Health Net 2007 Annual Report Download - page 126

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We become entitled to an income tax deduction in an amount equal to the taxable income reported by the
holders of the stock options, restricted shares and RSUs when vesting occurs, the restrictions are released and the
shares are issued. Stock options, restricted common stock and RSUs are forfeited if the employees terminate their
employment prior to vesting.
Note 8—Capital Stock
As of December 31, 2007, there were 143,477,000 shares of our Common Stock issued and 33,178,000
shares of Common Stock held in treasury, resulting in 110,299,000 shares of our Common Stock outstanding.
Shareholder Rights Plan
On July 27, 2006, our Board of Directors approved the extension of the benefits afforded by our former
shareholder rights plan, which expired at the close of business on July 31, 2006, by adopting a new shareholder
rights plan pursuant to a Rights Agreement with Wells Fargo Bank, N.A. (the “Rights Agent”), dated as of
July 27, 2006 (the “Rights Agreement”).
In connection with the Rights Agreement, on July 27, 2006, our Board of Directors declared a dividend
distribution of one right (a “Right”) for each outstanding share of Common Stock to stockholders of record at the
close of business on August 7, 2006 (the “Record Date”). Our Board of Directors 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. Subject to certain exceptions and adjustment as provided in the Rights
Agreement, each Right entitles the registered holder to purchase from us one one-thousandth (1/1000th) of a share
of Series A Junior Participating Preferred Stock, par value of $0.001 per share, at a purchase price of $170.00 per
Right (the “Purchase Price”). The terms of the Rights are set forth in the Rights Agreement.
Rights will attach to all common stock certificates representing shares then outstanding and no separate
Rights certificates will be distributed. Subject to certain exceptions contained in the Rights Agreement, the
Rights will separate from the Common Stock on the date that is 10 business days following (i) any person,
together with its affiliates and associates (an Acquiring Person), becoming the beneficial owner of 15% or more
of the outstanding common stock, (ii) the commencement of a tender or exchange offer that would result in any
person, together with its affiliates and associates, becoming the beneficial owner of 15% or more of the
outstanding common stock or (iii) the determination by the Board of Directors that a person, together with its
affiliates and associates, has become the beneficial owner of 10% or more of the common stock and that such
person is an “Adverse Person,” as defined in the Rights Agreement (the earliest of such dates being called the
“Distribution Date”). The Rights Agreement provides that certain passive institutional investors that beneficially
own less than 20% of the outstanding shares of our common stock shall not be deemed to be Acquiring Persons.
The Rights will first become exercisable on the Distribution Date and will expire at the close of business on
July 31, 2016 unless such date is extended or the Rights are 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 and such person’s affiliates and associates, 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
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