-----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, CkBIlJ6leW1x0iYqOVulyBRkdJYehGCdIp8M+ten71r4nKAVCbumLsnChdegevU9 D3ViqyDJyqHmv6xEkto5/A== 0000912057-96-022386.txt : 19961010 0000912057-96-022386.hdr.sgml : 19961010 ACCESSION NUMBER: 0000912057-96-022386 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961001 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961009 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOUNDATION HEALTH CORPORATION CENTRAL INDEX KEY: 0000859493 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 680014772 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10540 FILM NUMBER: 96641264 BUSINESS ADDRESS: STREET 1: 3400 DATA DR CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 BUSINESS PHONE: 9166315000 MAIL ADDRESS: STREET 1: 3400 DATA DRIVE CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 8-K 1 FORM 8-K FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: October 1, 1996 FOUNDATION HEALTH CORPORATION ------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 1-10540 68-0014772 - --------------- ------------- ---------------- (State or other (Commission (IRS Employer jurisdiction of File Number) Identification corporation) No.) 3400 DATA DRIVE, RANCHO CORDOVA, CA 95670 - --------------------------------------- ------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (916) 631-5000 Item 5. Other Events. On October 1, 1996, Foundation Health Corporation (the "Company") announced that it had entered into an Agreement and Plan of Merger with Health Systems International, Inc. ("HSI") and FH Acquisition Corp., a wholly owned subsidiary of HSI ("Merger Sub"), pursuant to which Merger Sub will be merged with and into the Company, subject to regulatory and stockholder approvals. On October 1, 1996, the Company entered into an Amendment to its Rights Agreement with ChaseMellon Shareholder Services, L.L.C. to exempt HSI and Merger Sub from the Rights Agreement and modify the circumstances under which the Company's Board of Directors can terminate the Rights Agreement. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit Number 4.1 Amendment dated as of October 1, 1996 to Rights Agreement dated as of September 27, 1991 between Foundation Health Corporation and ChaseMellon Shareholder Services, L.L.C. (as successor to Chemical Trust Company of California and Manufacturers Hanover Trust Company of California). 99.1 Press Release dated October 1, 1996. -2- 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 hereunto duly authorized. Dated: October 9, 1996. FOUNDATION HEALTH CORPORATION By /s/JEFFREY L. ELDER ------------------------------ Jeffrey L. Elder Senior Vice President and Chief Financial Officer -3- EXHIBIT INDEX Exhibit Number Description - ------ ----------- 4.1 Amendment dated as of October 1, 1996 to Rights Agreement dated as of September 27, 1991 between Foundation Health Corporation and ChaseMellon Shareholder Services, L.L.C. (as successor to Chemical Trust Company of California and Manufacturers Hanover Trust Company of California). 99.1 Press Release dated October 1, 1996. -4- EX-4.1 2 EXHIBIT 4.1 EXHIBIT 4.1 AMENDMENT TO RIGHTS AGREEMENT AMENDMENT, dated as of October 1, 1996, to the Rights Agreement, dated as of September 27, 1991 (the "Rights Agreement"), between Foundation Health Corporation, a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C. (as successor to Chemical Trust Company of California and Manufacturers Hanover Trust Company of California), a New Jersey Limited Liability Company, as Rights Agent (the "Rights Agent"). WHEREAS, the Company and the Rights Agent have heretofore executed and entered into the Rights Agreement; and WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company may from time to time prior to the Distribution Date (as defined therein) supplement or amend the Rights Agreement in accordance with the provisions of Section 27 thereof; and WHEREAS, it is proposed that the Company enter into an Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the "Merger Agreement"), among the Company, Health Systems International, Inc., a Delaware corporation and FH Acquisition Corp., a Delaware corporation; and WHEREAS, the Board of Directors of the Company has determined that the Merger and the other transactions contemplated by the Merger Agreement are fair to and in the best interests of the Company and its stockholders; and WHEREAS, the Board of Directors has determined that it is in the best interests of the Company and its stockholders to amend the Rights Agreement to exempt the Merger Agreement and the transactions contemplated thereby from the application of the Rights Agreement. NOW, THEREFORE, the Company and the Rights Agent hereby amend the Rights Agreement as follows: 