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Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities

Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

HEALTH NET, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

HEALTH NET,

HEALTH NET,
INC.

NOTICE OF

NOTICE OF
20012004 ANNUAL
MEETING
AND
PROXY
STATEMENT

PRELIMINARY COPYMEETING

AND

PROXY

STATEMENT

Preliminary Copy

March     30, 2001, 2004

Dear Stockholders:

It is a pleasure to invite you to attend the 20012004 Annual Meeting of Stockholders of Health Net, Inc. to be held simultaneously via the Internet at www.vcall.com and at the Hilton Woodland Hills, 6360 Canoga Avenue,company’s offices located at 21281 Burbank Boulevard in Woodland Hills, California 91367 on Thursday, May 3, 2001,13, 2004, at 10:00 a.m. (PDT)(Pacific daylight time). For your convenience, we are offering a live webcast of the annual meeting on our Internet web site, www.health.net.

Each item of business described in the accompanying Notice of Annual Meeting and Proxy Statement will be discussed during the meeting and stockholders who attend in person will have an opportunity to ask questions. Aannual meeting. In addition, a report on our business operations will be presented at the meeting. Stockholders who attend the annual meeting will have an opportunity to ask questions at the meeting; those who participate in the live webcast may submit questions during the meeting via the Internet.

It is important that you vote your shares whether or not you plan to attend the annual meeting. We urge you to carefully review the Proxy Statementproxy statement and to vote your choices either via the Internet or on the enclosed card.proxy card or via the Internet. Please sign and date your proxy card and return your proxy cardit in the envelope provided as soon as possible or complete a proxy card over the Internet at www.computershare.com/us/proxy. If you do attend the annual meeting in person, your proxy can be revoked at your request.

We look forward to your attendance at the annual meeting.

Sincerely,




Jay M. Gellert

President and Chief Executive

Officer

Preliminary Copy

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Health Net, Inc. will hold its 20012004 Annual Meeting of Stockholders on Thursday, May 3, 200113, 2004 at 10:00 a.m. (PDT) simultaneously via the Internet at www.vcall.com and(Pacific daylight time) at the Hilton Woodland Hills, 6360 Canoga Avenue,Company’s offices at 21281 Burbank Boulevard in Woodland Hills, California 91367, for the following purposes:

1.

To elect four directors to serve a three-year term until the 2004 Annual Meeting of Stockholders;provided, however, that, if Proposal 5 is approved, the terms of all directors in office at the time the proposed amendment and restatement becomes effective shall expire at the 2002 Annual Meeting of Stockholders or at such time as their successors are elected and have been qualified.

2.

To elect one director to serve a two-year term until the 2003 Annual Meeting of Stockholders;provided, however, that, if Proposal 5 is approved, the terms of all directors in office at the time the proposed amendment and restatement becomes effective shall expire at the 2002 Annual Meeting of Stockholders or at such time as their successors are elected and have been qualified.

3.

To ratify the selection of Deloitte & Touche LLP as the Company's independent public accountants.

4.

To consider and act upon a proposal to amend and restate Health Net's current certificate of incorporation to eliminate the authority for thirty million (30,000,000) shares of Class B Convertible Common Stock of Health Net, and to reclassify the thirty million (30,000,000) shares of authorized stock of Health Net equally between the authorized Class A Common Stock and Preferred Stock of Health Net.

5.

To consider and act upon a proposal to amend and restate Health Net's current certificate of incorporation to:

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eliminate the separation of Health Net's Board of Directors into three separate classes and to replace it with a Board of Directors that is elected on an annual basis; and

•

eliminate provisions relating to the removal of directors.

6.

To act upon any other matters that may properly come before the meeting.

The Board of Directors has fixed Friday, March 16, 200119, 2004 as the record date for the determination of the stockholders entitled to notice of, and to vote at, the annual meeting or any adjournment or postponement of the annual meeting.

At the annual meeting, each share of Class A Common Stock, $.001 par value $.001 per share, of the CompanyHealth Net represented at the annual meeting will be entitled to one vote on each matter properly brought before the annual meeting. Jay M. Gellert and B. Curtis Westen have been appointed as proxy holders, with full rights of substitution, for the holders of Class A Common Stock.

By Order of the Board of Directors,






B. Curtis Westen, Esq.

Senior Vice President, General Counsel and Secretary

March     30, 2001, 2004

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 20012004 Annual Meeting of Stockholders of Health Net, Inc. either in person or via the Internet.person. However, to ensure your representation at the annual meeting, please mark, sign date and returndate the enclosed proxy card and return it as soon as possible in the enclosed self-addressed, postage-paid envelope or, alternatively, fill out thea proxy card over the Internet at www.computershare.com/us/proxy. If you attend the annual meeting in person, you may vote at the meeting even if you have previously returned a proxy.

Preliminary Copy

PROXY STATEMENT

PROXY STATEMENT

General; Voting of Shares

The accompanying proxy is solicited by the Board of Directors of Health Net, Inc. (the "Company"“Company,” “Health Net,” “we,” “us” or "Health Net"“our”) for use at its 20012004 Annual Meeting of Stockholders (the "Annual Meeting"“Annual Meeting”) to be held on Thursday, May 3, 200113, 2004 at 10:00 a.m. (PDT) simultaneously via the Internet at www.vcall.com and(Pacific daylight time) at the Hilton Woodland Hills, 6360 Canoga Avenue,Company’s offices at 21281 Burbank Boulevard, Woodland Hills, California 91367, and at any adjournments or postponements thereof. The Company expects to mail this proxy statement and accompanying proxy card beginning on or about March 30, 200126, 2004 to give holders of record of the Company’s Class A Common Stock, $.001 par value $.001 per share ("(“Class A Common Stock"Stock”), of the Company of record on March 16, 200119, 2004 (the "Record Date"“Record Date”) an opportunity to vote at the Annual Meeting..

    The Annual Meeting will be held simultaneously via the Internet and in person. Participation atWe are offering a live webcast of the Annual Meeting viaon our Internet web site, www.health.net. The webcast of the InternetAnnual Meeting will consist of live sound, and real-time access to printed material.material and the ability of stockholders to submit questions during the question and answer period. To attendparticipate in the webcast of the Annual Meeting, via the Internet, a stockholder should log-onlog on to www.vcall.comwww.health.net on Thursday, May 3, 200113, 2004 shortly before 10:00 a.m. (Pacific daylight time) and follow the instructions provided atunder the “Investor Relations” section of the web site. Stockholders willnot be permitted to vote over the Internet during the Annual Meeting.

Only holders of record of Class A Common Stock at the close of business on the Record Date are entitled to vote at the Annual Meeting. Each share of Class A Common Stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the Annual Meeting. Although the Company previously had outstanding shares of non-voting Class B Convertible Common Stock, par value $.001 per share ("Class B Common Stock"), all of such Class B Common Stock was automatically converted into Class A Common Stock upon its sale by The California Wellness Foundation ("The CWF") to unrelated third parties. As a result, no Class B Common Stock currently is outstanding. The Company's by-lawsCompany’s bylaws require that the holders of a majority of the total number of shares entitled to vote be present in person or by proxy in order for the business of the Annual Meeting to be transacted. Abstentions and broker non-votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. Attendance atParticipation by a stockholder in the live webcast of the Annual Meeting over the Internet will not be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting.

In voting, please specify your choices either by marking the appropriate spaces on the enclosed proxy card, signing and dating the card and returning it in the accompanying envelope or, alternatively, by completing a proxy card over the Internet at www.computershare.com/us/proxy before 5:1:00 p.m. (CDT)a.m. (Central daylight time) on May 1, 2001.13, 2004.Voting over the Internet will not be permitted after 5:1:00 p.m. (CDT)a.m. (Central daylight time) on Tuesday,Thursday, May 1, 2001.13, 2004. If no directions are given and either the signed card is returned or the Internet proxy card is submitted, then the proxy holders will vote the shares for the election of all listed nominees for the adoption of the amendments to the Company's current certificate of incorporation described below and in accordance with the directors'directors’ recommendations or as stated on the proxy card for the other subjects listed on the proxy card, and atin their discretion on any other mattersbusiness that may be properly comebrought before the meeting.meeting or any adjournment or postponement thereof.

Instructions on how to submit a proxy via the Internet are located on the attachment to the proxy card included with this proxy statement. The Internet voting procedures are designed to authenticate stockholders of the Company by use of a control number located on the attachment to the proxy card included herewith. If you hold your shares through a bank, broker or other holder of record, check the

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information provided by that entity to determine which voting options are available to you. Please be aware that any costs related to voting over the Internet, such as Internet access charges and telecommunications costs, will be your responsibility.

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Revocability of Proxies

Any stockholder giving a proxy has the power to revoke it at any time before the proxy is voted. ProxiesA proxy may be revoked by filing with the Secretary of the Company written notice of revocation bearing a later date than the proxy, by duly executing a subsequently dated proxy relating to the same shares of Class A Common Stock and delivering it to the Secretary of the Company or submitting it electronically via the Internet at www.computershare.com/us/proxy before 5:1:00 p.m. (CDT)a.m. (Central daylight time) on May 1, 2001,13, 2004, or by attending the Annual Meeting in person and voting such shares during the Annual Meeting. Attendance at the Annual Meeting will not in and of itself constitute revocation of a proxy. Any subsequently dated proxy or written notice revoking a proxy should be sent to the Secretary of Health Net, Inc., at its executive offices at 21650 Oxnard Street, Woodland Hills, California 91367 or if a subsequently dated proxy is submitted electronically, it should be sent via the Internet before 5:1:00 p.m. (CDT)a.m. (Central daylight time) on May 1, 200113, 2004 using the web site at www.computershare.com/us/proxy.

