Health Net 2005 Annual Report Download - page 115

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Rights will first become exercisable on the Distribution Date and will expire on July 31, 2006, unless
earlier redeemed by us as described below.
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 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
Our Board of Directors has previously authorized us to repurchase up to $450 million (net of exercise
proceeds and tax benefits from the exercise of employee stock options) of our common stock under a stock
repurchase program. After giving effect to realized exercise proceeds and tax benefits from the exercise of
employee stock options, our total authority under our stock repurchase program is estimated at $687 million.
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, 2005, we had repurchased an
aggregate of 19,978,655 shares of our common stock under our stock repurchase program at an average price of
$26.86 for aggregate consideration of approximately $537 million. The remaining authorization under our stock
repurchase program as of December 31, 2005 was $150 million after taking into account exercise proceeds and
tax benefits from the exercise of employee stock options. We used net free cash available to the parent company
to fund the share repurchases.
As a result of the Moody’s downgrade in September 2004 and S&P’s downgrade in November 2004 with
respect to our senior unsecured debt rating, we have currently discontinued our repurchases of common stock
under our stock repurchase program. 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 on our senior unsecured debt rating. See Note 6 to our consolidated financial statements for
additional information regarding the Moody’s and S&P downgrades. Our stock repurchase program does not
have an expiration date. As of December 31, 2005, we have not terminated any repurchase program prior to its
expiration date.
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