UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 27, 2006
Health Net, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-12718 95-4288333
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
21650 Oxnard Street, Woodland Hills, CA 91367
(Address of Principal Executive Offices) (Zip Code)
(818) 676-6000
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2 (b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4 (c))
Item 1.01. Entry into a Material Definitive Agreement.
The Board of Directors of Health Net, Inc. (the "Company"), on
July 27, 2006, approved the execution of a new Rights Agreement to replace,
effective as of the close of business on July 31, 2006, the Company's existing
Rights Agreement, which has been in place since 1996 and is expiring on July
31, 2006. The information provided in Item 3.03 of this Current Report on Form
8-K is incorporated into this Item 1.01 by reference.
Item 3.03. Material Modification to Rights of Security Holders.
In connection with the expiration on July 31, 2006 of the rights
issued pursuant to the Rights Agreement (as amended to date) by and between the
Company and Wells Fargo Bank, N.A., the Board of Directors of the Company (the
"Board") approved the execution of a new Rights Agreement (the "New Rights
Agreement"), dated as of July 27, 2006, between the Company and Wells Fargo
Bank, N.A., as Rights Agent (the "Rights Agent").
In connection with the New Rights Agreement, on July 27, 2006,
the Board declared a dividend distribution of one right (a "Right") for each
outstanding share of the Company's Common Stock, $0.001 par value per share
(the "Common Stock"), to stockholders of record at the close of business on
August 7, 2006 (the "Record Date"). The Board also authorized the issuance of
one Right for each share of Common Stock issued after the Record Date and prior
to the earliest of the Distribution Date (as defined below), the redemption of
the Rights and the expiration of the Rights and, in certain circumstances,
after the Distribution Date. Except as set forth below and subject to
adjustment as provided in the New Rights Agreement, each Right entitles the
registered holder to purchase from the Registrant one one-thousandth (1/1000th)
of a share of Series A Junior Participating Preferred Stock, par value $0.001
per share (the "Preferred Stock"), at a purchase price of $170.00 per Right (the
"Purchase Price"). The terms of the Rights are set forth in the New Rights
Agreement.
Upon payment of the dividend at the close of business on the
Record Date, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates (as
defined below) will be distributed. The Rights will separate from the Common
Stock upon the earliest of (i) 10 days following a public announcement that a
person or group (an "Acquiring Person"), together with persons affiliated or
associated with it, has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date"), (ii) 10 business days (or such later date as the Board of
Directors of the Company shall determine) following the commencement of a
tender offer or exchange offer that would result in a person or group becoming
an Acquiring Person, in either instance other than pursuant to a Qualifying
Offer (as defined below), or (iii) 10 business days following a determination
by the Board of Directors of the Company that a person (an "Adverse Person"),
alone or together with its affiliates and associates, has become the beneficial
owner of more than 10% of the Common Stock and that (a) such beneficial
ownership is intended to cause the Company to repurchase the Common Stock
beneficially owned by such person or to cause pressure on the Company to take
action or enter into transactions intended to provide such person with
short-term financial gain under circumstances where the Board determines that
the best long-term interests of the Company would not be served by taking such
action or entering into such transactions at the time, or (b) such beneficial
ownership is causing or reasonably likely to cause a material adverse impact on
the business or prospects of the Company; provided, however, that the
Boardshall not declare any person to be an Adverse Person if such person has
reported or is required to report its ownership of Common Stock on Schedule 13G
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
on Schedule 13D under the Exchange Act which Schedule 13D does not state any
intention to, or reserve the right to, control or influence the Company or
engage in certain other actions, so long as such person neither reports nor is
required to report such ownership other than as described in this proviso (the
earliest of such dates being called the "Distribution Date"). Notwithstanding
the foregoing, a Passive Institutional Investor (as defined in the New Rights
Agreement) may be or become the beneficial owner of Common Stock representing
less than 20% of the shares of Common Stock then outstanding without becoming
an Acquiring Person, as long as the Passive Institutional Investor continues to
meet the definition of such term as set forth in the New Rights Agreement.