Shares Outstanding

 Only holders of record of Class A Common Stock at the close of business on the Record Date are entitled to vote at the Annual Meeting.

As of the Record Date, the Company had outstanding                      shares of Class A Common Stock. Each share of Class A Common Stock is entitled to one vote.

Solicitation

The Company will bear the entire cost of the solicitation of proxies, including preparation, assembly and mailing of this proxy statement, the proxy and any additional materials furnished to stockholders. Proxies may be solicited by directors, officers and a small number of regular employees of the Company personally or by mail, telephone or telegraph, but such persons will not be specially compensated for such service. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians that hold shares of Class A Common Stock of record for beneficial owners for forwarding to such beneficial owners. The Company has also engaged Georgeson & Co. to assist in the solicitation of proxies. This firm will be paid a fee of approximately $10,000 and will be reimbursed for expenses incurred in connection with such engagement. The Company may also reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such owners.

Your vote is important. Please return a proxy card (or fill out the Internet proxy) promptly so your shares can be represented, even if you plan to attend the Annual Meeting in person. Highlights of the Annual Meeting and the voting results will be included in the Company'sCompany’s Quarterly Report on Form 10-Q for the second quarter ended June 30, 2001.

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INTRODUCTION
2004.

 Health Net is

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INTRODUCTION

We are an integrated managed care organization which administers the delivery ofthat delivers managed health care services. The Company was formerly named "FoundationWe operate and conduct our businesses through subsidiaries of Health Systems, Inc." and changed its name to "Health Net, Inc." in November, 2000. The Company's, which is among the nation’s largest publicly traded managed health maintenance organizations ("HMOs"), insured preferred provider organizationscare companies. Unless the context otherwise requires, the terms “Company,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Our health plans and government contracts subsidiaries provide health benefits through our health maintenance organizations (“HMOs”), insured preferred provider organizations (“PPOs”) and point-of-service (“POS”) plans to approximately 5.55.3 million individuals in 1614 states through group, individual, Medicare, Medicaid and TRICARE programs. The Company's subsidiariesWe also offer managed health care products related to behavioral health dental, vision and prescription drugs,drugs. In addition, we own health and offer managed health care product coordination for multi-region employerslife insurance companies licensed to sell exclusive provider organization (“EPO”), PPO, POS and administrative services for medical groupsindemnity products, as well as auxiliary non-health products such as life and self-funded benefits programs. The Company operatesaccidental death and conducts its HMOdisability insurance, in 36 states and other businesses through its subsidiaries.the District of Columbia.

 The Company's

We were incorporated in 1990. Our current operations are athe result of the April 1, 1997 merger transaction (the "FHS Combination"“FHS Combination”) involving the Company (then named Health Systems International, Inc. ("HSI")(“HSI”) and Foundation Health Corporation ("FHC"(“FHC”). We changed our name to Health Net, Inc. in November 2000. Prior to the FHS Combination, we were the successor to the business conducted by Health Net of California, Inc., now our HMO subsidiary in California and HMO and PPO networks operated by QualMed, Inc. (“QualMed”), which was consummated on April 1, 1997.combined with the Company in 1994 to create HSI.

The mailing address of our principal executive office is 21650 Oxnard Street, Woodland Hills, CA 91367, and our Internet web site address is www.health.net.

NOMINATION AND PROPOSAL 1—ELECTION OF DIRECTORS

 The Board of Directors of the Company currently consists of 11 persons, divided into three classes with three directors designated in Class I, four directors designated in Class II and four directors designated in Class III. Such classes have been established pursuant to Health Net's current certificate of incorporation and are "staggered" so that each class of directors is elected every third year.

At the Annual Meeting,annual meeting, stockholders will elect four directors for Class II and one director for Class I.

    As described below under "Proposal 5," the stockholders are being asked to consider and act upon a proposal to amend and restate Health Net's current certificate of incorporation to eliminate the separation of Health Net's Board of Directors into three separate classes and to replace it with a Board of Directors that is elected on an annual basis. In the event Proposal 5 is approved, upon the proposed amendment and restatement becoming effective, the classified board provisions of Health Net's current certificate of incorporation will be eliminated, the terms of all directors of the Company will expire at the 2002 Annual Meeting of Stockholders and, beginning with the 2002 Annual Meeting of Stockholders, all directors of Health Net will be elected for one-year terms.

PROPOSAL 1—ELECTION OF CLASS II DIRECTORS

    At the Annual Meeting, stockholders will elect four directors for Class II.nine directors. The Class II nominees are J. Thomas Bouchard, Thomas T. Farley, Gale S. Fitzgerald, Patrick Foley, Jay M. Gellert, Roger F. Greaves, Richard W. Hanselman, Richard J. Stegemeier and Raymond S. Troubh.Bruce G. Willison. As more fully described below, Gov. George Deukmejian, a current member of the Board of Directors, will be retiring from his position as a director effective on the date of the Annual Meeting. Each Class II director will be elected to hold office for a three-year term and will hold officeof one year or until the 20042005 Annual Meeting of Stockholders (unless Proposal 5 is approved by stockholders, in which case such directors will be elected to one-year terms and will hold office until the 2002 Annual Meeting of Stockholders). In each case, theStockholders. Each elected director will continue in office until such director'sdirector’s successor is elected and has been qualified, or until such director'sdirector’s earlier death, resignation or removal.

Health Net's by-lawsNet’s bylaws provide that the persons receiving a plurality of the votes cast, up to the number of directors to be elected, shall be elected. Abstentions and broker non-votes will not be disregardedcounted as votes cast and will have no effect on the vote for directors. Stockholders eligible to vote at the Annual Meetingannual meeting do not have cumulative voting rights with respect to the election of directors. Since only four Class IInine nominees have been named, proxies cannot be voted for a number of persons greater than four. Shares represented bynine.

It is expected that the nominees named above will stand for election at the 2004 Annual Meeting of Stockholders, but if any of the nominees declines or is unable to do so, the proxies marked "withhold authority" for one or more Class II nominees will be counted as a negative vote.voted for another person or persons designated by the Governance Committee of the Board of Directors of the Company.

The Board of Directors recommends a vote

FOR each named Class II nominee.

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PROPOSAL 2—ELECTION OF CLASS I DIRECTOR

 At the Annual Meeting, stockholders will elect one Class I director. The Class I nominee is Bruce G. Willison. The Class I director will be elected for a two-year term and will hold office until the 2003 Annual Meeting of Stockholders (unless Proposal 5 is approved by stockholders, in which case such director will be elected to a one-year term and will hold office until the 2002 Annual Meeting of Stockholders). In each case, the elected director will continue in office until such director's successor is elected and has been qualified, or until such director's earlier death, resignation or removal.

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Director Nominees

 Health Net's by-laws provide that the persons receiving a plurality

The Company’s certificate of the votes cast, up to the number ofincorporation provides for directors to be elected shall be elected. Abstentions and broker non-votes will be disregarded and will have no effect on the vote for directors. Stockholders eligible to vote at the Annual Meeting do not have cumulative voting rights with respect to the election of directors. Since only one nominee has been named, proxies cannot be voted for a number of persons greater than one. Shares represented by proxies marked "withhold authority" for the Class I nominee will be counted as a negative vote.

an annual basis. The Board of Directors recommends a vote
FOR each named Class I nominee.

Nominees and Continuing Directors

    The Company's current certificate of incorporation further provides that the Board of Directors will consist of not less than three nor more than twenty members, the exact number to be determined in accordance with the Company's by-laws.Company’s bylaws. The current certificatebylaws provide that the exact number of incorporation further provides fordirectors shall be fixed from time to time by the Board of Directors, to be divided into three classes, each class to serve for staggered three-year terms, with each class consisting, as nearly as possible,and the number of one-third of the directors.

    As described below under "Proposal 5," the stockholders are being asked to consider and act upon a proposal to amend and restate Health Net's current certificate of incorporation to eliminate the separation of Health Net's Board of Directors into three separate classes and to replace it with a Board of Directors that is elected on an annual basis. In the event Proposal 5 is approved, upon the proposed amendment and restatement becoming effective, the classified board provisions of Health Net's current certificate of incorporation will be eliminated, the terms of all directors of the Company will expire at the 2002 Annual Meeting of Stockholders and, beginning with the 2002 Annual Meeting of Stockholders, all directors of Health Net will be elected for one-year terms.

    Effective May, 2000, Admiral Earl B. Fowler, a prior director in Class I, resigned from the Company's Board of Directors in connection with his retirement. In December, 2000,members constituting the Board of Directors elected Bruce G. Willisonhas been fixed by the Board of Directors at ten.

The Board of Directors currently consists of ten members. Following Gov. Deukmejian’s retirement the Board will consist of nine members. The Company’s bylaws provide that a Director shall be deemed to fill a vacancy in Class Ihave retired and resigned from the Board of Directors effective immediately prior to the first annual meeting of stockholders occurring after such Director attains seventy-two years of age; provided, however, that members of the Board of Directors. In March, 2001,Directors on February 4, 1999 shall be deemed to have retired and resigned from the Board of Directors eliminated a vacancy in Class I, created a vacancy in Class IIeffective upon the date of the first annual meeting of stockholders after attaining seventy-five years of age; and elected Gale S. Fitzgerald to fill the vacancy in Class II. There are currently no vacancies onprovided further that the Board of Directors.Directors shall have the power to waive the application of such provisions to a given Director on a case-by-case basis by affirmative vote of two-thirds of the Directors after considering all of the applicable facts and circumstances. The Board of Directors has waived the application of such provisions with respect to Mr. Hanselman and Mr. Stegemeier (each of whom is seventy-five years of age or older and was a member of the Board of Directors on February 4, 1999) for one year.

