Document:

AMENDED AND RESTATED AETNA INC.

 

EXHIBIT 10.17

Amended and Restated

AETNA INC.

2000 STOCK INCENTIVE PLAN

SECTION 1.  PURPOSE.

         The purposes of this Plan are to promote the interests of the Company and
its shareholders, and further align the interests of shareholders and
Participants by:

		
	 	         (i) motivating Participants through Awards tied to total return to
shareholders (i.e., stock price appreciation and dividends);

		
	 	         (ii) attracting and retaining outstanding individuals as
Participants;

		
	 	         (iii) enabling Participants to acquire additional equity interests
in the Company;

		
	 	         (iv) providing compensation opportunities dependent upon the
Company’s performance relative to its competitors and changes in its own
performance over time; and

		
	 	         (v) providing for the grant of Adjusted Options in connection with
the transactions under the Merger Agreement pursuant to which the Company
ceased to be a wholly-owned subsidiary of Aetna, Inc., a Connecticut
corporation (the “FORMER PARENT”).

SECTION 2.  DEFINITIONS.

         “ADJUSTED OPTION” shall mean an Option which is granted under Section 10
in substitution for an outstanding option previously granted by the Former
Parent.

         “AFFILIATE” shall mean any corporation or other entity (other than the
Company or one of its Subsidiaries) in which the Company directly or indirectly
owns at least twenty percent (20%) of the combined voting power of all classes
of stock of such entity or at least twenty percent (20%) of the ownership
interests in such entity.

         “AWARD” shall mean a Adjusted Option and any other grant or award under
the Plan, as evidenced in a written document delivered to a Participant as
provided in Section 13(b).

         “BOARD” shall mean the Board of Directors of the Company.

         “CAUSE” shall mean (i) the willful failure by the Participant to perform
substantially the Participants duties as an employee of the Company (other than
due to physical or mental illness) after reasonable notice to the Participant,
(ii) the Participants engaging in serious misconduct that is injurious to the
Company, any Subsidiary or any Affiliate, (iii) the Participants having been
convicted of, or entered a plea of nolo contendere to, a crime that constitutes
a felony, (iv) the breach by the Participant of any written covenant or
agreement not to compete with the Company, any Subsidiary or any Affiliate or
(v) the breach by the Participant of his or her duty of loyalty to the Company
which shall include, without limitation, (A) the disclosure by the Participant
of any confidential information pertaining to the Company, any Subsidiary or any
Affiliate, (B) the harmful interference by the Participant in the business or
operations of the Company, any Subsidiary or any Affiliate, (C) any attempt by
the Participant directly or indirectly to induce any employee, insurance agent,
insurance broker or broker-dealer of the Company, any Subsidiary or

 

 

any Affiliate to be employed or perform services elsewhere, (D) any attempt by
the Participant directly or indirectly to solicit the trade of any customer or
supplier, or prospective customer or supplier, of the Company or (E) any breach
or violation of the Company’s Code of Conduct.

         “CODE” shall mean the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

         “COMMITTEE” shall mean a committee of the Board as may be designated by
the Board to administer the Plan, which, to the extent necessary to comply with
Section 16 of the Exchange Act and Section 162 (m) of the Code, shall consist of
at least two directors of the Company chosen by the Board each of whom is a
“non-employee director” within the meaning of Rule 16b-3 under the Exchange Act
and an “outside director” within the meaning of Section 162(m).

         “COMMON STOCK” shall mean the common stock, $.01 par value, of the
Company.

         “COMPANY” shall mean Aetna Inc., a Pennsylvania corporation.

         “ELIGIBLE EMPLOYEE” shall mean each employee of the Company, its
Subsidiaries or its Affiliates, but shall not include directors who are not
employees of such entities; provided that, in the case of the Adjusted Options,
the term Eligible Employee shall mean each person who is eligible to receive an
Adjusted Option. Any individual the Company designates as, or otherwise
determines to be, an independent contractor shall not be considered an Eligible
Employee, and such designation or determination shall govern regardless of
whether such individual is ultimately determined to be an employee pursuant to
the Code or any other applicable law.

         “EMPLOYMENT” shall mean, for purposes of determining whether a termination
of employment has occurred under the Plan, continuous and regular salaried
employment with the Company, a Subsidiary or an Affiliate, which shall include
(unless the Committee shall otherwise determine) any period of vacation, any
approved leave of absence or any salary continuation or severance pay period
and, at the discretion of the Committee, may include service with any former
Subsidiary or Affiliate of the Company. For this purpose, regular salaried
employment means scheduled employment of at least 20 hours per week.

         “EXCHANGE ACT” shall mean the Securities Exchange Act of 1934, as amended
from time to time.

         “EXECUTIVE OFFICER” shall mean those persons who are officers of the
Company within the meaning of Rule 16a-l(f) of the Exchange Act.

         “FAIR MARKET VALUE” shall mean on any date, with respect to a share of
Common Stock, the closing price of a share of Common Stock as reported by the
Consolidated Tape of New York Stock Exchange Listed Shares on such date, or, if
no shares were traded on such Exchange on such date, on the next date on which
the Common Stock is traded.

         “FUNDAMENTAL CORPORATE EVENT” shall mean any stock dividend, extraordinary
cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, exchange of shares, offering to purchase Common
Stock at a price substantially below fair market value, or other similar event.

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         “INCENTIVE STOCK” shall mean an Award of Common Stock granted under
Section 7 which may become vested and nonforfeitable upon the passage of time
and/or the attainment, in whole or in part, of performance objectives determined
by the Committee.

         “INCENTIVE STOCK OPTION” shall mean an option which is intended to meet
the requirements of Section 422 of the Code.

         “INCENTIVE UNIT” shall mean an Award of a contractual right granted under
Section 7 to receive Common Stock (or, at the discretion of the Committee, cash
based on the Fair Market Value of the Common Stock) which may become vested and
nonforfeitable upon either the passage of time and/or the attainment, in whole
or in part, of performance objectives determined by the Committee.

         “MERGER AGREEMENT” shall mean the Agreement and Plan of Restructuring and
Merger among ING America Insurance Holdings, Inc., ANB Acquisition Corp., the
Former Parent and for limited purposes only, ING Groep N.V., dated as of July
19, 2000.

         “MERGER DATE” shall mean the date of the closing of the transactions
contemplated by the Merger Agreement.

         “NONSTATUTORY STOCK OPTION” shall mean an Option which is not intended to
be an Incentive Stock Option.

         “OPTION” shall mean the right granted under Section 5 to purchase the
number of shares of Common Stock specified by the Committee, at a price and for
the term fixed by the Committee in accordance with the Plan and subject to any
other limitations and restrictions as this Plan and the Committee shall impose,
and shall include both Incentive Stock Options and Nonstatutory Stock Options.

         “OTHER STOCK-BASED AWARD” shall mean any right granted under Section 8.

         “PARTICIPANT” shall mean an Eligible Employee who is selected by the
Committee to receive an Award under the Plan and any recipient of an (i)
Adjusted Option granted under Section 10 or (ii) Substitute Award as
contemplated under Section 4(c).

         “PLAN” shall mean the Aetna Inc. 2000 Stock Incentive Plan, described
herein, and as may be amended from time to time.

         “PRIOR PLAN” shall mean, collectively, the Aetna Inc. 1996 Stock Incentive
Plan and the Aetna Inc. 1998 Stock Incentive Plan.