1. Section 1(a) of the Rights Agreement is hereby amended by adding the following sentence at the end thereof: "Neither Health Systems International, Inc., a Delaware corporation ("Parent"), FH Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), nor any of their respective Subsidiaries, shall be deemed to be an Acquiring Person with respect to and to the extent that shares of Common Stock are acquired by such entities or their Affiliates or Subsidiaries in connection with the transactions contemplated by the Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the "Merger Agreement") entered into as of October 1, 1996, among the Company, Parent and Merger Sub." 2. Section 30 of the Rights Agreement is hereby amended to add the following sentence at the end thereof: "Nothing in this Agreement shall be construed to create or cause a Distribution Date or Stock Acquisition Date or give any holder of Rights or any other Person any legal or equitable rights, remedy or claim under this Agreement in connection with the Merger Agreement or any transactions contemplated by the Merger Agreement." 3. Section 24 is hereby amended by deleting the heading for such Section and deleting Sections 24(a)(i), (a)(ii) and (b) in their entirety and substituting therefor the following: "24. TERMINATION AND EXCHANGE. (a)(i) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (x) the Stock Acquisition Date or (y) 5 p.m., San Francisco time, on the Final Expiration Date, terminate the Rights without any payment to any holder thereof. (ii) In addition, and notwithstanding the provisions of Section 24(a)(i), the Board of Directors of the Company may terminate the Rights without any payment to any holder thereof following the Stock Acquisition Date but prior to any event described in Section 13(a) either (x) in connection with any event specified in Section 13(a) in which all holders of Common Stock are treated alike and not involving (other than as a holder of Common Stock being treated like all other such holders) an Acquiring Person or an Affiliate of Associate thereof or any other Person in which such Acquiring Person or Affiliate or Associate thereof has any interest, or any other Person acting directly or indirectly on behalf of or in association with any such Acquiring Person or Affiliate or Associate thereof, or (y) following the occurrence of an event set forth in, and the expiration of any periods during which the holder of Rights may exercise the rights under Section 11(a)(ii) if and for as long as any Acquiring Person having triggered such event is not thereafter the Beneficial Owner of securities representing 15% or more of the outstanding shares of the Voting Power, and at the time of termination there are no other Persons who are Acquiring Persons. (b) In the case of a termination permitted under Section 24(a)(i), immediately upon the action of the Board of Directors of the Company ordering the termination of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any -2- notice, the right to exercise the Rights will terminate and each right will thereafter be null and void. In the case of a termination permitted only under Section 24(a)(ii), evidence of which shall have been filed with the Rights Agent, the right to exercise the Rights will terminate and each right will thereafter be null and void only after ten Business Days following the giving of notice of such termination to the holders of such Rights if no event set forth in Section 11(a)(ii) shall have occurred, and, if such event shall have occurred, upon the later of ten Business Days following the giving of such notice or the expiration of any period during which the rights under Section 11(a)(ii) may be exercised. Within ten days after the action of the Board of Directors ordering any termination of the Rights, the Company shall give notice of such termination to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to the Rights Agent and to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice." 4. Section 24 of the Rights Agreement is hereby amended by adding a new subsection (d) thereto: "(d) Notwithstanding anything in this Agreement, the Rights shall terminate without any payment or notice to any holder thereof immediately prior to the Effective Time as defined in the Merger Agreement." 5. The second paragraph of Section 3(a) of the Rights Agreement is hereby amended by deleting the word "redemption" and the immediately following comma in the parentheticals following the phrase "Distribution Date" in each of the ninth and fifteenth lines of such second paragraph. 