The Company’s bylaws also provide that a Director who has held office for any period of nine consecutive years after October 14, 2003 shall not be qualified to be elected as a Director at the first annual meeting of stockholders occurring after the end of such ninth consecutive year and shall be deemed to have retired and resigned from the Board of Directors effective immediately upon the completion of such ninth consecutive year in office; provided, however, that the Board of Directors shall have the power to waive the application of such provisions to a given Director on a case-by-case basis by an affirmative vote of two-thirds of the Directors after considering all of the applicable facts and circumstances.

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The nine nominees were designated for election, pursuant to the by-laws,bylaws, by the Governance Committee on Directors of the Board of Directors of the Company. Each of the nominees has consented to serve as a director if elected. The following table sets forth certain information with respect to the nominees asnominees:

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well as to those other directors in Class I and Class III whose terms continue after the Annual Meeting:

CLASS II NOMINEES

CLASS I NOMINEENON-CONTINUING DIRECTOR

CONTINUING DIRECTORS

* All terms will expire at the 2002 Annual Meeting of Stockholders in the event Proposal 5 is approved by the stockholders.

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Information Concerning Current Members of the Board of Directors and Nominees

Mr. Bouchard became a director of the Company upon consummation of the FHS Combination.Combination in April 1997. Previously, he served as a director of HSI since January 1994, upon consummation of the merger transaction involving H.N. Management Holdings, Inc. and QualMed, Inc. ("QualMed"(“QualMed”) which created HSI (the "HSI Combination"“HSI Combination”). Mr. Bouchard served as a director of QualMed from May 1991 until February 1995. From October 1994 to July 2000, Mr. Bouchard served as Senior Vice President, Human Resources of International Business Machines Corporation. From June 1989 until October 1994, Mr. Bouchard served as Senior Vice President & Chief Human Resources Officer of U.S. West, Inc., a diversified global communications company, and prior to that time he was Senior Vice President-Human Resources and Organization for United Technologies Corp. Mr. Bouchard has served on the Boardas a director of Directors of the LPA Labor Policy Association since March, 1991 and Nordstrom fsb (formerly Nordstrom National Credit Bank) since April 1991. Mr. Bouchard1991, and also currently serves on the Boardas a director of Trustees of the American Indian College FundManpower, Inc., a global staffing company delivering staffing and Concept 5 Technologies.workforce management solutions.

Mr. Deukmejian became a director of the Company upon consummation of the FHS Combination.Combination in April 1997 and will serve in this capacity until his scheduled retirement in May 2004. Previously, he served as a director of HSI since January 1994, upon consummation of the HSI Combination. Mr. Deukmejian served as a director of QualMed from April 1992 until February 1995. From February 1991 through June 1999, Mr. Deukmejian was a partner in the law firm of Sidley Austin Brown & Austin,Wood, Los Angeles, California. From July 1999 to June 2000, Mr. Deukmejian was senior counsel to Sidley Austin Brown & Austin.Wood. Mr. Deukmejian served as Governor of the State of California for two terms, from January 1983 to January 1991. Mr. Deukmejian also served the State of California as Attorney General from 1979 to 1982, as a State Senator from 1967 to 1978 and as a State Assemblyman from 1963 to 1966. Mr. Deukmejian has been a director of Burlington Northern Santa Fe Corporation, a railroad company, since September, 1995, and was a director of one of its predecessors, Santa Fe Corporation, from January, 1991 until September, 1995. Mr. Deukmejian is alsocurrently a director of The Keith Companies.

Mr. Farley became a director of the Company upon consummation of the FHS Combination. Previously, he served as a director of HSI since January 1994, upon consummation of the HSI Combination. Mr. Farley served

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as a director of QualMed from February 1991 until February 1995 and is a senior partner in the law firm of Petersen & Fonda, P.C., Pueblo, Colorado. Mr. Farley was formerly President of the governing board of Colorado State University, the University of Southern Colorado and Ft. Lewis College and Chairman of the Colorado Wildlife Commission. He served as Minority Leader of the Colorado House of Representatives from 1967 to 1975. Mr. Farley was a director of the Public Service Company of Colorado, a public gas and electric company, from 1983 to 1997 and is a director/advisor of Wells Fargo Bank of Pueblo.Pueblo and Sunset. Mr. Farley is a member of the Board of Regents of Santa Clara University, a Jesuit institution, and a director of Colorado Public Radio.

Ms. Fitzgerald became a director of the Company in March 2001. From July 2002 through October 2002, Ms. Fitzgerald served as President and Chief Executive Officer of QP Group, a procurement solutions company. From October 1994 to June 2000, Ms. Fitzgerald served as Chair and Chief Executive Officer of Computer Task Group, Inc. ("CTG"(“CTG”), a $460+ millionan international information technology (IT) services firm. Ms. Fitzgerald remains a member of the CTG Board of Directors. Ms. Fitzgeraldalso served as President and Chief Operating Officer of CTG from July, 1993 to October, 1994, and served as Senior Vice President of CTG's northeast region from 1991 to July, 1993. Prior thereto, Ms. Fitzgerald served in various capacities at International Business Machines Corporation (IBM), culminating in serving as Vice President of IBM's professional services. Ms. Fitzgerald is also Vice Chair ofon the Board of Directors of Kaleida Health System in westernBuffalo, New York from 1995 to 2002, and a director of Diebold, Inc.was Vice Chair from 2000 to 2002, and Yipee, a privately-held Internet technology company, and servesserved on the Advisory Board of the University of Buffalo'sBuffalo’s School of Management andfrom 1993 to 2001. Ms. Fitzgerald served on the BoardBoards of Directors of the Information Technology Services (“ITS”) Division of Information Technology Association of America (ITAA), where she is also the(“ITAA”) and of ITAA from 1992 to 2002, and was Chair of the Information TechnologyITS Board from 1998 to 2002. Ms. Fitzgerald is a director of Diebold, Inc., a company which specializes in providing integrated self-service delivery systems and Internet Services Divisionservices. Ms Fitzgerald is also a founding partner and director of ITAA.TranSpend, Inc. a privately held firm focused on total spend optimization.

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Mr. Foley became a director of the Company in April 1997 upon consummation of the FHS Combination. Mr. Foley served as a director of FHC from 1996 until the FHS Combination. Mr. Foley served as Chairman and Chief Executive Officer of DHL Airways, Inc. from September 1988 tothrough July 1999. Mr. Foley is also a director of Continental Airlines, Glenborough Realty Trust Del Monte Foods and Flextronics International.

Mr. Gellert was elected to the Board of Directors of the Company in February 1999. He became President and Chief Executive Officer of the Company in August 1998. Previously Mr. Gellert served as President and Chief Operating Officer of the Company from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gellert served as President and Chief Operating Officer of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.'s’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, he was Senior Vice President and Chief Operating Officer for California Healthcare System. Mr. Gellert has been a director of Ventas, Inc. since August 2001. Mr. Gellert is currently a director of the American Association of Health Plans.

Mr. Greaves became a director of the Company in April 1997 upon consummation of the FHS Combination.Combination and became Chairman of the Board of Directors in January 2004. Mr. Greaves served as a director of HSI from January 1994 until the FHS Combination. Mr. Greaves served as Co-Chairman of the Board of Directors, Co-President and Co-Chief Executive Officer of the Company from January 1994 (upon consummation of the HSI Combination) until March 1995. Prior to January 1994, Mr. Greaves served as Chairman of the Board of Directors, President and Chief Executive Officer of H.N. Management Holdings, Inc. (a predecessor to the Company) since its incorporation in June 1990. Mr. Greaves currently serves as Chairman of the Board of Directors of Health Net of California, Inc. ("(“HN California"California”), a subsidiary of the Company. Mr. Greaves also served a prior term as Chairman of the Board of Directors of HN California, and concurrently served as President and Chief Executive Officer of HN California. Prior to joining HN California, Mr. Greaves held various management roles at Blue Cross of Southern California, including Vice President of Human Resources and Assistant to the President, and held various management positions at Allstate Insurance Company from 1962 until 1968. Mr. Greaves is a foundingserves as an Honorary member of (and continues to serve on) the Board of GovernorsTrustees of California State University at Long Beach, and he is a member of the board of directors of Zymed Corporation.Beach.

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Mr. Hanselman became a director of the Company in April 1997 upon consummation of the FHS Combination and becameserved as Chairman of the Board of Directors infrom May 1999.1999 to January 2004. Mr. Hanselman served as a director of FHC from 1990 until the FHS Combination. He has been a corporate director of and consultant to various companies since 1986. Mr. Hanselman is currently a director of Arvin Industries, is chairmanMeritor, Inc. and Honorary Trustee of a small privately-held company and serves on the Boards of two other privately-held companies.Committee for Economic Developments.

Mr. Stegemeier became a director of the Company in April 1997 upon consummation of the FHS Combination. Mr. Stegemeier served as a director of FHC from 1993 until the FHS Combination. He is Chairman Emeritus of the Board of Directors of Unocal Corporation and served as Chairman and Chief Executive Officer of Unocal Corporation from July 1988 until his retirement in May 1994. Mr. Stegemeier is alsocurrently a director of Northrop Grumman Corporation, Sempra Energy and Montgomery Watson Inc.