         “RESTRICTED PERIOD” shall mean the period during which a grant of
Incentive Stock or Incentive Units is subject to forfeiture.

         “STOCK APPRECIATION RIGHT” shall mean a right granted under Section 6.

         “SUBSIDIARY” shall mean any entity of which the Company possesses directly
or indirectly fifty percent (50%) or more of the total combined voting power of
all classes of stock of such entity.

         “SUBSTITUTE AWARDS” shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
the Company or with which the Company combines.

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SECTION 3.  ADMINISTRATION.

         The Plan shall be administered by the Committee. The Committee shall have
the responsibility of construing and interpreting the Plan and of establishing
and amending such rules and regulations as it deems necessary or desirable for
the proper administration of the Plan. Any decision or action taken or to be
taken by the Committee, arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations, shall, to the maximum extent permitted by applicable law, be within
its absolute discretion (except as otherwise specifically provided herein) and
shall be conclusive and binding upon all Participants and any person claiming
under or through any Participant.

         Subject to the terms of the Plan and applicable law, and in addition to
other express powers and authorizations conferred on the Committee by the Plan,
the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards, if any, to be granted
to an Eligible Employee: (iii) determine the number of shares of Common Stock to
be covered by, or with respect to which payments, rights, or other matters are
to be calculated in connection with, Awards: (iv) determine the terms and
conditions of any Award: (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Common Stock, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances, cash, Common Stock, other securities, other Awards, other
property, and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee: (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan: and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan (including authorizing another
committee of the Board to designate Participants or make Awards under the Plan
within limits prescribed by the Committee).

SECTION 4.  SHARES AVAILABLE FOR AWARDS.

         (a)  Shares Available for Issuance. The maximum number of shares of Common
Stock in respect of which Awards may be made under the Plan shall be a total of
7,000,000 shares of Common Stock plus (i) the number of shares of Common Stock
to be delivered upon exercise of the Adjusted Options and (ii) the number of
shares required to satisfy any outstanding incentive unit awards under the Prior
Plan. Notwithstanding the foregoing, but subject to the provisions of Section
4(b), in no event shall the number of shares of Common Stock issued under the
Plan with respect to (x) Incentive Stock Options exceed 5,000,000, (y) Incentive
Stock or Incentive Units exceed 2,235,000 or (z) Other Stock-Based Awards exceed
1,000,000. Shares of Common Stock may be made available from the authorized but
unissued shares of the Company or from shares held in the Company’s treasury and
not reserved for some other purpose. In the event that any Award is paid solely
in cash, no shares shall be deducted from the number of shares available for
issuance by reason of such Award. Shares of Common Stock subject to Awards that
are forfeited, terminated, canceled or settled without the delivery of Common
Stock under the Plan will again be available for Awards under the Plan, as will
(A) shares of Common Stock tendered (either actually or by attestation) to the
Company in satisfaction or partial satisfaction of the exercise price of any
Award under either the Plan and (B) shares of Common Stock repurchased on the
open market with remittances from the exercise of options granted under the Plan
(including authorizing another Committee of the Board to designate Participants
or make Awards under the Plan within limits prescribed by the Committee).

         (b)  Adjustment for Corporate Transactions. In the event that the Committee
shall determine that any Fundamental Corporate Event affects the Common Stock
such that an adjustment is required to preserve, or to prevent enlargement of,
the benefits or potential benefits

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made available under this Plan, then the Committee may, in such manner as the
Committee may deem equitable, adjust any or all of (i) the number and kind of
shares which thereafter may be awarded or optioned and sold or made the subject
of Awards under the Plan, (ii) the number and kinds of shares subject to
outstanding Awards and (iii) the grant, exercise or conversion price with
respect to any of the foregoing. Additionally, the Committee may make provisions
for a cash payment to a Participant or a person who has an outstanding Award.
However, the number of shares subject to any Award shall always be a whole
number.

         (c)  Substitute Awards. Any shares of Common Stock underlying Substitute
Awards shall not, except in the case of shares with respect to which Substitute
Awards are granted to Participants who are officers or directors of the Company
for purposes of Section 16 of the Exchange Act or any successor section thereto,
be counted against the Shares available for Awards under the Plan.

SECTION 5.  STOCK OPTIONS.

         (a)  Grant. Subject to the provisions of the Plan, the Committee shall have
the authority to grant Options to an Eligible Employee and to determine (i) the
number of shares to be covered by each Option, (ii) subject to Section 5(b), the
exercise price of the Option and (iii) the conditions and limitations applicable
to the exercise of the Option. Notwithstanding the foregoing, in no event shall
the Committee grant any Participant Options (i) for more than 800,000 shares of
Common Stock in respect of any year in which the Plan is in effect, as such
number may be adjusted pursuant to Section 4(b). In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with Section 422 of the Code and the regulations thereunder.

         (b)  Exercise Price. Except in the case of Adjusted Options, Substitute
Awards or Options granted in lieu of payment for compensation earned by an
Eligible Employee of the Company, the exercise price of an Option shall not be
less than 100% of the Fair Market Value on the date of grant.

         (c)  Exercise. Each Option shall be exercised at such times and subject to
such-terms and conditions as the Committee may specify at the time of the
applicable Award or thereafter. No shares shall be delivered pursuant to any
exercise of an Option unless arrangements satisfactory to the Committee have
been made to assure full payment of the exercise price therefor. Without
limiting the generality of the foregoing, payment of the exercise price may be
made in cash or its equivalent or, if and to the extent permitted by the
Committee, by exchanging shares of Common Stock owned by the optionee (which are
not the subject of any pledge or other security interest or which, in the case
of Incentive Stock, are fully vested) either actually or by attestation, or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Common Stock so tendered
to the Company, valued as of the date of such tender, is at least equal to such
exercise price.

         (d) Incentive Stock Option Annual Limit. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by an Eligible Employee during any calendar year (counting Incentive
Stock Options under this Plan and under any other stock option plan of the
Company or a subsidiary) shall not exceed $100,000. If an Option intended to be
an Incentive Stock Option is granted to an Eligible Employee and the Option may
not be treated in whole or in part as an Incentive Stock Option pursuant to the
$100,000 limitation, the Option shall be treated as an Incentive Stock Option to
the extent it may be so treated under the limitation and as a Nonstatutory Stock
Option as to the remainder. For purposes of determining whether an Incentive
Stock Option would cause the limitation to be exceeded, Incentive Stock Options
shall be taken into account in the order granted. The annual limit set forth
above shall not apply to Nonstatutory Stock Options.

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SECTION 6.  STOCK APPRECIATION RIGHTS.

         (a)  Grant of Stock Appreciation Rights. The Committee shall have the
authority to grant Stock Appreciation Rights in tandem with an Option, in
addition to an Option, or freestanding and unrelated to an Option.
Notwithstanding the foregoing, in no event shall the Committee grant any
Participant Stock Appreciation Rights (i) for more than 500,000 shares of Common
Stock in respect of any year in which the Plan is in effect, as such number may
be adjusted pursuant to Section 4(b) and (ii) with a term exceeding 10 years (or
the term of the underlying Incentive Stock Option in the case of a Stock
Appreciation Right granted in tandem with an Incentive Stock Option). Stock
Appreciation Rights granted in tandem with an option may be granted either at
the same time as the Option or at a later time.

         (b)  Exercise Price. The exercise price of an SAR shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the SAR was
granted; provided that if an SAR is granted retroactively in tandem with or in
substitution for an Option, the exercise price may be the exercise price of the
Option to which it is related.