6. Section 3(b) of the Rights Agreement is hereby amended as follows: (a) the legend forming a part of Section 3(b) to the Rights Agreement is hereby amended by deleting the word "redeemed" in the eleventh line of such legend immediately following the phrase "such Rights may be" and substituting therefor the word "terminated," and (b) in the parenthetical in the last paragraph of Section 3(b), the word "redemption" and the immediately following comma shall be deleted. 7. Clause (ii) of Section 7(a) of the Rights Agreement is hereby amended by deleting in its entirety Clause (ii) and substituting in its place the following: "(ii) the time at which the Rights are terminated as provided in Section 24 hereof," 8. Section 23 of the Rights Agreement is hereby amended to delete the word "redemption" in line twelve and substitute the word "termination" therefor. -3- 9. Section 28 of the Rights Agreement is hereby amended by deleting the word "redeem" in each place in the parenthetical in clause (ii) and substituting the word "terminate" therefor. 10. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. 11. This Amendment may be executed in any number of counterparts, each of which shall for all purposes be deemed an original, and all of which together shall constitute but one and the same instrument. Except as expressly set forth herein, this Amendment shall not by implication or otherwise alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Rights Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. -4- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and the respective corporate seals to be affixed and attested, all as of the day and year first above written. Attest: FOUNDATION HEALTH CORPORATION [SEAL] By: /S/ KAREN DEMPSEY By: /S/ KIRK A. BENSON --------------------------- -------------------------- Name: Karen Dempsey Name: Kirk A. Benson Title: Title: Attest: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. [SEAL] By: /S/ ASA DREW By: /S/ DANIEL SPENGEL --------------------------- -------------------------- Name: Asa Drew Name: Daniel Spengel Title: Assistant Vice President Title: Trust Officer -5- EX-99.1 3 EXHIBIT 99.1 EXHIBIT 99.1 Contact: Kurt Davis Foundation Health Corporation (916) 631-5288 KURT_D_DAVIS@CCMAIL.FH.COM David Olson Health Systems International (818) 719-6978 HTTP://WWW.HSINTL.COM DOLSON@HSINTL.COM FOUNDATION HEALTH AND HEALTH SYSTEMS INTERNATIONAL TO COMBINE IN $3 BILLION MERGER-OF-EQUALS TRANSACTION -- New company, to be called Foundation Health Systems, Inc. (FHS), will be nation's fourth-largest publicly traded managed care company, with 5 million medical members in 16 states -- Merger partners have identified significant potential operational cost savings -- FHS will be financially strong and well-positioned for accelerating growth in the rapidly consolidating managed health care industry PUEBLO, COLO., RANCHO CORDOVA, CALIF. AND WOODLAND HILLS, CALIF. OCTOBER 1, 1996 -- Foundation Health Corporation (NYSE:FH) (Foundation) and Health Systems International, Inc. (NYSE:HQ) (HSI) today announced that they have agreed to combine in a merger-of-equals transaction valued at approximately $3 billion, based on the companies' combined market capitalization. Under the definitive agreement approved by both companies' boards of directors, Foundation and HSI will combine to form Foundation Health Systems, Inc. (FHS). On a pro forma basis, FHS would have recorded total annual revenues of $6.4 billion in -1- the twelve months ended June 30, 1996. Both companies expect FHS's calendar 1997 revenues to exceed $8 billion. Foundation and HSI have identified at least $110 million of annual operating synergies that they expect to realize following completion of the transaction. These synergies will be derived from consolidation of corporate overhead and administration, merging overlapping operations such as California HMOs, cross-selling of certain Foundation specialty products to HSI members, from the benefits of combined medical contracting and other savings. Completion of the transaction, which will be a tax-free combination and accounted for as a pooling of interests, is subject to shareholder and regulatory approval as well as other customary conditions and is expected to occur by the end of January 1997. The new company will operate on a calendar year for financial reporting purposes. Under the terms of the agreement, which is based on a fixed exchange ratio, Foundation will merge with and become a subsidiary of HSI, and HSI will simultaneously change its name to Foundation Health Systems. Each stockholder of Foundation will receive 1.3 FHS Class A common shares for each share of Foundation held. All outstanding HSI Class A common shares will continue to remain outstanding pursuant to the agreement (and will become an equivalent number of FHS Class A common shares). The California Wellness Foundation, which currently owns 