Mr. Troubh became a director of the Company in April, 1997 upon consummation of the FHS Combination. Mr. Troubh served as a director of FHC from 1991 until the FHS Combination. He is a financial consultant in New York City and a former Governor of the American Stock Exchange. Mr. Troubh served as a general partner of Lazard Freres & Co., an investment banking firm.

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Mr. Troubh is also a director of ARIAD Pharmaceuticals, Inc., Diamond Offshore Drilling, Inc., General American Investors Company, Starwood Hotels and Resorts, Inc., Triarc Companies, Inc. and WHX Corporation. Mr. Troubh was a director of Olsten Corporation ("Olsten") until March, 2000, at which time he became a director of Gentiva Health Services ("Gentiva") in connection with the sale by Olsten of certain business lines to Adecco SA and the accompanying transfer of Olsten's health services business to Gentiva. He is also athe Trustee of Corporate Renaissance Liquidating Trust, MicroCap Liquidating Trustthe University of Southern California and Petrie Stores Liquidating Trust.the University of Missouri Rolla.

Mr. Willison became a director of the Company in December 2000. Since July 1999, Mr. Willison has served as Dean, of theUCLA Anderson School of the University of California at Los Angeles.Management. From April 1996 to October 1998, Mr. Willison served as President and Chief Operating Officer of H.F. Ahmanson, Inc. (Home Savings of America). Prior thereto, Mr. Willison was Chairman, President and Chief Executive Officer of First Interstate Bank of California from February 1991 to April 1996. Mr. Willison is also a director of Nordstrom,Home Store, Inc. and H&CB, Inc. (Seoul, South Korea).

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EXECUTIVE OFFICERS
is a trustee of SunAmerica Funds. Since 1991, Mr. Willison has served as the Vice Chair of the United Way of Greater Los Angeles, and since 1996 has been a board member of Operation Hope.

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EXECUTIVE OFFICERS

The following sets forth certain biographical information with respect to the current executive officers of the Company.Company, and all individuals who served as an executive officer of the Company during 2003.

Mr. Gellert became President and Chief Executive Officer of the Company in August 1998. Previously, Mr. Gellert served as President and Chief Operating Officer of the Company from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gellert served as President and Chief Operating Officer of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Mr. Gellert has been a director of the Company since March 1999. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.'s’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, Mr. Gellert was Senior Vice President and Chief Operating Officer for California Healthcare System. Mr. Gellert has been a director of Ventas, Inc. since August 2001. Mr. Gellert is currently a director of the American Association of Health Plans.

Mr. BairstowFolick became President of the Company's Government and Specialty Services Division in November, 1999. Mr. Bairstow served as President of Specialty Services from February, 1999 until November, 1999. Previously, Mr. Bairstow served as Executive Vice President, Regional Health Plans and Chief Financial OfficerSpecialty Companies of HN California, the Company's California health maintenance organization, from February, 1998 until February, 1999. BeforeCompany in May 2002. Prior to joining the Company, Mr. Bairstow held the dual position ofFolick was employed by PacifiCare Health Systems, Inc. (“PacifiCare”) since 1989 in various capacities, including President, Chief Operating Officer, of America Service Group, Inc. ("ASG"), a provider of managed care services, and President and Chief Executive OfficerCEO of the operating subsidiary of ASG from November, 1996 to February, 1998.Health Plans Division and Executive Vice President. Prior to that date,joining PacifiCare, Mr. BairstowFolick held the positionexecutive positions at Peak of PresidentCalifornia and CareAmerica Health Plan of Managed Health Network, Inc., the Company's behavioral health subsidiary, from October, 1995 to November, 1996. From August, 1991 to October, 1995, Mr. BairstowCalifornia, and has served as Vice Presidentchief financial officer of Finance/Chief Operating Officer of Vendell Healthcare. Prior thereto, Mr. Bairstow served as Senior Vice President for Operationsboth Valley Presbyterian Hospital and Vice President for Finance of Park Healthcare Company from August, 1986 to August, 1991.Allegheny County Hospital System.

 Mr. Erwin became Executive Vice President and Chief Financial Officer of the Company in March, 1998. From 1994 until 1997, he served as Executive Vice President and Chief Financial Officer for U.S. Bancorp, a major superregional bank holding company based in Portland, Oregon. U.S. Bancorp was acquired by First Bank System in 1997. From 1987 to 1994, Mr. Erwin served as Treasurer of Boston-based BayBanks, Inc. BayBanks was a major retail bank in Boston. Mr. Erwin is also a member of the Board of Directors and Compensation Committee and Chairman of the Audit Committee of Innoveda, Inc., a Marlborough, Massachusetts-based technology company. Innoveda, Inc. is a leading supplier of software tools designed to solve the integrated circuit engineering problems caused by increasing chip complexity.

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Ms. Mayhew became Senior Vice President of Organization Effectiveness of the Company in January 2001. Ms. Mayhew served as Senior Vice President of Human Resources of the Company from April 1999 to January 2001. Prior to joining the Company, Ms. Mayhew served as Senior Vice President, Organization Development of Southern New England Telecommunications Company ("SNET"(“SNET”), a northeast regional information, entertainment and telecommunications company based in Connecticut. SNET was acquired by SBC Communications, Inc. in October 1998. Prior thereto, Ms. Mayhew served in various capacities at SNET, including Vice President, Human Resources, since 1972.

Mr. Rich became Executive Vice President of Finance and Operations of the Company in January 2002. Mr. Rich served as President of WebMD from September 2000 to September 2001 and as President, Medical Manager and Chief Executive Officer of CareInsight, Inc. from January 2000 to September 2000. Mr. Rich served as Chief Administrative Officer of Oxford Health Plans from March 1998 to December 1999. Mr. Rich also served as Executive Vice President, Finance & Systems of Kmart from 1994 to 1998.

Dr. MooreScheffbecame Senior Vice President and Chief Medical Officer of the Company in August 2003. Dr. Scheff served as Senior Vice President and Chief Medical Officer for Health Net Federal Services, Inc., the Company’s federal services subsidiary, from October 1995 toJune 2003. Before joining the federal services

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group, Dr. Scheff served in positions of increasing responsibility including Senior Vice President of Health Care Operations in Foundation Health Corporation’s California health plan (a predecessor company to Health Net) from January 1992 to October 1995. Prior to that, he was regional medical director with Aetna Health Plans from June 1988 to December 1991. Prior thereto, Dr. Scheff served as medical consultant for Milliman and Robertson.

Mr. Westen became Senior Vice President, General Counsel and Secretary of the Company upon consummation of the FHS Combination. Mr. Westen served as Senior Vice President, General Counsel and Secretary of HSI since April 1995. Mr. Westen also serves as a director of certain subsidiaries of the Company. Mr. Westen served as Senior Vice President, General Counsel and Secretary of QualMed since February 1994, and served as Vice President of Administration of QualMed from June 1993 until February 1994. Mr. Westen served as Assistant General Counsel and Assistant Secretary of QualMed from March 1992 until June 1993. From September 1986 until March 1992 Mr. Westen was an attorney with the firm of Lord, Bissell & Brook in Chicago, Illinois.

Mr. Wing became Executive Vice President, Regional Health Plans and Specialty Companies of the Company and President of the Company’s California operations in April 2002. Prior to joining the Company, Mr. Wing served for more than eight years with PacifiCare. Most recently, he served as western region president of PacifiCare and president and chief executive officer of PacifiCare of California. He previously served as northwestern region vice president and chief executive officer for PacifiCare of Washington, and also served as president and chief executive officer for PacifiCare of Utah; senior vice president, health services, for PacifiCare of California and vice president/general manager for PacifiCare of California. Before joining PacifiCare in 1994, Mr. Wing held executive positions with several other health care companies, including Blue Cross of California, Lincoln National Life Insurance Company, Prudential Health Care Plan, Inc. and Maxicare Health Plans, Inc.

Mr. Woys became President of Health Net Federal Services in February 2001, and such position became an executive officer position of the Company in May 2002. Mr. Woys served as Chief Operating Officer and President of Health Net Federal Services from November 1999 to February 2001. Mr. Woys served as Chief Operating Officer and Senior Vice President for Foundation Health Federal Services from February 1998 to November 1999. Mr. Woys served as Senior Vice President of Foundation Health Federal Services from January 1995 to February 1998. From January 1990 to January 1995, Mr. Woys served as Vice President and Chief Financial Officer of the Government Division of FHC. Mr. Woys served as Director of Corporate Finance/Tax for FHC from October 1986 to January 1990. Prior to Mr. Woys’ employment with FHC, he was employed by Price Waterhouse from 1982 to 1986 and by Arthur Andersen & Co. from 1980 to 1982.

Dr. Moore served as Senior Vice President and Chief Medical Officer of the Company from January 2001 to August 2003 at which time Dr. Moore resigned for the Company. Dr. Moore served as Senior Vice President and Chief Medical Officer for the Company'sCompany’s northeast operations from November 1998 to January 2001. Before joining the Company, Dr. Moore served as Vice President of Health Systems Integration at Humana Inc. from March 1996 to November 1998. Prior thereto, Dr. Moore served as a clinical consultant for Towers Perrin Integrated Health Systems, a Minneapolis-based international consulting practice.

