August 1, 1997
Via Facsimile
[TITLE] <FirstName> <LastName>
<Company>
<Address>
[CITY], [STATE] <PostalCode>
Dear [TITLE] <Last Name>:
As chairman of the Compensation and Stock Option
Committee (the Committee) of the Foundation Health
Systems, Inc. (FHS) Board of Directors, I wanted to
communicate directly with you on several issues raised by
the Proxy Statement for the FHS Stockholders' Meeting
scheduled for August 6, 1997.
As we have sought your votes in favor of the seven
proposals contained in the proxy, we have heard concerns
expressed by many of you with regard to Proposal 2 - the
1997 Stock Option Plan (the Plan) for management.
The Committee takes your concerns very seriously. We
want to address these concerns directly so that we may
secure your support for this important program. The
Committee believes that stock options are the most
efficient way to tie management incentives to stockholder
interests. This Plan is important to the future success
of FHS, providing a critical link between management and
stockholders.
Let me now address the specific concerns we have heard.
On behalf of the Committee, which will administer the
Plan and is composed entirely of independent outside
directors, I can commit to you that we will grant no more
than 150,000 restricted stock awards, or 1.5 percent of
the total shares in the Plan, during the duration of the
Plan. Any such grants will generally vest in equal
annual increments over a period of not less than three
years. In addition, appropriate attention will be paid
to total compensation in consideration of the value of
such direct grants. Proposal 2 did not specify the
number of shares that the Committee intends to use for
restricted stock grants or vesting periods.
Any and all stock options granted under the Plan will
also generally vest in equal annual increments over a
period of not less than three years and will be granted
at prices equal to or higher than the market price on the
date of the grant. Proposal 2 did not specify vesting
periods for stock options.
The Committee has no intention of repricing stock
options. Proposal 2 did not address the issue of
repricing.
Further, we will seek stockholder approval for certain
material amendments to the Plan as provided for in the
Plan.
The FHS Board is committed to increasing stockholder
value. We are determined to address your concerns and
administer this Plan in a way that provides appropriate
incentives to management while being sensitive to the
interests of all stockholders.
If you have already voted in favor of Proposal 2, we
trust this letter provides additional support for your
decision. If you have already voted against Proposal 2,
we respectfully ask that you reconsider your vote given
the above reassurances. Finally, if you have not voted,
we ask for your support, with the commitment of the
Committee to adhere to the principles noted above.
If you have other questions or concerns, please contact
our vice president of Investor Relations, David Olson, at
(818) 719-6978.
Thank you for your consideration of these matters.
Sincerely,
J. Thomas Bouchard
Chairman, Compensation and
Stock Option Committee
