<PAGE>
As filed with the Securities and Exchange Commission on December 4, 1998
Registration No. 333- ----------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
FOUNDATION HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4288333
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
21600 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(Address of principal executive offices)
FOUNDATION HEALTH SYSTEMS, INC.
1998 STOCK OPTION PLAN
(Full title of the plan)
MICHAEL E. JANSEN, ESQ.
FOUNDATION HEALTH SYSTEMS, INC.
21600 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 676-5325
(Name, address and telephone number, including area code, of agent for service)
(with a copy to)
B. CURTIS WESTEN, ESQ.
FOUNDATION HEALTH SYSTEMS, INC.
21600 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
(818) 676-7601
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Proposed Proposed
Title of Amount Maximum Maximum Amount of
Securities to be Offering Aggregate Registration
to be Registered Price Per Offering Fee
Registered (1) Share Price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 5,000,000 shares $13.16(2) $65,800,000(2) $18,292.40
Common
Stock, $.001
par value
per share
Preferred 5,000,000 rights $0(3) $0(3) $0(3)
Stock
Purchase
Rights
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933,
this Registration Statement also covers an indeterminate amount of
interests to be offered pursuant to the employee benefit plans described
herein.
(2) Estimated solely for the purpose of calculating the registration fee and,
pursuant to Rule 457(h) under the Securities Act of 1933, based upon the
average of the high ($13 1/2) and low ($12 13/16) sale prices of the
Common Stock reported on the New York Stock Exchange on December 1, 1998.
(3) Rights to purchase Series A Junior Participating Preferred Stock
initially are attached to and trade with the shares of Common Stock being
registered hereby. Value attributable to such Rights, if any, is
reflected in the market price of the Common Stock.
II-2
<PAGE>
PART II
INFORMATION REQUIRED IN THE
REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The following documents heretofore filed with the Securities and Exchange
Commission (the "Commission") by Foundation Health Systems, Inc. (the "Company")
(Commission File No. 1-12718) are incorporated herein by reference:
(1) The Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1998, June 30, 1998 and September 30, 1998.
(2) The Company's Annual Report on Form 10-K for the year ended December
31, 1997.
(3) The description of the Company's Class A Common Stock, par value
$.001 per share, which is contained in the Company's Registration
Statement on Form 8-A dated January 21, 1994.
(4) The description of the Rights to purchase Series A Junior
Participating Preferred Stock of the Company (the "Rights")
contained in the Company's Registration Statement on Form 8-A dated
July 16, 1996.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the date of
this Registration Statement and prior to the filing of a post-effective
amendment to this Registration Statement which indicates that all securities
offered hereby have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference into this
Registration Statement and to be a part hereof from the respective dates of
filing of such documents (such documents, and the documents enumerated above,
are hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Registration Statement to the extent
that a statement contained herein or in any other subsequently filed
Incorporated Document modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Registration Statement.
II-3
<PAGE>
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
permits indemnification of directors, officers and employees of a corporation
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement of litigation under certain conditions and subject to certain
limitations. The Fourth Amended and Restated Certificate of Incorporation of
the Company (the "Certificate") provides that a director shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except: (i) for any breach of the duty of
loyalty; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (iii) for liability under
Section 174 of the Delaware GCL (relating to certain unlawful dividends, stock
repurchases or stock redemptions); or (iv) for any transaction from which the
director derived any improper personal benefit. The effect of this provision in
the Certificate is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in certain limited situations. These provisions do not limit
or eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. These provisions do not alter the liability of
directors under federal securities laws.
Article VI of the Certificate and Article VI of the Company's Fifth Amended
and Restated Bylaws provide that the Company shall indemnify each director and
officer to the fullest extent and in the manner set forth in and permitted by
the Delaware GCL and other applicable laws and that the Company may indemnify
employees or agents of the Company to the extent and in the manner set forth in
and permitted by the Delaware GCL and other applicable laws. The Company has
also entered into various Indemnification Agreements with certain of its
officers and directors to contractually provide indemnification coverage
consistent with such Bylaws.
II-4
<PAGE>
In addition, the Company maintains an officers' and directors' liability
insurance policy insuring the Company's officers and directors against certain
liabilities and expenses incurred by them in their capacities as such, and
insuring the Company, under certain circumstances, in the event that
indemnification payments are made by the Company to such officers and directors.
Pursuant to Section 7.12 of the Agreement and Plan of Merger, dated October
1, 1996 (the "Merger Agreement"), among the Company, FH Acquisition Corp. and
Foundation Health Corporation ("FHC"), the Company has agreed that, for a period
of six years following the Effective Time (as defined in the Merger Agreement),
(a) the Company will continue and guarantee the performance of the
indemnification rights of present and former directors and officers of the
Company and FHC provided for in the Certificate of Incorporation, Bylaws and
Indemnification Agreements of the Company and FHC, with respect to
indemnification for acts and omissions occurring prior to the Effective Time,
and (b) the Company will cause to be maintained the policies of the officers'
and directors' liability covered by each company's officers' and directors'
liability insurance policies as of the Effective Time with respect to acts and
omissions occurring prior to the Effective Time; provided that policies with
third-party insurers of similar or better A.M. Best rating whose terms,
conditions and coverage are no less advantageous may be substituted therefor,
and provided further that in no event shall the Company be required to expend to
maintain or procure insurance coverage an amount in excess of 150% of the annual
premiums for the twelve-month period ended June 30, 1997.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
II-5
<PAGE>
ITEM 8. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
4.1 Fourth Amended Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-24621)).
4.2 Fifth Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1997).
4.3 Rights Agreement dated as of June 1, 1996, by and between the Company and
Harris Trust and Savings Bank, as Rights Agent (incorporated by reference
to Exhibit 99.1 to the Company's Registration Statement on Form 8-A
(Commission File No. 1-12718)).