19.3 million shares of Class B non-voting HSI stock, will continue to -2- hold the same number of Class B non-voting shares of the new company. FHS will thus have approximately 124 million shares outstanding upon completion of the transaction, 61 percent of which will be owned by Foundation's stockholders and 39 percent by HSI's stockholders. "This transaction represents a unique opportunity to build value for both companies' members, providers, employer groups and, in turn, shareholders far beyond what either Foundation or HSI could have achieved independently," said Daniel D. Crowley, chairman, president and chief executive officer of Foundation. "I am particularly excited about HSI's fourth-generation medical management system and its medical management expertise in general, which can bring significant benefits to our members and providers. I look forward to working closely with Dr. Hasan, Jay Gellert and our combined management team to complete the transaction and establish Foundation Health Systems as one of the best and fastest-growing health care companies in the United States." "The new company will have highly complementary strengths," said Malik M. Hasan, M.D., chairman and chief executive officer of HSI. "The transaction will immediately establish FHS as a major national player, with strong market positions in California and the West and rapidly growing operations in Texas, Florida and the Northeast. The combined product line will cover virtually every facet of managed health care, including conventional health maintenance organizations (HMOs), Medicare- -3- risk HMOs and other substantial government programs, workers' compensation and specialty products." Mr. Crowley will serve as FHS's chairman for the year following completion of the transaction. At the end of that period, Mr. Crowley will resign as chairman while remaining a director of the company. Dr. Hasan will be FHS' president and chief executive officer and will become chairman following Mr. Crowley's resignation. Jay M. Gellert, currently president and chief operating officer of HSI, will become executive vice president and chief operating officer of FHS. He will assume the president's title from Dr. Hasan after the first year. Kirk A. Benson, chief operating officer of Foundation's commercial operations will be a senior vice president of FHS and will play a major role in integration activities targeted at achieving anticipated synergies. Jeffrey L. Elder, Foundation's senior vice president and chief financial officer, will hold the same posts at the new company. Steven D. Tough, currently president and chief operating officer of Foundation's government programs, will continue to head those programs in FHS, principally including the operations serving military families covered by the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS). Foundation currently serves 1.5 million CHAMPUS beneficiaries in seven states. -4- The FHS board of directors will be composed of 11 members, including Mr. Crowley, Dr. Hasan and nine independent directors chosen by the two companies, five initially by Foundation and four by HSI. The new company will establish a single headquarters office at a site to be determined prior to closing. All FHS California HMO operations will be consolidated under Health Net in the months following completion of the merger. Both companies expect that the existing operating structure of Foundation's government and specialty businesses will be maintained. The definitive agreement provides for the payment of a termination fee, in certain events. Morgan Stanley & Co. Incorporated advised Foundation with regard to the transaction, and Salomon Brothers, Shattuck Hammond Partners, Smith, Barney Inc. and Volpe, Welty & Company advised HSI. Morgan Stanley, Salomon and Shattuck Hammond have rendered fairness opinions with regard to the transaction. Foundation also announced that in connection with the previously announced sale of its physician practice management operations and affiliated physician- owned medical groups, Foundation has reconsidered its prior accounting treatment for the medical groups. The evolution of the physician practice management industry has led Foundation, in consultation with its independent auditors, Deloitte & Touche LLP, to conclude that the operating results of such groups should be included in Foundation's consolidated financial statements. Accordingly, HSI and Foundation have agreed that Foundation will adjust -5- previously issued consolidated financial statements to reflect operating losses incurred by the medical groups. The effect on Foundation's consolidated financial statements as a result of recognizing the losses from the medial groups is preliminarily expected to