         (c)  Exercise of Stock Appreciation Rights. A Stock Appreciation Right
shall entitle the Participant to receive from the Company an amount equal to the
excess of the Fair Market Value of a share of Common Stock on the date of
exercise of the Stock Appreciation Right over the base price thereof. The
Committee shall determine the time or times at which or the event or events
(including, without limitation, a change of control) upon which a Stock
Appreciation Right may be exercised in whole or in part, the method of exercise
and whether such Stock Appreciation Right shall be settled in cash, shares of
Common Stock or a combination of cash and shares of Common Stock; provided,
however, that unless otherwise specified by the Committee at or after grant, a
Stock Appreciation Right granted in tandem with an Option shall be exercisable
at the same time or times as the related option is exercisable.

SECTION 7.  INCENTIVE AWARDS.

         (a) Incentive Stock and Incentive Units. Subject to the provisions of the
Plan, the Committee shall have the authority to grant time vesting and/or
performance vesting Incentive Stock or Incentive Units to any Eligible Employee
and to determine (i) the number of shares of Incentive Stock and the number of
Incentive Units to be granted to each Participant and (ii) the other terms and
conditions of such Awards; provided that, to the extent necessary to comply with
applicable law, Incentive Stock shall only be awarded to an Eligible Employee
who has been employed for such minimum period of time as shall be determined by
the Committee. The Restricted Period related to Incentive Stock or Incentive
Units shall lapse upon the passage of time and/or the determination by the
Committee that the performance objectives established by the Committee have been
attained, in whole or in part. The maximum number of shares of Common Stock that
may be subject to any performance-based Awards of Incentive Stock and Incentive
Units (whether payable in cash or shares) granted to an Executive Officer with
respect to a Restricted Period shall not exceed 500,000 shares, as such number
may be adjusted pursuant to Section 4(b). The performance objectives with
respect to an Award made to an Executive officer shall be related to at least
one of the following criteria, which may be determined solely by reference to
the performance of the Company, a Subsidiary or an Affiliate (or any business
unit thereof) or based on comparative performance relative to other companies:
(i) net income, (ii) earnings before income taxes, (iii) earnings per share,
(iv) return on shareholders equity, (v) expense management, (vi) profitability
of an identifiable business unit or product, (vii) ratio of claims to revenues,
(viii) revenue growth, (ix) earnings growth, (x) total shareholder return, (xi)
cash flow, (xii) return on assets, (xiii) pretax operating income, (xiv) net
economic profit (operating earnings minus a charge for capital), (xv) customer
satisfaction, (xvi) provider satisfaction, (xvii) employee satisfaction, (xviii)
quality of networks, (xix) strategic innovation or (xx) any combination of the
foregoing.

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         (b)  Certificates. Any certificates issued in respect of Incentive Stock
shall be registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period with respect to any award of Incentive
Stock, unless otherwise forfeited, the Company shall deliver such certificates
to the Participant or to the Participants legal representative. Payment for
Incentive Stock Units shall be made by the Company in shares of Common Stock,
cash or in any combination thereof, as determined by the Committee.

SECTION 8.  OTHER STOCK-BASED AWARDS.

         The Committee shall have authority to grant to eligible Employees an
“Other Stock-Based Award”, which shall consist of any right which is (i) not an
Award described in Sections 5 through 7 above and (ii) an Award of Common Stock
or an Award denominated or payable in, valued in whole or in part by reference
to, or otherwise based on or related to, Common Stock (including, without
limitation, securities convertible into Common Stock), as deemed by the
Committee to be consistent with the purposes of the Plan; provided that any such
rights must comply, to the extent deemed desirable by the Committee, with Rule
16b-3 under the Exchange Act and applicable law. Subject to the terms of the
Plan and any applicable award agreement, the Committee shall determine the terms
and conditions of any such Other Stock-Based Award.

SECTION 9.  DIVIDENDS AND DIVIDEND EQUIVALENTS.

         The Committee may provide that any Award shall include dividends or
dividend equivalents, payable in cash, Common Stock, securities or other
property on a current or deferred basis, including payment contingencies.

SECTION 10.  ADJUSTED OPTIONS.

         Effective as of the Merger Date, holders of options to purchase shares of
common stock of the Former Parent may in substitution thereof, to the extent
determined by the committee administering the Prior Plan and the Committee, be
granted an option to purchase Common Stock in accordance with the provisions of
the Merger Agreement and the Exhibits thereto. Except as modified by the Merger
Agreement, such options shall be governed by the terms of the incentive plans
and award agreements under which they were originally granted, which terms are
incorporated herein by reference.

SECTION 11.  STOCK IN LIEU OF CASH.

         The Committee may grant Awards in lieu of all or a portion of compensation
or an Award otherwise payable in cash to an Executive officer pursuant to any
bonus or incentive compensation plan of the Company.

         If shares are issued in lieu of cash, the number of shares of Common Stock
to be issued shall be the greatest number of whole shares which has an aggregate
Fair Market Value on the date the cash would otherwise have been payable
pursuant to the terms of such other plan equal to or less than the amount of
such cash.

SECTION 12.  DEFERRAL.

         The Committee shall have the discretion to determine whether, to what
extent, and under what circumstances cash, shares of Common Stock, other
securities, other Awards, other property, and other amounts payable with respect
to an Award shall be deferred either automatically or at the election of the
holder thereof or of the Committee.

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SECTION 13.  GENERAL PROVISIONS.

         (a)  Withholding. The Company shall have the right to deduct from all
amounts paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan. In
the case of any Award satisfied in the form of Common Stock, no shares shall be
issued unless and until arrangements satisfactory to the Company shall have been
made to satisfy any withholding tax obligations applicable with respect to such
Award. Without limiting the generality of the foregoing and subject to such
terms and conditions as the Committee may impose, the Company shall have the
right to retain, or the Committee may, subject to such terms and conditions as
it may establish from time to time, permit Participants to elect to use shares
of Common Stock (including Common Stock issuable in respect of an Award) to
satisfy, in whole or in part, the amount required to be withheld.

         (b)  Award Agreement. Each Award hereunder shall be evidenced in writing.
The written agreement shall be delivered to the Participant and shall
incorporate the terms of the Plan by reference and specify the terms and
conditions thereof and any rules applicable thereto.

         (c)  Nontransferability. Unless the Committee shall permit (on such terms
and conditions as it shall establish) an Award to be transferred to a member of
the Participants immediate family or to a trust or similar vehicle for the
benefit of such immediate family members (collectively, the “PERMITTED
TRANSFEREES”), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during the Participants lifetime
only by such Participant or, if applicable, the Permitted Transferees or the
Participants legal representative.

         (d)  No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company, any
Subsidiary or any Affiliate. Further, the Company and each Subsidiary and
Affiliate expressly reserves the right at any time to dismiss a Participant free
from any liability, or any claim under the Plan, except as provided herein or in
any agreement entered into with respect to an Award.

         (e)  No Rights to Awards, No Shareholder Rights. No Participant or Eligible
Employee shall have any claim to be granted any Award under the Plan, and there
is no obligation of uniformity of treatment of Participants and Eligible
Employees. Subject to the provisions of the Plan and the applicable Award, no
person shall have any rights as a shareholder with respect to any shares of
Common Stock to be issued under the Plan prior to the issuance thereof.

