HSI NOTIFIES WELLPOINT AND BCC THEY ARE IN BREACH OF MERGER AGREEMENT; DEMANDS RESOLUTION WITHIN 10 BUSINESS DAYS AND OFFERS MEDIATION.

PUEBLO, Colo., and WOODLAND HILLS, Calif.--(BUSINESS WIRE)--Nov. 30, 1995--Health Systems International, Inc. (NYSE:HQ)(HSI) today notified WellPoint Health Networks Inc. (NYSE:WLP) and Blue Cross of California (BCC) that they are in material breach of the definitive merger agreement signed by the companies on March 31, 1995.

This action was forced by the persistent failure of both WellPoint and BCC to address the legitimate concerns of the HSI board and their refusal to meet to discuss these issues over the past several weeks. The HSI board believes that these issues directly affect the potential future value of the new company's stock, as well as the more than $3 billion committed to public benefit programs in California.

In a letter to both organizations, HSI demanded that WellPoint and BCC cure these material breaches within 10 business days, consistent with the terms of the agreement.

HSI cited the following material breaches in its letter which will be attached to a Form 8-K to be filed with the Securities and Exchange Commission (SEC). In the letter, HSI stated that WellPoint and/or BCC:

-- Allowed individuals with close personal and/or business ties to WellPoint Chairman Leonard D. Schaeffer to be nominated to the proposed board of directors of the new company, in direct opposition to representations of BCC's independent committee and the expectations of both HSI and the California Department of Corporations (DOC). The merger transaction was premised on the fact that these individuals would be neutral and designated by BCC to represent the charitable foundations. BCC further failed to recuse Schaeffer from acting as BCC's chairman during the selection process, contrary to the express directive of the DOC and representations to HSI,

-- Attempted to deny Malik M. Hasan, M.D., chairman, president and chief executive officer of HSI, the duties and responsibilities established for him in the definitive agreement of March 31, 1995,

-- Failed to disclose that, prior to the signing of the definitive agreement, the National Committee on Quality Assurance (NCQA) had sent a negative preliminary report to WellPoint, giving clear notice that its CaliforniaCare Health Plan could be denied accreditation,

-- Misled HSI that WellPoint had 1.5 million "full-risk" preferred provider organization (PPO) members when, in fact, they have only 1.1 million such members,

-- Failed to disclose a grant of over 2 million special performance units, similar to stock options, to 12 WellPoint executives that WellPoint proposed to convert to stock options at a cost to the new company in excess of $40 million,

-- Failed to acquire a favorable tax ruling from the Internal Revenue Service (IRS) and failed to timely pursue exemption applications for the foundations causing the IRS to stop processing the applications,

-- Failed to timely file for state regulatory approvals and to request a new license agreement with the Blue Cross Blue Shield Association.

In a meeting yesterday, the HSI board reaffirmed that the HSI special committee should continue to seek appropriate resolution of these, and related, issues in a manner consistent with the terms and conditions upon which the board approved the merger.

In a separate letter to the independent committees of WellPoint and BCC, the HSI special committee urged that the independent committees, their legal and financial advisors, and representatives of the DOC meet in an attempt to resolve these issues. In its letter, the HSI special committee stated that it firmly believes a resolution of all of the issues can be achieved.

The HSI special committee proposed that John K. Van de Kamp, former California attorney general, serve as a non-binding mediator during these negotiations.

Because of its serious concern regarding the lack of independence and absence of neutrality of the proposed directors who were ostensibly supposed to represent the interest of the new foundations, the HSI special committee also met with the commissioner of the DOC, Gary Mendoza.

At this meeting, the HSI special committee expressed concern that unless the DOC modifies its order approving the transaction, the merger agreement will unnecessarily terminate because the DOC failed to ensure adequate representation of the newly created public foundation in the governance of the new company. This can be done simply by designating three neutral California citizens who are free of influence from Leonard Schaeffer, WellPoint, Malik Hasan or HSI to represent the charitable foundation on the new company's board of directors.

The HSI special committee expressed that termination will result in damage to the people of California in the billions of dollars. To prevent this damage, the HSI special committee urgently and respectfully requested that the DOC promptly take the action necessary to assure adequate representation of the newly created charitable foundation and help salvage the transaction in the best interests of the people of California.

Health Systems International is one of the largest health maintenance organizations (HMOs) in the United States. It serves more than 1.7 million members in eight states: California, Colorado, Connecticut, Idaho, New Mexico, Oregon, Pennsylvania and Washington. It also owns Preferred Health Network, Inc., a preferred provider organization (PPO) network providing access to more than 3 million individuals in 32 states, and two health and life insurance companies. For five years in a row, HSI, or QualMed, Inc., a predecessor company to HSI, has been included on Fortune Magazine's list of America's 100 fastest growing companies.

CONTACT: Media Contact: Don Prial 

[phone]

Investor Contact: David Olson

[phone]