interest rate risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate volatility. The Company's goal is to maintain a balance between fixed and floating interest rates on its long-term debt.

By using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, the Company exposes itself to credit risk and market risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in currency exchange rates or

interest rates. The Company manages exposure to market risk associated with interest rate and foreign exchange contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company uses interest rate swap agreements to manage interest rate exposures. The principal objective of such contracts is to minimize the risks and/or costs associated with financial and investing activities. The Company does not use derivative financial instruments for speculative purposes. The counterparties to these contractual arrangements are major financial institutions with which the Company also has other financial relationships. These counterparties expose the Company to credit loss in the event of non-performance. However, the Company does not anticipate non-performance by the other parties.

Fair Value Hedges

In order to mitigate interest rate fluctuations associated with its $450 million aggregate principal amount at maturity of 6³/8% Notes due June 15, 2006, the Company has entered into a $200 million notional amount interest rate swap agreement. The swap agreement is a contract to exchange a fixed 6³/8% rate for a LIBOR-based floating rate. The swap agreement expires June 15, 2006. As of March 31, 2002, the Company recognized a derivative liability related to this swap agreement of $4.1 million, which was included in other non-current liabilities of the consolidated balance sheet.

During 2001, the Company entered into foreign currency forward exchange contracts for each of the fixed maturity securities on hand denominated in foreign currencies in order to hedge asset positions with respect to currency fluctuations related to these securities. As of December 31, 2001, however, the Company had liquidated its non-dollar foreign bond holdings and as a result entered into a hedge to offset the remaining currency hedge. Subsequent to the implementation of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), all gains and losses from both effective and ineffective forward exchange contracts have been reported in investment income offset by the related gains and losses on the Company's available-for-sale foreign securities.

Cash Flow Hedges

The Company uses interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt under its revolving credit facility. The swap agreements are contracts to exchange variable-rate for fixed-rate interest payments without the exchange of the underlying notional amounts. During the quarter ended March 31, 2002, the Company recognized a net gain of $66 thousand reported in interest expense in the consolidated income statement, which represents the total ineffectiveness of all cash flow hedges.

As of March 31, 2002, the Company had the following interest rate swap agreements in effect (notional amount in thousands) in addition to the swap agreement referred to under "Fair Value Hedges":

Notional Amount		Strike Rate		Expiration Date
$150,000		6.99	%	October 17, 2003
$ 50,000		7.06	%	October 17, 2006

As of March 31, 2002, the Company had recognized a derivative liability related to this swap agreement of $11.2 million, which was included in other non-current liabilities of the consolidated balance sheet.

10. New Pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." The new rules change the accounting methodology for goodwill from a model that amortizes goodwill to one which evaluates it for impairment. Amortization of goodwill, including previously recorded goodwill, ended upon adoption of the new rules. The new rules also eliminate amortization of other intangibles with indefinite useful lives, but these assets are also subject to the impairment tests. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Upon adoption of SFAS No. 142 on January 1, 2002, the Company's evaluation of its goodwill and other intangible assets resulted in no impairment loss. Amortization of goodwill and other intangibles for the quarter ended March 31, 2002 and 2001, totaled $8.8 million and $11.3 million, respectively. SFAS No. 142 accounted for $7.1 million of the amortization decrease, partially offset by a net increase in amortization of intangible assets with definite useful lives of $4.6 million, primarily due to recent acquisitions.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 on January 1, 2003. The provisions of SFAS No. 143 require companies to record an asset and related liability for the costs associated with the retirement of a long-lived tangible asset if a legal liability to retire the asset exists. The Company is in the process of analyzing the provisions of SFAS No. 143; however, the effect of adoption is not expected to have a significant impact on the Company's financial condition and results of operations.

In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on January 1, 2002. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions," for the disposal of a segment of business (as previously defined in that opinion). SFAS No. 144 retains the basic principles of SFAS No. 121 for long-lived assets to be disposed of by sale or held and used and broadens discontinued operations presentation to include a component of an entity that is held for sale or that has been disposed. Components must have operations and cash flows that can be clearly distinguished from the rest of the entity. The adoption of this standard did not have any impact on the Company's financial results.

11. Pending Transactions

completed, CareFirst and its subsidiaries will convert from their current status as not-for-profit corporations into for-profit, stock corporations. As part of this conversion, CareFirst will issue 100% of its outstanding common stock to charitable foundations established according to applicable law. The conversion will require the approval of insurance regulators and the transaction is subject to the receipt of a private letter ruling from the IRS that the conversion of CareFirst will constitute a tax-free reorganization and that the gain or loss recognized by the holders of CareFirst stock in the merger will not be subject to unrelated business income tax. The conversion and regulatory approval process is currently expected to take 18 to 24 months from the date of signing of the definitive agreement. The acquisition is expected to close in 2003.

In April 2002, the Maryland legislature adopted legislation that would, among other things, require that the consideration paid by the Company in the CareFirst transaction consist entirely of cash, prohibit certain change-in-control payments to CareFirst management previously approved by the CareFirst's Board of Directors and delay for 90 days the effectiveness of any decision by the Maryland Insurance Administration regarding CareFirst's for-profit conversion and consummation of the CareFirst transaction in order to allow the Maryland legislature to review the decision. The Company is currently assessing the effects of this legislation on the proposed transaction.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion contains forward-looking statements, which involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those set forth under "Factors That May Affect Future Results of Operations."

General

The Company is one of the nation's largest publicly traded managed health care companies. As of March 31, 2002, WellPoint had approximately 13.0 million medical members and approximately 40.0 million specialty members. As a result of the January 31, 2002 closing of the RightCHOICE transaction, the Company's medical membership increased by approximately 2.2 million members. The Company offers a broad spectrum of network-based managed care plans. WellPoint provides these plans to the large and small employer, individual and senior markets. The Company's managed care plans include HMOs, PPOs, POS plans, other hybrid medical plans and traditional indemnity plans. In addition, the Company offers managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. The Company also provides a broad array of specialty and other products, including pharmacy, dental, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration. The Company markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia, in various parts of Missouri (including the greater St. Louis area) under the name Blue Cross Blue Shield of Missouri and in other states primarily under the name UNICARE or HealthLink. The Company holds the exclusive right in California to market its products under the Blue Cross name and mark and in Georgia and in 85 counties in Missouri (including the greater St. Louis area) to market its products under the Blue Cross Blue Shield names and marks.

Acquisition of RightCHOICE

On October 17, 2001, the Company entered into an Agreement and Plan of Merger with RightCHOICE, through its wholly owned subsidiary, RWP Acquisition Corp. (See Note 3 to the Consolidated Financial Statements). On January 31, 2002, the Company completed this transaction, pursuant to which RightCHOICE became a wholly owned subsidiary of the Company. The acquisition was valued at approximately $1.4 billion on the closing date, which was paid with $379.1 million in cash and approximately 16.5 million shares of WellPoint common stock. RightCHOICE, through its exclusive license to use the "Blue Cross" and "Blue Shield" names and service marks, is the largest provider of managed health care benefits in the state of Missouri based on number of members. RightCHOICE, through its HealthLink subsidiary, also provides network rental, administrative services, workers' compensation managed care services and other non-underwritten health benefit programs. As of January 31, 2002, RightCHOICE served approximately 2.2 million medical members in Missouri, Arkansas, Illinois, Indiana, Iowa, Kentucky and West Virginia. RightCHOICE has historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher concentration of administrative services business. Accordingly, it is expected that RightCHOICE's higher administrative expense ratios will ultimately contribute to an increase in the administrative expense ratio for the Company.

Acquisition of Cerulean

On March 15, 2001, the Company completed its acquisition of Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross Blue Shield of Georgia, Inc. (See Note 3 to the Consolidated Financial Statements). Cerulean, principally through its Blue Cross and Blue Shield of Georgia subsidiary, offers insured and administrative services products primarily in the State of Georgia. Cerulean has historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher concentration of administrative services business. Cerulean has also historically experienced a higher medical loss ratio than the Company's core businesses due to its higher percentage of Large Employer Group business and fewer managed care offerings. Accordingly, Cerulean's higher loss and administrative expense ratios have contributed to an increase in those ratios for the Company. The acquisition increased the Company's Georgia medical membership by approximately 1.9 million members as of March 31, 2001. The cash purchase price was $700.0 million. As a result of the acquisition of Cerulean, the Company incurred $134.5 million in expenses, primarily related to change in control payments to Cerulean management and transaction costs. This acquisition was accounted for under the purchase method of accounting.

Pending Acquisition of CareFirst

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst, Inc. ("CareFirst"). CareFirst is a not-for-profit health care company which, along with its affiliates and subsidiaries, offers a comprehensive portfolio of health insurance products, direct health care and administrative services to approximately 3.1 million people in Maryland, Delaware, the District of Columbia and Northern Virginia. CareFirst operates through three wholly owned affiliates: CareFirst of Maryland, Inc., Group Hospitalization and Medical Services, Inc., doing business under the name CareFirst BlueCross BlueShield, and Blue Cross Blue Shield of Delaware. Under the terms of the acquisition agreement, a wholly owned subsidiary of the Company will merge with and into CareFirst. As a result of the merger, the outstanding shares of common stock of CareFirst will be converted into the right to receive an aggregate purchase price of $1.3 billion. Before the CareFirst acquisition is completed, CareFirst and its subsidiaries will convert from their current status as not-for-profit corporations into for-profit, stock corporations. As part of this conversion, CareFirst will issue 100% of its outstanding common stock to charitable foundations established according to applicable law. The conversion will require the approval of insurance regulators and the transaction is subject to the receipt of a private letter ruling from the IRS that the conversion of CareFirst will constitute a tax-free reorganization and that the gain or loss recognized by the holders of CareFirst stock in the merger will not be subject to unrelated business income tax. The conversion and regulatory approval process is currently expected to take 18 to 24 months from the date of signing of the definitive agreement. The acquisition is expected to close in 2003.

National Expansion and Other Recent Developments

In an effort to pursue the expansion of the Company's business outside the state of California, the Company acquired two businesses in 1996 and 1997, the Life and Health Benefits Management Division ("MMHD") of Massachusetts Mutual Life Insurance Company and the Group Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance Company. The acquisitions of Rush

Prudential Health Plans and a mail-order pharmacy which now does business as PrecisionRx in 2000 and the acquisition of Cerulean in 2001 were also components of this expansion strategy. In 2001, the Company entered into definitive agreements to expand into the Midwest with its acquisition of RightCHOICE, which closed on January 31, 2002, and into the Mid-Atlantic region with the pending acquisition of CareFirst, which is expected to close in 2003.

As a result of these acquisitions, the Company has significantly expanded its operations outside of California. In order to integrate its acquired businesses and implement the Company's regional expansion strategy, the Company will need to develop satisfactory networks of hospitals, physicians and other health care service providers, develop distribution channels for its products and successfully convert acquired books of business to the Company's existing information systems, which will require continued investments by the Company.

In response to rising medical and pharmacy costs, the Company has from time to time implemented premium increases with respect to certain of its products. The Company will continue to evaluate the need for further premium increases, plan design changes and other appropriate actions in the future in order to maintain or restore profit margins. There can be no assurances, however, that the Company will be able to take subsequent pricing or other actions or that any actions previously taken or implemented in the future will be successful in addressing any concerns that may arise with respect to the performance of certain businesses.

Legislation

Federal legislation enacted during the last several years seeks, among other things, to insure the portability of health coverage and mandates minimum maternity hospital stays. California legislation enacted since 1999, among other things, establishes an explicit duty on managed care entities to exercise ordinary care in arranging for the provision of medically necessary health care services and establishes a system of independent medical review. In 1997, Texas adopted legislation purporting to make managed care organizations such as the Company liable for their failure to exercise ordinary care when making health care treatment decisions. Similar legislation has also been enacted in Georgia. These and other proposed measures may have the effect of dramatically altering the regulation of health care and of increasing the Company's loss ratio and administrative costs or decreasing the affordability of the Company's products.

Consolidated Results of Operations

The Company's revenues are primarily generated from premiums earned for risk-based health care and specialty services provided to its members, fees for administrative services, including claims processing and access to provider networks for self-insured employers, and investment income. Operating expenses include health care services and other benefits expenses, consisting primarily of payments for physicians, hospitals and other providers for health care and specialty products claims; selling expenses for broker and agent commissions; general and administrative expenses; interest expense; depreciation and amortization expense; and income taxes.

The Company's results of operations for the quarter ended March 31, 2002 include its acquired operations of Cerulean for the entire quarter and operating results for RightCHOICE for the period after January 31, 2002, its date of acquisition. The Company's consolidated results of operations for the quarter ended March 31, 2001 include the results of Cerulean for the period from March 15, 2001, its date of acquisition.

The following table sets forth selected operating ratios. The loss ratio for health care services and other benefits is shown as a percentage of premium revenue. All other ratios are shown as a percentage of premium revenue and management services revenue combined.