4.4 First Amendment to the Rights Agreement dated as of October 1, 1996, by
and between the Company and Harris Trust and Savings Bank, as Rights
Agent (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on October 9, 1996).
4.5* Foundation Health Systems, Inc. 1998 Stock Option Plan, a copy of which
is filed herewith.
5* Legal Opinion, a copy of which is filed herewith.
23* Consent of Deloitte & Touche LLP, a copy of which is filed herewith.
24* Powers of Attorney (contained on the signature page to this Registration
Statement).
- ---------------------
* A copy of the document has been filed as an Exhibit to this Registration
Statement.
ITEM 9. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
II-6
<PAGE>
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering
thereof;
II-7
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remained unsold at the
termination of the offering.
(b) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-8
<PAGE>
SIGNATURES
THE REGISTRANT. Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Woodland Hills, State of California on this 3rd day of
December, 1998.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ Jay M. Gellert
----------------------------------------
Name: Jay M. Gellert
Title: President and Chief Executive
Officer (Principal Executive
Officer)
By: /s/ Steven P. Erwin
----------------------------------------
Name: Steven P. Erwin
Title: Executive Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
II-9
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
immediately below constitutes and appoints B. Curtis Westen and Michael E.
Jansen, and each or any of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated, on this 3rd day of December, 1998.
SIGNATURE TITLE
/s/ Malik M. Hasan, M.D.
- ----------------------- Chairman of the Board of Directors
Malik M. Hasan, M.D. and Director
/s/ J. Thomas Bouchard
- ----------------------- Director
J. Thomas Bouchard
/s/ George Deukmejian
- ----------------------- Director
George Deukmejian
/s/ Thomas T. Farley
- ----------------------- Director
Thomas T. Farley
/s/ Patrick Foley
- ----------------------- Director
Patrick Foley
/s/ Earl B. Fowler
- ----------------------- Director
Earl B. Fowler
/s/ Roger F. Greaves
- ----------------------- Director
Roger F. Greaves
/s/ Richard W. Hanselman
- ----------------------- Director
Richard W. Hanselman
/s/ Richard J. Stegemeier
- ----------------------- Director
Richard J. Stegemeier
/s/ Raymond S. Troubh
- ----------------------- Director
Raymond S. Troubh
II-10
<PAGE>
EXHIBIT INDEX
EXHIBIT
<TABLE>
<CAPTION>
NO. DESCRIPTION
<S> <C>
4.1 Fourth Amended Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Registration No. 333-24621)).
4.2 Fifth Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.)
4.3 Rights Agreement dated as of June 1, 1996, by and between the Company
and Harris Trust and Savings Bank, as Rights Agent (incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on
Form 8-A (Commission File No. 1-12718)).
4.4 First Amendment to the Rights Agreement dated as of October 1, 1996, by
and between the Company and Harris Trust and Savings Bank, as Rights
Agent (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on October 9, 1996).
4.5* Foundation Health Systems, Inc. 1998 Stock Option Plan, a copy of which
is filed herewith.
5* Legal Opinion, a copy of which is filed herewith.
23* Consent of Deloitte & Touche LLP, a copy of which is filed herewith.
24* Powers of Attorney (contained on the signature page to this Registration
Statement).
</TABLE>
- ------------------------
*A copy of the document has been filed as an Exhibit to this Registration
Statement
II-11
<PAGE>
FOUNDATION HEALTH SYSTEMS, INC.
1998 STOCK OPTION PLAN
I. INTRODUCTION
The purposes of the Foundation Health Systems, Inc. 1998 Stock Option
Plan (the "Plan") are (i) to align the interests of the stockholders of
Foundation Health Systems, Inc. (the "Company") and the recipients of awards
under the Plan by increasing the proprietary interest of such recipients in
the Company's growth and success, (ii) to advance the interests of the
Company by attracting and retaining key salaried employees of the Company and
its subsidiaries and (iii) to motivate such employees to act in the long-term
best interests of the Company's stockholders.
II. DEFINITIONS
For purposes of the Plan, the following capitalized terms shall have the
meanings set forth in this Article.
2.1 "Agreement" shall mean the written agreement or notice evidencing an
award hereunder, the terms of which may be amended or modified as provided in
Section 6.3.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Bonus Stock" shall mean shares of Common Stock which are not subject
to a Restriction Period.
2.4 "Bonus Stock Award" shall mean an award of Bonus Stock.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the Compensation and Stock Option Committee of
the Board.
2.7 "Common Stock" shall mean the Class A Common Stock, $.001 par value, of
the Company.
2.8 "Company" shall mean Foundation Health Systems, Inc., a Delaware
corporation, or any successor thereto.
2.9 "Disability" shall mean the inability, as determined solely by the
Committee, of the
<PAGE>
holder of an award to perform substantially such holder's duties and
responsibilities for a continuous period of at least six months.
2.10 "Employer" shall mean the Company and each Subsidiary.