Generally, a Passive Institutional Investor is defined as a person who or
which, as of March 14, 2001, was the beneficial owner of shares of Common Stock
representing 15% or more of the shares of Common Stock then outstanding and had
a Schedule 13G on file with the Securities and Exchange Commission with respect
to such beneficial ownership, so long as such person is an institutional
investor that acquired the Common Stock in the ordinary course of its business,
that is not required to (and does not) report its beneficial ownership on a
Schedule 13D under the Exchange Act and that meets certain other criteria
relating to such institutional investor's not having a purpose to control or
influence the management or policies of the Company. In addition, excluded from
the definition of Acquiring Person is (1) any person who becomes the beneficial
owner of 15% or more (or, in the case of a Passive Institutional Investor, 20%
or more) of the outstanding Common Stock solely by reason of purchases of
Common Stock by the Company or any of its subsidiaries or employee benefit
plans or receipt of newly-issued Common Stock directly from the Company
provided such person does not thereafter acquire additional shares of Common
Stock and (2) any person that reports or is required to report on a specified
basis beneficial ownership of less than 25% of the outstanding Common Stock
and, within 10 business days after the Company requests, certifies that such
person acquired shares of the Common Stock in excess of 14.9% (or, if such
person is a Passive Institutional Investor, 19.9%) of the outstanding Common
Stock inadvertently or without knowledge of the terms of the Rights and
together with such person's affiliates and associates thereafter does not
acquire additional shares of Common Stock while the beneficial owner of 15% or
more (or, in the case of a Passive Institutional Investor, 20% or more) of the
outstanding Common Stock.
Until the Distribution Date (or earlier redemption or expiration
of the Rights), (i) the Rights will be transferred with and only with the
Common Stock (except in connection with the redemption of the Rights), (ii)
Common Stock certificates issued after the Record Date upon transfer,
replacement or new issuance of Common Stock will contain a notation
incorporating the New Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. Pursuant to the New Rights Agreement, the Company reserves the
right to require prior to the occurrence of a Triggering Event (as defined
below) that, upon any exercise of Rights, a number of Rights be exercised so
that only whole shares of Preferred Stock would be issued.
The Rights will become first exercisable on the Distribution
Date and will expire at the close of business on July 31, 2016, unless such
date is extended (such date, as so extended, if applicable, the "Final
Expiration Date") or the Rights are earlier redeemed or exchanged by the
Company as described below (the date of the earliest to occur of any of the
foregoing, including the Final Expiration Date, the "Expiration Date").
Notwithstanding the foregoing, the Rights will not be exercisable after the
occurrence of a Triggering Event (as defined below) until the Company's right
of redemption has expired.
As soon as practicable after the Distribution Date, separate
certificates evidencing the Rights (the "Rights Certificates") will be mailed
to holders of record of the Common Stock as of the close of business on the
Distribution Date and, thereafter, such separate Rights Certificates alone will
evidence the Rights. Except for shares of Common Stock issued or sold after the
Distribution Date pursuant to the exercise of stock options or under any
employee benefit plan or arrangement granted or awarded prior to the
Distribution Date, or the exercise, conversion or exchange of securities issued
by the Company, and except as otherwise determined by the Board of Directors of
the Company, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
In the event that any person shall become (a) an Acquiring
Person, except pursuant to an offer for all outstanding shares of Common Stock
that at least a majority of the independent directors of the Company determine,
after receiving advice from one or more investment banking firms, to be fair to
the Company's stockholders and not inadequate and to be otherwise in the best
interests of the Company and its stockholders (a "Qualifying Offer") or (b) an
Adverse Person (either such event is referred to herein as a "Triggering
Event"), then the Rights will "flip-in" and entitle each holder of a Right,
except as described below, to purchase, upon exercise at the then-current
Purchase Price, that number of shares of Common Stock having a market value of
two times such Purchase Price.
Any Rights beneficially owned at any time on or after the
earlier of the Distribution Date and the Stock Acquisition Date by an Acquiring
Person, an Adverse Person or an affiliate or associate of an Acquiring Person
or an Adverse Person (whether or not such ownership is subsequently
transferred) will become null and void upon the occurrence of a Triggering
Event, and any holder of such Rights will have no right to exercise such
Rights.