		Quarter Ended March 31,
		2002		2001
Operating Revenues:
	Premium revenue	95.3	%	94.9	%
	Management services revenue	4.7	%	5.1	%

		100.0	%	100.0	%
Operating Expenses:
	Health care services and other benefits (loss ratio)	80.6	%	80.8	%
	Selling expense	4.0	%	4.4	%
	General and administrative expense	14.0	%	14.0	%

Membership

The following table sets forth membership data and the percent change in membership:

Medical Membership(a)(b)(c)(d)

			March 31,
			March 31,		Percent Change
			2002(e)	2001(e)	Percent Change
California
	Large Group		4,437,222	3,868,920	14.7	%
	Individual and Small Group		1,576,809	1,577,566	0.0	%
	Senior		232,470	205,768	13.0	%

		Total California	6,246,501	5,652,254	10.5	%

Central Region(f)
Missouri
	Large Group		1,320,764	29,083	N/A
	Individual and Small Group		228,464	739	N/A
	Senior		43,585	113	N/A

		Total Missouri	1,592,813	29,935	N/A

Illinois
	Large Group		756,805	454,050	66.7	%
	Individual and Small Group		123,530	68,252	81.0	%
	Senior		12,653	10,758	17.6	%

		Total Illinois	892,988	533,060	67.5	%

Texas
	Large Group		340,581	336,409	1.2	%
	Individual and Small Group		188,905	161,590	16.9	%
	Senior		511	334	53.0	%

		Total Texas	529,997	498,333	6.4	%

Other States
	Large Group		1,655,171	1,407,639	17.6	%
	Individual and Small Group		92,230	78,185	18.0	%
	Senior		20,823	14,342	45.2	%

		Total Other States	1,768,224	1,500,166	17.9	%

Georgia
	Large Group		1,577,508	1,497,263	5.4	%
	Individual and Small Group		365,294	299,910	21.8	%
	Senior		70,872	78,655	-9.9	%

		Total Georgia	2,013,674	1,875,828	7.3	%

Total Medical Membership			13,044,197	10,089,576	29.3	%

ASO Membership(g)
	California		1,454,017	1,325,406	9.7	%
	Central Region		2,995,005	1,532,903	95.4	%
	Georgia		894,569	887,341	0.8	%

		Total ASO Membership	5,343,591	3,745,650	42.7	%
Risk Membership
	California		4,792,484	4,326,848	10.8	%
	Central Region		1,789,017	1,028,591	73.9	%
	Georgia		1,119,105	988,487	13.2	%

Total Risk Membership			7,700,606	6,343,926	21.4	%

Total Medical Membership			13,044,197	10,089,576	29.3	%

Medical Membership Footnotes

(a): Membership numbers are approximate and include some estimates based upon the number of contracts at the relevant date and an actuarial estimate of the number of members represented by the contract.
(b): Classification between states for employer groups is determined by the zip code of the subscriber.
(c): Medical membership includes management services and network services members, which are primarily included in the Large Group for each respective state.
(d): Senior membership includes members covered under both Medicare risk and Medicare supplement products.
(e): Membership numbers as of March 31, 2001 have been adjusted to include members from two Company-owned or Company-controlled rental networks as well as the Company's proportionate share of members associated with a joint venture providing Medicaid services in Puerto Rico. Membership numbers as of March 31, 2002 also include members from these entities. As of March 31, 2002 and 2001, total members associated with these entities were 386,786 and 325,747, respectively. Membership numbers as of March 31, 2002 reflect members resulting from the Company's January 2002 merger with RightCHOICE Managed Care, Inc. ("RightCHOICE"). In order to reflect consistent membership numbers across the Company's various operating subsidiaries, the Company has excluded certain members for which RightCHOICE provides workers' compensation managed care services, which RightCHOICE previously reflected as members. There were approximately 932,873 and 782,800 such members as of March 31, 2002 and 2001, respectively. The membership numbers as of March 31, 2002 have also been adjusted to eliminate shared members of approximately 133,701 UNICARE members using the HealthLink networks. Finally, the Company has also excluded certain members participating in a national Blue Cross and Blue Shield Association program that were previously included as medical members by RightCHOICE. There were approximately 110,038 and 80,662 members in this program in the former RightCHOICE business as of March 31, 2002 and 2001, respectively.
(f): Central Region Large Group membership includes network access services members, primarily from HealthLink, of 1,443,517 and 324,785 as of March 31, 2002 and 2001, respectively.
(g): ASO Membership represents members for which the Company provides administrative services only and does not assume full insurance risk.

Specialty Membership

	As of March 31,
	As of March 31,		Percent Change
	2002	2001	Percent Change
Pharmacy	27,904,746	29,663,058	(5.9	)%
Dental	2,708,911	2,674,520	1.3	%
Life	2,317,633	2,060,268	12.5	%
Disability	526,430	552,972	(4.8	)%
Behavioral Health	6,500,886	4,837,156	34.4	%

Comparison of Results for the Quarter Ended March 31, 2002 to the Quarter Ended March 31, 2001

On March 15, 2002, WellPoint effected a two-for-one split of the Company's Common Stock. The stock split was in the form of a stock dividend of one additional share of WellPoint Common Stock for each share held. Share and per share data for all periods presented below have been adjusted to give effect to the stock split.

The operating results between the quarter ended March 31, 2002 compared to the quarter ended March 31, 2001 were significantly impacted by the RightCHOICE acquisition, which was consummated on January 31, 2002 and the Cerulean acquisition, which was consummated on March 15, 2001. Specifically, the operating results for the quarter ended March 31, 2002 included two months of RightCHOICE and three months of Cerulean operating results as compared to only 15 days of Cerulean operating results for the quarter ended March 31, 2001.

As discussed in Note 8, effective February 1, 2002 the Company effected a change in its organizational structure and now has two reportable segments—Health Care and Specialty. The Health Care segment includes all managed care plans and managed care services. The Specialty segment includes specialty managed health care and other services. The following table depicts premium revenue by reportable segment:

	Quarter Ended March 31,
	2002		2001
	(In thousands)
Health Care	$	3,575,725	$	2,332,080
Specialty		122,934		101,048

Consolidated	$	3,698,659	$	2,433,128

Premium revenue increased 52.0%, or $1,265.5 million, to $3,698.7 million for the quarter ended March 31, 2002 from $2,433.1 million for the quarter ended March 31, 2001. The increase was primarily due to $758.2 million of premium revenue increase related to the RightCHOICE and Cerulean acquisitions, representing 59.9% of the increase. Excluding acquisitions, premium revenue would have increased 21.6% for the quarter ended March 31, 2002. The increase, excluding acquisitions, was primarily due to an increase of insured member months of approximately 7.4% and the implementation of premium increases overall.

The following table depicts management services revenue by business segment:

	Quarter Ended March 31,
	2002		2001
	(In thousands)
Health Care	$	153,716	$	100,818
Specialty		30,721		28,706

Consolidated	$	184,437	$	129,524

Management services revenue increased 42.4%, or $54.9 million, to $184.4 million for the quarter ended March 31, 2002 from $129.5 million for the quarter ended March 31, 2001. The increase was due to $59.2 million of management services revenue from the RightCHOICE and Cerulean acquisitions, but partially offset by a $4.3 million decrease in the existing business due to medical membership loss in the Company's Central Region and specialty membership loss related to the Company's pharmacy benefit management business.

Investment income was $59.9 million for the quarter ended March 31, 2002 compared to $52.8 million for the quarter ended March 31, 2001, an increase of $7.1 million or 13.5%. The increase was primarily due to lower net realized losses in the first quarter of 2002 of $1.2 million as compared

to net realized losses in 2001 of $7.1 million. Also, net investment expenses increased by $1.3 million in 2002 due primarily to higher investment manager fees. Net investment income, after considering the impact of net realized losses and investment expenses, increased $2.5 million or 4.2% in 2002 over 2001 as a result of higher average investment balances during the first quarter 2002 versus the first quarter of 2001.

The loss ratio attributable to the Health Care segment was 81.0% for the first quarter ended March 31, 2002 compared to 81.3% for the same quarter in 2001. The loss ratio attributable to the Specialty segment was 69.6% for the first quarter ended March 31, 2002 compared to 68.7% for the same quarter in 2001. The RightCHOICE business has a lower loss ratio than the Company's core businesses. However, the Cerulean business continues to experience a higher loss ratio than the Company's core businesses due to its higher percentage of its Large Employer Group business and fewer managed care offerings. Excluding RightCHOICE and Cerulean, the loss ratio for both segments combined decreased to 79.9% for the quarter ended March 31, 2002 from 80.7% for the quarter ended March 31, 2001. The health care services and other benefits expense includes an estimate of claims incurred during the period but which have not been reported to the Company. This estimate is actuarially determined based on a variety of factors and is inherently subject to a number of higher variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated financial statements.

Selling expense consists of commissions paid to outside brokers and agents representing the Company. The selling expense ratio for the quarter ended March 31, 2002 decreased to 4.0% compared to 4.4% for the quarter ended March 31, 2001. The RightCHOICE business has a lower selling expense ratio than the Company's core businesses. The acquired Cerulean business has traditionally experienced a lower selling expense ratio due primarily to its lower percentage of Individual and Small Employer Group business. Excluding RightCHOICE and Cerulean, the selling expense ratio would have decreased slightly to 4.3% for the quarter ended March 31, 2002 from 4.4% for the same quarter in 2001.

The administrative expense ratio remained constant at 14.0% for the quarters ended March 31, 2002 and 2001. The acquired RightCHOICE business experienced a higher administrative expense ratio than the Company's core businesses in the first quarter of 2002 due to integration expenses along with certain other transaction-related expenses. Excluding RightCHOICE and Cerulean, the administrative expense ratio decreased slightly to 13.9% in the first quarter of 2002 compared to 14.0% a year ago.

Interest expense increased $8.3 million to $16.5 million for the quarter ended March 31, 2002, compared to $8.2 million for the quarter ended March 31, 2001. The increase in interest expense was related to the higher average debt balance for the quarter ended March 31, 2002 in comparison to the quarter ended March 31, 2001, primarily due to the RightCHOICE acquisition. The weighted average interest rate for all debt for the quarter ended March 31, 2002, including the fees associated with the Company's borrowings and interest rate swap agreements, was 6.4%.

Other expense decreased $2.4 million to $10.9 million for the quarter ended March 31, 2002, compared to $13.3 million for the quarter ended March 31, 2001. The decrease resulted from lower amortization of goodwill and other intangible assets due to the implementation of SFAS No. 142, which accounted for $7.1 million of the amortization decrease. Partially offsetting this decrease was an increase in amortization of intangible assets with definite useful lives of $4.6 million, primarily due to recent acquisitions.

The Company's net income for the quarter ended March 31, 2002 was $141.1 million, compared to $96.5 million for the quarter ended March 31, 2001. Earnings per share totaled $1.01 and $0.77 for the quarter ended March 31, 2002 and 2001, respectively. Earnings per share assuming full dilution totaled $0.97 and $0.74 for the quarter ended March 31, 2002 and 2001, respectively.

Earnings per share for the quarter ended March 31, 2002 is based upon weighted average shares outstanding of 139.1 million shares, excluding potential common stock, and 145.9 million shares, assuming full dilution. Earnings per share for the quarter ended March 31, 2001 is based on 126.0 million shares, excluding potential common stock, and 131.4 million shares, assuming full dilution. The increase in weighted average shares outstanding primarily resulted from the issuance of shares related to the RightCHOICE acquisition and Company's employee stock option and purchase plans.

Financial Condition

The Company's consolidated assets increased by $2,332.2 million, or 31.2%, to $9,804.3 million as of March 31, 2002 from $7,472.1 million as of December 31, 2001. The increase in total assets was primarily due to the acquisition of RightCHOICE, which accounted for $2,014.9 million or 86.4% of the increase. Excluding RightCHOICE, the increase in total assets was primarily due to growth in cash and investments of $110.0 million or 34.7% and an increase in receivables of $148.8 million, or 46.9%. Cash and investments totaled $5.5 billion as of March 31, 2002, or 55.6% of total assets.

Overall claims liabilities increased $300.9 million, or 13.6%, to $2,520.7 million as of March 31, 2002 from $2,219.8 as of December 31, 2001. This increase is due to the RightCHOICE acquisition of $156.5 million and an increase in the claims liabilities associated with the Company's core businesses of $144.4 million.

As of March 31, 2002, the Company's long-term indebtedness was $1,173.6 million, of which $154.7 million was related to the Company's Zero Coupon Convertible Subordinated Debentures (the "Debentures"), $225.0 million was related to the Company's revolving credit facility, $445.0 million was related to the Company's 6³/8% Notes due 2006, net of fair value adjustment, and $348.9 million was related to the Company's 6³/8% Notes due 2012. (See Note 4 to the Consolidated Financial Statements). The 6³/8% Notes due 2012, with an aggregate principal amount at maturity of $350.0 million, was issued to finance the RightCHOICE acquisition.

Stockholders' equity totaled $3,285.8 million as of March 31, 2002, an increase of $1,153.2 million from $2,132.6 million as of December 31, 2001. The increase was primarily due to the issuance of Company's Common Stock of $1,109.1 million in connection with the RightCHOICE acquisition, net income of $141.1 million for the quarter ended March 31, 2002 and $67.0 million of net proceeds from the reissuance of treasury stock related to the Company's employee 401(k), stock option and stock purchase plans. Partially offsetting these increases were the repurchase of two million shares of its common stock for $122.3 million and a decrease in unrealized gains on investment securities of $41.7 million, net of taxes.

Liquidity and Capital Resources

The Company's primary sources of cash are premium and management services revenues received and investment income. The primary uses of cash include health care claims and other benefits, capitation payments, income taxes, repayment and repurchases of long-term debt, interest expense, broker and agent commissions, administrative expenses, common stock repurchases and capital expenditures. In addition to the foregoing, other uses of cash include costs of provider networks and systems development, and costs associated with the integration of acquired businesses.

The Company generally receives premium revenue in advance of anticipated claims for related health care services and other benefits. The Company's investment policies are designed to provide safety and preservation of capital, sufficient liquidity to meet cash flow needs, the integration of investment strategy with the business operations and objectives of the Company, and attainment of a competitive after-tax total return.

