In an 11th-hour bid to win approval for their deal, CareFirst BlueCross BlueShield and the company that wants to buy it said yesterday that they would jettison $70 million in executive bonuses and offer a 60-day window for other companies to top the $1.37 billion offer.

"The intent was to bring the deal into compliance with Maryland law," said David M. Funk, a lawyer representing CareFirst and its would-be acquirer, WellPoint Health Networks Inc.

While the changes announced yesterday remove political flash points and potential deal-killers - Maryland Insurance Commissioner Steven B. Larsen had intimated that he would block the transaction if the bonuses remained - CareFirst's plan faces an uncertain future.

"I think it shows that they certainly are aware of the political consequences of this whole thing," said state Sen. Thomas M. Middleton, chairman of the Senate Finance Committee. "I think this has probably been their best pitch to save the whole deal."

However, Middleton said he remains skeptical. "My gut feeling based on all that I've read and heard ... is that this is not in the best interest of Maryland," the Charles County Democrat said.

Del. John Adams Hurson, a Montgomery County Democrat and chairman of the House Health and Government Operations Committee, said he wants to make sure the bonuses are being eliminated and not masked in another part of the plan. "We have to find out what exactly it means," he said.

Larsen said he would ask his staff and consultants to review the employment contracts that WellPoint would offer to CareFirst executives. He said the additional review was not expected to delay his decision, which is expected Feb. 20.

After Larsen rules on the deal - he can approve it as is, approve it subject to conditions, or reject it - the legislature will have 90 days to review his decision. CareFirst's plan to convert to for-profit operation and be sold is also being scrutinized by regulators in Delaware and the District of Columbia, where it also operates.

Larsen is set to begin a final round of hearings on the plan next week. He had set last Friday as a deadline for any changes in the CareFirst-WellPoint application to be considered in time for those sessions.

WellPoint had said in September that it wanted to change the deal to comply with laws passed last year by the Maryland legislature banning bonuses and demanding that WellPoint pay in cash. However, CareFirst's board chairman, Daniel J. Altobello, said CareFirst would wait until Larsen ruled before amending the sale agreement.

Deadline pressure

With the pressure of Larsen's deadline, the two sides apparently reached agreement on the changes late last week. The amended application was filed Friday evening, Funk said, and became public yesterday.

The revised application makes several key changes to the original sales agreement, which was signed in November 2001. The changes are subject to approval by CareFirst's and WellPoint's boards, each of which will vote by Friday. According to the application and a statement by CareFirst and WellPoint:

CareFirst executives will have to agree to pass up bonuses that had been branded excessive and illegal by Jay Angoff, a consultant to Larsen.

The CareFirst bosses stood to collect $119.7 million in deal bonuses, severance and tax benefits. Of that, according to Angoff, $49.8 million was money the executives could legally collect, even without a sale, because it represented deferred compensation and vested pension benefits. The $69.9 million that he considered illegal payments would be dropped.

For CareFirst Chief Executive Officer William L. Jews, the change wipes out $25.8 million of the $39.4 million he stood to gain from the deal. "The focus of the discussion should shift from executive compensation to the real heart of the issue - how this transaction benefits CareFirst members and the communities CareFirst serves," Jews said in a statement. A CareFirst spokesman said Jews was not available to answer questions.

If they become WellPoint employees, CareFirst executives will start at their current level of salary and bonus targets. Their raises, bonuses and stock options would be handled "consistent with WellPoint's program for other similarly situated WellPoint executives."

Bonuses, according to a sample employment agreement filed with the amended application, would be based half on WellPoint's overall performance and half on the performance of the CareFirst unit. Stock option terms would be the same as those offered other WellPoint officers, said Ken Ferber, a WellPoint spokesman.

In addition, if they stay two years, they would receive retention bonuses of three times annual earnings for Jews and two times annual earnings for seven other executives. Jews earned $2.7 million in 2001, the most recent year for which information is public.

The retention incentives would also include "restricted stock rights ... in amounts that are not yet determinable, but that will be based on CareFirst's performance."

The $70 million that would have gone to executives would be added to the $1.3 billion that WellPoint had offered for CareFirst. Because CareFirst is a nonprofit, if it is sold, the money would go to health-related foundations.

The Blackstone Group, an investment banking firm that served as a consultant to Larsen, said in November that the price should be about $1.8 billion. Larsen said Blackstone will update its valuation before his ruling.

If he concludes WellPoint's bid is too low, Larsen could reject the deal or set a higher price as a condition of approval.

WellPoint agreed to waive its $37.5 million break-up fee - the amount that it would be paid if CareFirst accepted a higher bid - for 60 days. Funk called the two-month window "a shop period" for other bidders. WellPoint retains the right to match any competing bid.

Some critics had said the break-up penalty discouraged competing bids.

"This should give additional assurances that the people are going to get the highest value for the company," Ferber said.

Eric L. Veiel, a managed-care analyst at Deutsche Bank Securities in Baltimore, said Anthem Inc., an Indiana-based Blue Cross company, was a potential bidder. "I've got to believe they're giving this a good, hard look," Veiel said. "It makes a lot of sense for them strategically." Last year, Anthem bought Trigon Inc., the Virginia Blue Cross plan.

Anthem tried to bid on CareFirst in 2001 but was rebuffed. As to whether it would bid now, spokeswoman Lauren Green-Caldwell said yesterday, "That isn't something we would comment on."

Other than Anthem, Veiel said, "I'd put the chances of anybody else bidding at less than 5 percent."

A two-month period to look at CareFirst and prepare a bid, he said, was "tight but do-able."

WellPoint would pay for CareFirst in cash. The original sales agreement called for $450 million in cash and $850 million in WellPoint stock. The revised sales agreement gives WellPoint a chance to cancel if it can't arrange financing on "reasonably satisfactory" terms.

WellPoint and CareFirst quickly stepped up their efforts to sell the reworked deal. WellPoint Chief Executive Officer Leonard D. Schaeffer met with several key legislators yesterday. Ferber said the meetings were "to introduce ourselves and the company."

'Point-blank' question

Middleton said that, over coffee yesterday morning, Schaeffer told him WellPoint has successfully taken over Blue Cross plans in Missouri and Georgia, and could do the same here.

"I asked him point-blank" about bonuses, Middleton said. "I said, 'These compensation packages aren't going to show up somewhere else in the deal, or later?' And he said, 'No.'"

Despite the changes, community groups opposed to the sale said yesterday they continued to favor a local, nonprofit Blue Cross plan.

Sam Jordan, director of Washington-based Health Care Now!, said he believed that a for-profit plan would charge consumers more and make coverage less available.

Sun staff writer Andrea K. Walker contributed to this article.