EX-10.3






[NAME OF EMPLOYEE]

Emp ID: [EMPLOYEE ID]




FORM OF

NONQUALIFIED STOCK OPTION AGREEMENT

UNDER THE HEALTH NET, INC.

[NAME OF PLAN]




This agreement (the “Option Agreement”) is made as of [DATE] (the “Grant Date”), between
Health Net, Inc., a Delaware corporation (the “Company”), and [EMPLOYEE NAME], an employee of the
Company or a Subsidiary of the Company (the “Optionee”).



Pursuant to the Health Net, Inc. [NAME OF PLAN] (the “Plan”), the Compensation Committee of
the Board of Directors of the Company (the “Committee”) or an appropriate executive officer of the
Company empowered by the Committee, has determined that the Optionee is to be granted, on the terms
and conditions set forth herein, a nonqualified stock option (the “Option”) to purchase shares of
Common Stock of the Company, par value $.001 per share (the “Common Stock”), and hereby grants such
Option. Capitalized terms used but not defined herein shall have the meanings set forth in the
Plan.



1. Number of Shares and Option Price. The Option is to purchase [NUMBER OF SHARES]
shares of Common Stock (the “Option Shares”) at a price of [GRANT PRICE] per share (the “Option
Price”), which is equal to the Fair Market Value (as defined in the Plan) of the Option Shares as
of the date hereof.



2. Exercise of Option. Except as set forth in Sections 3 and 9, the Option shall
become exercisable in cumulative installments on the dates (the “Vesting Dates”) [NUMBER OF YEARS]
years after the Grant Date to the extent of [     %] of the Option Shares covered by the Option, and
[on each subsequent anniversary of the Grant Date OR on the fourth anniversary of the Grant Date]
to the extent of an additional [     %] of the Option Shares covered by the Option, until the Option
has become exercisable as to all of the Option Shares. The Option may be exercised only to
purchase whole shares, and in no case may a fraction of a share be purchased.



3. Term of Option and Termination of Employment.



(a) General Term. The term of the Option and this Option Agreement shall commence on
the date hereof. The right of the Optionee to exercise the Option with respect to any Option
Shares, to purchase any such Option Shares and all other rights of the Optionee with respect to any
such Option Shares shall terminate on the tenth anniversary of the Grant Date, unless the Option
has been earlier terminated as provided either in paragraphs (b) through (h) below or under the
Plan.



(b) Death of Optionee. If the Optionee shall die prior to the exercise of the
Option, then:



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(i) if the Optionee dies while employed by an Employer (as defined in the
Plan), then the Option (subject to subsection (h) below) may be exercised by the
legatee(s) or personal representative of the Optionee at any time within one year
after the Optionee’s death;




(ii) if the Optionee’s employment with the Employer was terminated due to a
Disability (as defined in the Plan) and the Optionee dies within one year after
termination of employment, then the Option (subject to subsection (h) below) may be
exercised by the legatee(s) or personal representative of the Optionee any time
during the remainder of the period during which the Optionee would have been able to
exercise the Option pursuant to subsection (c) below had the Optionee not died;




(iii) if the Optionee’s employment is terminated due to Retirement (as defined
below), and the Optionee dies during the period after Retirement when the Option was
still exercisable by the Optionee, then the Option (subject to subsection (h) below)
may be exercised by the legatee(s) or personal representative of the Optionee at any
time during the remainder of the period during which the Optionee would have been
able to exercise the Option pursuant to subsection (d) below had the Optionee not
died; and




(iv) if the Optionee dies within three months after termination of employment
by the Employer without Cause, as determined pursuant to Subsection 3(f), and
clauses (ii) and (iii) above are not applicable, then the Option (subject to
subsection (h) below) may be exercised by the legatee(s) or personal representative
of the Optionee at any time within one year after the Optionee’s death.



(c) Disability. If the Optionee’s employment with the Employer shall terminate prior
to the exercise of the Option as a result of a Disability, then the Option (subject to subsection
(h) below) may be exercised by the Optionee (or his or her personal representative) at any time
within one year after the Optionee’s termination of employment.



(d) Retirement. If the Optionee’s employment with the Employer shall terminate prior
to the exercise of the Option as a result of Retirement, then the Option (subject to subsection (h)
below) may be exercised at any time within one year after the Optionee’s termination of employment.
If the Recipient’s employment with the Company is terminated prior to any Vesting Date due to
Retirement, then a portion of the Option shall vest immediately prior to such Retirement, if
necessary, such that the total vested portion of the Option shall equal the total number of Options
multiplied by a fraction, the numerator of which is the number of full years which have elapsed
from the Date of Grant to the date of Retirement and the denominator of which is the number of full
years in the total vesting period. 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.



