Health Net 1998 Annual Report Download - page 48

4 6 F O U N D ATIO N H EALTH SYST EMS, I N C.
On December 4, 1 9 9 8 , options representing
a p p roximately 1.9 million shares of stock granted
during 1990 through 1997 at exe rcise prices rangi n g
f rom $11.70 to $35.25 we re exchanged for options
representing a p p roximately 1.4 million shares of
stock at an exercise price of $12.94,which was the
fair market value of the underlying shares at the
grant date.
As fair value criteria was not applied to
option grants and employee purchase rights prior
to 1995,and additional awards in future years are
anticipated,the effects on net income and earnings
per share in this pro forma disclosure may not be
indicative of future amounts.
Note 8 – Capital Stock
The Company has two classes of Common Stock.
The Company’s Class B Common Stock has the
same economic benefits as the Company’s Class A
Common Stock but is non-voting. Upon the sale or
transfer of shares of Class B Common Stock by the
California Wellness Foundation (the “CWF”) to an
unrelated third party, such shares automatically con-
vert into Class A Common Stock.The CWF is the
only holder of record of the Company’s Class B
Common Stock.
Public Offering
On May 15,1996, the Company completed a public
offering in which the Company sold 3,194,374
shares of Class A Common Stock and the CWF sold
6,386,510 shares of Class A Common Stock (consti-
tuting 6,386,510 shares of Class B Common Stock
which automatically converted into shares of Class A
Common Stock upon the sale) for a per share pur-
chase price to the public of $30.00 (the “Offering”).
The net proceeds received by the Company from
the sale of the 3,194,374 shares of Class A Common
Stock were approximately $92.4 million after
deducting underwriting discounts and commissions
and estimated expenses of the Offering payable by
the Company.The Company used its net proceeds
from the Offering to repurchase 3,194,374 shares of
Class A Common Stock from certain Class A Stock-
holders.The Company repurchased these shares
of Class A Common Stock from the Class A Stock-
holders at $30.00 per share less transaction costs
associated with the Offering,amounting to $1.08
per share.All of these 3,194,374 shares of Class A
Common Stock repurchased are currently held in
treasury.The Company did not receive any of the
proceeds from the sale of shares of Class A Common
Stock in the Offering by the CWF.
On June 27,1997, the Company redeemed
4,550,000 shares of Class B Common Stock from
the CWF at a price of $24.47 per share.The Com-
pany provided its consent to permit the CWF to
sell 3,000,000 shares of Class B Common Stock to
an unrelated third party in June of 1997 and to sell
450,000 shares of Class B Common Stock to unre-
lated third parties throughout August of 1997.On
November 6, 1997,the Company also provided its
consent to permit the CWF to sell 1,000,000 shares
of Class B Common Stock to an unrelated third
party. In addition,effective June 18,1998,the Com-
pany gave its consent to permit the CWF to sell
(and the CWF sold) 5,250,000 shares of Class B
Common Stock to an unrelated third party. Pur-
suant to the Company’s Certificate of Incorpora-
tion,all of such shares of Class B Common Stock
automatically converted into shares of Class A Com-
mon Stock in the hands of such third parties.
Shareholder Rights Plan
On May 20, 1 9 9 6 , the Board of Dire c t o rs of the
C o m p a ny declared a dividend distri bution of one
right (a “Right”) for each outstanding share of the
C o m p a ny ’s Class A Common Stock and Class B
Common Stock (collective l y, the “Common Stock”),
to stockholders of re c o rd at the close of business on
July 31, 1996 (the “ R e c o rd Date”).The Board of
D i re c t o rs of the Company 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 Distri bution Date (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 re p re -
senting shares then outstanding and no separate
Rights Certificates will be distri bu t e d .The Rights
will separate from the Common Stock in the eve n t
a ny person acquires 15% or more of the outstanding
Class A Common Stock, the Board of Dire c t o rs of
the Company declares a holder of 10% or more of
the outstanding Class A Common Stock to be an
“ A d ve rse Pe rs o n ,” or any person commences a ten-
der offer for 15% of the Class A Common Stock
(each event causing a “ D i s t ri b ution Date”).
Except as set forth below and subject to
adjustment as provided in the Rights A gre e m e n t ,
each Right entitles its re gi s t e red holder, upon the
o c c u rrence of a Distri b ution Date, to purchase fro m
the Company one one-thousandth of a share of
S e ries A Junior Pa rticipating Pre f e rred Stock, at a
p rice of $170.00 per one-thousandth share. H o wev e r ,
in the event any person acquires 15% or more of the
outstanding Class A Common Stock, or the Board of
D i re c t o rs of the Company declares a holder of 10%
or more of the outstanding Class A Common Stock
to be an “ A d ve rse Pe rs o n ,” the Rights (subject to