         (f)  Construction of the Plan. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with the
laws of the State of Connecticut.

         (g)  Effective Date. Subject to the approval of the Company’s shareholders
and the shareholders of the Former Parent, the Plan shall be effective on the
Merger Date.

         (h)  Amendment or Termination of Plan. The Board or the Committee may
terminate or suspend the Plan at any time, but the termination or suspension
will not adversely affect any vested Awards then outstanding under the Plan. No
Award may be granted under the Plan after December 31, 2010 or such earlier date
as the Plan is terminated by action of the Board or the Committee, The Plan may
be amended or terminated at any time by the Board, except that no amendment may
be made without shareholder approval if the Committee determines that such
approval is necessary to comply with any tax or regulatory requirement,
including any approval requirement which is a prerequisite for exemptive relief
from Section 16 of the Exchange Act, for

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which or with which the Committee determines that it is desirable to qualify or
comply; and, provided further, that, except with respect to any action or
adjustment taken in connection with a Fundamental Corporate Event, any amendment
or action to reduce the exercise price of any option previously granted under
the Plan shall be subject to the approval of the Company’s shareholders. The
Committee may amend the term of any Award or Option granted, retroactively or
prospectively, but no amendment may adversely affect any vested Award or Option
without the holders consent.

         (i)  Compliance with Legal and Exchange Requirements. The Plan, the
granting and exercising of Awards thereunder, and the other obligations of the
Company under the Plan, shall be subject to all applicable federal and state
laws, rules, and regulations, and to such approvals by any regulatory or
governmental agency as may be required. The Company, in its discretion, may
postpone the granting and exercising of Awards, the issuance or delivery of
Common Stock under any Award or any other action permitted under the Plan to
permit the Company, with reasonable diligence, to complete such stock exchange
listing or registration or qualification of such Common Stock or other required
action under any federal or state law, rule, or regulation and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Common Stock
in compliance with applicable laws, rules, and regulations. The Company shall
not be obligated by virtue of any provision of the Plan to recognize the
exercise of any Award or to otherwise sell or issue Common Stock in violation of
any such laws, rules, or regulations; and any postponement of the exercise or
settlement of any Award under this provision shall not extend the term of such
Awards, and neither the Company nor its directors or officers shall have any
obligations or liability to the Participant with respect to any Award (or stock
issuable thereunder) that shall lapse because of such postponement.

         (j)  Severability of Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provision had not been included.

         (k)  Incapacity. Any benefit payable to or for the benefit of a minor, an
incompetent person or other person incapable of receipting therefor shall be
deemed paid when paid to such persons guardian or to the party providing or
reasonably appearing to provide for the care of such person, and such payment
shall fully discharge any liability or obligation of the Committee, the Board,
the Company and all other parties with respect thereto.

         (1)  Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.

9EMPLOYMENT AGREEMENT DATED AS OF SEPTEMBER 13,2001

 

EXHIBIT 10.26

EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT (“AGREEMENT”) dated as of September 13, 2001 by and
between Aetna Inc., a Pennsylvania corporation, (“THE COMPANY”) and David B.
Kelso (“EXECUTIVE”) (certain capitalized terms used herein being defined in
Article 7).

         WHEREAS, the Board desires to employ Executive in the position and on the
terms and conditions set forth below, and the Executive desires to accept such
employment; and

         WHEREAS, the Company and Executive desire to enter into this Agreement
embodying the terms of such employment;

         NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:

ARTICLE 1

POSITION; TERM OF AGREEMENT

         SECTION 1.01. Position. (a) On September 17, 2001 (or such earlier date if
employment begins sooner) (the “EFFECTIVE DATE”), Executive shall commence his
duties as the Company’s Executive Vice President for Administration and Finance.

         (b)  In such position, Executive shall have such duties and authority,
consistent with such position, as shall be determined from time to time by the
Chief Executive Officer or the Company’s Board of Directors (“Board”).

         (c)  Starting on the Effective Date, during the Employment Term, Executive
will devote substantially all of his business time to the performance of his
duties hereunder and will not engage in any other business, profession or
occupation for compensation or otherwise which would conflict with the rendition
of such services either directly or indirectly, without the prior written
consent of the Board; provided that nothing herein shall be deemed to preclude
Executive, subject to the prior written consent of the Board, which consent
shall not be unreasonably withheld, from serving on any business, civic or
charitable board, as long as such activities do not materially interfere with
the performance of Executive’s duties hereunder. If the Company reasonably
concludes that it is desirable, upon Company’s request, Executive will resign
from any boards of directors on which he serves.

         SECTION 1.02. Term. Executive shall be employed by the Company for a
period commencing on the Effective Date and, subject to earlier termination or
extension as provided herein, ending on September 30, 2003 (the “EMPLOYMENT
TERM”). On September 30, 2003, the Employment Term shall automatically be
extended for one additional year unless not later than 90 days prior to such
date the Company or Executive shall have given

 

 

written notice of its or his intention not so to extend the Employment Term. If
the Employment Term is extended to September 30, 2004, the Employment Term shall
automatically extend for one additional year unless not later than 90 days prior
to such date the Company or Executive shall have given written notice of its or
his intention not so to extend the Employment Term.

ARTICLE 2

COMPENSATION AND BENEFITS

         SECTION 2.01. Base Salary. Starting on the Effective Date, the Company
shall pay Executive an annual base salary (the “BASE SALARY”) at the initial
annual rate of $700,000, payable in accordance with the payroll and personnel
practices of the Company from time to time. Base Salary shall be reviewed
annually by the Board or a committee thereof to which the Board may from time to
time have delegated such authority (the “COMMITTEE”) for possible increase in
the sole discretion of the Board or the Committee, as the case may be.
Executive’s Base Salary, as in effect from time to time, may not be reduced by
the Company without Executive’s consent, except in the event of a ratable
reduction affecting all senior executives of the Company.

         SECTION 2.02. Bonus and Long-Term Compensation. Subject in each case to
Executive’s continued employment as contemplated hereby:

         (a)  (i) With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company’s annual incentive plan, with a target bonus opportunity of at least 80%
of Base Salary, a maximum bonus opportunity of at least 160% of Base Salary and
a threshold bonus opportunity of at least 40% of Base Salary. Except as provided
in Section 2.02(a)(ii) or as may be payable pursuant to Article 3, Executive is
not guaranteed the payment of any annual bonus.

               (ii)  Notwithstanding the foregoing, Executive shall be entitled to a
minimum annual bonus for 2001 of $400,000 subject to Executive being actively
employed by the Company on the last day of such year.

         (b)  Executive shall be eligible to participate in the Company’s long-term
incentive program. As soon as practicable after the Effective Date, the Company
shall cause Executive to be awarded 30,000 performance units under such program.
Executive will be eligible to participate in the other compensation
arrangements, including equity-based programs, in which substantially all senior
executives of the Company are generally eligible to participate. In addition,
during the Employment Term, Executive’s annual and long-term compensation
opportunities shall be at a level commensurate with Executive’s position
relative to other senior executives of the Company.

2

 

         (c)  As soon as practicable after the Effective Date, the Company shall pay
to Executive a sign-on bonus of $200,000, less applicable taxes and withholding.
In the event of Executive’s voluntary termination of employment other than for
Good Reason or termination of employment by the Company for Cause, in either
case within 12 months of the Effective Date, Executive will be responsible to
repay a pro-rated portion of such sign-on bonus.