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(e) Termination by the Employer for Cause. If the Optionee’s employment with the
Employer shall be terminated by the Employer prior to the exercise of the Option for Cause then the
Option shall immediately terminate and shall immediately cease to be exercisable and shall be
forfeited to the Company. For purposes of this Agreement, “Cause” shall have the meaning set forth
in Section [INSERT SECTION NUMBER HERE] of the Plan.



(f) Termination by the Employer Without Cause. If prior to the exercise of the
Option, the Optionee’s employment with the Employer shall be terminated by the Employer without
Cause, then the Option (subject to subsection (h) below) held by the Optionee may be exercised at
any time within three months after the Optionee’s termination of employment, provided that,
if such termination of the Optionee’s employment occurs during a Company trading blackout period
established pursuant to the Company’s then existing Insider Trading Policy (the “Trading
Blackout”), and the Optionee is subject to such Trading Blackout, such Option (subject to
subsection (h) below) may be exercised at any time starting from the Optionee’s termination date
through the last day of the third month following the expiration date of such Trading Blackout.
For purposes of this Option Agreement, if a Subsidiary by which the Optionee is employed ceases to
be a Subsidiary, whether through a sale by the Company of all or a portion of the stock or assets
of such Subsidiary, a merger or otherwise (a “Subsidiary Transaction”), the Optionee’s employment
with the Employer shall be deemed to have been terminated by the Employer without Cause as of the
effective date of such Subsidiary Transaction.



(g) Termination for Other Reason. If prior to the exercise of the Option, the
Optionee’s employment with the Employer shall be terminated for any reason other than as set forth
in paragraphs (b) through (f) above, then the Option (subject to subsection (h) below) held by the
Optionee may be exercised at any time within one month after the Optionee’s termination of
employment, provided that, if such termination of the Optionee’s employment occurs during a
Trading Blackout and the Optionee is subject to such Trading Blackout, such Option (subject to
subsection (h) below) may be exercised at any time starting from the Optionee’s termination date
through the last day of the first month following the expiration date of such Trading Blackout.



(h) Post-Termination exercisability. Notwithstanding any other provision of this
Section 3 to the contrary, following termination of employment of the Optionee for any reason: (i)
the Option shall be exercisable during any of the post-employment periods described in
subparagraphs (b) through (g) of this Section 3 if and only to the extent the Option was
exercisable (i.e., vested) at the time of such termination of employment and (2) no portion of the
Option shall be exercisable following the tenth anniversary of the Grant Date.



4. Employment/Association with Company Competitor. The Optionee hereby agrees that,
during (i) the six-month period following a termination of the Optionee’s employment with an
Employer that entitles the Optionee 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 Optionee’s
employment with an Employer that does not entitle the Optionee to receive such severance benefits
(the period referred to in either clause (i) or (ii), the “Noncompetition Period”), the Optionee
shall not undertake any employment or activity (including, but not limited to, consulting services)
with a Competitor (as defined below), where the loyal and complete fulfillment of the duties of the
competitive employment or activity would call upon the Optionee 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 Optionee had access during his employment with the Employer. In
addition, the Optionee agrees that, during the Non-competition Period applicable to the Optionee
following termination of employment with the Employer, the Optionee 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 Optionee or any other
entity or person. In the event that the Optionee breaches the covenants set forth in this first
paragraph of Section 4:




	 	(a)	 	the Option shall immediately terminate; and






(b) the Optionee shall promptly pay to the Company an amount of cash equal to the Gain
Realized (as defined below) on any Option Shares acquired during the Restricted Period (as
defined below).



For the purposes of this Section 4: “Restricted Period” shall refer to the period of time
commencing ninety days prior to such termination of the Optionee’s employment and ending (x) in the
case of an Optionee terminated under clause (i) of the first paragraph of this Section 4, six
months after such termination or (y) in the case of an Optionee terminated under clause (ii) of the
first paragraph of this Section 4, twelve months after such termination; “Gain Realized” shall
equal the difference between (x) the Option Price applicable to the Option Shares and (y) the
greater of the Fair Market Value (as defined in the Plan) of the Option Shares (I) on the date of
acquisition of such Option Shares or (II) on the date such competitive activity with a Competitor
was commenced by the Optionee; 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 Market Area or 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 Optionee acknowledges that the services to be rendered by him/her 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 him/her of any of the provisions contained in this
Section 4 will cause the Company irreparable injury. Optionee 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
Optionee from any such violations or threatened violations.