2.11 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
2.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
2.13 "Fair Market Value" shall mean the closing price of a share of Common
Stock as reported in The Wall Street Journal on the New York Stock Exchange
Composite Transactions list for the date as of which such value is being
determined or, if there shall be no reported transaction for such date or if
such date is not a trading day, on the next immediately preceding date for
which a transaction was reported or which was a trading day; provided,
however, that Fair Market Value may be determined by the Committee by
whatever means or method as the Committee, in the good faith exercise of its
discretion, shall at such time deem appropriate.
2.14 "Mature Shares" shall mean previously acquired shares of Common Stock
for which the holder thereof has good title, free and clear of all liens and
encumbrances and which such holder either (i) has held for at least six
months or (ii) has purchased on the open market.
2.15 "Maturity Value" shall mean, unless the Committee shall determine
otherwise, the average of the Fair Market Value of a share of Common Stock
for a period of sixty consecutive trading days ending on the Valuation Date
with respect to each Restricted Stock Award, or if the Valuation Date is not
a trading day, the sixty consecutive trading days ending on the last trading
day before the Valuation Date.
2.16 "Merger" shall mean any merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving or resulting parent corporation
immediately after the merger.
2.17 "Option" shall mean a stock option which is not an "incentive stock
option" as such term is defined in Section 422(b) of the Code or any
successor thereto.
A-2
<PAGE>
2.18 "Permanent and Total Disability" shall have the meaning set forth in
Section 22(e)(3) of the Code or any successor thereto.
2.19 "Restricted Stock" shall mean shares of Common Stock which are subject
to a Restriction Period.
2.20 "Restricted Stock Award" shall mean an award of Restricted Stock.
2.21 "Restriction Period" shall mean any period designated by the Committee
during which the Common Stock subject to a Restricted Stock Award may not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or
disposed of, except as provided in the Plan or the Agreement relating to such
award.
2.22 "SAR" shall mean a stock appreciation right which is granted in tandem
with, or by reference to, an option (including a Option granted prior to the
date of grant of the SAR), which entitles the holder thereof to receive, upon
exercise of such SAR and surrender for cancellation of all or a portion of
such option, shares of Common Stock, cash or a combination thereof with an
aggregate value equal to the excess of the Fair Market Value of one share of
Common Stock on the date of exercise over the base price of such SAR,
multiplied by the number of shares of Common Stock subject to such option, or
portion thereof, which is surrendered.
2.23 "Securities Act" shall mean the Securities Act of 1933, as amended.
2.24 "Stock Award" shall mean a Restricted Stock Award or a Bonus Stock Award.
2.25 "Subsidiary" shall mean any corporation other than the Company in an
unbroken chain of corporations beginning with the Company if, at the time of
reference, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
2.26 "Ten Percent Holder" shall have the meaning set forth in Section 4.2(a).
A-3
<PAGE>
2.27 "Valuation Date" with respect to any Restricted Stock Award shall mean
the date designated in the Agreement with respect to each Restricted Stock
Award pursuant to Section 5.2(a).
III. ELIGIBILITY AND ADMINISTRATION
3.1 ELIGIBILITY. Participants in the Plan shall consist of all key salaried
employees of the Employers, other than Level 1 or Level 2 employees, as such
terms are used by the Committee, as the Committee in its sole discretion may
select from time to time. The Committee's selection of an employee to
participate in the Plan at any time shall not require the Committee to select
such employee to participate in the Plan at any other time.
3.2 ADMINISTRATION.
(a) IN GENERAL. The Plan shall be administered by the Committee. The
Committee may grant to eligible employees any one or a combination of the
following awards under the Plan: (i) Options, (ii) SARs and (iii) Stock
Awards in the form of Restricted Stock or Bonus Stock. The Committee shall,
subject to the terms of the Plan, select eligible key salaried employees for
participation in the Plan and determine the form, amount and timing of each
award to such employees and, if applicable, the number of shares of Common
Stock and the number of SARs subject to such an award, the exercise price or
base price associated with the award, the time and conditions of exercise or
settlement of the award and all other terms and conditions of the award,
including, without limitation, the form of the Agreement evidencing the
award. The Committee may, in its sole discretion and for any reason at any
time, take action such that (i) any or all outstanding Options and SARs shall
become exercisable in part or in full and (ii) all or a portion of the
Restriction Period applicable to any outstanding Restricted Stock Award shall
lapse. The Committee shall, subject to the terms of the Plan, interpret the
Plan and the application thereof, establish rules and regulations it deems
necessary or desirable for the administration of the Plan, make any
determinations necessary or desirable to effectuate the purposes of the Plan
and may impose, incidental to the grant of an award, conditions with respect
to the award, such as limiting competitive employment or other activities.
All such interpretations, rules, regulations, determinations and conditions
shall be final, binding and conclusive. The acts of the Committee shall be
either (i) acts of a majority of the members of the Committee present at any
meeting at which a majority of the Committee members is present or (ii) acts
approved in writing by a majority of the members of the Committee without a
meeting.
A-4
<PAGE>
(b) DELEGATION. The Committee may delegate some or all of its power
and authority hereunder to such executive officer or officers of the Company
as the Committee deems appropriate.
(c) INDEMNIFICATION. No member of the Board of Directors or Committee,
nor any executive officer to whom the Committee delegates any of its power
and authority hereunder, shall be liable for any act, omission,
interpretation, construction or determination made in connection with the
Plan in good faith, and the members of the Board of Directors and the
Committee and any such executive officer shall be entitled to indemnification
and reimbursement by the Company in respect of any claim, loss, damage or
expense (including attorneys' fees) arising therefrom to the full extent
permitted by law, except as otherwise may be provided in the Company's
Certificate of Incorporation or Bylaws, and under any directors' and
officers' liability insurance that may be in effect from time to time.