The Company's strategy for achieving its investment goals is broad diversification of its investments, both across and within asset classes. As of March 31, 2002, the Company's investment portfolio consisted primarily of investment grade fixed-maturity securities. The Company's portfolio also included large capitalization and small capitalization domestic equities, foreign equities, tax-exempt municipal bonds where the after-tax return is higher than the comparable taxable securities, and a small amount of non-investment grade debt securities. The fixed-income assets include both short and long-duration securities with an attempt to match the Company's funding needs. The investment policy contains limitations regarding concentration in individual securities and industries and generally prohibits speculative and leveraged investments. Cash and investment balances maintained by the Company are sufficient to meet applicable regulatory financial stability and net worth requirements, including license requirements of the Blue Cross Blue Shield Association.

Cash flow provided by operating activities was $298.0 million for the quarter ended March 31, 2002, compared with $148.8 million for the quarter ended March 31, 2001. Cash flow from operations for the quarter ended March 31, 2002 was due primarily to net income of $141.1 million and an increase in medical claims payable of $138.7 million due to membership growth and higher provider contract rates.

Net cash used in investing activities for the quarter ended March 31, 2002 totaled $793.1 million, compared with $520.5 million for the quarter ended March 31, 2001. The cash used in the first quarter of 2002 was attributable primarily to the purchase of investments of $1.7 billion, and of property and equipment, net of sales proceeds, of $24.9 million and the purchase of RightCHOICE net of acquired cash of $311.0 million. Proceeds from investments sold and matured totaled $1.2 billion, partially offsetting the aforementioned purchases.

Net cash provided by financing activities totaled $283.7 million in the first quarter of 2002 compared with $525.2 million for the quarter ended March 31, 2001. The net cash provided in the first quarter of 2002 was primarily related to additional debt incurred to finance the RightCHOICE acquisition of $350.0 million, in addition to the receipt of proceeds from the issuance of stock related to the Company's employee stock option and purchase programs of $67.0 million less $122.3 million in Company stock repurchases. During the first quarter of 2002, the Company decreased indebtedness under its revolving credit facility by $10.0 million.

Effective as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of $1.0 billion. Upon execution of these facilities, the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings under these facilities (which are generally referred to collectively in this Quarterly Report on Form 10-Q as the Company's "revolving credit facility") bear interest at rates determined by reference to the bank's base rate or to the London InterBank Offered Rate ("LIBOR") plus a margin determined by reference to the then-current rating of the Company's unsecured long-term debt by specified rating agencies. One facility, which provides for borrowings of up to $750.0 million, expires as of March 30, 2006, although it may be extended for up to two additional one-year periods under certain circumstances. The other facility, which provides for borrowings of up to $250.0 million, originally expired as of March 30, 2002. In March 2002, the Company amended this facility to provide for an expiration date of March 28, 2003. Any amount outstanding under this facility as of March 28, 2003 may be converted into a one-year term loan at the option of the Company. Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction bid process. The $750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and contains restrictive convenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control (See Note 4 to the Consolidated Financial Statements). The total amount outstanding under these facilities was $225.0 million as of March 31, 2002.

As a part of a hedging strategy to limit its exposure to variable interest rate increases, the Company entered into interest rate swap agreements in order to reduce the volatility of interest expense resulting from changes in interest rates. The swap agreements are contracts to exchange variable-rate interest payments (weighted average rate for the quarter ended March 31, 2002 of 2.26%) for fixed-rate interest payments (weighted average rate for the quarter ended March 31, 2002 of 7.42%) without the exchange of the underlying notional amounts. As of September 30, 2001, the Company had entered into $200.0 million of fixed rate swap agreements, which consisted of a $150.0 million notional amount swap agreement at 6.99% maturing on October 17, 2003 and a $50.0 million notional amount swap agreement at 7.06% maturing on October 17, 2006.

In order to mitigate interest rate fluctuations associated with its $450 million aggregate principal amount at maturity of 6³/8% Notes due June 15, 2006, the Company has entered into a $200 million notional amount interest rate swap agreement. The swap agreement is a contract to exchange a fixed 6³/8% rate for a LIBOR-based floating rate (weighted average variable rate of 6.05% for the quarter ended March 31, 2002).

During 2001, the Company entered into foreign currency forward exchange contracts for each of the fixed maturity securities on hand denominated in foreign currencies in order to hedge asset positions with respect to currency fluctuations related to these securities. As of December 31, 2001, however, the Company had liquidated its non-dollar foreign bond holdings and as result entered into a hedge to offset the remaining currency hedge. Subsequent to the implementation of SFAS No. 133, all gains and losses from both effective and ineffective forward exchange contracts have been reported in investment income offset by the related gains and losses on the Company's available-for-sale foreign securities.

Certain of the Company's subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory agencies, including the California Department of Managed Health Care and the Departments of Insurance in various states. As of March 31, 2002 (or the most recent date with respect to which compliance is required), those subsidiaries of the Company were in compliance with all minimum capital requirements.

On June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 6³/8% Notes due June 15, 2006 (the "2001 Notes"). The net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2001 Notes were used for repayment of indebtedness under the Company's revolving credit facilities, which indirectly financed a portion of the Cerulean acquisition. The 2001 Notes bear interest at a rate of 6³/8% per annum, payable semi-annually in arrears on June 15 and December 15 of each year commencing December 15, 2001. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

The 2001 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2001 Notes redeemed will be equal to the greater of the following amounts: 1) 100% of the principal amount of the 2001 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2001 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis at the Treasury rate as determined by the Reference Treasury Dealer (Salomon Smith Barney Inc. or UBS Warburg LLC or their respective successors), plus 25 basis points. In each case, the redemption price will also include accrued and unpaid interest on the 2001 Notes to the redemption date.

With the anticipated acquisition of RightCHOICE on January 31, 2002, the Company on January 16, 2002 issued $350.0 million aggregate principal amount at maturity of 6³/8% Note due January 15, 2012 (the "2002 Notes"). The net proceeds of this offering totaled approximately $348.9 million. The 2002 Notes bear interest at a rate of 6³/8% per annum, payable semi-annually in

arrears on January 15 and July 15 of each year commencing July 15, 2002. Interest is computed on the basis of a 360-day year of twelve 30-day months.

The 2001 and 2002 Notes are unsecured obligations and rank equally with all of the Company's existing and future senior unsecured indebtedness. All existing and future liabilities of the Company's subsidiaries are and will be effectively senior to the 2001 and 2002 Notes. The indenture governing the 2001 and 2002 Notes contains a covenant that limits the Company's ability and that of the Company's subsidiaries to create liens on Company property or assets to secure certain indebtedness without also securing the 2001 and 2002 Notes.

The Company believes that cash flow generated by operations and its cash and investment balances, supplemented by the Company's ability to borrow under its existing revolving credit facility or through public or private financing sources, will be sufficient to fund continuing operations and expected capital requirements for the foreseeable future.

Factors That May Affect Future Results of Operations

Certain statements contained herein, such as statements concerning potential or future loss ratios, pending acquisitions and other statements regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934). Such statements involve a number of risks and uncertainties that may cause actual results to differ from those projected. Factors that can cause actual results to differ materially include, but are not limited to, those discussed below and those discussed from time to time in the Company's various filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K.

The Company's operations are subject to substantial regulation by federal, state and local agencies in all jurisdictions in which the Company operates. Many of these agencies have increased their scrutiny of managed health care companies in recent periods or are expected to increase their scrutiny, as newly passed legislation becomes effective. From time to time, the Company and its subsidiaries receive requests for information from regulatory agencies or are notified that such agencies are conducting reviews, investigations or other proceedings with respect to certain of the Company's activities. The Company also provides insurance products to Medi-Cal beneficiaries in various California counties under contracts with the California Department of Health Services (or delegated local agencies) and provides administrative services to the Centers for Medicare and Medicaid Services ("CMS") in various capacities. There can be no assurance that acting as a government contractor in these circumstances will not increase the risk of heightened scrutiny by such government agencies or that such scrutiny will not have a material adverse effect on the Company, either through negative publicity about the Company or through an adverse impact on the Company's results of operations. In addition, profitability from this business may be adversely affected through inadequate premium rate increases due to governmental budgetary issues. Future actions by any regulatory agencies may have a material adverse effect on the Company's business.

In connection with the RightCHOICE and Cerulean transactions, the Company incurred significant additional indebtedness to fund the cash payments made to the acquired companies' stockholders. In addition, the Company currently expects to incur additional indebtedness to fund some or all of the cash payments to be made in connection with the pending CareFirst transaction. This existing or new indebtedness may result in a significant percentage of the Company's cash flow being applied to the payment of interest, and there can be no assurance that the Company's operations will generate sufficient future cash flow to service this indebtedness. The Company's current indebtedness, as well as any indebtedness that the Company may incur in the future (such as indebtedness incurred to fund repurchases of its Common Stock or to fund the CareFirst or other transactions), may adversely affect the Company's ability to finance its operations and could limit the Company's ability to pursue business opportunities that may be in the best interests of the Company and its stockholders.

Completion of the Company's pending transaction with CareFirst is subject to the satisfaction of a number of conditions, including approval of the insurance regulators in each of Maryland, Delaware and the District of Columbia. In addition, one of CareFirst's operating affiliates must have its federal charter amended or repealed by the United States Congress (subject to presidential approval) and must obtain approval from the Washington D.C. Corporation Counsel. There can be no assurances that the required approvals will be obtained. If all conditions to closing are not met on or before November 20, 2004, each of WellPoint and CareFirst will have the right to terminate the CareFirst Merger Agreement. As a result, there can be no assurances that the transaction will be consummated.

As a condition to approval of the transaction, regulatory agencies may seek to impose requirements or limitations on the way that the combined company conducts it business. Although neither WellPoint nor CareFirst is obligated to agree to any material requirements or limitations in order to obtain approval, if either or both companies were to agree to any such conditions, such requirements or limitations or additional costs associated therewith could adversely affect WellPoint's ability to integrate the operations of CareFirst with those of WellPoint. Accordingly, a material adverse effect on WellPoint's revenue, results of operations and cash flows following the CareFirst transaction could result.

As part of the Company's business strategy, the Company has acquired substantial operations in new geographic markets over the last six years. These businesses, some of which include substantial indemnity-based insurance operations, have experienced varying profitability or losses in recent periods. Since the relevant dates of acquisition of Rush Prudential and Cerulean, the Company has continued to work extensively on the integration of these businesses. The Company has also begun its integration of the RightCHOICE business. However, there can be no assurances regarding the ultimate success of the Company's integration efforts or regarding the ability of the Company to maintain or improve the results of operations of the businesses of completed or pending transactions. The Company has incurred and will, among other things, need to continue to incur considerable expenditures for provider networks, distribution channels and information systems in addition to the costs associated with the integration of these acquisitions. The integration of these complex businesses may result in, among other things, temporary increases in claims inventory or other service-related issues that may negatively affect the Company's relationship with its customers and contribute to increased attrition of such customers. The Company's results of operations could be adversely affected in the event that the Company experiences such problems or is otherwise unable to implement fully its expansion strategy.

The Company and certain of its subsidiaries are subject to capital surplus requirements by the California Department of Managed Health Care, the Georgia Department of Insurance, the Missouri Department of Insurance, various other state Departments of Insurance and the Blue Cross Blue Shield Association. Although the Company believes that it is currently in compliance with all applicable requirements, there can be no assurances that such requirements will not be increased in the future.

In March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious interference with contractual relations and existing and prospective business expectancies. The lawsuit seeks class-action status. The financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the Company in particular, is at present unknown. The Company has filed a motion with the federal Judicial Panel on Multidistrict Litigation requesting that the proceedings in this case be consolidated with a similar action brought against other managed care companies that has previously been consolidated with the Shane lawsuit.

allege that HealthLink breached the contracts with these physicians by engaging in the practices of "bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an unspecified amount. Discovery in the matter is currently being conducted and a hearing regarding class certification has been scheduled for December 16, 2002. A similar lawsuit was brought by physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract with Blue Cross and Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and their "unnamed subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege that the plans have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri has not been formally named or served as a defendant in this suit.

The Company's future results will depend in large part on accurately predicting health care costs incurred on existing business and upon the Company's ability to control future health care costs through product and benefit design, underwriting criteria, utilization management and negotiation of favorable provider contracts. Changes in mandated benefits, utilization rates, demographic characteristics, health care practices, provider consolidation, inflation, new pharmaceuticals/technologies, clusters of high-cost cases, the regulatory environment and numerous other factors are beyond the control of any health plan provider and may adversely affect the Company's ability to predict and control health care costs and claims, as well as the Company's financial condition, results of operations or cash flows. Periodic renegotiations of hospital and other provider contracts coupled with continued consolidation of physician, hospital and other provider groups may result in increased health care costs and limit the Company's ability to negotiate favorable rates. Recently, large physician practice management companies have experienced extreme financial difficulties, including bankruptcy, which may subject the Company to increased credit risk related to provider groups and cause the Company to incur duplicative claims expense. Additionally, the Company faces competitive pressure to contain premium prices. Fiscal concerns regarding the continued viability of government-sponsored programs such as Medicare and Medicaid may cause decreasing reimbursement rates for these programs. Any limitation on the Company's ability to increase or maintain its premium levels, design products, implement underwriting criteria or negotiate competitive provider contracts may adversely affect the Company's financial condition or results of operations.

Managed care organizations, both inside and outside California, operate in a highly competitive environment that has undergone significant change in recent years as a result of business consolidations, new strategic alliances, aggressive marketing practices by competitors and other market pressures. Additional increases in competition (including competition from market entrants offering Internet-based products and services), could adversely affect the Company's financial condition, cash flows or results of operations.