be $41 million ($.70 per share) in the fiscal year ended June 30, 1996 and $39 ($.70 per share) in fiscal 1995. If the sale of the physician practice management operations and affiliated medical groups to FPA Medical Management, Inc. (FPA) is consummated as anticipated, such adjustments will result in a gain on sale. As previously disclosed, the sale to FPA is currently awaiting regulatory and other approvals and is expected to close in November 1996, although there can be no assurance on the timing of the close or that the transaction will be completed. Certain statements contained in this press release are forward looking in nature and are believed to be reasonable based on information available to the companies' managements at this time. Actual results may vary due to changes in health care administrative cost trends, pricing, sales volume, the timing of new contract implementation and other factors. For further information, please see the risk factors sections of the two companies' periodic filings with the Securities and Exchange Commission. Foundation Health Corporation is a Fortune 500 managed care organization with headquarters in Rancho Cordova, California. Through its HMO, insured PPO and government contracts subsidiaries, the Company provides group, individual, Medicare, -6- Medicaid and CHAMPUS coverage for more than three million individuals. In addition, the Company's subsidiaries offer managed care products related to workers' compensation, behavioral health, dental, vision and prescription drugs, and administrative services for medical groups and self-funded benefits programs. Health Systems International is one of the largest managed health care organizations in the United States. It serves more than 1.9 million members in nine states: California, Colorado, Connecticut, Idaho, New Jersey, New Mexico, Pennsylvania, Oregon and Washington. It also owns Preferred Health Network, Inc. (PHN), a preferred provider organization (PPO) network providing access to more than 4.6 million individuals in 38 states, and coordinates managed care products for multi-region employers. 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. # # # -7- THE COMPANIES AT A GLANCE
FOUNDATION HEALTH CORPORATION HEALTH SYSTEMS INTERNATIONAL, INC. ----------------------------- ---------------------------------- Headquarters: Rancho Cordova, CA Woodland Hills, CA and Pueblo, CO Annual Revenues: (latest 12 months) $3.3 billion $3.0 billion Shares Outstanding: 59 million 48 million Employees: 11,000 4,000 States with HMOs: (ranked by enrollment) California California Arizona Connecticut Florida Washington/Idaho Utah Pennsylvania Colorado Colorado Oklahoma Oregon Texas New Mexico Louisiana Enrollment: Group & Ind. 1.2 million 1.6 million Medicare 87,000 141,000 Medicaid 260,000 62,000 CHAMPUS 1.5 million 0 TOTAL 3.1 million 1.8 million Other Products: Workers' Compensation Workers' Compensation Administrative Services Behavioral Health Programs PPO Network Pharmacy Benefit Management Dental and Vision Coverage
-8- FOUNDATION HEALTH SYSTEMS, INC. MEDICAL COVERED LIVES, PRO FORMA AT JUNE 30,1996 (IN THOUSANDS)
FOUNDATION HEALTH CORPORATION HEALTH SYSTEMS, INTERNATIONAL, INC. ------------------------------------------------------- ------------------------------------- COMMERCIAL HMO, INSURED PPO GOVERNMENT SUBTOTAL COMMERCIAL HMO, INSURED PPO SUBTOTAL COMBINED TOTAL ----------------------------------------- ---------- -------- ------------------------------- -------- ------- GROUP AND MEDICARE COMMERCIAL CHAMPUS FH GROUP AND MEDICARE HQ STATE INDIVIDUAL RISK MEDICAID SUBTOTAL TRICARE TOTAL INDIVIDUAL RISK MEDICAID TOTAL - ---------- ---------- -------- -------- ---------- --------- ------- ---------- -------- ------- ----- Arizona 313 40 7 360 0 360 0 0 0 0 380 California 577 21 199 797 640 1,437 1,210 114 0 1,324 2,761 Colorado 33 0 0 33 0 33 46 10 0 56 89 Connecticut 0 0 0 0 0 0 124 0 18 142 142 Florida 69 26 19 114 0 114 0 0 0 0 114 Louisiana 23 0 0 23 81 104 0 0 0 0 104 New Mexico 0 0 0 0 0 0 27 2 0 29 29 Oklahoma 2 0 25 27 116 143 0 0 0 0 143 Oregon 0 0 0 0 33 33 47 0 3 49 82 Pennsylvania 0 0 0 0 0 0 46 13 26 85 85 Texas 24 0 0 24 415 439 0 0 0 0 439 Utah 87 0 10 97 0 97 0 0 0 0 97 Wash/Idaho 0 0 0 0 194 194 95 2 16 113 307 Other 67 0 0 67 50 117 0 0 0 0 117 ---- ---- --- ----- ----- ---- ----- ---- --- ----- ----- TOTAL 1,195 87 260 1,542 1,529 3,071 1,595 141 62 1,798 4,869 ---- ---- --- ----- ----- ---- ----- ---- --- ----- ----- ---- ---- --- ----- ----- ---- ----- ---- --- ----- -----
COMBINED ENROLLMENT BY PRODUCT ------------------------------------ Group & 2,790 Indiv. Medicare Risk 228 Medicaid 322 CHAMPUS 1,529 ----- Total 4,869 ----- ----- -9- -----END PRIVACY-ENHANCED MESSAGE-----