Health Net 1999 Annual Report Download - page 25

1999 was due to the increased repayment of funds drawn
under the Company’s Credit Facility (as defined below),
which were partially offset by additional drawings under
the Credit Facility.
The Company has a $1.5 billion credit facility (the
“Credit Facility”), with Bank of America as Administrative
Agent for the Lenders thereto, which was amended by
Amendments in April, July, November 1998 and March
1999 with the Lenders (the “Amendments”). All previous
revolving credit facilities were terminated and rolled into
the Credit Facility on July 8, 1997. At the election of the
Company, and subject to customary covenants, loans are
initiated on a bid or committed basis and carry interest at
offshore or domestic rates, at the applicable LIBOR rate
plus margin or the bank reference rate.Actual rates on bor-
rowings under the Credit Facility vary, based on competi-
tive bids and the Company’s unsecured credit rating at the
time of the borrowing. As of December 31, 1999, the
Company was in compliance with the financial covenants
of the Credit Facility, as amended by the Amendments.The
Credit Facility is available for five years, until July 2002, but
it may be extended under certain circumstances for two
additional years.The outstanding balance under the Credit
Facility has decreased from $1.225 billion at December 31,
1998 to $1.039 billion at December 31, 1999. As of March
14, 2000, the amount outstanding under the Credit Facility
totaled $1.039 billion with interest at LIBOR plus 1.50%.
The remaining principal and interest of the promissory
notes issued to The California Wellness Foundation in con-
nection with the Health Net conversion to for-profit status
was repaid early in 1999. As a result, these notes are no
longer outstanding.
On December 31, 1999, the Company sold the capital
stock of QualMed Washington Health Plan, Inc., the
Company’s HMO subsidiary in the state of Washington
(“QM-Washington”), to American Family Care (“AFC”).
Upon completion of the transaction, AFC assumed control
of the health plan license and retained the Medicaid and
Basic Health Plan membership of QM-Washington.The
Company also entered into definitive agreements with
PacifiCare of Washington, Inc. (“PacifiCare-WA”) and Pre-
mera Blue Cross to transition its commercial membership
in Washington to such companies. As part of such agree-
ments, PacifiCare-WA has offered replacement coverage to
QM-Washington’s HMO and POS groups in western
Washington and Premera Blue Cross has offered replace-
ment coverage to substantially all of QM-Washington’s
HMO and POS group membership in eastern Washington.
In addition, on September 21, 1999, the Company
announced that it had executed a definitive agreement with
PacifiCare of Colorado, Inc. (“PacifiCare-CO”) to transition
all of its membership in Colorado to PacifiCare-CO by
March 31, 2000.The Company also announced that its pre-
viously disclosed letter of intent with WellPoint Health Net-
works Inc. had expired. Pursuant to the definitive agreement,
PacifiCare-CO is offering replacement coverage to substan-
tially all of the Company’s Colorado HMO membership and
PacifiCare Life Assurance Company (“PLAC”) is issuing
replacement indemnity coverage to substantially all of the
Company’s Colorado Point of Service (“POS”) membership.
Effective as of September 20, 1999, the Company and
Medaphis (which changed its name to Per-Se Technologies,
Inc. (“Per-Se”)) entered into a Settlement Agreement and
R elease pursuant to which the Company received net pro-
ceeds of approximately $25 million consisting of cash from
Per-Se and Per-Se’s insurers and proceeds from the sale of
both the 976,771 shares of Medaphis (now Per-Se) common
stock then owned by the Company and additional shares of
Per-Se common stock issued to the Company as part of the
settlement. In exchange, the Company and Per-Se termi-
nated the ongoing litigation and granted each other a general
release.The gain recognized in the consolidated statement of
operations as of December 31, 1999 was immaterial.
The Company’s subsidiaries must comply with certain
minimum capital requirements under applicable state laws
and regulations. During 1999, the Company contributed
$97.4 million to its subsidiaries to meet risk-based or other
capital requirements of the regulated entities. As of
December 31, 1999, the Company’s subsidiaries were in
compliance with minimum capital requirements.
Legislation has been or may be enacted in certain
states in which the Company’s subsidiaries operate
imposing, or allowing regulators to impose, substantially
increased minimum capital and/ or statutory deposit
requirements for HMO s and insurance companies in such
states. Such statutory deposits may only be drawn upon
under limited circumstances relating to the protection of
policyholders. For example, the Company’s HMO sub-
sidiary operating in New Jersey was required to increase its
statutory deposits by approximately $51 million in 1998
pursuant to such legislation.
FOUNDATION HEALTH SYSTEMS, INC. 23