As a result of the Company's acquisitions, the Company operates on a select geographic basis nationally and offers a spectrum of health care and specialty products through various risk-sharing arrangements. The Company's health care products include a variety of managed care offerings as well as traditional fee-for-service coverage. With respect to product type, fee-for-service products are generally less profitable than managed care products. A component of the Company's expansion strategy is to transition over time the traditional insurance members of the Company's acquired businesses to more managed care products.

With respect to the risk-sharing nature of products, managed care products that involve greater potential risk to the Company generally tend to be more profitable than management services products and those managed care products where the Company is able to shift risks to employer groups. Individuals and small employer groups are more likely to purchase the Company's higher-risk managed

care products because such purchasers are generally unable or unwilling to bear greater liability for health care expenditures. Typically, government-sponsored programs involve the Company's higher-risk managed care products. Over the past few years, the Company has experienced a slight decline in margins in its higher-risk managed care products and to a lesser extent on its lower-risk managed care and management services products. This decline is primarily attributable to product mix change, product design, competitive pressure and greater regulatory restrictions applicable to the small employer group market. From time to time, the Company has implemented price increases in certain of its managed care businesses. While these price increases are intended to improve profitability, there can be no assurance that this will occur. Subsequent unfavorable changes in the relative profitability between the Company's various products could have a material adverse effect on the Company's results of operations and on the continued merits of the Company's geographic expansion strategy.

Substantially all of the Company's investment assets are in interest-yielding debt securities of varying maturities or equity securities. The value of fixed income securities is highly sensitive to fluctuations in short- and long-term interest rates, with the value decreasing as such rates increase and increasing as such rates decrease. In addition, the value of equity securities can fluctuate significantly with changes in market conditions. Changes in the value of the Company's investment assets, as a result of interest rate fluctuations, can affect the Company's results of operations and stockholders' equity. There can be no assurances that interest rate fluctuations will not have a material adverse effect on the results of operations or financial condition of the Company.

The Company's operations are dependent on retaining existing employees, attracting additional qualified employees and achieving productivity gains from the Company's investment in technology. The Company faces intense competition for qualified information technology personnel and other skilled professionals. There can be no assurances that an inability to retain existing employees or attract additional employees will not have a material adverse effect on the Company's results of operations.

In December 2000, a wholly owned subsidiary of the Company completed its acquisition of certain mail order pharmaceutical service assets and now conducts business as a mail order pharmacy. The pharmacy business is subject to extensive federal, state and local regulations which are in many instances different from those under which the Company's core health plan business currently operates. The failure to properly adhere to these and other applicable regulations could result in the imposition of civil and criminal penalties, which could adversely affect the Company's results of operations or financial condition. In addition, pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Although the Company intends to maintain professional liability and errors and omissions liability insurance, there can be no assurances that the coverage limits under such insurance programs will be adequate to protect against future claims or that the Company will be able to maintain insurance on acceptable terms in the future.

Following the terrorist attacks of September 11, 2001, there have been various incidents of suspected bioterrorist activity in the United States. To date, these incidents have resulted in related

isolated incidents of illness and death. However, federal and state law enforcement officials have issued public warnings about additional potential terrorist activity involving biological weapons. If the United States were to experience more widespread bioterrorist attacks, the Company's covered medical expenses could rise and the Company could experience a material adverse effect on its results of operations, financial condition and cash flow.

On April 22, 2002, one of the Company's wholly owned subsidiaries acting as a pharmacy benefit management business under the tradename WellPoint Pharmacy Management received an administrative subpoena duces tecum issued by the U.S. Attorney's Office in Boston Massachuetts. The Company does not believe that its pharmacy benefit management business is presently a target of investigation by the U.S. Attorney. The subpoena appears to focus primarily on WellPoint Pharmacy Management's relationship with TAP Pharmaceuticals, including TAP's drugs Lupron and Prevacid. The Company believes that it is in compliance in all material respects with all laws and regulations applicable to the pharmacy benefit management business, and it intends to cooperate with the subpoena.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from that disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

PART II OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

(a): Exhibits

2.01		Amended and Restated Recapitalization Agreement dated as of March 31, 1995 by and among the Registrant, Blue Cross of California, Western Health Partnership and Western Foundation for Health Improvement, incorporated by reference to Exhibit 2.1 of the Registrant's Registration Statement on Form S-4 dated April 8, 1996
2.02		Amended and Restated Agreement and Plan of Merger dated as of November 29, 2000, by and among Cerulean Companies, Inc., the Registrant and Water Polo Acquisition Corp., incorporated by reference to Exhibit 2.01 of the Registrant's Current Report on Form 8-K dated March 15, 2001
2.03		Agreement and Plan of Merger dated as of October 17, 2001 by and among the Registrant, RightCHOICE Managed Care, Inc. and RWP Acquisition Corp., incorporated by reference to Exhibit 2.01 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-73382)
2.04		Agreement and Plan of Merger dated as of November 20, 2001 by and among the Registrant, CareFirst, Inc. and Congress Acquisition Corp., incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated November 20, 2001
3.01		Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on August 5, 1997.
3.02		Bylaws of the Registrant, incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8, Registration No. 333-90791
4.01		Specimen of common stock certificate of WellPoint Health Networks Inc., incorporated by reference to Exhibit 4.4 of Registrant's Registration Statement on Form 8-B, Registration No. 001-13083
4.02		Restated Certificate of Incorporation of the Registrant (included in Exhibit 3.01)
4.03		Bylaws of the Registrant (included in Exhibit 3.02)
4.04		Indenture dated as of July 2, 1999 by and between the Registrant and The Bank of New York, as trustee (including the form of Debenture attached as Exhibit A thereto), incorporated by reference to Exhibit 4.04 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
4.05		Amended and Restated Indenture dated as of June 8, 2001 by and between the Registrant and The Bank of New York, as trustee, incorporated by reference to Exhibit 4.05 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
4.06		Form of 6³/8% Note due 2006, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated June 12, 2001.
4.07		Form of 6³/8% Note due 2012, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 12, 2002.
10.01		First Amendment to 364-Day Credit Agreement dated as of March 29, 2002, by and among the Registrant, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, and JPMorgan, a division of Chase Securities, Inc., as syndication agent.

10.02		RightCHOICE Managed Care, Inc. 2001 Stock Incentive Plan, incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 (Registration No. 333-62898) of RightCHOICE Managed Care, Inc.
10.03		RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan, incorporated by reference to Exhibit 4(c) of the Post-Effective Amendment No. 2 on Form S-8 to Registration Statement on Form S-4 (Registration No. 333-34750) of RightCHOICE Managed Care, Inc.
10.04		RightCHOICE Managed Care, Inc. Nonemployee Directors' Stock Option Plan, incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-1 (Registration No. 333-77798) of RightCHOICE Managed Care, Inc., a Missouri corporation.
10.05		RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan, incorporated by reference to Exhibit 4(c) of the Registration Statement on Form S-8 (Registration No. 333-51336) of RightCHOICE Managed Care, Inc.
10.06		RightCHOICE Managed Care, Inc. Supplemental Executive Retirement Plan, as restated effective as of October 10, 2001.
10.07		Letter agreement dated February 4, 2002 between the Registrant and John A. O'Rourke.
10.08		Amendment No. 1 to RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan.

(b): Reports on Form 8-K

On January 11, 2002, the Company filed a Current Report on Form 8-K which reported that the Company had signed a definitive agreement with RightCHOICE Managed Care, Inc. ("RightCHOICE") to merge in a transaction valued at approximately $1.3 billion, or $66.00 per share, for RightCHOICE Common Stock. The Current Report on Form 8-K incorporated by reference audited consolidated financial statements of RightCHOICE as of and for the years ended December 31, 1998, 1999 and 2000, unaudited consolidated financial statements of RightCHOICE for the nine months ended September 30, 2000 and 2001 and unaudited pro forma financial statements of WellPoint and RightCHOICE as of September 30, 2001 and for the nine months ended September 30, 2001 and the 12 months ended December 31, 2000.

On January 16, 2002, the Company filed a Current Report on Form 8-K which reported that the Company had entered into an underwriting agreement for the issuance of $350.0 million in aggregate principal amount of the Company's 6³/8% Notes Due 2012.

On February 8, 2002, the Company filed a Current Report on Form 8-K which reported that the Company had completed its acquisition of RightCHOICE. The Current Report on Form 8-K incorporated by reference the historical and pro forma financial statements referred to in the paragraph describing the Current Report on Form 8-K filed January 11, 2002.

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.

	WELLPOINT HEALTH NETWORKS INC. Registrant

Date: May 13, 2002	By:	\s\ LEONARD D. SCHAEFFER Leonard D. Schaeffer Chairman of the Board of Directors and Chief Executive Officer

Date: May 13, 2002	By:	\s\ DAVID C. COLBY David C. Colby Executive Vice President and Chief Financial Officer

Date: May 13, 2002	By:	\s\ KENNETH C. ZUREK Kenneth C. Zurek Senior Vice President, Controller and Taxation

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WellPoint Health Networks Inc. Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2002 Table of Contents

ITEM 1. Financial Statements

WellPoint Health Networks Inc. Consolidated Balance Sheets
WellPoint Health Networks Inc. Consolidated Income Statements (Unaudited)
WellPoint Health Networks Inc. Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
WellPoint Health Networks Inc. Consolidated Statements of Cash Flows (Unaudited)
WellPoint Health Networks Inc. Notes to Consolidated Financial Statements (Unaudited)

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

PART II OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

SIGNATURES
EX-10.01 3 a2079138zex-10_01.htm EXHIBIT 10.01
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Exhibit 10.01

FIRST AMENDMENT TO 364-DAY CREDIT AGREEMENT

THIS FIRST AMENDMENT TO 364-DAY CREDIT AGREEMENT (this "Amendment"), dated as of March 29, 2002, is entered into among WELLPOINT HEALTH NETWORKS INC., a Delaware corporation (the "Borrower"), the Lenders identified on the signature pages hereto (the "Lenders"), BANK OF AMERICA, N.A., as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and JPMORGAN, a division of Chase Securities Inc., as syndication agent (in such capacity, the "Syndication Agent"). Terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement described below.

W I T N E S S E T H

WHEREAS, the Borrower, the Lenders, the Administrative Agent and the Syndication Agent entered into that certain Credit Agreement dated as of March 30, 2001 (the "Existing Credit Agreement"); and

WHEREAS, the Borrower has requested to extend the Commitment Termination Date for an additional 364 day period, and certain Lenders party to the Existing Credit Agreement have agreed to extend their respective Commitments and amend the Existing Credit Agreement in accordance with such request and as provided herein.

NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

PART 1
DEFINITIONS

SUBPART 1.1 Certain Definitions. Unless otherwise defined herein or the context otherwise requires, the following terms used in this Amendment, including its preamble and recitals, have the following meanings:

"Amended Credit Agreement" means the Existing Credit Agreement as amended hereby.

"Amendment No. 1 Effective Date" is defined in Subpart 3.1.

SUBPART 1.2 Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Existing Credit Agreement.

PART 2
AMENDMENTS TO EXISTING CREDIT AGREEMENT

Effective on (and subject to the occurrence of) the Amendment No. 1 Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part 2.

SUBPART 2.1 Amendments to Section 1.01. Section 1.01 of the Credit Agreement is hereby amended in the following respects:

(a) The definition of "Commitment Termination Date" is hereby amended in its entirety to read as follows:

"Commitment Termination Date" shall mean the date 364 days following March 29, 2002.

(b) The definition of "Maturity Date" is hereby amended in its entirety to read as follows:

"Maturity Date" shall mean the date 364 days following the Commitment Termination Date.

SUBPART 2.2 Amendments to Schedule 2.01. Schedule 2.01 of the Existing Credit Agreement is hereby replaced with Schedule 2.01 attached hereto.

PART 3
CONDITIONS TO EFFECTIVENESS

SUBPART 3.1 Amendment No. 1 Effective Date 1. This Amendment shall be and become effective as of the date hereof (the "Amendment No. 1 Effective Date") when all of the conditions set forth in this Part III shall have been satisfied, and thereafter this Amendment shall be known, and may be referred to, as the "Amendment".

SUBPART 3.2 Execution of Counterparts of Amendment. The Administrative Agent shall have received counterparts (or other evidence of execution, including telephonic message, satisfactory to the Administrative Agent) of this Amendment, which collectively shall have been duly executed on behalf of each of the Borrower, the Lenders, the Administrative Agent and the Syndication Agent.

SUBPART 3.4 Fees and Expenses. The Borrower has paid all fees and expenses incurred in connection with the negotiation, preparation, execution and delivery of this Amendment and the other transactions contemplated herein including, without limitation, the legal fees and expenses of Moore & Van Allen, counsel to the Administrative Agent.

SUBPART 3.5 Other Items. The Administrative Agent shall have received such other documents, agreements or information which may be reasonably requested by the Administrative Agent.

PART 4
MISCELLANEOUS

SUBPART 4.1 Representations and Warranties. Each of the Borrower and the Guarantors hereby represents and warrants to the Administrative Agent and the Lenders that, after giving effect to this Amendment, (a) no Default or Event of Default exists under the Credit Agreement and (b) the representations and warranties set forth in Section 3 of the Existing Credit Agreement are, subject to the limitations set forth therein, true and correct in all material respects as of the date hereof (except for those which expressly relate to an earlier date).

SUBPART 4.2 Reaffirmation of obligations. The Borrower hereby ratifies the Credit Agreement and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement applicable to it and (b) that it is responsible for the observance and full performance of its respective obligations under the Credit Agreement.

SUBPART 4.3 Cross-References. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment.

SUBPART 4.4 Instrument Pursuant to Existing Credit Agreement. This Amendment is executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement.

SUBPART 4.5 References in Other Credit Documents. At such time as this Amendment shall become effective pursuant to the terms of Subpart 3.1, all references to the "Credit Agreement" shall be deemed to refer to the Credit Agreement as amended by this Amendment.