 Ms. Tellez became President of the Company's Health Plans Division in January, 2001 (upon the Company's reorganization of its operating divisions). Ms. Tellez served as President of the Company's Western Division from January, 2000 to January, 2001 and as President of the Company's California Division from November, 1998 through December, 1999. Formerly, Ms. Tellez served as President and Chair of Prudential Healthcare Plan of California, Inc., responsible for operations in California, Colorado and Arizona. Prior to joining Prudential in 1997, Ms. Tellez served as Senior Vice President and regional Chief Executive Officer of Blue Shield of California. Ms. Tellez began her career in health care in 1978 with Kaiser Foundation Health Plan, where she held several executive positions during her sixteen year tenure, culminating in leading its Hawaii Region. Currently, Ms. Tellez serves as a member of the Board of Directors of several organizations, including Golden State Bancorp Inc., Institute for Medical Quality, California Association of Health Plans, Holy Names College, California Business Roundtable, Philippine International Aid and The Institute for the Future, in Menlo Park, California.

Mr. Velasquez became President of the Company's Business Transformation and Innovation Services Division in January, 2001. Mr. Velasquez served as President of the Company's New Venture Group from November, 1999 to January, 2001. Mr. Velasquez served as President of the Company's Government Operations Division from consummation of the FHS Combination through November, 1999 and as President of the Company's Specialty Services Division from September, 1997 through November, 1999. Prior to the FHS Combination, Mr. Velasquez served as President and Chief Operating Officer of FHC's California HMO. Prior to this position, Mr. Velasquez served as President and Chief Operating Officer of FHC's managed behavioral health care organization and as President and Chief Operating Officer of Specialty Services for FHC. Prior to joining FHC, Mr. Velasquez served as Chief Financial Officer/General Manager of Managed Health Network, Inc. (now a Company subsidiary). He also served as Vice President, Controller of Equicor.

Mr. Westen became Senior Vice President, General Counsel and Secretary of the Company upon consummation of the FHS Combination. Mr. Westen served as Senior Vice President, General Counsel and Secretary of HSI since April, 1995. Mr. Westen also serves as a director of certain subsidiaries of the Company. Mr. Westen has served as Senior Vice President, General Counsel and Secretary of QualMed since February, 1994, and served as Vice President of Administration of QualMed from August, 1993 until February, 1994. Since February, 1995, he has served as a director of QualMed. Mr. Westen served as Assistant General Counsel and Assistant Secretary of QualMed since joining QualMed in March, 1992 until August, 1993. From September, 1986 until March, 1992, Mr. Westen was an attorney with the firm of Lord, Bissell & Brook in Chicago, Illinois.

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Certain Relationships and Related Party Transactions

The following information relates to transactions during 20002003 between the Company and certain directors and executive officers of the Company.

Mr. Bouchard,Gellert is a director of Miavita, Inc., an Internet health services company in which the Company was Senior Vice President, Human Resourceshas made an investment of IBM until July, 2000. During 2000,$2.3 million as of December 31, 2003, and to which the Company and its subsidiaries paid to IBM approximately $16.7 million for hardware, software and related services, and consulting services related to information systems, technology and other matters.

    Mr. Deukmejian, a director of the Company, was senior counsel to the law firm of Sidley & Austin until June, 2000. The Company and certain of its subsidiaries paid Sidley & Austin approximately $0.3 million$250,000 in fees for legal services rendered to the Company and certain of its subsidiaries in 2000. Sidley & Austin was an employer group of a Company subsidiary in 2000. Premiums paid by such firm to this Company subsidiary totaled approximately $127,000 in 2000.

    Mr. Farley, a director of the Company, was paid an aggregate of $95,000 in consulting fees in 1999 and 2000 due to various services provided to the Company2003 in connection with the closing of its operations in Pueblo, Colorado.

    Mr. Troubh, a director ofcertain agreements the Company was a director of Olsten Corporation, a temporary staffing agency, which sold certain of its business lines to Adecco SA and transferred its health services business to Gentiva Health Services in 2000. In connectionhas with such transaction, Mr. Troubh became a director of Gentiva. The Company and certain of its subsidiaries paid Olsten and Gentiva an aggregate of approximately $1.9 million in 2000 for various staffing services.Miavita, Inc.

Since January 1, 1998, each of the following current and former executive officers of the Company for 2003 received one-time loans from the Company in the amounts indicated in connection with their hire, promotion or relocation: Karen Coughlin ($100,000), Steven Erwin ($125,000), Ross Henderson ($150,000), KarinMs. Mayhew ($300,000), Cora TellezDr. Moore ($400,000)50,000), and B. CurtisMr. Westen ($250,000). The loans accrue interest at the prime rate and each is payable upon demand by the Company in the event of a voluntary termination of employment of the respective officer or termination for Cause (as defined in their respective employment agreements). The

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Dr. Moore resigned from his position as Senior Vice President and Chief Medical Officer in August 2003 and repaid the outstanding principal amount of his loan concurrent with his resignation.

With respect to the loans provided to Mr. Westen and to Ms. Mayhew, the principal and interest of the loans willis to be forgiven by the Company at varying times after the date of hire, promotion or relocation of the respective officers. A loan will be forgiven prior to such time in the event the respective officer'sofficer’s employment is terminated involuntarily without Cause, voluntarily due to Good Reason following a Change of Control (each as defined in their respective employment agreements), or due to death or disability.

Income incurred by an officer due to interest on all of such loans (but not the principal) being forgiven is "grossed up"“grossed up” by the Company to cover the income taxes due upon such interest forgiveness. As of March 30, 2001,December 31, 2003, the remaining principal under each of the loans iswas as follows: Karen Coughlin ($0), Steven Erwin ($125,000), Ross Henderson ($0), KarinMs. Mayhew, ($240,000), Cora Tellez ($200,000)$60,000; and B. CurtisMr. Westen, ($83,333).$0.

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10

ACTIVITIES OF THE BOARD OF DIRECTORS AND ITS COMMITTEES

Members of the Board of Directors are elected by the holders of Class A Common Stock of the Company and represent the interests of all stockholders. The Board of Directors meets periodically to review significant developments affecting the Company and to act on matters requiring board approval. Although the Board of Directors delegates many matters to others, it reserves certain powers and functions to itself.

The Company'sCompany’s Board of Directors met a total of nineeight times in 2000.2003. Each member of the Board of Directors of the Company was present for 75% or more of the totalaggregate number of meetings of such Board of Directors held in 20002003 (during the period he/she served as a director) and of all committees of such Board of Directors held in 20002003 on which he/she served (during the period he/she served).

The Board of Directors has determined that the following directors of the Company qualify as independent under New York Stock Exchange (“NYSE”) listing standards: J. Thomas Bouchard, Thomas T. Farley, Gale S. Fitzgerald, Patrick Foley, Roger F. Greaves, Richard W. Hanselman, Richard J. Stegemeier and Bruce G. Willison. Under the NYSE listing standards, no director qualifies as independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company.

Committees of the Board of Directors

The by-lawsbylaws of the Company establish the following committees of the Board of Directors: the Audit Committee, the Governance Committee, on Directors,the Compensation and Stock Option Committee (the "Compensation Committee"“Compensation Committee”) and the Finance Committee. The by-lawsbylaws further provide that additional committees may be established by resolution adopted by a majority of the Board. In this connection, (i) in December of 2000, the Board of Directors established the Technology/Infrastructure Committee by resolution, and subsequently in May of 2003 consolidated the Technology/Infrastructure Committee and its responsibilities into the Finance Committee, and (ii) in October of 2002, the Board of Directors established the Litigation Ad Hoc Committee by resolution and subsequently renamed it the Ad Hoc Committee. A majority of the Board of Directors selects the directors to serve on the committees of the Board of Directors.

Audit Committee.    The Audit Committee of the Board of Directors of the Company currently consists of Ms. Fitzgerald and Messrs. Deukmejian, Farley, Stegemeier (Chairman), Farley and Willison. Each of Messrs. Stegemeier, Farley, and Willison and Ms. Fitzgerald served on the Audit Committee from January 2003 to December 2003. Each member of the Audit Committee is “independent,” as independence for audit committee members is defined under NYSE listing standards. The Company’s Audit Committee held twelve meetings in 2003.

Although the Board of Directors of the Company has determined that the Company does not currently have an “audit committee financial expert,” as defined under the rules of the Securities and Exchange Commission (the “SEC”), serving on the Audit Committee, the Board of Directors believes that each of whom is an "independent director" as that term is defined in the New York Stock Exchange Listed Company Manual. A former director, Admiral Earl B. Fowler, served as Chairmancurrent members of the committee until May 4, 2000, at which time Mr. Stegemeier became Chairman. This committeeAudit Committee is directedfully qualified to reviewcarry out all duties and responsibilities of an Audit Committee member and has determined that the scope, cost and resultscurrent composition of the independent auditAudit Committee complies with applicable NYSE listing standards relating to financial literacy and accounting or related financial management expertise. The Company currently does not have an “audit committee financial expert” because the Board of Directors has not yet completed the Company's bookssearch and records,selection process that was initiated during 2003 with the resultsobjective of the annual audit with management and the internal auditors and the adequacy of the Company's accounting, financial and operating controls; to recommend annuallyadding to the Board of Directors one or more members who would serve on the Audit Committee and qualify as audit committee financial experts. The Company anticipates that the search and selection ofprocess will result in the independent auditor; to approve the appointment or removal of the independent auditor; to consider proposals made by the Company's independent auditor for consulting work; to oversee the Company's compliance with certain regulatory programs to deter fraud and abuse; and to reportaddition to the Board of Directors when so requested, on any accounting or financial matters. of at least one such member during the current fiscal year.