3.3 SHARES AVAILABLE. Subject to adjustment as provided in Section 6.7,
5,000,000 shares of Common Stock shall be available under the Plan. Such
shares of Common Stock and shares of each other class of stock which become
available under the Plan shall be reduced by the sum of the aggregate number
of shares of such stock then subject to awards under the Plan. To the extent
that shares of Common Stock subject to an outstanding Option (except to the
extent shares of Common Stock are issued or delivered by the Company in
connection with the exercise of an SAR) or Stock Award are not issued or
delivered by reason of the expiration, termination, cancellation or
forfeiture of such award or by reason of the delivery or withholding of
shares of Common Stock to satisfy all or a portion of the tax withholding
obligations relating to an award, then such shares of Common Stock shall
again be available under the Plan. Shares of Common Stock shall be made
available from authorized and unissued shares of Common Stock, or authorized
and issued shares of Common Stock reacquired and held as treasury shares or
otherwise or a combination thereof.
IV. OPTIONS AND STOCK APPRECIATION RIGHTS
4.1 OPTIONS. The Committee may, in its discretion, grant Options to
purchase shares of Common Stock to such eligible employees as may be selected
by the Committee.
4.2 TERMS OF OPTIONS. Options shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
advisable.
A-5
<PAGE>
(a) NUMBER OF SHARES AND PURCHASE PRICE. The number of shares of
Common Stock subject to an Option and the purchase price per share of Common
Stock purchasable upon exercise of the Option shall be determined by the
Committee; provided, however, that the purchase price per share of Common
Stock purchasable upon exercise of an Option shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date of grant of such
Option.
(b) OPTION PERIOD AND EXERCISABILITY. The period during which an
Option may be exercised shall be determined by the Committee. The Committee
may, in its discretion, establish performance measures which must be
satisfied as a condition either to a grant of an Option or to the
exercisability of all or a portion of an Option. The Committee shall
determine whether an Option shall become exercisable in cumulative or
noncumulative installments and in part or in full at any time. An
exercisable Option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.
(a) METHOD OF EXERCISE. An Option may be exercised (i) by giving
written notice to the Company specifying the number of whole shares of Common
Stock to be purchased and accompanied by payment therefor in full (or
arrangement made for such payment to the Company's satisfaction) either (A)
in cash, (B) by delivery (either actual delivery or by attestation procedures
established by the Company) of Mature Shares having an aggregate Fair Market
Value, determined as of the date of exercise, equal to the aggregate purchase
price payable by reason of such exercise, (C) in cash by a broker-dealer
acceptable to the Company to whom the optionee has submitted an irrevocable
notice of exercise or (D) a combination of (A) and (B), (ii) if applicable,
by surrendering to the Company any SARs which are canceled by reason of the
exercise of the Option and (iii) by executing such documents as the Company
may reasonably request. Cash payments shall be made by wire transfer,
certified or bank check or personal check, in each case payable to the order
of the Company. If payment is to be made by delivery of Mature Shares, any
fraction of a share of Common Stock which would be required to pay such
purchase price shall be disregarded and the remaining amount due shall be
paid in cash by the optionee. The Company shall not be required to deliver
certificates for shares of Common Stock until the Company has confirmed the
receipt of good and available funds in payment of the full purchase price
therefor.
4.3 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant
SARs to such eligible employees as may be selected by the Committee.
A-6
<PAGE>
4.4 TERMS OF SARS. SARs shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
advisable.
(a) NUMBER OF SARS AND BASE PRICE. The number of SARs subject to an
award shall be determined by the Committee. The base price of an SAR shall
be the purchase price per share of Common Stock of the related Option.
(b) EXERCISE PERIOD AND EXERCISABILITY. The Agreement relating to an
award of SARs shall specify whether such award may be settled in shares of
Common Stock or cash or a combination thereof. The period for the exercise
of an SAR shall be determined by the Committee; provided, however, that no
SAR shall be exercised later than the expiration, cancellation, forfeiture or
other termination of the related Option. The Committee shall determine
whether an SAR may be exercised in cumulative or non-cumulative installments
and in part or in full at any time. An exercisable SAR, or portion thereof,
may be exercised only with respect to whole shares of Common Stock. Prior to
the exercise of an SAR for shares of Common Stock, the holder of such SAR
shall have no rights as a stockholder of the Company with respect to the
shares of Common Stock subject to such SAR and shall have rights as a
stockholder of the Company in accordance with Section 6.11.
(c) METHOD OF EXERCISE. An SAR may be exercised (i) by giving written
notice to the Company specifying the number of whole SARs which are being
exercised, (ii) by surrendering to the Company any options which are canceled
by reason of the exercise of the SAR and (iii) by executing such documents as
the Company may reasonably request.
4.5 TERMINATION OF EMPLOYMENT. Subject to Sections 6.9 and 4.4(b), all of
the terms relating to the exercise, cancellation or other disposition of an
Option or SAR in the event the holder of such Option or SAR, as the case may
be, is no longer employed by an Employer, whether by reason of Disability,
retirement, death or other termination of employment, shall be determined by
the Committee. Such determination shall be made at the time of the grant of
such Option or SAR, as the case may be, and shall be specified in the
Agreement relating to such Option or SAR.