         SECTION 2.03. Option Grant. As soon as practicable after the Effective
Date, the Company shall cause the grant to Executive of (a) an option to
purchase 100,000 shares of the Company’s common stock (the “SIGN-ON OPTION”),
and (b) an option to purchase 150,000 shares of the Company’s common stock (the
“BASIC OPTION”), each with a per share exercise price of 100% of the fair market
value of such shares on the grant date, a ten (10) year term, and
post-termination exercise provisions that, except as otherwise provided in this
Agreement, are consistent with such provisions in the form of the Company’s
option agreement used generally for senior executives of the Company. Except as
otherwise provided in this Agreement, the Sign-On Option shall become
exercisable in 2 equal annual installments and the Basic Option shall become
exercisable in 3 equal annual installments in each case commencing on the first
anniversary of the Effective Date, subject to the Executive’s continued
employment hereunder.

         SECTION 2.04. Employee Benefits. (a) On the Effective Date, Executive
shall be eligible for employee benefits (including fringe benefits, vacation,
qualified and non-qualified pension and profit sharing plan participation and
life, health, accident and disability insurance) no less favorable than those
benefits made available generally to senior executives of the Company. Coverage
for medical, dental, life and disability benefits will commence on the first of
the month following the Effective Date. For life insurance benefits only,
Executive’s eligible pay in the first year of employment shall be calculated
using Executive’s Base Salary and target bonus. Executive will be eligible to
earn an annual Paid Time Off (PTO) Bank of 28 days (8 days deposited on January
1 and 2 days per month for the period February through November). In 2001,
Executive will earn 9 PTO Bank days.

         (b)  On the Effective Date, Executive shall be eligible, upon termination
of employment other than by the Company for Cause or by the Executive without
Good Reason, for the Company’s retiree medical care benefits under the Company’s
Medical Plans as in effect from time to time and, for purposes of calculating
eligibility for subsidized benefits thereunder, shall be credited with two years
of service for each full year of service of Executive with the Company
commencing on the Effective Date.

         (c)  On the Effective Date, Executive shall participate and be vested in a
benefit under the Company’s non-qualified, unfunded supplemental cash balance
pension plan and shall be eligible to enroll in the Company’s non-qualified,
unfunded supplemental 401(k) plan. Executive’s annual pension credit under the
unfunded supplemental cash balance pension plan shall be not less than 15%.

3

 

         SECTION 2.05. Business Expenses; Travel; Office. (a) Reasonable travel,
entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder shall be reimbursed by the Company in
accordance with Company policies as in effect from time to time. In the course
of performing Executive’s duties hereunder, Executive shall have reasonable
access to Company-provided ground and air transportation, including the Company
helicopter.

         (b)  The Company shall provide Executive with appropriate office facilities
and support at the Company’s headquarters, which shall be Executive’s principal
job location. Office space will also be available for use by Executive at the
Company’s offices in New York City, New York.

         (c)  The Company shall provide Executive with the Company’s regular
relocation benefits for senior executives. This benefit will remain available
for 12 months from the Effective Date. In the event of Executive’s termination
of employment other than for Good Reason or termination of Executive’s
employment by the Company for Cause within 12 months of the Effective Date,
Executive shall be responsible to repay a pro-rated portion of the relocation
expenses.

ARTICLE 3

CERTAIN BENEFITS

         SECTION 3.01. Certain Events. (a) A “QUALIFYING EVENT” means any of the
following events:

               (i)  The involuntary termination of Executive’s employment by the
Company, other than (x) for Cause, or (y) by reason of Executive’s death or
Disability; or

               (ii)  Executive’s voluntary termination of employment for Good
Reason, provided that such termination occurs within 90 days after the
occurrence of any event constituting Good Reason.

         SECTION 3.02. Right to Certain Benefits. (a) In the event that a Change in
Control occurs during the Employment Term, subject to Article 4, the stock
options referred to in Section 2.03 above and all other annual equity awards
made to Executive during the Employment Term (collectively, “AWARDS”) shall
become immediately vested, nonforfeitable and exercisable as of the date of the
Change in Control and shall remain exercisable until the earlier of (x) the
expiration date of such Award, any termination of employment notwithstanding,
and (y) in the event of any termination of Executive’s employment with the
Company, the later of the last date on which such Award would otherwise have
been exercisable and two years from the termination of employment.

4

 

         (b)  In the event that a Change in Control occurs during the Employment
Term, subject to Article 4, the Performance Units referred to in Section 2.02
above shall become immediately vested and payable in accordance with the terms
of the Performance Unit Agreement.

         (c)  In the event that a Qualifying Event occurs during the Employment
Term, the Sign-on Option held by Executive shall become immediately vested; the
Basic Option and all other annual equity awards made to Executive during the
Employment Term shall not automatically vest but will continue to vest during
the Payment Period.

         SECTION 3.03. Benefits upon a Qualifying Event after a Change in Control.
Except to the extent provided in Article 4, Section 6.07 and Section 6.08,
Executive shall be entitled to the following benefits (the “SEVERANCE BENEFITS”)
upon a Qualifying Event within 24 months following a Change in Control:

         (a)  The Company shall pay Executive as soon as practicable a lump sum, in
cash, equal to (i) Executive’s earned but unpaid Base Salary and other vested
but unpaid cash entitlements for the period through and including the date of
termination of Executive’s employment, including unused earned vacation pay and
unreimbursed documented business expenses (collectively, “ACCRUED COMPENSATION”)
and (ii) an amount equal to the product of Executive’s annual target bonus
opportunity for the year in which Executive’s employment terminates (the “BASIC
BONUS AMOUNT”) times a fraction, the numerator of which is the number of days in
such year through the date of termination and the denominator of which is 365
(the “PRO-RATA BONUS AMOUNT”). In addition, Executive shall be entitled to any
other vested benefits earned by Executive for the period through and including
the date of termination of Executive’s employment under any other employee
benefit plans and arrangements maintained by the Company, in accordance with the
terms of such plans and arrangements, except as modified herein (collectively,
“ACCRUED BENEFITS”).

         (b)  The Company shall pay Executive as soon as practicable a lump sum
amount in cash equal to 2-1/2 times the sum of the amounts set forth in Clauses
(i) and (ii) below:

               (i)  Executive’s Base Salary at its highest annual rate in effect
during the period beginning immediately prior to the date of the Change in
Control to which such Qualifying Event relates and ending on the date of such
Qualifying Event; and

               (ii)  the Executive’s Basic Bonus Amount.

         (c)  Executive shall be entitled to continued participation in, and one
year of service credit for each full year for purposes of calculating
eligibility for subsidized retiree medical care benefits under, the Company’s
Medical Plans under the terms thereof for the period ending on the second
anniversary of the Qualifying Event (the “CONTINUATION PERIOD”).

         (d)  Executive shall be entitled to continued pension credit under the
Company’s nonqualified, unfunded supplemental cash balance pension plan for the
Continuation Period.

5

 

         SECTION 3.04. Separation Payments. Except to the extent provided in
Section 6.07 and Section 6.08, Executive shall be entitled to the benefits set
forth below (the “SEPARATION BENEFITS”) upon termination of employment other
than as set forth in Section 3.03:

         (a)  Upon any such termination of employment other than by reason of death
or Disability, including Executive’s voluntary termination of employment with or
without Good Reason or upon termination of Executive’s employment with or
without Cause, Executive shall be entitled to:

               (i)  The Accrued Compensation; and

               (ii)  The Accrued Benefits.