In the event that, following the Stock Acquisition Date, the
Company is acquired in a merger or other business combination in which the
Common Stock does not remain outstanding or is changed (other than a merger
consummated pursuant to a Qualifying Offer) or 50% of the assets, cash flow or
earning power of the Company and its Subsidiaries (as defined in the New Rights
Agreement) (taken as a whole) is sold or otherwise transferred to any person
(other than the Company or any Subsidiary of the Company) in one transaction or
a series of related transactions, the Rights will "flip-over" and entitle each
holder of a Right, except as described in the preceding paragraph, to purchase,
upon the exercise of the Right at the then-current Purchase Price, that number
of shares of common stock of the acquiring company (or, in certain
circumstances, one of its affiliates) which at the time of such transaction
would have a market value of two times such Purchase Price.
The number of Rights associated with each share of Common Stock
will be proportionately adjusted after the Record Date and prior to the
Distribution Date (or earlier redemption or expiration of the Rights) for any
(i) declaration of a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (ii) subdivision of the outstanding shares of Common
Stock, or (iii) combination of the outstanding shares of Common Stock into a
smaller number of shares, such that the number of Rights thereafter associated
with each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
In addition, the Purchase Price is subject to adjustment from
time to time to prevent dilution upon the (i) declaration of a dividend on the
Preferred Stock payable in shares of Preferred Stock, (ii) subdivision of the
outstanding Preferred Stock, (iii) combination of the outstanding Preferred
Stock into a smaller number of shares, (iv) issuance of any shares of the
Company's capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), (v) grant to holders
of the Preferred Stock of certain rights, options, or warrants to subscribe for
Preferred Stock or securities convertible into Preferred Stock at less than the
current market price of the Preferred Stock or (vi) distribution to holders of
the Preferred Stock of cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other than a
dividend payable in Preferred Stock, but including any dividend payable in
stock other than Preferred Stock) or evidences of indebtedness, or of
subscription rights or warrants.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% of the Purchase Price.
At any time until the earlier of (i) 10 days following the Stock
Acquisition Date and (ii) the Final Expiration Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right. The Company
may, at its option, pay the redemption price in cash, shares of Common Stock
(based on the current market price of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board.
Immediately upon the action of the Board ordering redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders
of Rights will be to receive the applicable redemption price. In addition, at
any time after a person becomes an Acquiring Person or is determined to be and
Adverse Person and prior to such person becoming (together with such person's
affiliates and associates) the beneficial owner of 50% or more of the
outstanding Common Stock, at the election of the Board, the outstanding Rights
(other than those beneficially owned by an Acquiring Person, Adverse Person or
an affiliate or associate of an Acquiring Person or Adverse Person) may be
exchanged, in whole or in part, for shares of Common Stock, or shares of
preferred stock of the Company having essentially the same value or economic
rights as such shares. Immediately upon the action of the Board authorizing any
such exchange, and without any further action or any notice, the Rights (other
than Rights which are not subject to such exchange) will terminate and such
Rights will only entitle holders to receive the shares issuable upon such
exchange.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that
the Rights become exercisable for Common Stock (or other consideration) of the
Company or for common stock of the acquiring company or in the event of the
redemption of the Rights as set forth above.
At any time prior to the Distribution Date, the Company may,
without the approval of any holder of the Rights, supplement or amend any
provision of the New Rights Agreement. Thereafter, the New Rights Agreement may
be amended in order to (i) cure ambiguities, (ii) correct or supplement
defective or inconsistent provisions, (iii) shorten or lengthen any time period
thereunder or (iv) change or supplement the provisions thereunder in any manner
which the Company deems necessary or desirable and does not adversely affect
the interests of the holders of Rights Certificates (other than an Acquiring
Person or Adverse Person). Notwithstanding anything in the New Rights Agreement
to the contrary, the New Rights Agreement may not be amended, except to cure
ambiguities and to correct or supplement defective or inconsistent provisions,
at a time when the Rights are not redeemable.
