Health Net 1999 Annual Report Download - page 43

FOUNDATION HEALTH SYSTEMS, IN C. 41
On December 4, 1998, options representing approxi-
mately 1.9 million shares of stock granted during 1990
through 1997 at exercise prices ranging from $11.70 to
$35.25 were exchanged for options representing approxi-
mately 1.4 million shares of stock at an exercise price of
$12.94, which was the fair market value of the underlying
shares on 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 auto-
matically convert 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 offer-
ing 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 (constituting 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 purchase price to the public of $30.00 (the
“Offering”).The 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 under-
writing 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 Stockholders.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 O ffering, amounting to $1.08 per share. All of
these 3,194,374 shares of Class A Common Stock repur-
chased 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 $24.469 per share.The Company provided its consent to
permit the CWF to sell 3,000,000 shares of Class B Com-
mon Stock to an unrelated third party in June of 1997 and
the CWF had the right to sell an additional 450,000 shares
of Class B Common Stock to unrelated third parties, which
it did 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
unrelated third parties. In addition, on June 1, 1998, the
Company gave its consent to permit the CWF to sell (and
on June 18, 1998, the CWF sold) 5,250,000 shares of
Class B Common Stock to unrelated third parties. In 1999,
the CWF sold 2,909,600 shares of Class B Common Stock
to unrelated third parties. Pursuant to the Company’s Cer-
tificate of Incorporation, all of such shares of Class B Com-
mon Stock automatically converted into shares of Class A
Common Stock in the hands of such third parties.
Shareholder Rights Plan
On May 20, 1996, the Board of Directors of the Company
declared a dividend distribution of one right (a “R ight”)
for each outstanding share of the Company’s Class A Com-
mon Stock and Class B Common Stock (collectively, the
“Common Stock”), to stockholders of record at the close
of business on July 31, 1996 (the “R ecord Date”).The
Board of Directors of the Company also authorized the
issuance of one R ight for each share of Common Stock
issued after the R ecord Date and prior to the earliest of the
Distribution Date (as defined below), the redemption of the
R ights, and the expiration of the R ights and in certain
other circumstances. R ights will attach to all Common
Stock certificates representing shares then outstanding and
no separate R ights Certificates will be distributed. Subject
to certain exceptions contained in the R ights Agreement,
the R ights will separate from the Common Stock in the
event any person acquires 15% or more of the outstanding
Class A Common Stock, the Board of Directors of the
Company declares a holder of 10% or more of the out-
standing Class A Common Stock to be an “Adverse Per-
son,” or any person commences a tender offer for 15% of
the Class A Common Stock (each event causing a “Distri-
bution Date”).
Except as set forth below and subject to adjustment as
provided in the R ights Agreement, each R ight entitles its
registered holder, upon the occurrence of a Distribution
Date, to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock,
at a price of $170.00 per one-thousandth share. However,
in the event any person acquires 15% or more of the out-
standing Class A Common Stock, or the Board of Directors
of the Company declares a holder of 10% or more of the
outstanding Class A Common Stock to be an “Adverse
Person,” the R ights (subject to certain exceptions contained
in the R ights Agreement) will instead become exercisable
for Class A Common Stock having a market value at such
time equal to $340.00.The R ights are redeemable under
certain circumstances at $.01 per R ight and will expire,
unless earlier redeemed, on July 31, 2006.