SUBPART 4.6 Counterparts/Telecopy. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. Delivery of executed counterparts of the Amendment by telecopy shall be effective as an original and shall constitute a representation that an original shall be delivered.

SUBPART 4.7 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES).

SUBPART 4.8 Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

SUBPART 4.9 General. Except as amended hereby, the Existing Credit Agreement and all other Credit Documents shall continue in full force and effect.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Credit Agreement as of the date first above written.

*BORROWER*:	WELLPOINT HEALTH NETWORKS INC., a Delaware corporation


	By:	/s/ R. DAVID KRETSCHMER

	Name:	R. David Kretschmer
	Title:	V.P., Treasurer

*ADMINISTRATIVE AGENT:*	BANK OF AMERICA, N.A.


	By:	/s/ JOSEPH L. CORAH

	Name:	Joseph L. Corah
	Title:	Principal

*SYNDICATION AGENT:*	JPMORGAN, a division of Chase Securities, Inc.


	By:	/s/ ANDREW BRODE

	Name:	Andrew Brode
	Title:	Vice President

*LENDERS:*	BANK OF AMERICA, N.A.


	By:	/s/ JOSEPH L. CORAH

	Name:	Joseph L. Corah
	Title:	Principal




[signature pages continue]

	THE INDUSTRIAL BANK OF JAPAN, LIMITED


	By:	/s/ VICENTE L. TIMIRAOS

	Name:	Vicente L. Timiraos
	Title:	Joint General Manager




[signature pages continue]

	BANK ONE, N.A.


	By:	/s/ VINCENT K. KELLY

	Name:	Vincent K. Kelly
	Title:	Managing Director




[signature pages continue]

	JP MORGAN CHASE BANK


	By:	/s/ DAWN LEE LUM

	Name:	Dawn Lee Lum
	Title:	Vice President




[signature pages continue]

	CITICORP USA, INC.


	By:	/s/ STEPHEN P. ZWICK

	Name:	Stephen P. Zwick
	Title:	VP




[signature pages continue]

	MELLON BANK, N.A.


	By:	/s/ MARSHA WICKER

	Name:	Marsha Wicker
	Title:	VP




[signature pages continue]

	CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH


	By:	/s/ WILLIAM S. LUTKINS

	Name:	William S. Lutkins
	Title:	Director


	By:	/s/ ROBERT N. FINNEY

	Name:	Robert N. Finney
	Title:	Managing Director




[signature pages continue]

	THE BANK OF NEW YORK


	By:	/s/ REBECCA K. LEVINE

	Name:	Rebecca K. Levine
	Title:	Vice President




[signature pages continue]

	SUNTRUST BANK


	By:	/s/ W. BROOKS HUBBARD

	Name:	W. Brooks Hubbard
	Title:	Vice President




[signature pages continue]

	UBS AG, STAMFORD BRANCH


	By:	/s/ WILFRED V. SAINT

	Name:	Wilfred V. Saint
	Title:	Associate Director


	By:	/s/ JUAN ZUNIGA

	Name:	Juan Zuniga
	Title:	Associate Director




[signature pages continue]

	DEUTSCHE BANK AG New York and/or Cayman Islands Branches


	By:	/s/ SCOTTYE D. LINDSEY

	Name:	Scottye D. Lindsey
	Title:	Vice President


	By:	/s/ MARGUERITE SUTTON

	Name:	Marguerite Sutton
	Title:	Vice President




[signature pages continue]

	LEHMAN COMMERCIAL PAPER INC.


	By:	/s/ FRANCIS J. CHANG

	Name:	Francis J. Chang
	Title:	Vice President




[signature pages continue]

	WACHOVIA BANK, N.A.


	By:	/s/ DANIEL J. NORTON

	Name:	Daniel J. Norton
	Title:	Director




[signature pages continue]

	KBC BANK, N.V.


	By:	/s/ ROBERT SNAUFFER

	Name:	Robert Snauffer
	Title:	First Vice President


	By:	/s/ RAYMOND F. MURRAY

	Name:	Raymond F. Murray
	Title:	First Vice President




[signature pages continue]

	FLEET NATIONAL BANK


	By:	/s/ GORDON B. COUGHLIN

	Name:	Gordon B. Coughlin
	Title:	Vice President




[signature pages continue]

	BNP PARIBAS


	By:	/s/ C. BETTLES

	Name:	C. Bettles
	Title:	Managing Director


	By:	/s/ JANICE S.H. HO

	Name:	Janice S. H. Ho
	Title:	Director




[signature pages continue]

	THE SUMITOMO BANK, LIMITED


	By:	/s/ AL GALLUZZO

	Name:	Al Galluzzo
	Title:	Senior Vice President




[signature pages continue]

	SOCIETE GENERALE


	By:	/s/ RICHARD BERNAL

	Name:	Richard Bernal
	Title:	Director, Corporate Banking




[signature pages continue]

	CREDIT LYONNAIS NEW YORK BRANCH


	By:	/s/ BERNARD WEYMULLER

	Name:	Bernard Weymuller
	Title:	Senior Vice President




[signature pages continue]

	BANCA DI ROMA


	By:	/s/ LUCA BALESTRA

	Name:	Luca Balestra (#25050)
	Title:	Senior Vice President and Manager


	By:	/s/ RICHARD G. DIETZ

	Name:	Richard G. Dietz (#97271)
	Title:	Vice President




[signature pages continue]

SCHEDULE 2.01
COMMITMENTS
(364-Day Credit Agreement)

Lender	Commitment Amount		Commitment Percentage
Bank of America, N.A.	$	20,625,000	8.250000000	%
The Chase Manhattan Bank	$	20,625,000	8.250000000	%
The Industrial Bank of Japan, Limited	$	15,000,000	6.000000000	%
Bank One, N.A.	$	15,000,000	6.000000000	%
Citicorp USA, Inc.	$	15,000,000	6.000000000	%
Mellon Bank, N.A.	$	12,500,000	5.000000000	%
Credit Suisse First Boston	$	12,500,000	5.000000000	%
The Bank of New York	$	12,500,000	5.000000000	%
SunTrust Bank	$	12,500,000	5.000000000	%
UBS AG, Stamford Branch	$	12,500,000	5.000000000	%
Deutsche Bank AG	$	12,500,000	5.000000000	%
Lehman Commercial Paper Inc.	$	12,500,000	5.000000000	%
Wachovia Bank, N.A.	$	12,500,000	5.000000000	%
KBC Bank, N.V.	$	12,500,000	5.000000000	%
Fleet National Bank	$	10,625,000	4.250000000	%
BNP Paribas	$	10,625,000	4.250000000	%
The Sumitomo Bank, Limited	$	8,750,000	3.500000000	%
Societe Generale	$	8,750,000	3.500000000	%
Credit Lyonnais New York Branch	$	6,250,000	2.500000000	%
Banca Di Roma	$	6,250,000	2.500000000	%

Total:	$	250,000,000.00	100.000000000	%

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FIRST AMENDMENT TO 364-DAY CREDIT AGREEMENT
EX-10.06 4 a2079138zex-10_06.htm EXHIBIT 10.06
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Exhibit 10.06

RIGHTCHOICE MANAGED CARE, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Restated Effective October 10, 2001

TABLE OF CONTENTS

	Page
1.	Name and Purpose of the Plan	1
2.	Definitions	1
3.	Administration of the Plan	5
4.	Participation	6
5.	Benefits	6
6.	Determination of the Company's Obligations	8
7.	Conditions and Other Matters	8
8.	Amendment and Termination	10
9.	Arbitration	10
10.	Change in Control	10
11.	Effective Date	11

RIGHTCHOICE MANAGED CARE, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Restated October 10, 2001

WHEREAS, RightCHOICE Managed Care, Inc. (the "Company") maintains the RightCHOICE Managed Care, Inc. Supplemental Executive Retirement Plan ("Plan"); and

WHEREAS, the Company has undergone a restructuring and wishes to amend and restate the Plan to reflect such restructuring; and

WHEREAS, The Company desires to amend certain other provisions of the Plan;

NOW, THEREFORE, the Company does hereby amend and restate the Plan in its entirety, effective as of October 10, 2001, so that it will read as follows:

1.: Name and Purpose of the Plan

The purpose of the Plan is to assist the Company in attracting and retaining key employees in order to further the long-term growth and enhance the performance of the Company by providing them with retirement benefits which they may not be able to receive from the Pension Plan, or because of the limitations provided in Sections 401(a)(17) and 415(b) and (d) of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or because the individual does not have 20 years of service in the Pension Plan.

2.

Definitions

(a)

"Affiliate" means any corporation which together with the Company is a member of a "controlled group" of corporations within the meaning of Sections 414(b) and (c) of the Code and which has adopted this Plan pursuant to the written consent of the Board.

(b)

Except as otherwise provided in Section 10 of the Plan, "Actuarial Equivalent" means a benefit having the same value as the benefit which it replaces, using the following factors:

(i): for purpose of determining the single life annuity under Section 2(u) below, the interest rate and the mortality table shall be determined by the actuary selected by the Committee;
(ii): for purpose of determining the single sum payment under Section 5(a), 5(b) (i) and 5(c)(iii), the interest rate and the mortality table shall be determined by the actuary selected by the Committee; and
(iii): for all other purposes, the actuarial factors shall be those as provided in the Pension Plan.

(c)

"Beneficiary" means the person or persons designated by a Participant as his surviving beneficiary(ies) on a beneficiary designation form in effect at the time of the Participant's death, if any, or if no beneficiary designation form is in effect at the time of the Participant's death, the Participant's spouse, or if none, the legal representative for the Participant's estate. A beneficiary designation form shall be in effect when it is completed and executed by the Participant and received by the Committee. Thereafter a Participant may change a Beneficiary by completing and executing a new Beneficiary designation form and submitting it to the Committee.

(d)

"Board" means the Board of Directors of the Company, as it may be constituted from time to time.

(e)

"Change in Control" means the happening of any of the following events:

(i): the acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either the then outstanding shares of Common Stock of the Company or the

combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by (A) the Company or any of its Subsidiaries, or (B) any employee benefit plan (or related trust) of the Company or its Subsidiaries, or (C) any corporation with respect to which, following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were of the beneficial owners, respectively, of the Common Stock and voting securities of the Company immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the then outstanding shares of Common Stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, as the case may be;

(ii): individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);
(iii): consummation of (a) a reorganization, merger or consolidation of the Company, in each case, with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners o the Common Stock and voting securities of the Company immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation or (b) the sale, lease, exchange, or other disposition of all or substantially all of the assets of the Company to any other corporation or entity (except a subsidiary or parent corporation as defined in Section 424 of the Internal Revenue Code of 1986);
(iv): approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or
(v): the Company ceases to have its Common Stock listed on a nationally recognized stock exchange or quoted on the Nasdaq National Market) (or any successor quotation system).

For purposes of this Section 2(e), the term "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of 50% or more by reason of stock ownership or otherwise.

(f): "Code" means the Internal Revenue Code of 1986, as amended from time to time.
(g): "'Committee" or "Retirement Committee" means the committee appointed pursuant to Section 3(a) of the Plan.

(h): "Company" means RightCHOICE Managed Care, Inc., a Delaware corporation, or any other company that hereafter adopts this Plan and agrees to become obligated to provide benefits hereunder.
(i): "Employee" means any person employed by the Company or an Affiliate who is in a select group of management or highly compensated employees within the meaning of ERISA.
(j): "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
(k): "Executive Deferred Compensation Plan" means the Company's Executive Deferred Compensation Plan, as amended from time to time.
(l): "Final Average Earnings" means a Participant's Final Average Earnings as defined in the Pension Plan disregarding any limitation thereto under Code Section 401(a)(17) and including any amounts that were contributed by such Participant to the Executive Deferred Compensation Plan; provided, however, that for purposes of calculating Final Average Earnings under this Plan, accelerated bonus payments made in December 2001 for the 2001 year will be treated as earnings received in 2002.
(m): "Joint and Contingent Benefit" shall mean the Actuarial Equivalent of the Supplemental Benefit and shall be payable in the form of a life annuity to the Participant with a death benefit in the form of a lump sum payment payable to the participant's Beneficiary upon the Participant's death. The death benefit shall be equal to the Actuarial Equivalent of a monthly payment of 50% of the monthly payment being paid to the Participant during his life (or if the Participant death occurred before payment began, the monthly payment the Participant would have been entitled to if he had retired and began receiving benefits hereunder on the day before his death) for the life of a beneficiary the same age and the opposite sex as the Participant. The Actuarial Equivalent of such amount shall be payable in the form of a lump sum payment to the Participant's Beneficiary, as soon as practicable following the Participant's death.
(n): "Normal Retirement Age" means Normal Retirement Age as defined in the Pension Plan.
(o): "Participant" means an Employee who has qualified for participation in the Plan in accordance with Section 4, hereof, and whose active participation has not been terminated.
(p): "Pension Plan" means the Non-Contributory Retirement Program maintained by the Company and any of its Affiliates, as amended from time to time.
(q): "Plan" means this Supplemental Executive Retirement Plan, as amended from time to time.
(r): "Plan Year" or "Plan Years" means the calendar year.
(s): "Prior Pension Programs" means any qualified retirement program, other than the Pension Plan, that a Participant or former Participant has participated in and for which such participation is included as Years of Prior Service under this Plan.
(t): "Savings Program" means the 401(k) Savings Program maintained by the Company and any of its Affiliates, as amended from time to time.
(u): "Secretary" means the secretary of the Committee as selected in accordance with Section 3(c).
(v): "Supplemental Benefit" means an annual amount, payable in monthly installments to the Participant over his life commencing on the first day of the first month coincident with or next

following the day the Participant attains Normal Retirement Age, equal to (i) minus (ii), where:

(i)

is equal to the product of 2.5% multiplied by the Participant's Final Average Earnings multiplied by the Participant's Years of Credited Service (up to a maximum of 20 Years of Credited Service), and

(ii)

is equal to the sum of (A), (B) and (C) where:

(A): is equal to the Participant's normal retirement benefit under the Pension Plan and any employer paid benefits accrued by or payable to or on behalf of the Participant under a Prior Pension Program which relate to service with any employer by the Participant that is included in such Participant's Years of Prior Service, hereunder, payable in the form of a single life annuity, determined without regard to any early retirement factors or benefit options elected;
(B): is equal to the annual amount, payable in the form of a single life annuity, which is payable at Normal Retirement Age and is the Actuarial Equivalent of the balance (increased by the amount of any prior distribution) in the Participant's deferral account under the Executive Deferred Compensation Plan attributable to Company contributions made pursuant to the Executive Deferred Compensation Plan and the Prior Plan (as defined in the Executive Deferred Compensation Plan), and
(C): is equal to the annual amount, payable in the form of a single life annuity, which is the Actuarial Equivalent of any prior amounts (not included in Subsection (A), above) received under this Plan or the Pension Plan or any employer paid benefits received under any Prior Pension Programs which relate to service by the Participant that is included in such Participant's Years of Prior Service, hereunder.

