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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1997
FOUNDATION HEALTH SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-12718 95-4288333
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(Commission File Number) (IRS Employer Identification No.)
21600 Oxnard Street, Woodland Hills, California 91367
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(Address of principal executive office)
Registrant's telephone number, including area code: (818) 676-6978
Not Applicable
(Former name or former address, if changed since last report)
Page 1 of 9
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Exhibit Index is located at Page 4
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ITEM 5. OTHER EVENTS
PHYSICIANS HEALTH SERVICES, INC.
As of December 31, 1997, the Registrant, through PHS Acquisition
Corp., a wholly-owned subsidiary of the Registrant ("Merger Sub"), acquired
Physicians Health Services, Inc. ("PHS") pursuant to an Agreement and Plan of
Merger (the "Plan of Merger") dated as of May 8, 1997, as amended, by and among
the Registrant, Merger Sub and PHS. Upon the effective time of the merger
transaction (which took place when the certificate of merger was filed with the
Delaware Secretary of State on January 2, 1998), PHS became a wholly-owned
subsidiary of the Registrant. PHS is a managed health care company which,
through its subsidiaries, provides managed health care for more than 500,000
individuals in the states of Connecticut, New Jersey and New York.
As a result of the merger the former stockholders of PHS will receive
$28.25 in cash for every share of PHS Common Stock (both Class A and Class B)
previously held. Such transaction is described in the press release attached
hereto as Exhibit 99.1 which is incorporated herein by reference.
The Registrant effected the transaction as described above for an
aggregate consideration of approximately $271 million, approximately $265
million of which is to be paid in cash to PHS shareholders and approximately $6
million of which was used to buy-out all outstanding employee stock options to
purchase shares of PHS.
The acquisition was funded through a draw on the Registrant's $1.5
billion revolving line of credit with a consortium of commercial banks led by
Bank of America.
FOHP, INC.
The Registrant also announced on January 5, 1998 that it had recently
purchased additional subordinated convertible debentures of FOHP, Inc., and that
it had recently converted approximately $70 million in principal amount of such
debentures into approximately 98% of the outstanding equity of FOHP, all as
described in the press release attached hereto as Exhibit 99.1 which is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
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Item No. Exhibit Index
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99.1 Press release issued January 5, 1998 by the
Registrant and Physicians Health Services,
Inc.
2
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SIGNATURE
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.
FOUNDATION HEALTH SYSTEMS, INC.
By:
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Michael E. Jansen, Esq.
Vice President, Assistant General
Counsel and Assistant Secretary
Dated: January 14, 1998
3
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EXHIBIT INDEX
Exhibit Number Description Page No.
99.1 Press release issued January 5, 1998 5
4
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FHS Investor Contact: David Olson
(818) 676-6978
[email protected]
FHS Media Contact: Lisa Haines
(916) 631-5971
[email protected]
PHS Contact: Alice Ferreira
(203) 225-8836
[email protected]
FHS COMPLETES ACQUISITION OF PHYSICIANS HEALTH SERVICES FOR
$271 MILLION; CONVERTS INVESTMENT IN FOHP OF NEW JERSEY
TRANSACTIONS LEAD TO FORMATION OF 1.2 MILLION-MEMBER NORTHEAST REGION -
FHS NOW THIRD LARGEST OPERATOR OF PLANS IN TRI-STATE AREA
LOS ANGELES, JANUARY 5, 1998 - Foundation Health Systems, Inc. (NYSE:FHS)
today announced the formation of its Northeast Region, comprised of three health
plans with a total of more than one million members in the New York tri-state
area. FHS is now the third largest operator of health plans in the region.
Formation of the new FHS region was prompted by the completion of the
acquisition of Physician Health Services, Inc. of Shelton, Conn. for a total
consideration of $271 million, or $28.25 per share in cash.
Today, FHS also announced it has converted approximately $70 million of
convertible debentures of First Option Health Plan of New Jersey in return for a
98 percent equity
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ownership of the plan. Prior to the conversion FHS purchased $29 million of
convertible debentures which, when added to its original purchase of $52 million
of such debentures, brings FHS' total investment in First Option to $81 million.
PHS and First Option join M.D. Health Plan of Connecticut, which FHS
acquired in March, 1995, in forming the FHS Northeast Region.
"We are now positioned to be a significant competitor in the New York area.