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The Company's Audit Committee held ten meetingsis governed by a charter, a current copy of which is attached to this Proxy Statement as Appendix A and is available on our website atwww.health.net. A copy of the charter is also available in 2000.print to stockholders upon request, addressed to the Corporate Secretary. Pursuant to the Audit Committee charter, the Audit Committee is responsible for, among other things:

Governance Committee.    The Governance Committee on Directors.  The Committee on Directors of the Board of Directors of the Company is currently consistscomprised of Messrs. DeukmejianGreaves (Chairman), Bouchard, Deukmejian, Hanselman and Willison. Messrs. Bouchard, Deukmejian, Hanselman and Willison served on the Governance Committee from January 2003 to December 2003. Mr. Greaves and Hanselman.was added as an additional member of the Governance Committee in May of 2003 at which time he was appointed Chairman in place of Gov. Deukmejian. Gov. Deukmejian will be resigning from his position on the Governance Committee concurrently with his retirement from the Board of Directors in May 2004. Each of the current five members is “independent” within the meaning of the NYSE listing standards. The Governance Committee held five meetings in 2003. The Governance Committee is governed by a charter, a current copy of

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which is available on Directorsour website at www.health.net. A copy of the charter is also available in print to stockholders upon request, addressed to the Corporate Secretary. Pursuant to the Governance Committee charter, the Governance Committee is responsible for, reviewing qualifications ofamong other things:

The Governance Committee selects nominees for director on the basis of the nominee’s possession of such knowledge, experience, skills, expertise and diversity so as to enhance the Board’s ability to manage and direct the affairs and business of the Company, including, when applicable, to enhance the ability of the committees of the Board of Directors to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation,NYSE listing standards and the Company’s bylaws and other corporate governance documents.

The Governance Committee identifies potential director nominees from whatever sourcesmany sources. The Governance Committee asks current directors and executive officers to notify the Committee if they become aware of persons meeting the criteria described above who may be available to serve on the Board. From time to time, the Governance Committee also engages third party search firms that specialize in identifying director candidates. In addition, the Governance Committee will consider director candidates recommended by stockholders. In considering candidates submitted by stockholders, the Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Governance Committee may also take into consideration the number of shares held by the recommending stockholder and the length of time that such suggestions arise. shares have been held. To have a candidate considered by the Governance Committee, a stockholder must submit the recommendation in writing and include certain information. See “Requirements and Procedures for Submission of Director Candidate Recommendations by Stockholders and Stockholder Proposals” for further information regarding the procedures for recommending a director nominee for consideration by the Governance Committee.

Once a person has been identified by the Governance Committee as a potential candidate, the Governance Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance Committee determines that the candidate warrants further consideration, the Chairman of the Governance Committee or another member of the Governance Committee contacts the candidate. Generally, if the person expresses a willingness to be considered and to serve on the Board of Directors, the Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Governance Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Governance Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments. The Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Board may take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.

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The Company paid a fee to a third party search firm to assist in identifying and evaluating candidates for nomination to the stockholders at this Annual Meeting. One of the new directors up for election at the Annual Meeting was identified through this search firm. In identifying and evaluating candidates, the third party search firm performed the same procedures that the Governance Committee performed in its evaluation of other potential candidates for election to the Board, which procedures are described above.

In connection with that direction, the Committee on Directors nominated for reelection each of the four Class II nominees and nominated for reelection the Class I nominee. Stockholders who wish to propose nominations for directors for consideration at the 2002this Annual Meeting of Stockholders may do soand in accordance with the procedures described below under "REQUIREMENTS AND PROCEDURES FOR SUBMISSION OF PROXY PROPOSALS AND NOMINATIONS OF DIRECTORS BY STOCKHOLDERS—Nominationsabove guidelines, the Governance Committee nominated for re-election each of the Board of Directors." The Company's Committee on Directors held three meetings in 2000.following nine nominees: Ms. Fitzgerald and Messrs. Bouchard, Farley, Foley, Gellert, Greaves, Hanselman, Stegemeier and Willison.

Compensation and Stock Option Committee.    The Compensation Committee currently consists of Messrs. Bouchard (Chairman), Deukmejian, Farley, Foley and Troubh. Each of such members is an "outside director"Hanselman. Messrs. Bouchard, Farley and Foley served on the Compensation Committee from January 2003 through December 2003. In May 2003, Gov. Deukmejian was added as such term is defined in Section 162(m)a member of the Internal Revenue Code of 1986, as amended (the "Code"). The by-laws andCompensation Committee. Gov. Deukmejian will be resigning from his position on the policies ofCompensation Committee concurrently with his retirement from the Board of Directors directin May 2004. In October 2003, Mr. Greaves resigned from his position on the Compensation Committee: (a)Committee and Mr. Hanselman was appointed to recommendserve in his place. Each of the current five members of the Compensation Committee is an “outside director” for Section 162(m) purposes and “independent” within the meaning of NYSE listing standards. In 2003, the Company’s Compensation Committee held eight meetings. The Compensation Committee is governed by a charter, a current copy of which is available on our website at www.health.net. A copy of the charter is also available in print to stockholders upon request, addressed to the Corporate Secretary. Pursuant to the Compensation Committee charter, the Compensation Committee is responsible for, among other things:

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compensation, stock options or other appropriate incentive plans, and perquisites, if any,

Finance Committee.    The Finance Committee of the Board of Directors of the Company currently consists of Ms. Fitzgerald and Messrs. Foley Greaves (Chairman), Deukmejian, Hanselman, Stegemeier and Troubh. This committeeWillison. Mr. Hanselman was appointed to serve on the Finance Committee and Mr. Foley was appointed to serve as Chairman of the Finance Committee in December 2003. In addition, Mr. Greaves resigned as a member and Chairman of the Finance

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Committee. Mr. Greaves served as Chairman of the Finance Committee from January 2003 through December 2003. Messrs. Foley, Deukmejian and Stegemeier served on the Finance Committee from January 2003 through December 2003. Mr. Willison and Ms. Fitzgerald were added as additional members of the Finance Committee in May of 2003. Gov. Deukmejian will be resigning from his position on the Finance Committee concurrently with his retirement from the Board of Directors in May 2004. In 2003, the Company’s Finance Committee held six meetings. The Finance Committee is directed and empowered to reviewresponsible for, among other things:

In May of 2003, the Board of Directors consolidated the Technology/Infrastructure Committee into the Finance Committee and authorized the Finance Committee to assume the responsibilities of the Technology/Infrastructure Committee, including, among other things, reviewing and consulting with management regarding the Company’s various technology and infrastructure plans and activities. The Technology/Infrastructure Committee consisted of the following members upon its consolidation into the Finance Committee, Ms. Fitzgerald and Messrs. Greaves (Chairman), Foley and Willison. The Company’s Technology/Infrastructure Committee held four meetingsone meeting in 2000.2003 prior to its consolidation into the Finance Committee.

    Technology/InfrastructureAd Hoc Committee.    The Board of Directors created the Technology/InfrastructureLitigation Ad Hoc Committee in December, 2000. The Technology/InfrastructureOctober 2002 and subsequently renamed it the Ad Hoc Committee currentlywithout changing the purpose or responsibilities of the originally named committee. Currently the Ad Hoc Committee consists of Messrs. Foley,Hanselman (Chairman), Deukmejian, Greaves (Chairman) and Willison. Each of these four members served on the Ad Hoc Committee from January 2003 to December 2003. Gov. Deukmejian will be resigning from his position on the Ad Hoc Committee concurrently with his retirement from the Board of Directors in May 2004. The purpose of this committeethe Ad Hoc Committee is to review and consult with management regarding certain of the Company's various technologyCompany’s litigation matters, and infrastructure plans and activities. The Company's Technology/Infrastructureto authorize the settlement strategy of the Company related thereto. In 2003, the Company’s Ad Hoc Committee held one meeting in 2000.five meetings.

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REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON

EXECUTIVE COMPENSATION FOR FISCAL YEAR 2000
2003

Introduction and Background

The following report is provided in accordance with the rules of the Securities and Exchange Commission and covers compensation policies applicable to the executive officers of Health Net, Inc. (the "Company"(“Health Net” or the “Company”) during 2000.2003. The report has been approved by the members of the Compensation and Stock Option Committee of the Board of Directors of the Company (the "Compensation Committee"“Compensation Committee”).

During 2000,2003, the Compensation Committee was compromisedcomprised of "outside directors"all “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"“Code”))., other than Mr. Greaves who is a prior executive officer of the Company and served on the Compensation Committee from January 2003 through October 2003. Messrs. Bouchard (Chairman), Farley Foley and TroubhFoley served on the Compensation Committee from January 2003 through December 2003. In August 2003, Governor Deukmejian was appointed to serve on the Compensation Committee. In October 2003, Mr. Greaves resigned from his position on the Compensation Committee and Mr. Hanselman was appointed to serve in his place. As of the date of this report, the Compensation Committee continues to be comprised of Messrs. Bouchard (Chairman), Farley, Foley and Hanselman and Governor Deukmejian. Each of these four members.five members is an “outside director” for Section 162(m) purposes and “independent” within the meaning of New York Stock Exchange listing standards. When he was Chairman of the Board of Directors Mr. Hanselman regularly attended and participated in Compensation Committee meetings, but since he was not a member of the Committee, he did not vote on any Committee actions. The new Chairman of the Board, Mr. Greaves, has continued this practice and regularly attends Compensation Committee meetings.