A-7
<PAGE>
V. STOCK AWARDS
5.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards
to such eligible employees as may be selected by the Committee. The
Agreement relating to a Stock Award shall specify whether the Stock Award is
a Restricted Stock Award or Bonus Stock Award.
5.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
advisable.
(a) NUMBER OF SHARES AND OTHER TERMS. The Committee shall determine the
number of shares of Common Stock subject to a Restricted Stock Award or Bonus
Stock Award conditions. In the case of a Restricted Stock Award, the
Committee shall designate a Valuation Date and shall determine the price, if
any, to be paid by the holder for each share of Restricted Stock subject to
the Award.
(b) VESTING AND FORFEITURE. The Agreement relating to a Restricted
Stock Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of the Plan, (i) for the vesting of
the shares of Common Stock subject to such award if the holder of such award
remains continuously in the employment of any one or more Employers during
the specified Restriction Period and satisfies any other applicable
conditions and (ii) for the forfeiture of the shares of Common Stock subject
to such award if the holder of such award does not remain continuously in the
employment of any one or more Employers during the specified Restriction
Period or does not satisfy any other applicable condition. Bonus Stock
Awards shall not be subject to any Restriction Periods.
(c) SHARE CERTIFICATES. In the case of a Restricted Stock Award, during
the Restriction Period, a certificate or certificates representing the award
may be registered in the holder's name and may bear a legend, in addition to
any legend which may be required pursuant to Section 6.6, indicating that the
ownership of the shares of Common Stock represented by such certificate is
subject to the restrictions, terms and conditions of the Plan and the
Agreement relating to the Restricted Stock Award. All such certificates
shall be deposited with the Company, together with stock powers or other
instruments of assignment (including a power of attorney), each endorsed in
blank with a guarantee of signature if deemed necessary
A-8
<PAGE>
or appropriate by the Company, which would permit transfer to the Company of
all or a portion of the shares of Common Stock subject to the Restricted
Stock Award in the event such award is forfeited in whole or in part. Upon
termination of any applicable Restricted Period, or upon the grant of a Bonus
Stock Award, in each case subject to the Company's right to require payment
of any taxes in accordance with Section 6.5, either (i) a certificate or
certificates evidencing ownership of the requisite number of shares of Common
Stock shall be delivered to the holder of such award or (ii) a notation of
noncertificated shares shall be made on the stock records of the Company.
(d) RIGHTS WITH RESPECT TO THE RESTRICTED STOCK AWARDS. Unless
otherwise set forth in the Agreement relating to a Restricted Stock Award,
and subject to the terms and conditions of a Restricted Stock Award and the
Plan, the holder of such award shall have all rights as a stockholder of the
Company, including, but not limited to, voting rights, the right to receive
dividends and the right to participate in any capital adjustment applicable
to all holders of Common Stock; provided, however, that a distribution with
respect to shares of Common Stock, other than a regular cash dividend or any
other distribution as the Committee may in its sole discretion designate,
shall be deposited with the Company and shall be subject to the same
restrictions as the shares of Common Stock with respect to which such
distribution was made. Any such distributions on deposit with the Company
shall not be segregated in separate accounts and shall not bear interest.
Any breach of any restrictions, terms or conditions applicable to a
Restricted Stock Award by the holder of such award shall cause a forfeiture
of Restricted Stock, any related distributions, and all rights under the
Agreement.
(e) CASH AWARDS. In connection with any Restricted Stock Award, the
Committee may authorize (either at the time such award is made or
subsequently) the payment of a cash amount (a "Cash Award") to the holder of
such Restricted Stock at any time after such Restricted Stock shall have
become vested; provided, however, that the amount of the cash payment, if
any, that a holder shall be entitled to receive shall not exceed 100 percent
of the aggregate Maturity Value of the Restricted Stock Award. Such Cash
Awards shall be payable in accordance with such additional restrictions,
terms and conditions as shall be prescribed by the Committee and shall be in
addition to any other salary, incentive, bonus or other compensation payments
which holders shall be otherwise entitled or eligible to receive from the
Company.
A-9
<PAGE>
5.3 TERMINATION OF EMPLOYMENT. Subject to Section 6.9, all of the terms
relating to the termination of the Restriction Period or other conditions
relating to a Restricted Stock Award, or any cancellation or forfeiture of
such Restricted Stock Award in the event the holder of such Restricted Stock
Award is no longer employed by an Employer, whether by reason of Disability,
retirement, death or other termination of employment, shall be specified in
the Agreement relating to such Restricted Stock Award.
VI. GENERAL
6.1 EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on the
date it is adopted by the Board. The Plan shall terminate when shares of
Common Stock are no longer available for the grant of awards, unless
terminated earlier by the Board. Termination of the Plan shall not affect
the terms or conditions of any award granted prior to termination.
6.2 AMENDMENTS. The Board may amend the Plan as it shall deem advisable;
provided, however, that no amendment may impair the rights of a holder of an
outstanding award without the consent of such holder.