         (b)  Upon a Qualifying Event prior to or more than 24 months after a Change
in Control, the Company shall pay Executive:

               (i)  Cash compensation through the second anniversary of such
Qualifying Event (the “Payment Period”) in equal installments during the Payment
Period in accordance with the applicable Company payroll system, in an amount
equal to two times the sum of (i) the Base Salary as in effect at the time of
such termination and (ii) the Basic Bonus Amount, on the condition that
Executive has delivered to the Company a mutual release (in the Company’s
customary form for senior executives) of any employment-related claims by
Executive or claims against Executive for acts within the scope of his
employment;

               (ii)  Continued participation in, and one full year of service credit
for each full year for purposes of calculating eligibility for subsidized
retiree medical care benefits under, the Company’s Medical Plans during the
Payment Period;

               (iii)  Vested Awards (including any Awards that vest during the
Payment Period) shall remain exercisable until the earlier of (x) the expiration
date of such Award and (y) 24 months after the end of the Payment Period; and

               (iv)  Continued pension credit under the Company’s nonqualified,
unfunded supplemental cash balance pension plan for the Payment Period.

         (c)  Upon termination of Executive’s employment by reason of death or
Disability, Executive shall be entitled to:

               (i)  The Accrued Compensation;

               (ii)  The Accrued Benefits: and

               (iii)  In the case of Disability only, one full year of service
credit for each full year of Disability for purposes of calculating eligibility
for subsidized retiree medical care benefits under the Company’s Medical Plans
and continued pension credit under the Company’s nonqualified cash balance
pension plan, in each case not to exceed 24 months and continued participation
in the Company’s Medical Plan pursuant to the terms of the Medical Plan.

6

 

         SECTION 3.05. Non-Renewal Payments. In the event of the expiration of the
Employment Term on September 30, 2003 or September 30, 2004 as a result of
delivery of the Company’s notice of its intention not to extend the Employment
Term pursuant to Section 1.02 and as a result Executive elects to terminate his
employment as of the end of the Employment Term, Executive shall be entitled to:

         (a)  The Accrued Compensation;

         (b)  The Accrued Benefits;

         (c)  Cash compensation through September 30, 2005 (the “Remaining Period”)
in equal installments during the Remaining Period in accordance with the
applicable Company payroll system, in an amount equal to the (i) the Base Salary
as in effect at the time of such termination and (ii) the Basic Bonus Amount, on
the condition that the Executive has delivered to the Company a mutual release
(in the Company’s customary form for senior executives) of any
employment-related claims by Executive or claims against Executive for acts
within the scope of his employment;

         (d)  Continued participation in, and one full year of service credit for
each full year under, the Company’s Medical Plans for the Remaining Period;

         (e)  Continued service credit under the Company’s nonqualified, unfunded
supplemental cash balance pension plan for the Remaining Period; and

         (f)  The Awards will continue to vest during the Remaining Period and shall
remain exercisable until the earlier of (x) the expiration date of such Award
and (y) 24 months after the end of the Remaining Period.

ARTICLE 4

CERTAIN TAX REIMBURSEMENT PAYMENTS

         SECTION 4.01. Initial Determinations by Accounting Firm. In the event that
a Change in Control occurs or is expected to occur, the Company shall retain a
national accounting firm selected by the Company and reasonably acceptable to
Executive (the “ACCOUNTING FIRM”) to perform the calculations contemplated by
this Article 4. The Accounting Firm shall have discretion to retain an
independent appraiser with adequate expertise (the “APPRAISER”) to provide any
valuations necessary for the Accounting Firm’s calculations hereunder. The
Company shall pay all the fees and costs associated with the work performed by
the Accounting Firm and any Appraiser retained by the Accounting Firm. If the
Accounting Firm has performed services for any person, entity or group in
connection with the Change in Control, Executive may, at the Company’s expense,
select an alternative national accounting firm to be the Accounting Fir. If the
Appraiser otherwise performs work for any of the entities involved in the Change
in Control or their affiliates (or has performed work for any such entity within
the three years preceding the calculations hereunder), then Executive may, at
the Company’s expense, select an alternative appraiser of national stature with
adequate expertise to be the Appraiser. The Accounting Firm shall

7

 

provide promptly to both the Company and Executive a written report setting
forth the calculations required under this Agreement, together with a detail of
all relevant supportive data, valuations and calculations. All determinations of
the Accounting Firm shall be binding on Executive and the Company. When making
the calculations required hereunder, Executive shall be deemed to pay: (x)
Federal income taxes at the highest applicable marginal rate of Federal income
taxation for the taxable year for which any such calculation is made; and (y)
any applicable state and local income taxes at the highest applicable marginal
rate of taxation for the taxable year for which any such calculation is made,
net of the maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes.

         The Accounting Firm shall determine (the “INITIAL DETERMINATION”):

         (a)  the aggregate amount of all payments, benefits and distributions
provided to Executive or for Executive’s benefit, whether paid or payable or
distributed or distributable pursuant to the terms of the Agreement or any other
agreement, plan or arrangement of the Company or otherwise (other than any
payment pursuant to this Article 4) which are in the nature of compensation and
contingent upon a Change in Control (valued pursuant to Section 280G of the
Code) (collectively the “PAYMENTS”); and

         (b)  the maximum amount of the Payments Executive would be entitled to
receive without being subject to the excise tax imposed by Section 4999 of the
Code (the “PAYMENT CAP”) (such excise tax, together with any interest or
penalties with respect to such excise tax, are hereinafter collectively referred
to as the “EXCISE TAX”).

         SECTION 4.02. Initial Treatment of Payments.

         (a)  If the amount of the Payments does not exceed the Payment Cap,
Executive shall be entitled to receive the full amount of the Payments.

         (b)  If the amount of the Payments exceeds the Payment Cap by less than 10%
of the Payment Cap amount, then, notwithstanding anything to the contrary, the
amount of the Payments payable to Executive shall be reduced to the amount of
the Payment Cap. In the event that the Payments are subject to reduction
hereunder, Executive shall have the right to designate which of the Payments
will be reduced or eliminated.

         (c)  If the amount of the Payments exceeds the Payment Cap by 10% or more
of the Payment Cap amount, then the amount of the Payments Executive is entitled
to receive shall not be reduced and the Company shall pay to Executive an
additional payment (a “GROSS-UP PAYMENT”) in an amount such that after payment
by Executive of all taxes (including any employment taxes and interest and
penalties imposed with respect to such taxes), including any Excise Tax, imposed
upon the Gross-Up Payment Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. All determinations required
to be made as to whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment shall be made by the Accounting Firm.

8

 

         SECTION 4.03. Redeterminations Based on IRS or Court Ruling. If after the
date of the Initial Determination (A) Executive becomes entitled to receive
additional Payments (including, without limitation, severance) contingent upon
the same Change in Control, or (B) Executive becomes subject to the terms of any
final binding agreement between Executive and the Internal Revenue Service or
any decision of a court of competent jurisdiction which is not appealable or for
which the time to appeal has lapsed (a “FINAL DETERMINATION”) and which is
contrary to the Initial Determination, then based upon such additional Payments
or such Final Determination (as the case may be), the Accounting Firm shall
recalculate: (i) the aggregate Payments (such recalculated amount, the
“REDETERMINED PAYMENTS”); and (ii) the maximum amount of the Redetermined
Payments Executive would be entitled to receive without being subject to the
excise tax imposed by Section 4999 of the Code (the “REDETERMINED PAYMENT CAP”)
(such excise tax, together with any interest or penalties with respect to such
excise tax, are hereinafter referred to as the “REDETERMINED EXCISE TAX”).