Notwithstanding the foregoing, in no event shall a Participant's benefit be less than the benefit that would have been provided under the terms of this Plan in effect on July 31, 1994, determined as if the Participant had a termination of employment an such date.

(w)

"Trust" or "Trust Agreement" means the irrevocable Trust Agreement established by the Company for the purpose of providing benefits under this Plan, the assets of which remain subject to the claims of general creditors in the event of the Company's insolvency.

(x)

"Years of Credited Service" means the sum of (i) the aggregate number of the Participant's Years of Prior Vested Service, and (ii) the aggregate number of the Participant's Years of Plan Service as determined by the Committee.

(y)

"Years of Plan Service" shall mean "Years of Plans and Association Service" as such term is defined and credited under the Pension Plan for Plan Years beginning on or after the later of the Participant's employment with the Company or January 1, 1994.

(z)

"Years of Prior Service" shall mean the years of service, including, in some situations, service with other employers, credited by the Committee to a Participant for service before the later of the Participant's employment by the Company or January 1, 1994 for benefit accrual purposes, as set forth on Appendix B, attached hereto.

(aa)

"Years of Prior Vested Service" shall mean for a Participant, as of December 31, 1993, the greater of (i) or (ii), where:

(i): is equal to 50% of the Participant's Years of Prior Service as of December 31, 1993, and
(ii): is equal to the lesser of (A) the Participant's Years of Prior Service as of December 31, 1993; or (B) 5 Years of Prior Service.

Notwithstanding the above, if a Participant meets one of the following while a Participant in the Plan, then, the Participant's Years of Prior Vested Service shall be equal to the Participant's Years of Prior Service:

(iii): the Participant is a Senior Vice-President or higher of the Company, has attained the age of 55, and has a combination of Years of Prior Service and Years of Plan Service equal to or greater than 20;
(iv): the Participant has attained the age of 62 and has a combination of Years of Prior Service and Years of Plan Service equal to or greater than 20; or
(v): the Participant attains the age of 65.

3.

Administration of the Plan

(a)

Committee. The Committee shall consist of at least three (3) persons who shall serve at the pleasure of the Board. Any individual member of the Committee may, but need not, be: (i) a member of the Board or of any committee of the Board having responsibility for the compensation of any Employee; and/or (ii) an Employee. Vacancies in the membership of the Committee shall be filled only by action of the Board. A member of the Committee may be eligible for participation in the Plan while serving as such member but shall not vote on, or otherwise participate in the consideration of, any matter specifically relating to the benefits of such member under the Plan.

(b)

Committee Advisors. The Committee, in its sole discretion, may select and appoint not more than five (5) individuals to be Committee Advisors. Any Committee Advisor shall be an Employee and may, but need not, be a Participant and/or a member of the Board or of any committee of the Board having responsibility for the compensation of any Employee. A Committee Advisor may attend Committee meetings, participate in Committee business, and otherwise advise and assist the Committee but shall not be entitled to vote and shall not be a member of the Committee.

(c)

Administration by Committee. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have sole discretionary authority to:

(i): Interpret the Plan,
(ii): Determine eligibility and level of participation,
(iii): Create and revise rules and procedures for the administration of the Plan,
(iv): Employ or retain such persons (including independent accountants, attorneys and actuaries) as it may deem necessary or appropriate to assist it in the proper administration of the Plan,
(v): Take any other actions and make other determinations as it may deem necessary and proper for the administration of the Plan, provided that no such action or determination shall adversely affect the rights of any Participant that have accrued, or may in the future accrue, under this Plan, and
(vi): Direct the trustee of the Trust to distribute the Participants' benefits pursuant to the Trust Agreement.

Decisions and determinations by the Committee shall be final and binding upon all persons and shall be made by majority vote of the Committee. All decisions and determinations of the Committee shall be reflected in permanent records of Committee actions recorded and maintained by the Secretary of the Committee. The Secretary shall be a member of the Committee, or a Committee Advisor, who is designated as such by vote of the Committee. Determinations and decisions by the Committee shall be

made at meetings at which a majority of the members are present or, in the alternative, by unanimous written consent. Notwithstanding anything to the contrary in the Plan, the Board shall also have all power and authority to perform any act granted to the Committee pursuant to the Plan.

4.

Participation

(a): Appendix A Participants. Effective August 1, 1994, the Participants in the Plan shall be those individuals listed in Appendix A. The Committee in its sole discretion may amend Appendix A at any time to add an individual's name to or to delete an individual's name, provided, however, no deletion of an individual's name from Appendix A shall, without the consent of a Participant, adversely affect the rights of that Participant to the benefits that have accrued under this Plan before such deletion. Notice of any addition or deletion shall be given in writing to the affected Participant. Each Participant listed in Appendix A shall be entitled to benefits as provided in Section 5(b) of the Plan.
(b): Appendix C Participants. In lieu of adding an Employee's name to Appendix A, the Board in its sole discretion may add such Employee's name to Appendix C. The Committee in its sole discretion may amend Appendix C at any time to add other Employees' names or to delete an individual's name; provided, however, no deletion of a Participant's name from Appendix C shall, without the consent of such Participant, adversely affect the rights of that Participant to the benefits that have accrued under this Plan before such deletion. Notice of any addition or deletion shall be given in writing to the affected Participant. Each Participant listed in Appendix C shall not be entitled to benefits as provided in Section 5(b) of the Plan and shall be entitled to benefits as provided in Section 5(c) of the Plan.
(c): Notwithstanding any other provision of the Plan, the Committee, by means of resolution, may agree to vary the terms of the Plan as to any Participant in the Plan; provided, however, that in no event may any Committee action have the effect of depriving Participants of benefits or rights accrued under the Plan as of the date of such action, including methods of benefit payment.

5.

Benefits

(a): Former Participants. Individuals who were Participants or former Participants in the Plan on July 31, 1994, but who were not listed on Appendix A or Appendix C as of August 1, 1994, shall no longer be eligible to participate in the Plan. Within 90 days of the execution of this Plan document, the Committee may, in its discretion pay, or direct the trustee of the Trust to pay, to each such former Participant, in a single sum payment, the Actuarial Equivalent of the benefit the individual would have been entitled to under the terms of the Plan as in effect on July 31, 1994, determined as if the individual terminated employment on such date (or such earlier date, if the former Participant previously terminated employment), provided, however, that solely for purposes of determining such single sum amount, any individual who has less than five (5) Years of Credited Service shall be entitled to a nonforfeitable benefit under this Section 5(a). Otherwise, such accrued benefits will be paid to such former Participant in accordance with the distribution method specified in Section 5(c).

(b)

Appendix A Participants. If a Participant is eligible to participate in the Plan under Section 4(a) of the Plan and such Participant has at least five (5) Years of Credited Service, then the Participant shall be entitled to a Supplemental Benefit. Except as otherwise provided in Section 10, Participant's Supplemental Benefit shall be paid at the same time and subject to the same actuarial reductions for early payout as the Participant's benefit under the Pension Plan, except in the following circumstances:

(i): if upon termination of employment with the Company or participation in the Plan, the Actuarial Equivalent single sum present value of the Participant's Supplemental Benefit does not exceed $25,000, then the Participant's Supplemental Benefit shall be distributed in a single sum to the Participant, as soon as reasonably practicable following such termination, or
(ii): if the Participant's Supplemental Benefit is not payable pursuant to paragraph (i) above, then the Actuarial Equivalent of his Supplemental Benefit shall be paid in the form of a Joint and Contingent Benefit.

Except as otherwise provided in Section 10, in the event a Participant terminates employment with the Company or an Affiliate prior to completing five (5) Years of Credited Service, the Participant shall forfeit his Supplemental Benefit.

(c)

Appendix C Participants. If a Participant is eligible to participate in the Plan under Section 4(b) of the Plan and such Participant has at least five (5) Years of Credited Service, then the Participant shall be entitled to the benefit described in this Section 5(c). The benefit provided under this Section 5(c) shall be an annual amount, payable in monthly installments to the Participant over his life commencing on the first day of the first month coincident with or next following the day the Participant attains Normal Retirement Age, equal to (i) minus (ii), where:

(i): is equal to the Participant's normal retirement benefit under the Pension Plan and any employer-paid benefits accrued by or payable to or on behalf of the Participant under a Prior Pension Program which relate to service with any employer by the Participant that is included in such participant's Years of Prior Service, hereunder, payable in the form of a single life annuity, and determined: (A) without regard to any early retirement factors or benefit option elected, and (B) without regard to the limitations provided in Sections 401(a)(17) and 415(b) and (e) of the Code with respect to such normal retirement benefit, and (c) taking into account amounts that were contributed by such Participant to the Executive Deferred Compensation Plan.
(ii): is equal to the normal retirement benefit computed in (i) above, but: (A) taking into account the limitations provided in Sections 401 (a)(17) and 415(b) and (e) of the Code with respect to such benefit, and (B) without regard to amounts contributed by such Participant to the Executive Deferred Compensation Plan.

Except as otherwise provided in Section 10, Participant's benefit under this Section 5(c) shall be paid at the same time and subject to the same actuarial reductions for early payout as the Participant's benefit under the Pension Plan, except in the following circumstances:

(i): if upon termination of employment with the Company or participation in the Plan, the Actuarial Equivalent single sum present value of the Participants benefit under this Section 5(c) does not exceed $25,000, then the Participant's benefit shall be distributed in a single sum to the Participant, as soon as reasonably practicable following such termination, or

(ii): if the Participant's benefit under this. Section 5(c) is not payable pursuant to paragraph (iii) above, then the Actuarial Equivalent of his benefit shall be paid in the form of Joint and Contingent Benefit (determined by substituting the phrase "benefit under Section 5(c)" for "Supplemental Benefit" each place it appears in Section 2(l) of the Plan).

(d): Effective as of January 1, 2000, and notwithstanding any other provision of the Plan, the benefit for any Participant under this Section 5 shall be determined by applying the terms of the Pension Plan and the Prior Pension Programs that implement the limitations of Section 415 by taking into account the repeal of Section 415(e).

6.: Determination of the Company's Obligations

The Company or Affiliate may, but is not required to, pay to the Trust established pursuant to Section 7(c), within a reasonable time, those amounts necessary to fund the benefits under Section 5 of this Plan. Those amounts attributable to Section 5(b) and 5(c) of the Plan shall be determined according to the actuarial assumptions computed and maintained in accordance with this Plan and the Pension Plan, as designated hereunder. Notwithstanding any distributions from the Trust to general creditors of the Company or Affiliate (not including the Participant), the Participant shall have a contract right to benefits provided under Section 5 of the Plan.

All benefits may be paid from the Trust assets; provided, however, that the liability of the Company or Affiliate to pay the benefits provided under this Plan shall not be relieved to the extent the application of Trust assets fails to satisfy such liability.

7.

Conditions and Other Matters

(a): Any amounts payable under the Plan shall not be subject in any way to alienation, sale, transfer, assignment, pledge, attachment, garnishment, execution or encumbrance of any kind; and any attempt to accomplish same shall be void, except as provided for in subsection (c) below.
(b): Participation in the Plan does not give any person any reason to be retained in the service of the Company or Affiliate. The right and power of the Company or Affiliate to terminate any Employee "at will" is expressly reserved.
(c): The Company has established an irrevocable trust fund (the Trust) through which assets to satisfy its obligations under this Plan may be set aside to aid in providing for benefit payments to the Participants. Any assets or property held by the Trust shall continue to be subject to the claims of the general creditors of the Company or Affiliate only upon the insolvency or bankruptcy of the Company or Affiliate as provided therein. No person other than the Company or Affiliate shall, by virtue of the provisions of this Plan, have any interest in such funds except to the extent that any person, including the Participant, acquires the right to receive payments from the Plan, such right being no greater than the right of any unsecured general creditor of the Company or Affiliate.
(d): Any amount deferred and/or payable under this Plan shall not be deemed salary or other compensation to the Participant for the purpose of computing benefits to which such Participant may be entitled under any other plan or other arrangement of the Company or Affiliate for the benefit of Employees, except as may be otherwise specified in such plan or arrangement.