6.3 AGREEMENT. Each award under the Plan shall be evidenced by an Agreement
setting forth the terms and conditions applicable to such award. In the
event that the Committee determines that such procedure is necessary or
desirable, an award shall be valid when an Agreement is executed by a duly
authorized representative of the Company and the recipient of such award and,
upon execution by each party and delivery of the Agreement to the Company,
such award shall be effective as of the effective date set forth in the
Agreement. In the event that the Committee determines that the procedure
described in the immediately preceding sentence is not necessary or
desirable, an award shall be effective upon delivery by the Company of the
Agreement, and the effective date of the award shall be as set forth in such
Agreement. An Agreement may be modified or amended at any time by the
Committee, provided that no modification or amendment may adversely affect
the rights of the holder of the award evidenced by the Agreement without the
holder's consent.
6.4 NON-TRANSFERABILITY OF AWARDS. Unless otherwise specified in the
Agreement relating to an award, no award (or rights thereunder) shall be
transferable other than by will, the laws of descent and distribution, a
qualified domestic relations order or pursuant to beneficiary designation or
assignment procedures approved by the Company. Except to the extent
permitted by the foregoing sentence or the Agreement relating to an award,
each award may be exercised or settled during the holder's lifetime only by
the holder or the holder's legal representative or similar person. Except to
the extent permitted by the second preceding sentence or the
A-10
<PAGE>
Agreement relating to an award, no award may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or
similar process. Upon any attempt to so sell, transfer, assign, pledge,
hypothecate, encumber or otherwise dispose of any such award, such award and
all rights thereunder and its related Agreement shall immediately become null
and void.
6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash pursuant to an award made hereunder, payment by the holder of such award
of any federal, state, local or other taxes which may be required to be
withheld or paid in connection with such award. The holder may satisfy any
such obligation by any of the following means: (A) a cash payment to the
Company, (B) authorizing the Company to withhold whole shares of Common Stock
which would otherwise be delivered having an aggregate Fair Market Value,
determined as of the date the obligation to withhold or pay taxes arises in
connection with the award (the "Tax Date"), or withhold an amount of cash
which would otherwise be payable to a holder, equal to the amount necessary
to satisfy any such obligation, (C) by delivery (either actual delivery or by
attestation procedures established by the Company) of shares of Common Stock
having an aggregate Fair Market Value, determined as of the Tax Date, equal
to the amount necessary to satisfy any such obligation, (D) in the case of
the exercise of an Option, a cash payment by a broker-dealer acceptable to
the Company to whom the optionee has submitted an irrevocable notice of
exercise or (E) a combination of (A), (B) and (C); provided, however, that
the Company shall have sole discretion to disapprove of an election pursuant
to any of clauses (B)-(E), and provided further that no shares of Common
Stock shall be withheld or delivered in excess of the minimum statutory
requirements with respect to such tax obligation unless such shares are
Mature Shares. Any fraction of a share of Common Stock which would be
required to satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the holder.
6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to
the require ment that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the exercise
or settlement of such award or the delivery of shares thereu nder, such award
shall not be exercised or
A-11
<PAGE>
settled and such shares shall not he delivered unless such listing,
registration, qualification, consent, approval or other action shall have
been effected or obtained, free of any conditions not acceptable to the
Company. The Company may require that certificates evidencing shares of
Common Stock delivered pursuant to any award made hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder
is prohibited except in compliance with the Securities Act.
6.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorgani zation, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock
other than a regular cash dividend, the number and class of securities
available under the Plan, the number and class of securities subject to each
outstanding Option and the purchase price per security, the terms of each
outstanding SAR, and the number and class of securities subject to each
outstanding Stock Award shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding Options and SARs
without an increase in the aggregate purchase price or base price. The
decision of the Committee regarding any such adjustment shall he final,
binding and conclusive. If any such adjustment would result in a fractional
security being (a) available under the Plan, such fractional security shall
be disregarded, or (b) subject to an award under the Plan, the Company shall
pay the holder of such award, in connection with the vesting, exercise or
settlement of such award in whole or in part occurring after such adjustment,
an amount in cash determined by multiplying (i) the fraction of such security
(rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the
Fair Market Value on the vesting, exercise or settlement date over (B) the
exercise or base price, if any, of such award.
6.8 ACCELERATION OF AWARDS.
(a) IN GENERAL. Notwithstanding any provision in the Plan, upon the
occurrence of a Change in Control, as defined below, (i) all outstanding
Options and SARs shall immediately become exercisable in full and (ii) the
Restriction Period applicable to any outstanding Restricted Stock Award shall
lapse, except as otherwise provided in the applicable Agreement.
(b) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" shall mean:
A-12
<PAGE>
(i) APPROVED TRANSACTION. An action of the Board (or, if approval of
the Board is not required as a matter of law, the stockholders of the
Company) approving (a) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to
which shares of Common Stock would be converted into cash, securities or
other property, other than a Merger, or (b) any sale, lease, exchange, or
other transfer (in one transaction or a series of re ate transactions) of
all, or substantially all, of the assets of the Company, or (c) the adoption
of any plan or proposal for the liquidation or dissolution of the Company;
(ii) CONTROL PURCHASE. The purchase by any person (as such term is
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation
or other entity (other than the Company or any employee benefit plan
sponsored by an Employer) of any Common Stock of the Company (or securities
convertible into the Company's Common Stock) for cash, securities or any
other consideration pursuant to a tender offer or exchange offer, without
the prior consent of the Board and, after such purchase, such person shall be
the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 20 percent or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors (calculated as provided in Section (d) of such Rule
13d-3 in the case of rights to acquire the Company's securities);
(iii) BOARD CHANGE. A change in the composition of the Board during any
period of two consecutive years, such that individuals who at the beginning
of such period constitute the entire Board shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(iv) OTHER TRANSACTIONS. The occurrence of such other transactions
involving a significant issuance of voting stock or change in the composition
of the Board that the Board determines to be a Change in Control for purposes
of the Plan.
