Health Net 2003 Annual Report Download - page 95

adjusted carrying value of our Senior Notes being hedged. The net effect on our operating results will be that the interest
expense on our Senior Notes is recorded based on variable interest rates.
Note 7—Stock Option and Employee Stock Purchase Plans
We have various stock option plans which cover certain employees, officers and non-employee directors, and an
employee stock purchase plan under which substantially all of our full-time employees are eligible to participate. The
stockholders have approved these plans except for the 1998 Stock Option Plan which was adopted by our Board of
Directors. During 2002, the stockholders approved the 2002 Stock Option Plan. During 2003 and 2002, we issued 190,000
and 80,000 shares of restricted stock, respectively (see Note 2). During the second quarter ended June 30, 2002, certain
option grants under the 1997 and 1998 plans became vested as a result of our stock attaining a closing market price of $25
for 20 consecutive trading days pursuant to an acceleration clause in the plans.
Under our various employee stock option plans and our non-employee director stock option plan, we grant options at
prices at or above the fair market value of the stock on the date of grant. The options carry a maximum term of up to 10
years and in general vest ratably over three to five years, except for certain option grants under the 1997 and 1998 plans
where vesting is accelerated by virtue of attaining certain performance targets. We have reserved a total of 19.0 million
shares of our Class A Common Stock for issuance under the stock option plans. As of December 31, 2003, 0.7 million
outstanding options had accelerated vesting provisions.
Under our Employee Stock Purchase Plan, we provide employees with the opportunity to purchase stock through
payroll deductions. Eligible employees may purchase on a monthly basis our Class A Common Stock at 85% of the lower
of the market price on either the first or last day of each month.
Stock option activity and weighted average exercise prices for the years ended December 31 are presented below:
2003 2002 2001
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Number of
Options
Weighted
Average
Exercise Price
Outstanding at January 1 ................ 12,767,849 $21.06 13,106,184 $18.25 12,219,782 $17.83
Granted ............................. 3,694,313 25.13 4,873,731 23.74 5,439,036 22.79
Exercised ............................ (2,685,966) 15.37 (3,504,250) 13.57 (820,247) 11.52
Canceled ............................ (1,085,940) 23.83 (1,707,816) 21.40 (3,732,387) 25.05
Outstanding at December 31 ............. 12,690,256 $23.32 12,767,849 $21.06 13,106,184 $18.25
Exercisable at December 31 ............. 5,238,455 5,567,079 3,364,436
The following table summarizes the weighted average exercise price and weighted average remaining contractual life
for significant option groups outstanding at December 31, 2003:
Options Outstanding Options Exercisable
Range of Exercise
Prices Number of Options
Weighted Average
Remaining
Contractual Life
(Years)
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
$7.63 – $20.99 1,492,772 4.18 $11.42 1,424,506 $11.03
21.15 – 22.01 877,750 8.07 21.96 270,986 21.92
22.11 – 22.64 2,043,787 8.60 22.63 516,627 22.63
22.67 – 23.02 2,316,238 6.63 23.02 1,550,409 23.02
23.49 – 24.06 2,766,584 9.08 24.05 36,135 23.78
24.12 – 29.94 1,825,237 7.95 26.90 458,292 27.64
30.67 – 32.99 1,272,250 5.37 32.23 920,500 32.40
33.75 – 36.25 95,638 4.58 35.45 61,000 35.82
$7.63 – $36.25 12,690,256 7.34 $23.32 5,238,455 $21.87
F-22