Health Net 2009 Annual Report Download - page 114

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 3—Acquisitions and Dispositions
Sale of Northeast Health Plan Subsidiaries
On December 11, 2009, we completed the Northeast Sale. See Note 1 for additional information on the
Northeast Sale.
At the closing, United paid to us $350 million, consisting of (i) a $60 million minimum payment for the
commercial membership of the acquired business and the Medicare and Medicaid businesses of the Acquired
Companies, and (ii) $290 million representing a portion of the adjusted tangible net equity of the Acquired
Companies at closing. Under the Stock Purchase Agreement, we will receive one-half of the remaining amount
of the closing adjusted tangible net equity of the Acquired Companies on the first anniversary of closing and the
other half on the second anniversary, subject to certain adjustments.
After closing, United could pay us additional consideration as our Northeast commercial members,
Medicare and/or Medicaid businesses transition to other United products to the extent such amounts exceed the
initial minimum payment of $60 million (referred to as contingent membership renewal). We will continue to
serve the members of the Acquired Companies under the United Administrative Services Agreements, until all
members are either transitioned to a legacy United entity or non-renewed. We expect the United Administrative
Services Agreements to be in effect for approximately two years following the December 11, 2009 closing date.
Under the Stock Purchase Agreement, we retain financial responsibility for the profits or losses, subject to
specified adjustments, of the Acquired Companies for the period beginning on the closing date and ending on the
earlier of (i) the second anniversary of the closing date and (ii) the date that all of the United Administrative
Services Agreements are terminated. Under the Stock Purchase Agreement, we also will be entitled to 50% of the
profits or losses associated with the Acquired Companies’ Medicare business for the year ended December 31,
2010 (subject to a cap of $10 million of profit or loss). In the event that the Acquired Companies renew the
Medicare contract for the acquired business for the year ended December 31, 2011, United will be entitled to all
of the after tax profits and losses relating to the business for that year (subject to certain limitations). We have
agreed to administer the Medicare business of the Acquired Companies for 2010 and for 2011 (only if the related
Medicare contract is not transferred to United as of January 1, 2011). We expect to administer the Medicaid
business of the Acquired Companies until no later than June 30, 2010, which is the termination date for the
related Medicaid contract. We expect the revenues earned and expenses incurred under the United Administrative
Services Agreements to be significant.
In addition, at the closing, our subsidiary, Health Net Life Insurance Company, entered into a business
transition agreement with certain affiliates of United, pursuant to which the United affiliates acquired
membership renewal rights for certain Health Net Life Insurance Company health care business in the states of
Connecticut and New Jersey. We also entered into a non-competition agreement with Buyer at closing, pursuant
to which we have agreed not to compete with the acquired business in the States of New York, New Jersey,
Connecticut and Rhode Island for a period of five years, and certain other restrictive covenants. We retained the
renewal rights and our ability to sell our stand-alone PDP products in Connecticut and New Jersey through
Health Net Life Insurance Company.
We realized the following items as of and for the year ended December 31, 2009 related to the sale of
Acquired Companies:
• Cash proceeds of $350 million;
• Amounts receivable of $69 million (net of $11 million discount) from United for the remaining
adjusted tangible net equity at fair value due on the first anniversary of closing recorded as other
current assets;
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