A-13
<PAGE>
The Agreement evidencing Options or Restricted Stock granted under the
Plan may contain such provisions limiting the acceleration of the
exercisability of options and the acceleration of the vesting of Restricted
Stock as provided in this Section as the Committee deems appropriate to
ensure that the penalty provisions of Section 4999 of the Code, or any
successor thereto in effect at the time of such acceleration, will not apply
to any stock, cash or other property received by the holder from the Company.
(c) CERTAIN BUSINESS COMBINATIONS. (1) With respect to any optionee
who is subject to Section 16 of the Exchange Act, (i) notwithstanding the
exercise periods set forth in any Agreement to which such optionee is a
party, and (ii) notwithstanding the expiration date of the term of such
Option, in the event the Company is involved in a business combination which
is intended to be treated as a pooling of interests for financial accounting
purposes (a "Pooling Transaction") or pursuant to which such optionee
receives a substitute Option to purchase securities of any entity, including
an entity directly or indirectly acquiring the Company, then each Option (or
option in substitution thereof) held by such optionee shall be exercisable to
the extent set forth in the Agreement evidencing such Option until and
including the latest of (x) the expiration date of the term of the Option or,
in the event of such optionee's termination of employment, the last exercise
date prescribed by the optionee's Agreement, (y) the date which is six months
and one day after the consummation of such business combination and (z) the
date which is ten business days after the date of expiration of any period
during which such optionee may not dispose of a security issued in the
Pooling Transaction in order for the Pooling Transaction to be accounted for
as a pooling of interests; and
(2) With respect to any holder of an SAR (other than an SAR which may
be settled only for cash) who is subject to Section 16 of the Exchange Act,
(i) notwithstanding the exercise periods set forth in any Agreement relating
to an SAR held by such individual, and (ii) notwithstanding the expiration
date of the term of such SAR, in the event the Company is involved in a
Pooling Transaction or pursuant to which such holder receives a substitute
SAR relating to any entity, including an entity directly or indirectly
acquiring the Company, then each such SAR (or SAR in substitution thereof)
held by such holder shall be exercisable to the extent set forth in the
Agreement evidencing such SAR until and including the latest of (x) the date
set forth pursuant to the optionee's Agreement or the expiration date of the
term of such SAR, as the case may be, (y) the date which is six months and
one day after the consummation of such business combination and (z) the date
which is ten business days after the date of expiration of any period during
which such holder may not dispose of a security issued in the Pooling
Transaction in order for the Pooling Transaction to be accounted for as a
pooling of interests.
A-14
<PAGE>
6.9 TERMINATION OF EMPLOYMENT.
(a) ACCELERATION OF EXERCISABILITY OR VESTING. Notwithstanding any
provisions to the contrary in an Agreement, if the employment of the holder
of an Option or Stock Award shall terminate for any reason (including,
without limitation, the holder's death, Permanent and Total Disability,
retirement (either pursuant to any retirement plan of the Company or any
Subsidiary or, in the absence of any such plan, pursuant to the Committee's
discretionary determination that such termination of employment shall be
treated as retirement for purposes of the Plan), resignation or voluntary
termination other than for "Cause" (as defined in subsection (b) hereof) as
determined by the Committee in its sole discretion, the Committee may
determine the following:
(i) Any Restriction Period applicable to any Restricted Stock
Award shall be deemed to have expired upon the holder's termination of
employment, and all Restricted Stock subject to such award shall become
vested, and any Cash Award payable pursuant to the applicable Restricted
Stock Award shall be adjusted in such manner as is provided in the Agreement;
and
(ii) Any Option shall become exercisable in full upon the holder's
termination of employment.
(b) TERMINATION BY COMPANY FOR CAUSE. If the employment with an
Employer of a holder of a Restricted Stock Award shall terminate for Cause
during the Restriction Period, then all Restricted Stock and any Cash Awards
shall be forfeited immediately. All Options held by such holder shall
immediately terminate. For purposes of this subsection, "Cause" shall have
the meaning ascribed thereto in any employment agreement to which such holder
is a party or, in the absence thereof, shall include, but not be limited to,
insubordination, dishonesty, incompetence, moral turpitude, other misconduct
of any kind and the refusal to perform his or her duties and responsibilities
for any reason other than illness or incapacity; provided, however, that if
such termination occurs within 12 months after a Change in Control (as such
term is defined in Section 6.8), termination for Cause shall only mean (i) a
felony charge or conviction for fraud, misappropriation, embezzlement, a
crime of moral turpitude or any other crime involving activities that could
reasonably be deemed to impair a holder's ability to perform his or her
employment duties or responsibilities or (ii) a material wrongful act of the
holder in performing his or her employment duties or responsibilities for any
reason other than illness or incapacity that results in material damage to
the Company, which wrongful act was committed after the Change in Control
without the concurrence or approval of either the holder's superior or an
authorized representative of an entity other than the Company that is a party
to a transaction underlying the Change in Control.
A-15
<PAGE>
(c) GENERAL. For purposes of the Plan, a leave of absence, unless
otherwise determined by the Committee prior to the commencement thereof,
shall not be considered a termination of employment. Awards made under the
Plan shall not be affected by any change of employment so long as the holder
continues to be an employee of an Employer.