(e): No Employee or other person shall have any claim or right to become a Participant under the Plan; nor shall any Participant have a right to receive payment of any amount under the Plan in any form or manner other than as stated herein.
(f): The Company or Affiliate shall have the right to deduct from payment of any amount under the Plan any taxes required by law to be withheld from a Participant or Beneficiary with respect to such payment.
(g): Whenever possible, each provision of this Plan shall be interpreted in such manner as to be effective and valid under applicable law (including the Code), but if any provision of this Plan shall be held to be prohibited by or invalid under applicable law, then (i) such provision shall be deemed amended to, and to have contained from the outset such language as shall be necessary to, accomplish the objectives of the provision as originally written to the fullest extent permitted by law, and (ii) any other provisions of this Plan shall remain in full force and effect.
(h): No rule of strict construction shall be applied against the Company, an Affiliate, the Committee, the Board or any other person in the interpretation of any terms of this Plan or any rule or procedure established by the Committee.
(i): Whenever, in the Committee's opinion, any person entitled to receive any payment is under a legal disability, or is incapacitated in any way, so as to be unable to manage his financial affairs, the Company or Affiliate, at its discretion, may make such payment for the benefit of such person to his legal representative, or to a relative or friend of such person for his benefit, or it may apply the payment for the benefit of such person in any manner it deems advisable. When the Company or Affiliate makes any payment pursuant to this subsection, it shall be considered as a complete discharge of any liability for the making of such payments under the Plan.
(j): The Plan shall be construed according to the laws of the State of Missouri, except to the extent superseded by applicable federal laws.
(k): All notices to the Company or the Committee hereunder shall be delivered to the attention of the Secretary of the Committee. Any notice or filing required or permitted to be given to the Committee or the Company under this Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Company or the Committee, as appropriate, at the principal office of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.
(l): Where the context admits, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular, and the singular shall include the plural.
(m): The captions of Sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
(n): Any action required or permitted by the Company under the Plan shall be by resolution of its Board or any person or persons authorized by resolution of its Board.
(o): The provisions of the Plan shall bind and inure to the benefit of the Company and Affiliates and their successors and assigns. The term "successors" as used herein shall include any corporation or other business entity which shall, by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company or Affiliate and successors of any such corporation or other business entity.

(p): Any and all payments made to the Trust pursuant to the Plan shall be made only from the general assets of the Company. Any accounts maintained under the Plan shall be for bookkeeping purposes only and shall not represent a claim against specific assets of the Company. Except as specifically provided with respect to the Trust, nothing contained in this Plan shall be deemed to create a trust of any kind or create any fiduciary relationship.
(q): It is the intention of the Company that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA.

8.: Amendment and Termination

The Committee retains the right to modify or amend the Plan by means of a resolution duly adopted. The Company retains the right to terminate the Plan upon a resolution approved by the Board. No modification, amendment or termination shall, without the consent of the Participant, adversely affect the rights of that Participant to the benefits that have accrued under this Plan before such modification, amendment or termination. Termination of the Plan shall not result in an acceleration of the payment of benefits, which will be paid in accordance with the provisions of the Plan as of the date of Plan termination. Notice of every such modification, amendment or termination shall be given in writing to each Participant.

9.: Arbitration

Any dispute between a Participant and the Company as to the interpretation or application of the provisions of this Plan and the amounts payable hereunder shall be determined by binding arbitration before a single arbitrator in St. Louis, Missouri in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court of competent jurisdiction.

10.

Change in Control

(a): Vesting. Notwithstanding any other provision of the Plan, upon a Change in Control a Participant will become 100% vested in his benefit under the Plan.
(b): Lump Sum Distribution. Notwithstanding any other provision of the Plan and subject to paragraph (e) of this Section 10, within 30 days after a Change in Control, each Participant will complete an election with respect to the method of payment of his benefit under the Plan. Permissible methods of payment include (i) a Joint and Contingent Benefit, (ii) a lump sum payment payable upon termination of employment, or (iii) a lump sum payment on a specified distribution date that is no earlier than twelve (12) months after the date of the election. A Participant will be permitted to change any election made pursuant to this Section 10(b) at any time during active employment; provided, however, that such subsequent election must be made no later than twelve (12) months before the date the Participant was previously scheduled to receive a distribution of his benefit under the Plan. The newly specified distribution date must be a date no earlier than twelve (12) months after the date of such subsequent election. For purposes of this Section 10, a lump sum payment will be calculated based on the applicable mortality table and the applicable interest rate described in this Section 10(b). The applicable interest rate shall mean the applicable interest rate on 30-year Treasury securities for the most recent month preceding the date of distribution for which such rate has been reported by the Internal Revenue Service, as that rate may be determined during an interim period consistent with Internal Revenue Service Notice 2002-26. Upon amendment of Code Section 417(e) to provide a replacement rate for 30-year Treasury securities, the substitute rate, determined at the same time, will apply. The applicable mortality table shall mean the mortality table described in Code Section 417(e)(3) as of the date of the distribution.

(c): Additional Credited Service. Notwithstanding any other provision of the Plan, upon a Change in Control, for purposes of calculating benefits under the Plan and for purposes of determining eligibility for payment of benefits without actuarial reduction, the Chairman and Chief Executive Officer of the Company on October 10, 2001 shall be credited with the number of additional Years of Credited Service, if any, necessary to bring his total Years of Credited Service to twenty (20) and shall be treated as having attained the greater of (i) age 62, or (ii) his actual age.
(d): Separate Rabbi Trust for CEO. Upon a Change in Control, the Company will establish a separate irrevocable trust for the purpose of providing to the Chairman and Chief Executive Officer of the Company as of October 10, 2001, the benefits accrued to him under the Plan. The assets of such trust shall remain subject to the general creditors of the Company in the event of the Company's insolvency.
(e): Limitation on Amount of Benefit Distributed Prior to Termination of Employment. If, pursuant to Section 10(b) of the Plan, a Participant elects to receive his or her benefit under the Plan on a specified distribution date that occurs prior to his or her termination of employment, such Participant will be deemed to be fully vested in his or her benefit under the Pension Plan for purposes of determining the amount of the benefit under the Plan to be distributed on such specified distribution date. Any additional benefit under the Plan that may be due to the Participant upon his or her termination of employment will be paid in a lump payment within thirty (30) days after termination of employment.

11.: Effective Date

This restated Plan is effective as of October 10, 2001. The Plan was originally effective as of June 1, 1987. To record the adoption of the restated Plan, the Company has caused this document to be executed by its duly authorized officer as of this tenth day of October, 2001.

THIS PLAN CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

		RIGHTCHOICE MANAGED CARE, INC.
Attest:

By:	/s/ ANGELA F. BRALY	By:	/s/ JOHN A. O'ROURKE
	Angela F. Braly Secretary		John A. O'Rourke Chief Executive Officer

QuickLinks

Exhibit 10.06

RIGHTCHOICE MANAGED CARE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Restated Effective October 10, 2001
TABLE OF CONTENTS
EX-10.07 5 a2079138zex-10_07.htm EXHIBIT 10.07

Exhibit 10.07

[WELLPOINT LETTERHEAD]

February 4, 2002

John A. O'Rourke
Chairman of the Board and CEO
RightCHOICE, Managed Care, Inc.

Dear John,

On behalf of WellPoint Health Networks Inc. ("WellPoint" or the "Company"), I am delighted to set forth your terms of employment as President, Central Region. You will report to Leonard D. Schaeffer, Chairman and Chief Executive Officer, WellPoint Health Networks Inc.

There are many challenges ahead if we are to achieve our goals and I hope you find these challenges exciting and the opportunity compelling. We are very enthusiastic about your joining our team.

Your start date will be the day following the merger date and your starting compensation and benefits for this position will be as follows (subject to the approval of the Compensation Committee of the Board of Directors):

•

You will receive an annualized base salary of $645,750, paid bi-weekly, one week in arrears and your annualized base salary will not be reduced during the term of your employment unless such a reduction is generally applicable to other officers subject to Insider status pursuant to Section 16 of the Securities Exchange Act of 1934. In addition, you will be eligible for annual merit increases consistent with your performance and WellPoint guidelines used with respect to senior executives of WellPoint.

•

You will be entitled to participate in the Executive Officer Annual Incentive Plan beginning in 2002 with a target bonus award of 55% of salary, pro-rated for your length of service during the Plan year, and a maximum award of three times target bonus. Your target bonus percentage of 55% of your then applicable base salary may not be reduced prior to 2005. Under the current program, amounts earned in excess of 150% of target bonus are increased by 15 percent, and are paid in the form of restricted share rights vesting in three approximately equal annual installments to active participants and to participants who remain eligible as a result of their reason for termination.

•

You will receive an option covering 35,663 shares of WellPoint Common Stock (40,000 less 4,337 representing the WellPoint share equivalent of your January 2002 RIT grant) under the WellPoint Health Networks Inc. 1999 Stock Incentive Plan. This option will be granted on the same date or dates and under the same terms and conditions as the stock option grants to our other executive officers for 2002.

•: This option will have a 10 year term (assuming continued service), vest in six approximately equal semi-annual installments, with the first vesting occurring six months after the grant date; and includes "reload" rights. The option exercise price will be 100% of the closing price of the Company's stock on the latest trading day prior to the grant date.
•: The option may be intended to qualify as an incentive stock option, up to the maximum allowable under the Internal Revenue Code, with the remainder as a non-qualified stock option.
•: You will receive a Notice of Grant and a Stock Option Agreement. At that time you will be asked to sign the Notice of Grant and return it within a specified period of time. Your

option grant will be subject to the terms and conditions of the 1999 Stock Incentive Plan, the Notice of Grant and the Stock Option Agreement.

•: You will be eligible for additional stock option grants commensurate with your position in future years.
•: You will be awarded restricted share rights on February 1, 2002 covering seventeen thousand seven hundred fifty-nine (17,759) shares of WellPoint stock valued at $2,251,841.20 based on a closing market price of $126.80. These shares will vest in three approximately equal annual installments commencing one year from your hire date. If your employment with WellPoint terminates for any reason prior to vesting, any remaining rights will vest on your termination date, notwithstanding anything to the contrary in the 1999 Stock Incentive Plan and the Restricted Share Right Grant agreement. At the time of grant, your restricted share rights will be automatically deferred pursuant to WellPoint's Comprehensive Executive NonQualified Retirement Plan and such shares shall be transferred to you at such time or times as provided in WellPoint's Comprehensive Executive Non-Qualified Retirement Plan free of any restrictions imposed by the 1999 Stock Incentive Plan or (inclusively) the Restricted Share Right Grant agreement.

Shortly after the grant date, you will receive a Restricted Share Right Grant agreement (in the form of the draft agreement provided to you on January 30, 2002). At that time you will be asked to sign the Grant agreement and return the document to WellPoint HR within a specified period of time. Except as set forth in this letter agreement, your restricted share right grant will be subject to the terms and conditions of the 1999 Stock Incentive Plan, the Comprehensive Executive Non-Qualified Retirement Plan and the Restricted Share Right Grant agreement.

•

You will receive a stay-on bonus in the amount of $645,750 on the second anniversary of the merger. This award will be pro-rated if your employment with WellPoint is terminated pursuant to an Involuntary Termination or Constructive Termination (as defined in WellPoint's Officer Severance Plan) prior to the second anniversary of the merger and such pro-rated amount will be payable upon such termination.

•

February 1, 1985 (your original hire date with HEALTHLINK) will be recognized as your original hire date with WellPoint for vesting and eligibility purposes for all of our plans and programs to the extent set forth in Section 5.6(b) of the Agreement and Plan of Merger dated as of October 17, 2001 provided however, you will be deemed to have accrued 20 years of employment as of the merger date for purposes of the RightCHOICE SERP plan.

•

You will be eligible for employee and executive benefits packages which currently include:

•: The WellPoint FlexPoint program (a cafeteria style benefits program)
•: Three times your total target compensation (salary plus target bonus) in executive life insurance
•: 100% salary continuation short-term disability benefits for disabilities of up to six months
•: A long-term disability benefit that provides for 70% of salary plus target bonus
•: The Company's 401(k) Plan that includes a match of 75% of your contributions of the first 6% of your eligible compensation, up to Internal Revenue Code limits
•: The Company's cash balance retirement plan
•: A Deferred Compensation Program which provides for salary, bonus and company car allowance deferral, retirement plan "spillover" benefits, and 401(k) "spillover" contributions

•: Retiree healthcare benefits, consistent with those set forth in Section 5.2(B)(ii) of your current RightCHOICE employment agreement dated April 4, 2001 and subsequently amended on October 1, 2001 (the "Prior Employment Agreement"), including without limitation the retiree healthcare benefits made available therein to your spouse
•: An annual pre-tax car allowance of $9,600, paid bi-weekly with your paycheck
•: Executive financial planning and tax preparation assistance provided by AYCO
•: First class air travel if available
•: Dues and membership at Greenbriar Country Club that will continue throughout your term of active service with WellPoint. WellPoint will transfer your capital account at Greenbriar Country Club to you when your employment with WellPoint is terminated
•: An annual executive physical valued at over $2,000
•: Premier banking services provided by Bank of America
•: Pre-negotiated car purchases as part of the Ford Supplier Recognition Program
•: Paid Time Off (PTO) days with an accrual rate of 27 days per year
•: Ten paid holidays each year, and
•: Reimbursement of all ordinary and necessary business expenses incurred in the performance of your duties subject to your compliance with WellPoint's business expense policies

•: To the extent that this is not already provided by RightCHOICE, WellPoint will reimburse your legal fees related to this employment offer.
•: You will continue to accrue benefits and services pursuant to your current RightCHOICE SERP and, as indicated above, you will be deemed to have accrued 20 years of employment as of the merger date under that SERP.
•: If you experience an employment termination that is (a) a Constructive Termination (as defined in WellPoint's present Officer Severance Plan), or (b) an Involuntary Termination (as defined in WellPoint's present Officer Severance Plan), upon your execution of a general release, you shall be entitled to severance as follows:

Termination Date	Severance	Comments
2/1/02—1/31/03	Two years salary Two years bonus	Bonus will be greater of target or prior year actual Eligible for all non-cash benefits per Officer Severance Plan
2/1/03—1/31/04	Twenty months salary Eighteen months bonus	Bonus will be greater of target or prior year actual Eligible for all non-cash benefits per Officer Severance Plan
After 1/31/04	Fifteen months salary Twelve months bonus	All benefits per Officer Severance Plan

•: You will not be eligible for these severance benefits if you experience an employment termination that is a "Termination for Cause" (as defined in the Officer Severance Plan). This definition is as follows: "Termination for Cause" means (i) a commission by a Participant of any act of fraud, embezzlement or dishonesty against any member of the Affiliated Group; (ii) the conviction of a Participant for any criminal offense involving fraud or dishonesty or any similar conduct that is injurious to the reputation of WellPoint or any member of the Affiliated Group;

or (iii) willful engagement by a Participant in gross misconduct injurious to WellPoint or any member of the Affiliated Group.

