Healthways, Inc. Announces Proposed Private Placement of Cash Convertible Senior Notes

Healthways, Inc.

(the “Company”) today announced that it intends to privately offer, subject to market conditions and other factors, $100 million aggregate principal amount of cash convertible senior notes due 2018. In connection with the offer, the Company expects to grant the initial purchasers of the notes a 30-day option to purchase up to an additional $15 million aggregate principal amount of the notes. The notes will be offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The interest rate, conversion rate and other terms of the notes will be determined by negotiations among the Company and the initial purchasers of the notes. When issued, the notes will be unsecured senior obligations of the Company. The Company expects to pay interest on the notes semi-annually on January 1 and July 1, commencing January 1, 2014. The notes will mature on July 1, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date. The notes will be convertible at the option of the holders only in certain circumstances and solely into cash. The notes will not be convertible into the Company's common stock or any other security under any circumstances. The Company will not have the right to redeem the notes prior to maturity. Upon conversion, in lieu of receiving shares of our common stock or any other securities, a holder will receive an amount in cash, per $1,000 principal amount of the notes, at a conversion rate to be determined. In connection with the pricing of the notes, the Company intends to enter into privately negotiated cash convertible note hedge transactions with one or more of the initial purchasers of the notes or their respective affiliates (the “option counterparties”). The cash convertible note hedge transactions are expected to offset cash payments due upon conversion of the notes in excess of the principal amount thereof. The Company also intends to enter into privately negotiated warrant transactions with the option counterparties, which could have a dilutive effect to the extent that the price of the Company's common stock exceeds the applicable strike price of the warrants. If the initial purchasers exercise their option to purchase additional notes, the Company may increase the size of the cash convertible note hedge transactions and enter into additional warrant transactions. In connection with establishing their initial hedge of the cash convertible note hedge and warrant transactions, the option counterparties or their affiliates have advised the Company that they expect to enter into various derivative transactions with respect to the Company's common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of the Company's common stock or the notes at that time. In addition, the option counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the Company's common stock and/or purchasing or selling the Company's common stock or other securities of the Company in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of notes). This activity could also cause or avoid an increase or a decrease in the market price of the Company's common stock or the notes. The Company intends to use the net proceeds from the notes offering to (1) pay the costs of the cash convertible note hedge transactions described above (after such costs are partially offset by the proceeds to the Company from the warrant transactions described above) and (2) reduce the outstanding indebtedness under the Company's credit agreement. Any remaining net proceeds will be used for general corporate purposes, including opportunistic strategic acquisition of, investments in, or partnerships with, other businesses or capabilities that the Company believes will complement its current business and expansion strategies. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities. The notes have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.