         SECTION 4.04. Reconciliations Based on Redeterminations.

         (a)  If the Redetermined Payment Cap is greater than the Payment Cap (and
Executive’s Payments were reduced pursuant to Section 4.02(b)), then the Company
shall promptly pay Executive the amount by which the Redetermined Payment Cap
exceeds the Payment Cap, together with interest on such difference at the
applicable Federal rate (as defined in Section 1274(d) of the Code)(the “FEDERAL
RATE”) from the original Payment due date to the date of actual payment of the
difference by the Company.

         (b)  If the aggregate value of the Redetermined Payments exceeds the
Redetermined Payment Cap by less than 10%, then, notwithstanding anything to the
contrary, the amount of the Redetermined Payments that Executive is entitled to
receive and retain shall be reduced to the amount of the Redetermined Payment
Cap. In the event that the Redetermined Payments are subject to reduction under
this paragraph and any such portion of the Redetermined Payments have not yet
been paid to Executive, Executive shall have the right to designate which
portion of such unpaid Redetermined Payments should be reduced or eliminated. If
Executive has previously received any Payments in excess of the Redetermined
Payment Cap, such excess Payments shall be deemed for all purposes to be a loan
to Executive made on the date of receipt of such excess Payments, which
Executive shall have an obligation to repay to the Company on demand, together
with interest on such amount at the applicable Federal rate (as defined in
Section 1274(d) of the Code) from the date of Executive’s receipt of such excess
Payments to the date of repayment by Executive. Notwithstanding the foregoing,
if any portion of such excess Payments which is to be refunded to the Company
has been paid to any Federal, state or local tax authority, repayment thereof
shall not be required until actual refund or credit of such portion has been
made to Executive, and interest payable to the Company shall not exceed interest
received or credited to Executive by such tax authority for the period it held
such portion. In addition, if, pursuant to a Final Determination, any such
excess Payments are not deemed a loan and as a result Executive is subject to
Redetermined Excise Tax, then Executive shall be treated as if the aggregate
value of the Redetermined Payments exceeds the Redetermined Payment Cap by more
than 10% under Section 4.04(c) and Executive shall be entitled to the
Supplemental Gross-Up Payment, subject to all the attendant conditions set forth
below.

9

 

         (c)  If the aggregate value of the Redetermined Payments exceeds the
Redetermined Payment Cap by more than 10%, then the amount of the Redetermined
Payments Executive is entitled to receive and retain shall not be reduced and
the Company shall pay to Executive an additional payment (a “SUPPLEMENTAL
GROSS-UP PAYMENT”) in an amount such that after payment by Executive of all
taxes (including any employment taxes and interest and penalties imposed with
respect to such taxes), including any Redetermined Excise Tax, imposed on the
Supplemental Gross-Up Payment Executive retains an amount of the Supplemental
Gross-Up Payment equal to the Redetermined Excise Tax imposed upon the
Redetermined Payments; provided that if Executive has previously received a
Gross-Up Payment, the amount of the Supplemental Gross-Up Payment shall be
reduced by the amount of the Gross-Up Payment Executive previously received, so
that Executive will be fully reimbursed, but will not receive duplicative
reimbursements. If, however, the Excise Tax exceeds the Redetermined Excise Tax,
the excess Gross-Up Payment that has been paid to Executive shall be deemed for
all purposes to be a loan to Executive made on the date of receipt of such
excess Gross-Up Payment, which Executive shall have an obligation to repay to
the Company on demand, together with interest on such amount at the applicable
Federal rate (as defined in Section 1274(d) of the Code) from the date of
Executive’s receipt of such excess Gross-Up Payment to the date of repayment by
Executive. Notwithstanding the foregoing, in the event any portion of the
Gross-Up Payment to be refunded to the Company has been paid to any Federal,
state or local tax authority, repayment thereof shall not be required until
actual refund or credit of such portion has been made to Executive, and interest
payable to the Company shall not exceed interest received or credited to
Executive by such tax authority for the period it held such portion. Executive
and the Company shall mutually agree upon the course of action to be pursued
(and the method of allocating the expenses thereof) if Executive’s good faith
claim for refund or credit is denied.

         SECTION 4.05. Procedures with Respect to IRS Claims.

         (a)  Executive shall notify the Company in writing of any claim by the
Internal Revenue Service relating to any unpaid excise tax applicable to the
Payments. Such notification shall be given as soon as practicable but no later
than twenty business days after Executive knows of such claim and shall apprise
the Company of the nature of such claim, any assessment under such claim and the
date on which such assessment is requested to be paid. Executive shall not pay
such claim prior to the expiration of the thirty-day period following the date
on which Executive gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).

         (b)  If the Company notifies Executive in writing prior to the expiration
of such period that it desires to contest such claim, Executive shall:

               (i)  give the Company any information reasonably requested by the
Company relating to such claim,

               (ii)  take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,

10

 

               (iii)  cooperate with the Company in good faith in order effectively
to contest such claim, and

               (iv)  permit the Company to participate in any proceedings relating
to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax, Redetermined Excise Tax, employment tax or
income tax, including interest and penalties with respect thereto, imposed as a
result of such representation and payment of costs and expenses.

Without limitation on the foregoing, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax, Redetermined Excise Tax,
employment tax or income tax, including interest and penalties with respect
thereto, imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statue of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company’s control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.

         (c)  If after the receipt by Executive of an amount advanced by the Company
pursuant to the foregoing, Executive becomes entitled to receive any refund with
respect to such claim, Executive shall (subject to the Company’s complying with
the requirements of above with respect to any contest of an excise tax claim)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon by the taxing authority after deducting any
taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company hereunder, a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of the
Supplemental Gross-Up Payment required to be paid hereunder. The forgiveness of
such advance shall be considered part of the Supplemental Gross-Up Payment and
subject to gross-up for any taxes (including interest or penalties) associated
therewith.

11

 

ARTICLE 5

SUCCESSORS AND ASSIGNMENTS

         SECTION 5.01. Successors. The Company will require any successor (whether
by reason of a Change in Control, direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform the obligations
under this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.

         SECTION 5.02. Assignment by Executive. This Agreement shall inure to the
benefit of and be enforceable by Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If Executive should die or become disabled while any amount is owed
but unpaid to Executive hereunder, all such amounts, unless otherwise provided
herein, shall be paid to Executive’s devisee, legatee, legal guardian or other
designee, or if there is no such designee, to Executive’s estate. Executive’s
rights hereunder shall not otherwise be assignable.

ARTICLE 6

MISCELLANEOUS

         SECTION 6.01. Notices. Any notice required to be delivered hereunder shall
be in writing and shall be addressed

         if to the Company, to:

	 	Aetna Inc.

151 Farmington Avenue

Hartford, CT 06156

Fax: 860-273-8340

Attn: General Counsel

if to Executive, to Executive’s last known address as reflected on the books and
records of the Company or such other address as such party may hereafter specify
for the purpose by written notice to the other party hereto. Any such notice
shall be deemed received on the date of receipt by the recipient thereof if
received prior to 5:00 p.m. in the place of receipt and such day is a business
day in the place of receipt. Otherwise, any such notice shall be deemed not to
have been received until the next succeeding business day in the place of
receipt.