•: You will also be eligible for change in control benefits pursuant to the Officer Change in Control Plan (including that plan's integration of benefits provisions) at the EVP level, which provides for a basic benefit of 300% of your annual cash compensation, a tax gross-up provision, plus some additional benefits if you are involuntarily or constructively terminated during the 36 month period subsequent to a change in control.
•: If your employment with WellPoint terminates in a manner that entitles you to a severance or change in control benefit under the prior two paragraphs, you shall be entitled to executive level outplacement services.
•: You will be entitled to designate a beneficiary to receive any benefits to which you are entitled as of your death for which the Company generally allows beneficiary designations; to the extent no such beneficiary has been designated, WellPoint will pay such benefits to the personal representative of your estate.
•: You will be entitled to a full tax indemnity and gross-up payment, consistent with the detailed provisions set forth in Section 5.2(D) of the Prior Employment Agreement (which are hereby incorporated herein by reference except that references therein to RightCHOICE shall include WellPoint and that Ernst and Young will be the "Accounting Firm" that is to make any necessary calculations and determinations thereunder), in the event any excise taxes (under Sections 280G or 4999 of the Internal Revenue Code of 1986, as amended) are assessed as a result of any award or payment to which you become entitled from RightCHOICE, WellPoint or an affiliate, successor or assign thereof in connection with the merger of RightCHOICE and WellPoint.

Note that the sections above are intended to describe the general provisions of the benefits program. Except with respect to the specific provisions relating to the annual bonus, stock options, restricted share rights and enhanced severance benefits to which you are entitled pursuant to this letter agreement, if there is any discrepancy between this letter agreement and the plan documents, the provisions of the plan documents will apply. Subject to the specific provisions relating to the stock option award granted in 2002, the restricted share rights awarded on your start date and enhanced severance benefits to which you are entitled pursuant to this letter agreement, WellPoint reserves the right to amend or cancel any of our plans in the future, in accordance with any conditions set out in those plans; provided, however no such amendment or cancellation will be applicable to you if it is not generally applicable to other officers subject to Insider status pursuant to Section 16 of the Securities Exchange Act of 1934.

The benefits described above are summarized in the enclosures.

The terms of your employment will also include:

•: As an officer of the Company, you also will be expected to own WellPoint Common Stock in accordance with the WellPoint Stock Ownership Guidelines. The guidelines provide that, as a President, your guideline is to own at least the number of shares with a market value equivalent to 200 percent of your base salary at the end of five years of service. The Company currently offers a variety of plans to assist you in meeting your ownership objectives. The restricted stock to which you are entitled to receive pursuant to this letter agreement in accordance with the terms of the WellPoint Comprehensive Executive Non-Qualified Retirement Plan will qualify for purposes of your meeting these ownership guidelines.
•: As a President, you will be considered an insider subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. A member of our Legal Department will provide you with additional information and assistance regarding the applicable filings and procedures.

•: As an officer of the Company, you will also be covered by our Insider Trading Policy. This policy generally limits your ability to buy or sell WellPoint stock at times that are outside our window period. Currently, the window period opens on the third business day after the release of earnings each quarter, and lasts for thirty calendar days.

The Company believes that the employment relationship is based upon the principle of mutual consent. Therefore, both you and the Company will be free to terminate your employment at any time, with or without cause and with or without notice. While the Company reserves the right to change the other terms, policies, procedures and benefits affecting your employment unless otherwise prohibited by this letter agreement this "at-will" understanding constitutes the entire agreement concerning this subject and can be altered only by an express written agreement signed by you and the Compensation Committee of the Board of Directors.

Finally, as an employee of WellPoint Health Networks Inc., you will be subject to the Company's binding arbitration policy, as more fully described in the enclosed Human Resources Policy #613, Arbitration.

By executing this letter agreement, you agree that this letter agreement, including all documents incorporated by reference herein, constitutes the entire understanding between the parties with respect to your employment with RightCHOICE, WellPoint or an affiliate and compensation or benefits therefrom, superseding all prior agreements (including, but not limited to, the Prior Employment Agreement and any other agreement, plans or arrangement under which severance or retention benefits might otherwise be payable to you, (collectively the "Prior Agreements")), written or oral, concerning said employment, compensation or benefits that are not referenced herein and no representation or statements not incorporated or referred to in this offer letter will be binding on either party; provided, however, nothing in this letter agreement will be treated as a waiver of your rights to benefits under the RightCHOICE Supplemental Executive Retirement Plan or any other pension or retirement savings plan. You acknowledge and agree that the amounts payable under this letter agreement shall be in lieu of any payments to which you would have been entitled under the Prior Agreements, and you expressly waive any entitlement to any payments under the Prior Agreements.

In consideration of (i) your continuing employment and past and future access to confidential, proprietary documents and information of RightCHOICE, WellPoint or an affiliate, and (ii) the severance and other benefits payable upon a termination of employment with RightCHOICE, WellPoint or an affiliate, you agree to continue to abide by and be bound by (A) the covenants and agreements set forth in Sections 7-10 of the Prior Employment Agreement and (B) WellPoint's standard agreement of confidentiality; provided that (I) if you remain employed throughout the two (2) year period following the date hereof, your obligation under (A) of this sentence shall cease at the end of such two (2) year period and (II) if your employment terminates before the end of such two (2) year period, your obligations under (A) of this sentence shall cease on the later of (1) the date one year after such termination of employment or (2) the end of the period, if any, for which you are entitled to severance benefits by reason of such termination.

This letter agreement is made and entered into in the State of Missouri and will be construed under the laws of Missouri, without regard to its conflict of laws rules, to the extent not preempted by Federal law.

As mentioned above, the employment terms and conditions set forth in this letter agreement must be approved by the Compensation Committee of the Board of Directors. Your potential employment has been discussed with the members of the Compensation Committee and they are eager to act quickly upon these matters and hope you will decide to join us. If the Compensation Committee has not disapproved this letter agreement by February 15, 2002, the approval of the Compensation Committee will be deemed to have been given and the terms of this letter agreement shall become operable retroactive to your start date.

If you have any questions with regard to your position or the content of this letter, please feel free to contact me at (805) 557-5640.

Very truly yours,
/s/ J. THOMAS VAN BERKEM
JTVB/pt Enclosures
cc: Leonard D. Schaeffer
Agreed and consented to this 4th day of February, 2002:

/s/ JOHN A. O'ROURKE John A. O'Rourke

EX-10.08 6 a2079138zex-10_08.htm EXHIBIT 10.08
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Exhibit 10.08

AMENDMENT NO. 1
TO
RIGHTCHOICE MANAGED CARE, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN

WHEREAS, RightCHOICE Managed Care, Inc. (hereinafter called "RightCHOICE") maintains the RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan (hereinafter called "Plan") which Plan was amended and restated effective as of July 1, 2000; and

WHEREAS, RightCHOICE desires to amend said Plan effective as of October 15, 2001;

NOW, THEREFORE, RightCHOICE does hereby amend the Plan effective as of October 15, 2001, so that it will read as follows:

The following new Section 2.11 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 2.11. Incentive Award. "Incentive Award" means a Participant's incentive award under the Management Incentive Program (MIP) or Sales Incentive Plan (SIP), as amended from time to time, or other incentive plan or program adopted by the Committee, including any bonus, incentive award or supplemental payment made by the Company, WellPoint Health Networks, Inc. or one of its subsidiaries."

II.

The following sentence is hereby added to Section 2.15 of the Plan:

"For purposes of determining whether a Participant has satisfied the requirements for Retirement, service with WellPoint Health Networks, Inc. or a subsidiary thereof and/or participation in a nonqualified deferred compensation plan of WellPoint Health Networks, Inc. or a subsidiary thereof shall be taken into account."

III.

The first paragraph of Section 4.2 is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 4.2 Company Contributions. For each Plan Year the Company will contribute to the Company Contribution Unit of a Participant the amounts described in paragraphs (a), (b) and (c) below; provided, however, that no Company Contributions will be made under this Plan on behalf of a Participant until the Participant is eligible to receive a Company contribution to the Savings Plan."

IV.

The second paragraph of Section 5.1 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"The retirement benefit for a Retirement Unit will be paid in the manner which the Participant elects when he enrolls in the Retirement Unit. Except as otherwise provided in Section 5.11, after the Participant enrolls in a Retirement Unit and elects the form of payment, he may not change his enrollment and/or election. A Participant may elect to receive his retirement benefit in either a lump sum or annual installments over 5, 10 or 15 years. The lump sum payment will be made or annual installment payments will commence on or before January 31 of the year following the Participant's Retirement."

Section 5.2 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 5.2 Early Payment Unit. A Participant who enrolls in an Early Payment Unit under this Plan must specify the date on which he elects to receive a lump sum payment of the value of the Deferral Account for the Early Payment Unit. The payment date specified must be a date no earlier than twelve (12) months after the date of the deferral election. Except as otherwise provided in Section 5.11, after the Participant enrolls in an Early Payment Unit and elects the date of payment, he may not change his enrollment and/or election. On the specified payment date, the Participant will receive a lump sum payment of the value of the Deferral Account for the Early Payment Unit as of the Valuation Date immediately preceding the date of distribution."

VI.

Section 5.3 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 5.3 Company Contribution Unit. The retirement benefit for a Company Contribution Unit will be paid out following termination of employment in the same manner as a Retirement Unit according to the form of payment which the Participant elects. Except as otherwise provided in Section 5.11, after the Participant elects the form of payment, he may not change his election."

VII.

Section 5.5 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 5.5 Termination of Employment. If a Participant terminates employment before he is eligible for Retirement under the Plan, he will receive a lump sum payment of the value of his vested Deferral Accounts for any Retirement Unit, Early Payment Unit(s) and Company Contribution Unit upon his termination of employment. If a Participant terminates employment after he is eligible for Retirement under the Plan, he will receive retirement benefits in the manner he elected for any Retirement Unit and Company Contribution Unit as provided in Section 5.1 and will receive a lump sum payment for any Early Payment Unit(s) on the date(s) he elected pursuant to this Article V."

VIII.

Section 5.6 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 5.6 Disability. If a Participant suffers a Disability, the Participant will be deemed to be eligible for Retirement under the Plan. The Participant will receive retirement benefits in the manner he elected for any Retirement Unit and Company Contribution Unit and will receive a lump sum payment for any Early Payment Unit(s) on the date(s) he elected pursuant to this Article V."

IX.

Section 5.9 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"Section 5.9 Small Benefit. Upon termination of a Participant's employment, in the event the Committee determines at any time that the balance of a Participant's Deferral Account is less than

$25,000, or the portion of the balance of the Participant's Deferral Account payable to any Beneficiary is less than $25,000, the Company may pay the benefit in the form of a lump sum payment, notwithstanding any provision of this Article 5 to the contrary. Such lump sum payment shall be equal to the balance of the Participant's Deferral Account or the portion thereof payable to a Beneficiary."

The following new Section 5.11 is hereby added after Section 5.10 of the Plan:

"Section 5.11 Changes in Enrollments and Elections. A Participant may (i) change an enrollment in a Retirement Unit to an Early Payment Unit, or vice versa, or (ii) change his election of the method of payment of a Retirement Unit, or the year in which an Early Payment Unit will be paid; provided, however, that such subsequent enrollment or election must be made no later than twelve (12) months before the date the Participant was previously scheduled to receive a distribution of such Unit. The newly specified payment date must be a date no earlier than twelve (12) months after the date of the subsequent enrollment or election."

XI.

Paragraph (b) of Section 8.2 of the Plan is hereby deleted in its entirety and the following is substituted in lieu thereof:

"(b) Payments Upon Termination. Upon any termination of the Plan under this Section 8.2, the Participants will be deemed to have voluntarily terminated their participation under the Plan as of the date of such termination. Salary and Incentive Awards shall prospectively cease to be deferred for the then Plan Year. Termination of the Plan shall not, without the consent of the Participants, adversely affect the rights of Participants or Beneficiaries to the benefits that have accrued under this Plan before such termination. Termination of the Plan shall not result in an acceleration of the payment of benefits, which will be paid in accordance with the provisions of the Plan as of the date of Plan termination."

IN WITNESS WHEREOF, RightCHOICE has caused this Amendment No.1 to be adopted effective as of the 15^th day of October, 2001.

		RIGHTCHOICE MANAGED CARE, INC.

		By:
			/s/ JOHN A. O'ROURKE John A. O'Rourke Chief Executive Officer

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Exhibit 10.08

AMENDMENT NO. 1 TO RIGHTCHOICE MANAGED CARE, INC. EXECUTIVE DEFERRED COMPENSATION PLAN
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