Health Net 2002 Annual Report Download - page 72

70 | HEALTH NET, INC.
NOTE 8—Capital Stock
We have two classes of Common Stock. Our Class B
Common Stock has the same economic benefits as our
Class A Common Stock but is non-voting. As of December
31, 2002, there were 120,642,000 shares of our Class A
Common Stock outstanding and no shares of our Class B
Common Stock outstanding.
Shareholder Rights Plan
On May 20, 1996, our Board of Directors declared a divi-
dend distribution of one right (a Right) for each
outstanding share of our Class A Common Stock and
Class B Common Stock (collectively, the Common Stock),
to stockholders of record at the close of business on July
31, 1996 (the Record Date). Our Board of Directors also
authorized the issuance of one Right for each share of
Common Stock issued after the Record Date and prior to
the earliest of the “Distribution Date,” the Rights separate
from the Common Stock under the circumstances
described below and in accordance with the provisions of
the Rights Agreement, as defined below, the redemption of
the Rights, and the expiration of the Rights and in certain
other circumstances. Rights will attach to all Common
Stock certificates representing shares then outstanding and
no separate Rights Certificates will be distributed. Subject
to certain exceptions contained in the Rights Agreement
(as amended), the Rights will separate from the Common
Stock following any person, together with its affiliates and
associates (an Acquiring Person), becoming the beneficial
owner of 15% or more of the outstanding Class A
Common Stock, the commencement of a tender or
exchange offer that would result in any person, together
with its affiliates and associates, becoming the beneficial
owner of 15% or more of the outstanding Class A
Common Stock or the determination by the Board of
Directors that a person, together with its affiliates and
associates, has become the beneficial owner of 10% or
more of the Class A Common Stock and that such person is
an “Adverse Person,” as defined in the Rights Agreement.
The Rights will first become exercisable on the
Distribution Date and will expire on July 31, 2006, unless
earlier redeemed by us as described below. Except as set
forth below and subject to adjustment as provided in the
Rights Agreement, each Right entitles its registered holder,
upon the occurrence of a Distribution Date, to purchase
from us one one-thousandth of a share of Series A Junior
Participating Preferred Stock, at a price of $170.00 per
one-thousandth share.
Subject to certain exceptions contained in the Rights
Agreement, in the event that any person shall become an
Acquiring Person or be declared an Adverse Person, then
the Rights will “flip-in” and entitle each holder of a
Right, other than any Acquiring Person or Adverse Person,
to purchase, upon exercise at the then-current exercise
price of such Right, that number of shares of Class A
Common Stock having a market value of two times such
exercise price.
In addition and subject to certain exceptions
contained in the Rights Agreement, in the event that we
are acquired in a merger or other business combination in
which the Class A Common Stock does not remain
outstanding or is changed or 50% of our assets or earning
power is sold or otherwise transferred to any other person,
the Rights will “flip-over” and entitle each holder of a
Right, other than an Acquiring Person or an Adverse
Person, to purchase, upon exercise at the then-current
exercise price of such Right, that number of shares of
common stock of the acquiring company which at the time
of such transaction would have a market value of two
times such exercise price.
We may redeem the rights until the earlier of 10 days
following the date that any person becomes the beneficial
owner of 15% or more of the outstanding Class A
Common Stock and the date the Rights expire at a price of
$.01 per Right.
We entered into Amendment No. 1 to the Rights
Agreement to exempt the FHS Combination and related
transactions from triggering the separation of the Rights.
In addition, the amendment modified certain terms of the
Rights Agreement applicable to the determination of
certain “Adverse Persons.”
In 2001, we entered into Amendment No. 2 to the
Rights Agreement. The amendment provides that certain
passive institutional investors that beneficially own less
than 17.5% of the outstanding shares of our common
stock shall not be deemed to be “Acquiring Persons,” as
defined in the Rights Agreement. The amendment also
provides, among other things, for the appointment of
Computershare Investor Services, L.L.C. as the Rights Agent.