Exhibit 10.1

[Name]

FORM OF PERFORMANCE SHARE AWARD AGREEMENT

This Performance Share Award Agreement (this “Performance Share Award
Agreement”) is made and entered into as of [DATE OF GRANT] (the “Date of
Grant”), by and between Health Net, Inc., a Delaware corporation (the
“Company”), and [NAME] (the “Recipient”).

WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors
(the “Board”) of the Company has approved the grant of a Performance Share
Award, as hereinafter defined, to the Recipient as set forth below under the
Company’s 2006 Long-Term Incentive Plan (the “Plan”). Capitalized terms used but
not defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the covenants and agreements herein
contained and intending to be legally bound hereby, the parties agree as
follows:

1. Grant of Performance Shares. The Company hereby grants to the Recipient a
Performance Share Award consisting of [TARGET NUMBER] (the “Target Award”)
rights to receive (“Performance Shares”), upon vesting, a share of the Common
Stock, par value $.001 per share (the “Common Stock”) of the Company, subject to
all of the terms and conditions of this Performance Share Award Agreement. The
actual number of shares earned by the Recipient may be less than or greater than
the Target Award, as set forth in Section 2.

2. Lapse of Restrictions. Except as otherwise provided in Section 3 or 10
hereof, the Performance Shares shall vest with respect a percentage of the
Performance Shares (with such percentage ranging between 0% to 200% of the
Target Award) on a date, which shall be as soon as practicable following the
completion of the performance period (which shall be set forth on Appendix I),
upon which the Committee makes a determination (the “Vesting Date”) whether, as
of the completion of the performance period , the performance goals set forth on
Appendix I hereto have been achieved, with the extent of such vesting to be
determined in the manner set forth in such Appendix. Upon the Vesting Date, the
Recipient shall pay to the Company the par value in cash for each share of
Common Stock delivered pursuant to this grant. Shares that have become vested
may be evidenced by stock certificates, at the request of the Recipient, which
certificates shall be registered in the name of the Recipient and delivered to
Recipient within ten (10) days of such request. If the Minimum Performance
Levels (as defined on Appendix I) have not been achieved as of the Vesting Date,
the unvested Performance Shares shall be forfeited without consideration upon
the Vesting Date.

3. Termination of Employment.

 

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(a) Except as otherwise set forth in Section 10, if prior to the Vesting Date,
the Recipient’s employment with the Company is terminated by either the
Recipient or the Company for any reason (a “Termination Event”) other than due
to a Retirement (as defined below) which occurs on or following the second
anniversary of the Date of Grant, then all of the Performance Shares shall be
immediately forfeited at such time. If the Recipient’s employment with the
Company is terminated due to Retirement prior to the Vesting Date, but on or
following the second anniversary of the Date of Grant, then a portion of the
Performance Shares not yet vested shall remain eligible to vest on the Vesting
Date, which portion shall equal the total number of Performance Shares
multiplied by a fraction, the numerator of which is the number of calendar days
which have elapsed from the Date of Grant to the date of Retirement and the
denominator of which is the number of calendar days from the Date of Grant until
the Vesting Date (such portion, the “Eligible Performance Shares”). The portion
of the Performance Shares which do not remain eligible to vest in accordance
with the foregoing sentence shall be forfeited without consideration upon the
date of Retirement. The Eligible Performance Shares which remain eligible to
vest shall vest only of the Minimum Performance Levels are attained, and the
extent of such vesting shall be determined in the manner set forth on Appendix
I. For purposes hereof “Retirement” shall mean the Recipient’s voluntary
termination of employment at or after the date upon which the Recipient has
attained both age 55 and 10 years of continuous service with the Company.

(b) If the Recipient violates the terms of Section 4 of this Agreement (a
“Breach Event”), in addition to being subject to all remedies in law or equity
that the Company may assert, then at any time thereafter the Company, in its
sole and absolute discretion, may, with respect to any Common Stock attributable
to a Performance Share: (i) to the extent that the Common Stock is beneficially
owned by the Recipient, reacquire from the Recipient, in return for an amount
equal to the par value of the Common Stock which was paid by the Recipient to
the Company as described in Section 2 above, any or all of the shares of such
Common Stock; and (ii) to the extent that the Common Stock has been sold,
assigned or otherwise transferred by the Recipient, recover from the Recipient
an amount equal to the Gain Realized (as defined in Section 4 below) from such
sale, assignment or transfer.

(c) Upon the occurrence of a Breach Event, the Company may elect to purchase all
or any portion of the Common Stock pursuant to this Section 3 by delivery of
written notice (the “Repurchase Notice”) to the Recipient within ninety
(90) days after the occurrence of such Breach Event.

