Health Net 2003 Annual Report Download - page 96

Note 8—Capital Stock
We have two classes of Common Stock, Class A and Class B. Our Class B Common Stock has the same economic
benefits as our Class A Common Stock but is non-voting. As of December 31, 2003, there were 113,427,000 shares of our
Class A Common Stock outstanding and no shares of our Class B Common Stock outstanding. The Board of Directors has
approved and will be seeking stockholder approval at the 2004 Annual Meeting of Stockholders of a restatement of the
Company’s certificate of incorporation (Certificate of Incorporation) and amendment to the Certificate of Incorporation (i)
to eliminate the Class B Common Stock and (ii) rename the Class A Common Stock to simply “Common Stock.” There
are no substantive changes being proposed to the terms, conditions, rights and preferences of the Class A Common Stock.
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 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 (the current operations
of Health Net, Inc. are a result of the April 1, 1997 merger transaction involving Health Systems International, Inc. and
Foundation Health Corporation) 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.
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