 Under

Pursuant to the Company's by-laws,Compensation Committee’s amended and restated charter, a copy of which is posted on the Company’s website, the Compensation Committee is responsible for, among other things:

Our report covers the following topics:

Role of the Compensation Philosophyand Stock Option Committee

The Compensation Committee designedis responsible for developing and administering guiding principles with respect to executive compensation, including equity-based programs. Specific accountabilities include:

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The Compensation Committee makes every effort to maintain independence and objectivity. The Compensation Committee is now composed only of independent directors. The Compensation Committee meets regularly in executive session (excluding the CEO and other employees) where discussions and decisions regarding CEO performance and compensation take place.

The Compensation Committee is committed to staying apprised of current issues and emerging trends, and ensuring that Health Net’s executive compensation systemprogram remains aligned with best practice. To this end, the Compensation Committee works with an independent advisor and regularly reviews compensation levels, best practices and emerging issues.

Executive Compensation Guiding Principles

To provide a framework for executive compensation decision-making, the Compensation Committee developed a set of Guiding Principles that are intended to include three components: base salary, short-termserve as touchstones for design and administration decisions made by the Board, the Compensation Committee and Management. Health Net’s Executive Compensation Guiding Principles are as follows:

Principle #1—Compensation must be directly aligned with performance

Executive compensation levels should be commensurate with corporate performance and shareholder return. Growth and profitability are the foundation for stockholder returns over the long term. Accordingly, Health Net’s management incentive payplan incorporates growth and profitability measures. In addition, Health Net believes that its success depends in the form oflarge part on its employees. The Company conducts an annual cashemployee satisfaction survey to test the Company’s performance as an employer. A portion of the management annual incentive opportunityis tied to improving employee satisfaction as measured by select survey items. The Compensation Committee is committed to a strong link between pay for performance – payments are reduced or not made at all if performance does not meet expectations.

Principle #2—Compensation levels and long-term equity-based incentive compensation. Compensation decisions were based uponprogram design features must be competitive with market practice

Understanding competitive market pay levels is instrumental in hiring and keeping qualified executives. Moreover, it is important to understand how best practices corporate or unit performancechange and individual contributions.how comparable organizations deliver compensation. The Compensation Committee works with the assistance ofan independent consultants, developed base line and targetadvisor to annually review compensation levels based on a comprehensive analysisrelative to market and frequently assesses emerging trends and issues affecting executive compensation.

Health Net’s competitive market for executive talent is primarily large managed care organizations. However, where appropriate, Health Net will look to large organizations outside healthcare for executive talent and may adopt practices from other industries where the Compensation Committee deems it appropriate to achieve Health Net’s goals.

Principle #3—Share ownership must be promoted

The personal financial interests of pay practicesthe Company’s executives should be directly aligned with those of a group of eight publicly traded health care organizations with annual revenues ranging from $4.1 billion to $30.8 billion. These companies comprisestockholders. The Company’s compensation and retirement savings programs take this into consideration. In

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2002, the "Selected Peer Group" in the stock performance graph set forth later in this proxy statement.

Committee introduced share ownership guidelines for executives. The Compensation Committee's philosophy is to establish base salaries below the medianguidelines call for the peer group, butCEO to provide an opportunity for total cashown shares equal in value to five times annual base salary. Other executives should hold between one and three times annual base salary in shares. Participants have four years to meet the recommended guidelines.

Principle #4—Plan affordability and the Company’s capacity to pay must always be considered

The cost of any compensation (base salary plusor benefit program must be weighed against the benefits provided to the executives and must be evaluated in light of the Company’s financial condition. Salary increases, annual cash incentive)incentive payments and long-term incentive awards will be made only when the Company can afford to reach the top quartile based on corporate performance. Indo so. Retirement and savings plans funding decisions will also be made within this way, thecontext.

Guiding Principles in Practice

The Compensation Committee seeks to have a significant portion of annual compensation at risk. The Compensation Committee uses stock optionsEquity is used to directly align executive'sexecutives’ long-term financial interests with the stockholders and to advance the interests of the Company by attracting and retaining talented executives. Stock option grantsSpecifically, each component of pay is described as follows:

Base Salaries

Competitiveness, affordability, and individual performance and skills drive base salary decisions.

Annual Incentive Compensation

Health Net has long stressed pay for performance through its annual management incentive plan. Goals are positioned to provide total compensation atestablished for corporate, unit and individual performance. The goal setting process takes into consideration internal budgets, past performance, market expectations and competitors’ absolute and relative performance. If goals are not fully met, incentive payments are reduced or even eliminated.

Long-Term Incentives

Health Net aligns executives’ interests with those of the 75^th percentile basedstockholders. The Company has primarily focused on corporate performance. Stockstock options, are considered effective long-term incentives bybut has also used restricted stock, which supports retention of key talent and promotes ownership. In managing the equity program, the Compensation Committee because an executive receives a gain only if the Company's stock value increasesclosely monitors usage rates and its stockholders also receive a gain. The Compensation Committee intends to continue to use stock options as the primary element of long-term compensation for the Company's executive officers.dilution levels.

Benefits/Perquisites

 Stock options granted in 1998

The Company provides benefits focused on ensuring reasonable financial security and later providemaking executives whole for terminationbenefits lost due to IRS or other restrictions. Long-term wealth accumulation depends primarily on stock price appreciation. Some senior executives may be eligible to receive supplemental retirement benefits. These benefits remain subject to the claims of creditors of the optionsCompany. Executives may defer salary and a "clawback" of realized gains if the executive joins a competitor of theannual incentive payments to facilitate tax planning and personal savings goals. The Company within six months after termination of employment,provides competitive perquisites and the options also include a provision prohibiting any activities competitiveonly where business necessity dictates. All benefits and perquisites programs are provided consistent with median market practices as necessary to the Company for a period of up to twelve months post-termination, depending on the optionee's level in the organization.attract and retain key talent.

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than for additional information regarding this one-time loan to Ms. Tellez.

    The Tellez Agreement also provides that the Company shall afford to Ms. Tellez, in lieu of relocation benefits, a furnished business apartment in Woodland Hills, California and air travel as required between Woodland Hills and Oakland, California for the duration of her employment with the Company.

    Severance payment provisions contained“cause” (as defined in the Tellez Agreement were superseded by the Company's Severance Payment Agreement dated December 4, 1998 which was entered into between the CompanyWing Agreement), Mr. Wing will be entitled to receive a severance payment equal to 24 months of his then current base salary, six months of benefit continuation and Ms. Tellez. See "Severance Agreement" belowpayment of COBRA premiums for a description of the agreement.an additional eighteen months.

Employment Agreement with Mr. Erwin.Rich.    Mr. ErwinRich has an Employment Letter Agreement with the Company dated March 11, 1998January 25, 2002 (the "Erwin Agreement"“Rich Agreement”). Under the ErwinRich Agreement, Mr. ErwinRich is eligible to participate in various insurance, stock option, pension, incentive compensation and other fringe benefit plans and programs of the Company. Under

The Rich Agreement provides Mr. Rich with two potential severance arrangements. If during a two-year period following a “change-of-control” transaction (as defined in the agreementRich Agreement), the Company terminates Mr. Rich or he wasvoluntarily resigns for “good reason” (as defined in the Rich Agreement) Mr. Rich will receive severance pay equal to thirty six months of his then current base salary, benefit continuation for an eighteen month period and payment of COBRA premiums for an additional eighteen month period. Mr. Rich would also providedbe entitled to receive a one-time loan inpayment equal to three times the greater of (i) his target annual incentive bonus for the year of termination and (ii) the amount of $125,000 (with interest accruedthe annual incentive bonus earned by Mr. Rich for the year prior to the date of termination. If at least $50,000 of the change-of-control benefits provided under the Rich Agreement constitute parachute payments under Section 280G of the Code and are subject to the excise tax imposed by Section 4999 of the Code, Mr. Rich shall receive (i) a payment sufficient to pay such excise taxes and (ii) an additional payment sufficient to pay the taxes arising as a result of such payments. If the Company terminates Mr. Rich other than following a change-of-control and other than for “cause” (as defined in the Rich Agreement) or he voluntarily resigns for good reason, Mr. Rich will be entitled to receive a severance payment equal to 24 months of his then current base salary, six months of benefit continuation and payment of COBRA premiums for an additional eighteen months. Mr. Rich would also be entitled to receive a payment equal to two times the greater of (i) his target annual incentive bonus for the year of termination and (ii) the amount of his annual incentive bonus earned by Mr. Rich for the year prior to the date of termination, provided that the payment in respect of the annual incentive bonus would only be paid if the Company’s common stock was trading at a price of at least $35 per share at the prime rate), the principal and interesttime of which loan were to be forgiven by the Company in full on the first anniversary of Mr. Erwin's date of hire. The loan was restructured in 1999 such that the loan would remain outstanding until such time as mutually agreed upon by the Company and Mr. Erwin, at which time the principal and interest will be forgiven in full. See "Certain Relationships and Related Transactions" above for additional information regarding this one-time loan to Mr. Erwin.termination.

 Severance payment provisions contained in the Erwin Agreement were superseded by the Company's Severance Payment Agreement dated December 4, 1998 which was entered into between the Company and Mr. Erwin. See "Severance Agreement" below for a description of the agreement.

Employment Agreement with Mr. Westen.    Mr. Westen has an Employment Letter Agreement with the Company dated June 25, 1998 (the "Westen Agreement"“Westen Agreement”). Under the Westen Agreement, Mr. Westen is eligible to participate in various insurance, stock option, pension, incentive compensation and other fringe benefit plans and programs of the Company. Under the agreement he was also provided a one-time loan in the amount of $250,000 (with interest accrued at the prime rate), the principal and interest of which loan are to be forgiven by the Company one-third on each of the first,

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second and third anniversaries of the Westen Agreement. Accordingly, one-third of the principal and interest of such loan was forgiven in each of 1999, 2000 and 2000.2001. See "Certain“Certain Relationships and Related Transactions"Transactions” above for additional information regarding this one-time loan to Mr. Westen.