4. Employment/Association with Company Competitor. The Recipient hereby agrees
that, during (i) the six-month period following a termination of the Recipient’s
employment with an Employer that entitles the Recipient to receive severance
benefits under an agreement with or the policy of the Company or (ii) the
twelve-month period following a termination of the Recipient’s employment with
an Employer that does not entitle the Recipient to receive such severance
benefits (the period referred to in either clause (i) or (ii), the
“Noncompetition Period”), the Recipient shall not undertake any employment or
activity (including, but not limited to, consulting services) with a Competitor
(as defined below), where

 

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the loyal and complete fulfillment of the duties of the competitive employment
or activity would call upon the Recipient to reveal, to make judgments on or
otherwise use any confidential business information or trade secrets of the
business of the Company or any Subsidiary to which the Recipient had access
during the Recipient’s employment with the Employer. In addition, the Recipient
agrees that, during the Noncompetition Period applicable to the Recipient
following termination of employment with the Employer, the Recipient shall not,
directly or indirectly, solicit, interfere with, hire, offer to hire or induce
any person, who is or was an employee of the Company or any of its Subsidiaries
during the 12 month period prior to the date of such termination of employment,
to discontinue his or her relationship with the Company or any of its
Subsidiaries or to accept employment by, or enter into a business relationship
with, the Recipient or any other entity or person. In the event that the
Recipient breaches the covenants set forth in this first paragraph of Section 4,
it shall be considered a Breach Event under Section 3 above.

For purposes of this Section 4: “Gain Realized” shall equal the difference
between (x) the par value paid by the Recipient for the Common Stock issued in
respect of the Performance Shares and (y) the greater of the Fair Market Value
(as defined in the Plan) of the Common Stock issued in respect of the
Performance Shares (I) on the date of transfer of such Common Stock or (II) on
the date such competitive activity with a Competitor was commenced by the
Recipient; and “Competitor” shall refer to any health maintenance organization
or insurance company that provides managed health care or related services
similar to those provided by the Company or any Subsidiary.

It is hereby further agreed that if any court of competent jurisdiction shall
determine that the restrictions imposed in this Section 4 are unreasonable
(including, but not limited to, the definition of Competitor or the time period
during which this provision is applicable), the parties hereto hereby agree to
any restrictions that such court would find to be reasonable under the
circumstances.

The Recipient acknowledges that the services to be rendered by the Recipient to
the Company are of a special and unique character, which gives this Agreement a
peculiar value to the Company, the loss of which may not be reasonably or
adequately compensated for by damages in an action at law, and that a material
breach or threatened breach by the Recipient of any of the provisions contained
in this Section 4 will cause the Company irreparable injury. Recipient therefore
agrees that the Company may be entitled, in addition to the remedies set forth
above in this Section 4 and any other right or remedy, to a temporary,
preliminary and permanent injunction, without the necessity of proving the
inadequacy of monetary damages or the posting of any bond or security, enjoining
or restraining Recipient from any such violations or threatened violations.

5. No Rights as a Stockholder. The Recipient shall not be entitled to dividends,
if any, that are paid with respect to the shares of Common Stock unless and
until the Performance Shares have vested and shares of Common Stock have been
delivered with respect thereto. Recipient shall also not have the right to vote
any shares subject to the Performance Shares unless and until the Performance
Shares shall have vested and shares of Common Stock

 

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have been delivered with respect thereto.

6. Notices. Any notice or communication given hereunder shall be in writing and
shall be given by fax or first class mail, certified or registered with return
receipt requested, and shall be deemed to have been duly given three (3) days
after mailing or twenty-four (24) hours after transmission of a fax to the
following addresses:

 

To the Recipient at:

   [NAME]    [ADDRESS]                  

To the Company at:

  

Health Net, Inc.

21650 Oxnard Street

Woodland Hills, California 91367

Attention: General Counsel

  

or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

7. Securities Laws Requirements. The Company shall not be obligated to transfer
any shares of Common Stock from the Recipient to another party, if such
transfer, in the opinion of counsel for the Company, would violate the
Securities Act of 1933, as amended from time to time (the “Securities Act”) (or
any other federal or state statutes having similar requirements as may be in
effect at that time). Further, the Company may require as a condition of
transfer of any shares to the Recipient that the Recipient furnish a written
representation that he or she is holding the shares for investment and not with
a view to resale or distribution to the public. The Company either has or will
file an appropriate Registration Statement on Form S-8 (or other applicable
form), and has taken or will take such actions as necessary to keep the
information therein current from time to time, in order to register the Common
Stock under the Securities Act and shall use its commercially reasonable efforts
to cause such Registration Statement to become effective and to maintain the
effectiveness of such registration.

8. Protections Against Violations of Performance Share Award Agreement. This
Performance Share Award Agreement is not transferable, other than by will or
pursuant to the laws of descent and distribution.