Each outstanding share of Common Stock on the Record Date will
receive one Right. Until the Distribution Date, the Company will issue one
Right with each share of Common Stock that shall become outstanding so that all
such shares will have attached Rights. In addition, following the Distribution
Date and prior to the expiration or redemption of the Rights, the Company may
issue Rights when it issues Common Stock only if the Board deems it to be
necessary or appropriate, or in connection with the issuance of shares of
Common Stock pursuant to the exercise of stock options or other employee plans
or upon the exercise, conversion or exchange of certain securities of the
Company. Three hundred fifty thousand (350,000) shares of Preferred Stock have
been reserved for issuance upon exercise of the Rights.
The Rights may have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company in a manner that causes a Triggering Event unless the offer is
conditioned on a substantial number of Rights being acquired or the redemption
of the Rights. The Rights, however, should not affect any prospective offeror
willing to make an offer at a price that is fair and not inadequate and
otherwise in the best interest of the Company and its stockholders. The Rights
should not interfere with any merger or other business combination approved by
the Board since the Board may, at its option, at any time until ten days
following the Stock Acquisition Date, redeem all, but not less than all, of the
then outstanding Rights at the applicable redemption price.
A copy of the New Rights Agreement, including the form of Rights
Certificate, is attached hereto as Exhibit 4.1 and is incorporated herein by
reference. The foregoing summary description of the Rights does not purport to
be complete and is qualified in its entirety by reference to the New Rights
Agreement.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
In connection with the New Rights Agreement, on July 28, 2006,
the Company filed with the Delaware Secretary of State, pursuant to Section
151(g) of the Delaware General Corporation Law, a Certificate of Designation,
Preferences and Rights of Series A Junior Participating Preferred Stock of the
Company, to become effective following the close of business on July 31, 2006
(the "Certificate of Designation"). The filing of the Certificate of
Designation was authorized by the Board in accordance with the Delaware General
Corporation Law. The Certificate of Designation (i) designates 150,000
additional shares of the Company's Preferred Stock, par value $.001 per share,
as "Series A Junior Participating Preferred Stock" so that the total number of
shares of the Company's Preferred Stock, par value $.001 per share, designated
as "Series A Junior Participating Preferred Stock" is increased to 350,000
shares from 200,000 shares, (ii) changes the "Rights Declaration Date" from
July 31, 1996 to July 27, 2006 and (iii) changes the provision governing
amendments affecting the Series A Junior Participating Preferred Stock to read
as follows:
At any time when any shares of Series A Junior Participating
Preferred Stock are outstanding, the certificate of
incorporation of the Corporation shall not be amended in any
manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or
more of the outstanding shares of Series A Junior Participating
Preferred Stock, voting separately as a class in accordance with
the terms of the New Rights Agreement.
Without giving effect to the Certificate of Designation, such provision
currently reads as follows:
The Restated Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would
materially alter or change the powers, preferences or special
rights of the Series A Junior Participating Preferred Stock so
as to affect them adversely without the affirmative vote of the
holders of a majority or more of the outstanding shares of
Series A Junior Participating Preferred Stock, voting separately
as a class.
A copy of the Company's Sixth Amended and Restated Certificate
of Incorporation, as amended to include the Certificate of Designation, is
attached hereto as Exhibit 3.1 and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
- ----------- -----------
3.1 Sixth Amended and Restated Certificate of Incorporation of
Health Net, Inc.
4.1 Rights Agreement, dated as of July 27, 2006, between Health Net,
Inc. and Wells Fargo Bank, N.A., as Rights Agent
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEALTH NET, INC.
Date: July 28, 2006 By: /s/ B. Curtis Westen
--------------------
Name: B. Curtis Westen
Title: Senior Vice President,
General Counsel and Secretary
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Sixth Amended and Restated Certificate of Incorporation of
Health Net, Inc.
4.1 Rights Agreement, dated as of July 27, 2006, between Health Net,
Inc. and Wells Fargo Bank, N.A., as Rights Agent