PHS' outstanding reputation, along with M.D.'s superior record of member
satisfaction and First Option's rapid growth in New Jersey give us great
confidence as we move forward to forge these three plans into a single operating
unit," said Malik M. Hasan, M.D., chairman and chief executive officer of FHS.
PHS, the largest of the three FHS plans in the region, has more than
500,000 members. It has members in each of the three states, with approximately
300,000 in Connecticut. Including M.D., FHS plans now have approximately
500,000 members in Connecticut, the largest membership in the state.
In New Jersey, FOHP has 270,000 members, joining the 70,000 PHS members in
the state. In New York, PHS has 152,000 members, primarily through its
Healthcare Solutions joint marketing agreement with The Guardian Life Insurance
Company of America. Healthcare Solutions currently has more than 200,000
members in the three states.
"We want to bring to consumers across the tri-state area a single brand and
identity as quickly as possible," Dr. Hasan explained. "We are currently in the
process of selecting a single brand name for the region."
Robert L. Natt, president of PHS, will head the management team for the
Northeast Region. Paul M. Philpott will head FHS' sales and marketing
operations in the region. He
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will remain as PHS' executive vice president and chief marketing officer.
"Bob Natt and Paul Philpott have done a superb job in restoring PHS'
profitability, while maintaining its tradition of quality. We are confident
that they will have even greater success heading FHS' efforts in the tri-state
area," Dr. Hasan noted.
Dr. Hasan added that FHS' Northeast Region includes two of the highest
rated health plans in the United States. USA TODAY earlier this year cited M.D.
Health Plan of Connecticut as the health plan with the highest level of member
satisfaction in the nation. In addition, PHS was rated as the top health plan
in the tri-state area in a 1997 survey conducted by Watson Wyatt Worldwide, a
leading health care consulting firm.
FHS intends to focus its Northeast efforts on open access products that
maximize consumer choice of physicians and hospitals. Both M.D. Health Plan and
PHS have successfully marketed open access products for a number of years.
"M.D. has demonstrated consistently that open access products are the most
popular with consumers," Dr. Hasan commented. Since its acquisition by FHS in
March, 1995, M.D. has grown from approximately 50,000 members to more than
200,000.
In addition, the FHS open access products will be backed by the most
sophisticated consumer health call center in the industry.
"The FHS call center currently serves more than three million of our
members nationwide, providing direct, unhindered access to the most appropriate
physician or other health care professional depending on our member's health
status," Dr. Hasan noted. All M.D. and FOHP members are currently served by the
FHS Call Center, with all PHS members slated to have access to the call center
by April 1, 1998.
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"The call center possesses an extraordinary knowledge base, backed by
leading medical experts in the country, bringing the latest in medical research
directly to our members," Dr. Hasan noted.
Certain statements contained in this press release are forward looking in
nature and are believed to be reasonable based on information available to
management at this time. Actual results may vary. For more information please
refer to the Risk Factors section of the company's various filings with the
Securities and Exchange Commission and the respective documents incorporated by
reference therein.
FHS is the nation's fourth-largest publicly traded managed health care
company. Its mission is to enhance quality of life for its customers by
offering products distinguished by their quality, service and affordability.
The company's HMO, insured PPO and government contracts subsidiaries provide
health benefits to nearly five million individuals in 18 states through group,
individual, Medicare risk, Medicaid and CHAMPUS programs. FHS subsidiaries also
offer managed health care products related to workers' compensation, PPO
networks, behavioral health, dental, vision and prescription drugs, and offer
managed health care product coordination for multi-region employers and
administrative services for medical groups and self-funded benefits programs.
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THE FHS NORTHEAST REGION AT A GLANCE
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FIRST OPTION HEALTH PLAN M.D. HEALTH PLAN PHYSICIANS HEALTH SERVICES
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Health Plan Offices 3501 State Highway 66 6 Devine Street One Far Mill Crossing
Neptune, NJ 07754 North Haven, CT 06473 P.O. Box 904
Shelton, CT 06484-0944
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Phone (800) 535-3647 (800) 772-5869 (800) 848-4747
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Web Site NA ERROR! REFERENCE SOURCE NOT FOUND. ERROR! REFERENCE SOURCE NOT FOUND.
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Operations New Jersey Connecticut Connecticut, New Jersey, New York
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Employees 380 386 1,035
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Enrollment 270,882 (as of 9/30/97) 202,248 (as of 9/30/97) 496,502 (as of 9/30/97)
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Provider Network 11,000 6,000 34,800
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