The Company and Mr. Westen have entered into the Company'sa Severance Payment Agreement dated December 4, 1998, the terms of which superseded a prior severance agreement between the Company and Mr. Westen. See "Severance Agreement" below for a description of the agreement.are described below.

Severance Agreement.Agreements with Executive Officers.    The Company has entered into a severance payment agreement, either as a separate document or as part of his/her Employment Letter Agreement (the "Severance“Severance Payment Agreement"Agreement”) with each of its executive officers, including the Named Executive Officers, other than Mr.Messrs. Gellert, (whoRich, Folick and Wing (each of whom has his own individualized severance arrangement)arrangement as described above). Under the Severance Payment Agreement, theeach executive wouldwill receive a one-time lump sum payment of three times base salary plus, for a period of three years, continued health and welfare benefit coverage if involuntarily terminated (or constructively terminated) within two years after a change in control (as defined therein). The Compensation Committee approved an amendment toIf the Company terminates the employment of the executive other than following a change-of-control and other than for cause (as defined in the Severance Payment Agreement which provides that ifAgreement), the executive would be entitled to receive a severance payment equal to two times base salary plus, for a period of two years, continued health and welfare benefit coverage. If the change in control benefits provided under the Severance Payment Agreement constitute parachute payments under Section 280G of the Code and are subject to the excise tax

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imposed by Section 4999 of the Code, the covered executives shall receive (i) a payment sufficient to pay such excise taxes and (ii) an additional payment sufficient to pay the taxes arising as a result of such payments. The Severance Payment Agreement originally provided that change in control benefits are subject to reduction to the extent such reduction would improve the executive's after-tax position by eliminating any excise taxes otherwise imposed on the executive under the parachute payment provisions of the Code. Upon execution of the amendment by the executives, the amended Severance Payment Agreement will supersede the current Severance Payment Agreement. Under the Severance Payment Agreements,Agreement, terminated executives are precluded from competing with the Company for a period of up to one year post-termination, depending on the applicable circumstances, and must enter into a Waiver and Release of Claims in order to receive severance payments.

Compensation Committee Interlocks and Insider Participation

Decisions regarding the Company'sCompany’s executive compensation are made by the Compensation Committee. In 2000,During 2003, the Compensation Committee consistedwas comprised of “outside directors” (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”)), other than Mr. Greaves who is a prior executive officer of the Company and served on the Compensation Committee from January 2003 through October 2003. As of the date of this report, the Compensation Committee consists of Messrs. Bouchard (Chairman), Deukmejian, Farley, Foley and Troubh. EachHanselman, all of these members is an "outside director"whom are “outside directors” (within the meaning of Section 162(m) of the Code). During the period in 2003 that Mr. Greaves served on the Compensation Committee, an appropriate sub-committee of the Compensation Committee made up of the members qualifying as “outside directors” under Section 162(m) took action on all matters that were likely to be subject to Section 162(m) of the Code.

 The following information relates to

No related party transactions bybetween the Company withand any of the foregoing members of the Compensation Committee of the Company.occurred in 2003.

 Mr. Bouchard, a director of the Company, was Senior Vice President, Human Resources of IBM until July, 2000. During 2000, the Company and its subsidiaries paid to IBM approximately $16.7 million for hardware, software and related services, and consulting services related to information systems, technology and other matters.

    Mr. Farley, a director of the Company, was paid an aggregate of $95,000 in consulting fees in 1999 and 2000 due to various services provided to the Company in connection with the closing of its operations in Pueblo, Colorado.28

    Mr. Troubh, a director of the Company, was a director of Olsten Corporation, a temporary staffing agency, which sold certain of its business lines to Adecco SA and transferred its health services business to Gentiva Health Services in 2000. In connection with such transaction, Mr. Troubh became a director of Gentiva. The Company and certain of its subsidiaries paid Olsten and Gentiva an aggregate of approximately $1.9 million in 2000 for various staffing services.

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DIRECTORS'DIRECTORS’ COMPENSATION FOR 2000
2003

During 2000,2003, the annual retainer payable to non-employee directors of the Company was $30,000 per year, and eachyear. Each non-employee director who chaired the Audit Committee, Compensation Committee, Governance Committee on Directors or Finance Committee was eligible to receive an additional annual retainer of $5,000. SuchFrom January 1, 2003 to August 19, 2003, the non-employee directorsdirector who chaired the Audit Committee was eligible to receive an additional annual retainer of $5,000. Effective August 20, 2003, the annual retainer for the Chairman of the Audit Committee was increased to $15,000 per year. Each non-employee director also received a $2,000 fee for each meeting of the Board of Directors attended, and a $1,000 fee for each committee meeting attended, except that effective as of August 20, 2003 each non-employee director received a $2,000 fee for each Audit Committee meeting attended. In lieu of these retainer and meeting fees, Mr. Hanselman receives $10,000received $15,833 per month from January 2003 through December 2003, for his services as Chairman of the Board of Directors of the Company. No fees are paid to employees of the Company for service as a director.

In addition, in 20002003 non-employee directors of the Company participated in the Company'sCompany’s Third Amended and Restated Non-Employee Director Stock Option Plan (the "Director Plan"“Director Plan”), which was approved by the Company's stockholders at the 1997 Annual Meeting of Stockholders and which provides for initial grants and automatic annual grants of nonqualified stock options to such directors. Each such grant entitles the optionee to purchase 7,500 shares of Class A Common Stock at an exercise price equal to the fair market value of Class A Common Stock on the date of such grant. Each grant vests as to 33¹/3% 1/3% of the shares each year on the anniversary of the date of the grant, provided that the options become immediately exercisable in the event of a "change“change in control"control” of the Company, as defined in the Director Plan. Under the Director Plan, 500,000 shares of Class A Common Stock have been reserved for grant.

On May 5, 2000,16, 2003, options to purchase 7,500 shares at an exercise price of $9.8125 per share were thereby granted to each of Messrs. Bouchard, Deukmejian, Farley, Foley, Greaves, Hanselman, Stegemeier and Troubh pursuant to the formula provisions of the Director Plan. In addition, on December 13, 2000, an option to purchase 7,500 shares at an exercise price of $20.8125 per share was granted to Mr. Willison in connection with his appointment to the Board of Directors, pursuant to the formula provisions of the Director Plan.

    In addition, on May 5, 2000, options to purchase 2,500 shares at an exercise price of 9.8125$28.20 per share were granted to each of Messrs. Bouchard, Deukmejian, Farley, Foley, Greaves, Hanselman, Stegemeier and Troubh underWillison and Ms. Fitzgerald pursuant to the Company's 1998 Stock Option Plan (the "1998 Plan"), which options have a term of five years and vest as to 33¹/3%annual grant formula provisions of the shares each year on the anniversary of the date of the grant, provided that the options become immediately exercisable in the event of a "change in control" ofDirector Plan.

During 2003, the Company as defined in the 1998 Plan.

    The Company maintainsmaintained a deferred compensation plan pursuant to which both officers and non-employee directors arewere eligible to defer up to 100% of their compensation.compensation (the “Company Deferred Comp Plan”). The compensation deferred under such plan is credited with earnings or losses measured by the rate of return on investments elected by plan participants. Each plan participant is fully vested in all deferred compensation and earnings credited to his or her account. Mr. Willison participated in the deferred compensation plan in 2003. Effective January 1, 2004, the Company created a deferred compensation plan solely for non-employee directors. The terms and conditions of the new non-employee director deferred compensation plan are substantially the same as the Company Deferred Comp Plan, except with respect to the deferral year under the plan. Under the new plan, the deferral period is the twelve-month period beginning on July 1 and ending on June 30, provided, that the deferral year for the first year of the plan began on January 1, 2004 and will end on June 30, 2004. The purpose of the new plan is to more closely align the deferral year with the term served by the non-employee directors.

In 2000,2003, the Company offered non-employee directors the opportunity to elect to receive stock options in lieu of all or a portion of their annual retainer to be earned for the period July 1, 20002003 to June 30, 2001.2004. Under the terms of the exchange,election, options were valued at 52%50% of the exercise price on the date of grant (June 30, 2000)(July 1, 2003) and the resulting number of shares was increased by 20%. Options were issued with an exercise price equal to the fair market value of the stock on the grant date ($13.9375)33.75). Options vest after one year (or on the earlier death or disability of the director) and have a ten-yearfive-year term.Directors who chose to participate were required to make their elections by June 30, 2000. Each of Messrs. Bouchard, Foley, Greaves2003. Ms. Fitzgerald and Hanselman participated in the exchange,Mr. Willison made such elections, foregoing $10,000, $30,000, $30,000 and $30,000 of their entire annual retainer fees (or monthly retainer fees in the case of Mr. Hanselman), respectively, in exchange for 1,656 shares, 4,967 shares, 4,967 shares($30,000) and 4,967 shares, respectively.were each granted options to purchase 2,319 shares.

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29

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

Set forth below is a tabulation indicating those persons or groups whothat are known to the Company to be the beneficial owners of more than 5%five percent of the outstanding shares of the Company'sCompany’s Class A Common Stock as of March 9, 2004.The information in the Record Date. The following informationtable and the related notes is based on reports on Schedule 13D or 13Gstatements filed by the respective beneficial owners with the Securities and Exchange Commission or other reliable information.