9. Taxes. The Recipient understands that he or she (and not the Company) shall
be responsible for any tax obligation that may arise as a result of the
transactions contemplated by this Performance Share Award Agreement and shall
pay to the Company, in any method as set forth in Section 8.6 of the Plan, the
amount determined by the Company to be such tax obligation at the time such tax
obligation arises. If the Recipient fails to make such payment, the number of
shares necessary to satisfy the tax obligations shall be forfeited.

10. Change in Control. Notwithstanding the provisions of Section 3 hereof, in

 

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the event that there shall occur a Change in Control (as defined in the Plan),
each Performance Share shall become fully vested immediately upon the occurrence
of the Change in Control at target. Notwithstanding anything in the Plan or this
Performance Share Award Agreement to the contrary, there shall be no
acceleration of the payment of the Performance Shares if such accelerated
payment would cause the Performance Shares to fail to comply with the provisions
of Section 409A of the Internal Revenue Code of 1986, as amended.

11. Failure to Enforce Not a Waiver. The failure of the Company to enforce at
any time any provision of this Performance Share Award Agreement shall in no way
be construed to be a waiver of such provision or of any other provision hereof.

12. Governing Law. This Performance Share Award Agreement shall be governed by
and construed according to the laws of the State of Delaware without regard to
its principles of conflict of laws.

13. Amendments. This Performance Share Award Agreement may be amended or
modified at any time only by an instrument in writing signed by each of the
parties hereto, and approved by the Committee. The Board may terminate or amend
the Plan at any time; provided, however, that the termination or any
modification or amendment of the Plan shall not, without the consent of the
Recipient, affect the rights of the Recipient under this Performance Share Award
Agreement.

14. Survival of Terms. This Performance Share Award Agreement shall apply to and
bind the Recipient and the Company and their respective permitted assignees and
transferees, heirs, legatees, executors, administrators and legal successors.

15. Agreement Not a Contract for Services; Rights to Terminate Employment.
Neither the grant of the Performance Share, this Performance Share Award
Agreement nor any other action taken pursuant to this Performance Share Award
Agreement shall constitute or be evidence of any agreement or understanding,
express or implied, that the Recipient has a right to continue to provide
services as an officer, director, employee or consultant of the Company and/or
the Employer for any period of time or at any specific rate of compensation.
Nothing in the Plan or in this Performance Share Award Agreement shall confer
upon the Recipient the right to continue in the employment of an Employer or
affect any right which an Employer may have to terminate the employment of the
Recipient. The Recipient specifically acknowledges that the Employer intends to
review the Recipient’s performance from time to time, and that the Company
and/or the Employer has the right to terminate the Recipient’s employment at any
time, including a time in close proximity to the Vesting Date, for any reason,
with or without cause. The Recipient acknowledges that upon his or her
termination of employment with an Employer for any reason (other than as set
forth above with respect to Retirement), then all Performance Shares not yet
vested shall be immediately forfeited at such time.

16. Decisions of Board or Committee. The Board or the Committee shall have the
right to resolve all questions which may arise in connection with this
Performance

 

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Share Award Agreement or the Performance Shares. Any interpretation,
determination or other action made or taken by the Board or the Committee
regarding the Performance Shares, the Plan or this Performance Share Award
Agreement shall be final, binding and conclusive.

17. Failure to Execute Agreement. This Performance Share Award Agreement and the
Performance Shares granted hereunder is subject to the Recipient returning a
counter-signed copy of this Performance Share Award Agreement to the designated
representative of the Company on or before 60 days after the date of its
distribution to the Recipient. In the event that the Recipient fails to so
return a counter-signed copy of this Agreement within such 60-day period, then
this Performance Share Award Agreement and the Performance Shares granted
hereunder shall automatically become null and void and shall have no further
force or effect. Electronic acceptance of this Performance Share Award Agreement
shall constitute an execution of the Performance Share Award Agreement by the
Recipient and a return of the counter-signed copy to the Company.

 

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Performance Share Award Agreement on the day and year first above written.

 

Health Net, Inc.   Name: Title: President and Chief Executive Officer THE
UNDERSIGNED RECIPIENT HEREBY EXPRESSLY ACKNOWLEDGES AND AGREES THAT HE/SHE IS AN
EMPLOYEE AT WILL AND MAY BE TERMINATED BY THE EMPLOYER AT ANY TIME, WITH OR
WITHOUT CAUSE. The undersigned hereby accepts and agrees to all the terms and
provisions of the foregoing Performance Share Award Agreement and to all the
terms and provisions of the Health Net, Inc. 2006 Long-Term Incentive Plan, as
amended to date, incorporated by reference herein. Recipient:   [NAME]

 

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APPENDIX I

PERFORMANCE PERIOD AND PERFORMANCE GOALS

 

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