6.10 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in the Plan. Neither the Plan nor any award made
hereunder shall confer upon any person any right to continued employment by
any Employer or affect in any manner the right of an Employer to terminate
the employment of any person at any time without liability hereunder.
6.11 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock or other equity
security of the Company which is subject to an award hereunder unless and
until such person becomes a stockholder of record with respect to such shares
of Common Stock or equity security.
6.12 GOVERNMENTAL AND 0THER REGULATIONS. The obligations of the Company
with respect to awards under the Plan and related Agreements shall be subject
to such rules, regulations and approvals as may be required, including rules,
regulations and approvals relating to registration statements under the
Securities Act, and those of the New York Stock Exchange. No Option shall be
exercisable, no Restriction Period shall expire and no Common Stock shall be
delivered under the Plan until the Company has obtained such consent and
approval from regulatory bodies (federal, state or self-regulatory
organizations) having jurisdiction over such matters as the Committee deems
advisable.
6.13 NON-EXCLUSIVITY. The Plan shall not be construed as creating any
limitations on the Company or the Committee to adopt such other incentive
arrangements as it may deem desirable, including the granting of stock
options and the awards of either shares of Common Stock or cash to any
individual.
6.14 GOVERNING LAW. The Plan, each award hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto,
to the extent not otherwise governed by the Code or the laws of the United
States, shall be governed by the laws of the State of Delaware and construed
in accordance therewith without giving effect to principles of conflicts of
laws.
A-16
<PAGE>
December 3, 1998
Foundation Health Systems, Inc.
21600 Oxnard Street
Woodland Hills, CA 91367
Re: Registration of 5,000,000 Shares of Class A Common Stock,
par value $.001 per share, of Foundation Health Systems, Inc.
-------------------------------------------------------------
Ladies and Gentlemen:
The undersigned is the Vice President, Assistant General Counsel and Assistant
Secretary of Foundation Health Systems, Inc., a Delaware corporation (the
"Company"). Reference is made to the Registration Statement on Form S-8 (the
"Registration Statement") being filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the registration of 5,000,000 shares (the
"Shares") of Class A Common Stock, par value $.001 per share (the "Common
Stock"), of the Company, together with associated rights to purchase Series A
Junior Participating Preferred Stock (the "Rights"), to be issued under the
Company's 1998 Stock Option Plan (the "Plan"). The terms of the Rights are set
forth in the Rights Agreement dated as of June 1, 1996 (as amended, the "Rights
Agreement") between the Company and Harris Trust and Savings Bank, as Rights
Agent.
The undersigned is familiar with the Fourth Amended and Restated Certificate of
Incorporation of the Company, the Fifth Amended and Restated By-laws of the
Company and the resolutions adopted to date by the Board of Directors of the
Company relating to the Plan and the Registration Statement.
In this connection, the undersigned has examined originals, or copies of
originals certified or otherwise identified to his satisfaction, of such records
of the Company and other corporate documents, has examined such questions of law
and has satisfied himself as to such matters of
<PAGE>
Foundation Health Systems, Inc.
December 3, 1998
Page 2
fact as the undersigned considers relevant and necessary as a basis for the
opinions set forth herein. The undersigned has assumed the authenticity of all
documents submitted to him as originals, the genuineness of all signatures, the
legal capacity of all natural persons and the conformity with the original
documents of any copies thereof submitted to the undersigned for his
examination.
Based on the foregoing, the undersigned is of the opinion that:
1. The Company is duly incorporated and validly existing under the laws
of the State of Delaware.
2. If pursuant to due authorization of the Company's Board of Directors,
the Company shall issue authorized and unissued shares of its Common
Stock pursuant to the Plan, such Shares will be legally issued, fully
paid and non-assessable when (i) the Registration Statement shall have
become effective under the Securities Act and (ii) certificates
representing such Shares shall have been duly executed, countersigned
and registered and duly delivered against receipt by the Company of
the consideration (not less than the par value thereof) provided in
the Plan.
3. The Rights associated with the Shares referred to in paragraph 2 above
will be legally issued when (i) such rights have been duly issued in
accordance with the terms of the Rights Agreement and (ii) the
associated Shares have been duly issued and paid for as set forth in
paragraph 2 above.
The undersigned does not find it necessary for the purposes of this opinion to
cover, and accordingly he expresses no opinion as to, the application of the
securities or blue sky laws of the various states to the issuance and sale of
the Shares and the Rights.
This opinion is limited to the General Corporation Law of the State of Delaware
and the federal laws of the United States of America.
As of the date hereof, the undersigned is the beneficial owner of 23,325 shares
of Common Stock (including currently exercisable options to purchase shares of
Common Stock).
<PAGE>
Foundation Health Systems, Inc.
December 3, 1998
Page 3
The undersigned hereby consents to the filing of this opinion as an Exhibit to
the Registration Statement and to all references to his name including or made a
part of the Registration Statement.
Very truly yours,
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ MICHAEL E. JANSEN
--------------------------------------
Name: Michael E. Jansen, Esq.
Title: Vice President, Assistant General
Counsel and Assistant Secretary
cc: B. Curtis Westen, Esq.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Foundation Health Systems, Inc. on Form S-8 of our report dated March 27, 1998,
appearing in the Annual Report on Form-10K of Foundation Health Systems, Inc.
for the year ended December 31, 1997.
/s/ Deloitte & Touche LLP
Los Angeles, California
December 1, 1998
