Health Net 2005 Annual Report Download - page 20

Shareholder Rights Plan
On May 20, 1996, our Board of Directors declared a dividend distribution of one right (a “Right”) for each
outstanding share of our 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 redemption of the
Rights and the expiration of the Rights, and in certain other circumstances, after the Distribution Date. Except as
set forth in the Rights Agreement (as defined below) and subject to adjustment as provided in the Rights
Agreement, each Right entitles the registered holder to purchase from us one one-thousandth of a share of Series
A Junior Participating Preferred Stock at a purchase price of $170 per Right. 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 dated as of June 1, 1996 by and between us
and Harris Trust and Savings Bank, as Rights Agent (as amended on October 1, 1996, May 3, 2001, May 14,
2004 and July 26, 2004, the “Rights Agreement”), 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 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 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 common stock and that such
person is an “Adverse Person,” as defined in the Rights Agreement. The Rights Agreement provides that certain
passive institutional investors that beneficially own less than 20% of the outstanding shares of our common stock
shall not be deemed to be Acquiring Persons.
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.
Subject to certain exceptions contained in the Rights Agreement, in the event that any person shall become
an Acquiring Person or be declared to be 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 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 common stock does not remain outstanding or is
changed or 50% of the assets or earning power of the Company 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, such 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 common stock and the date the Rights expire at a price of
$.01 per Right.
In July 2004, we appointed Wells Fargo Bank, N.A. to serve as the Rights Agent under the Rights
Agreement.
The foregoing summary description of the Rights does not purport to be complete and is qualified in its
entirety by reference to the Rights Agreement, which is incorporated by reference in Exhibits 4.2, 4.3, 4.4, 4.5
and 4.6 to this Annual Report on Form 10-K, and to Amendment No. 3 to our registration statement on Form
8-A/A filed with the SEC on July 26, 2004.
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