5. 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.



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



7. Incorporation of Plan; Entire Agreement. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement are subject to all terms
and conditions of the Plan. This Option Agreement and the Plan, taken together, constitutes the
entire agreement between the parties relating to or effecting the Option, and no promises, terms,
conditions or obligations other than those contained in this Option Agreement or the Plan shall be
valid or binding. Any prior agreements, statements or promises, either oral or written, made by
any party or agent of any party relating to or effecting the Option that are not contained in the
Option Agreement or the Plan are of no force or effect.



8. Rights of a Stockholder. The Optionee shall have no rights as a stockholder with
respect to any Option Shares unless and until certificates for shares of Common Stock are issued to
the Optionee.



9. Change of Control. Notwithstanding the provisions of Section 2 and 3
hereof, in the event that (i) there shall occur a Change in Control (as defined in the Plan) and
(ii) the employment of the Optionee shall be terminated within the two year period following the
Change in Control but prior to any Vesting Date either (A) by the Company without Cause or (B)
under circumstances which entitle the Optionee to Change in Control severance benefits under an
effective employment agreement between the Optionee and the Company or the Company’s Safety Net
Security Program, each Option shall become fully vested and the date of such vesting shall be
deemed to be the Vesting Date hereunder; such termination shall be treated as having occurred
pursuant to Section 3(f) hereof for purposes of determining the post-termination exercise period.
For purposes of this Section 10, “Cause” shall have the meaning set forth in the Plan.



10. Rights to Terminate Employment. Nothing in the Plan or in this Agreement shall
confer upon the Optionee 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 Optionee. The Optionee specifically
acknowledges that the Employer intends to review



Optionee’s performance from time to time, and that the Company and/or the Employer has the right to
terminate Optionee’s employment at any time, including a time in close proximity to a Vesting Date,
for any reason, with or without Cause. The Optionee acknowledges that upon his or her termination
of employment with an Employer for any reason, the Option shall be exercisable only to the extent
it is exercisable on the effective date of the Optionee’s termination of employment and only within
the period following such termination as is set forth in this Agreement.



11. Transferability. The Option may not be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by the Optionee otherwise than by will or by the laws
of descent and distribution, and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the Company; provided that
the designation of a beneficiary shall not constitute an assignment, alienation, pledge,
attachment, sale, transfer or encumbrance.



12. Amendment. 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 Optionee, affect the rights of the Optionee under this Agreement.



13. Compliance with Applicable Law. The Option is subject to the condition that if
the listing, registration or qualification of the shares subject to the Option upon any securities
exchange or under any law, or the consent or approval of any governmental body, or the taking of
any other action, is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts
to effect or obtain any such listing, registration, qualification, consent or approval.



14. Decisions of Board or Committee. The Board of Directors or the Committee shall
have the right to resolve all questions which may arise in connection with the Option or its
exercise. Any interpretation, determination or other action made or taken by the Board of
Directors or the Committee regarding the Plan or this Agreement shall be final, binding and
conclusive.



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



[Signature Page follows]





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IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the date and
year set forth above.



Health Net, Inc.



	 	 	 
	By:

	 	

	Name:

Title:

	 	Jay M. Gellert

President and Chief Executive Officer







THE UNDERSIGNED OPTIONEE HEREBY EXPRESSLY ACKNOWLEDGES AND
AGREES THAT (I) HE/SHE IS AN EMPLOYEE AT WILL AND MAY BE
TERMINATED BY THE EMPLOYER AT ANY TIME, WITH OR WITHOUT
CAUSE, (II) THE OPTION MAY NOT BE EXERCISED WITH RESPECT TO
ANY OPTION SHARES THAT ARE NOT VESTED ON THE DATE OF ANY SUCH
TERMINATION AND (III) THE OPTION MAY BE EXERCISED WITH
RESPECT TO OPTION SHARES THAT ARE VESTED ON THE DATE OF ANY
SUCH TERMINATION ONLY TO THE EXTENT EXPRESSLY PROVIDED IN
THIS OPTION AGREEMENT.




The undersigned hereby accepts and agrees to all the terms
and provisions of the foregoing Option Agreement and to all
the terms and provisions of the Health Net, Inc. [NAME OF
PLAN] incorporated by reference herein.




     




	 	 	 	[Optionee] Date






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