Health Net 2004 Annual Report Download - page 113

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Subject to certain exceptions contained in the Rights Agreement, in the event that any person shall become an Acquiring Person
or be declared to be an Adverse Person, then the Rights will “flip-in” and entitle each holder of a Right, other than any Acquiring
Person or Adverse Person, to purchase, upon exercise at the then-current exercise price of such Right, that number of shares of
common stock having a market value of two times such exercise price.
In addition, and subject to certain exceptions contained in the Rights Agreement, in the event that we are acquired in a merger or
other business combination in which the common stock does not remain outstanding or is changed or 50% of the assets or earning
power of the Company is sold or otherwise transferred to any other person, the Rights will “flip-over” and entitle each holder of a
Right, other than an Acquiring Person or an Adverse Person, to purchase, upon exercise at the then current exercise price of such
Right, such number of shares of common stock of the acquiring company which at the time of such transaction would have a market
value of two times such exercise price.
We may redeem the Rights until the earlier of 10 days following the date that any person becomes the beneficial owner of 15%
or more of the outstanding common stock and the date the Rights expire at a price of $.01 per Right.
In July 2004, we appointed Wells Fargo Bank, N.A. to serve as the Rights Agent under the Rights Agreement.
The foregoing summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to
the Rights Agreement, which is incorporated by reference in Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to this Annual Report on Form 10-K,
and to Amendment No. 3 to our registration statement on Form 8-A/A filed with the SEC on July 26, 2004.
Stock Repurchase Program
In April 2002, our Board of Directors authorized us to repurchase up to $250 million (net of exercise proceeds and tax benefits
from the exercise of employee stock options) of our common stock under our stock repurchase program. In August 2003, our Board
of Directors authorized us to repurchase up to an additional $200 million (net of exercise proceeds and tax benefits from the exercise
of employee stock options) of our common stock under our stock repurchase program. Share repurchases are made under our stock
repurchase program from time to time through open market purchases or through privately negotiated transactions. As of December
31, 2004, we had repurchased an aggregate of 19,978,655 shares of our common stock under our stock repurchase program for
aggregate consideration of approximately $536.6 million before taking into account exercise proceeds and tax benefits from the
exercise of employee stock options. We repurchased 3,179,400 shares of common stock during the year ended December 31, 2004 for
$83.7 million. As a result of the ratings action taken by Moody’s in September 2004 and S&P in November 2004 with respect to our
senior unsecured debt rating, we ceased repurchasing shares of common stock under our stock repurchase program through the end of
2004. Our decision to resume the repurchase of shares under our stock repurchase program will depend on a number of factors,
including, without limitation, any future ratings action taken by Moody’s or S&P (see Note 6).
During 2004, we received approximately $18 million in cash and recognized $2 million in tax benefits as a result of option
exercises. During 2003 and 2002, we received approximately $42 million and $48 million in cash, respectively, and recognized $15
million and $18 million in tax benefits, respectively, as a result of option exercises.
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