         SECTION 6.02. Legal Fees and Expenses. The Company shall pay all legal
fees, costs of litigation, prejudgment interest, and other expenses which are
reasonably incurred by Executive as a result of any conflict between the parties
pertaining to this Agreement

12

 

which arises within the 24 month period following a Change in Control or in
connection with the termination of Executive’s employment during such period.
The Company shall pay reasonable legal fees of Executive incurred in connection
with the negotiation of this agreement not to exceed $25,000 .

         SECTION 6.03. Arbitration. Except as provided in Section 6.16, Executive
shall have the right and option to elect (in lieu of litigation) to have any
dispute or controversy arising under or in connection with this Agreement
settled by arbitration, conducted before a panel of three arbitrators sitting in
a location selected by Executive within 50 miles from the location of
Executive’s principal place of employment with the Company, in accordance with
the rules of the American Arbitration Association then in effect. Executive’s
election to arbitrate, as herein provided, and the decision of the arbitrators
in that proceeding, shall be binding on the Company and Executive. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction.
Except as provided in Section 6.02, each party shall pay its own expenses of
such arbitration and all common expenses of such arbitration shall be borne
equally by Executive and the Company.

         SECTION 6.04. Unfunded Agreement. The obligations of the Company under
this Agreement represent an unsecured, unfunded promise to pay benefits to
Executive and/or Executive’s beneficiaries, and shall not entitle Executive or
such beneficiaries to a preferential claim to any asset of the Company.

         SECTION 6.05. Non-Exclusivity of Benefits. Unless specifically provided
herein, neither the provisions of this Agreement nor the benefits provided
hereunder shall reduce any amounts otherwise payable, or in any way diminish
Executive’s rights as an employee of the Company, whether existing now or
hereafter, under any compensation and/or benefit plans (qualified or
nonqualified), programs, policies, or practices provided by the Company, for
which Executive may qualify; provided, however, that the Separation Benefits and
the Severance Benefits shall be in lieu of any severance benefits under any such
plans, programs, policies or practices. Vested benefits or other amounts which
Executive is otherwise entitled to receive under any plan, policy, practice, or
program of the Company (i.e., including, but not limited to, vested benefits
under any qualified or nonqualified retirement plan), at or subsequent to the
date of termination of Executive’s employment shall be payable in accordance
with such plan, policy, practice, or program except as expressly modified by
this Agreement.

         SECTION 6.06. Employment Status. Nothing herein contained shall interfere
with the Company’s right to terminate Executive’s employment with the Company at
any time, with or without Cause, subject to the Company’s obligation to provide
Severance Benefits or Separation Benefits, if any. Executive shall also have the
right to terminate his employment with the Company at any time without
liability, subject only to his obligations hereunder.

13

 

         SECTION 6.07. Mitigation. (a) In no event shall Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to Executive under any of the provisions of this Agreement nor,
except as provided below, shall the amount of any payment or benefit hereunder
be reduced by any compensation earned by Executive as a result of employment by
another employer.

         (b)  In the event that, during a Continuation Period or Payment Period, as
the case may be, Executive becomes eligible for health benefits from a new
employer which are comparable to and of substantially equivalent value to
Executive’s benefits under the Company’s Medical Plans , Executive’s benefits
hereunder shall be appropriately reduced or terminated, in the Company’s sole
discretion, to the extent of such comparable benefits available to Executive.

         SECTION 6.08. Entire Agreement. This Agreement represents the entire
agreement between Executive and the Company and its affiliates with respect to
Executive’s employment and/or severance rights, and supersedes all prior
discussions, negotiations, and agreements concerning such rights; provided,
however, that any amounts payable to Executive hereunder shall be reduced by any
amounts paid to Executive as required by any applicable local law in connection
with any termination of Executive’s employment.

         SECTION 6.09. Tax Withholding. Notwithstanding anything in this Agreement
to the contrary, the Company shall withhold from any amounts payable under this
Agreement all federal, state, city, or other taxes as are legally required to be
withheld.

         SECTION 6.10. Waiver of Rights. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a
continuing waiver or as a consent to or waiver of any subsequent breach hereof.

         SECTION 6.11. Severability. In the event any provision of the Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Agreement, and the Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included.

         SECTION 6.12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut without
reference to principles of conflict of laws.

         SECTION 6.13. Counterparts. This Agreement may be signed in several
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were on the same instrument.

         SECTION 6.14. Indemnification. The Company shall indemnify Executive (and
Executive’s legal representatives or other successors) to the fullest extent
permitted by the Certificate of Incorporation and By-Laws of the Company, as in
effect at such time or on the Effective Date, and Executive shall be entitled to
the protection of any insurance policies the Company may elect to maintain
generally for the benefit of its directors and officers (and to the extent the
Company maintains such an insurance policy or policies, Executive shall be

14

 

covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any Company officer or
director), against all liabilities, costs, charges and expenses whatsoever
incurred or sustained by Executive or Executive’s legal representatives at the
time such liabilities, costs, charges and expenses are incurred or sustained, in
connection with any action, suit or proceeding to which Executive (or
Executive’s legal representatives or other successors) may be made a party by
reason of Executive’s being or having been a director, officer or employee of
the Company, or any Subsidiary or Executive’s serving or having served any other
enterprise as a director, officer, employee or fiduciary at the request of the
Company.

         SECTION 6.15. Nondisclosure, Nonsolicitation, Noncompete, and
Nondisparagement.

         (a)  (i) Executive shall not (except to the extent required by an order of
a court having competent jurisdiction or under subpoena from an appropriate
government agency) disclose to any third person, whether during or subsequent to
the Executive’s employment with the Company, any trade secrets; customer lists;
provider lists; product development and related information; marketing plans and
related information; sales plans and related information; premium on any other
pricing information; operating policies and manuals; research; payment rates;
methodologies; contractual forms; business plans; financial records; or other
financial, commercial, business or technical information related to the Company
or any Subsidiary or Affiliate unless such information has been previously
disclosed to the public by the Company or has become public knowledge other than
by a breach of this Agreement; provided, however, that this limitation shall not
apply to any such disclosure made while the Executive is employed by the
Company, any Subsidiary or Affiliate if such disclosure occurred in connection
with the performance of Executive’s job as an employee of the Company, any
Subsidiary or Affiliate;

               (ii)  Executive agrees that upon termination of his employment with
the Company for any reason, he will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data, and all
copies thereof or therefrom, in any way relating to the business of the Company
and its Affiliates. Executive further agrees that he will not retain or use for
his account at any time any trade names, trademark or other proprietary business
designation used or owned in connection with the business of the Company or its
Affiliates.

         (b)  (i) While employed by the Company and for two years thereafter, the
Executive shall not, directly or indirectly, induce or attempt to induce any
employee of the Company, any Subsidiary or any Affiliate to be employed or
perform services elsewhere;

               (ii)  While employed by the Company and for two years thereafter, the
Executive shall not, directly or indirectly, induce or attempt to induce any
agent or agency, broker, supplier or health care provider of the Company, any
Subsidiary or Affiliate to cease or curtail providing services to the Company,
any Subsidiary or Affiliate;

               (iii)  While employed by the Company and for two years thereafter,
unless the termination of Executive’s employment occurs during the 24 month
period following a Change in Control, the Executive shall not, directly or
indirectly, solicit or attempt to solicit the trade of any individual or entity
which, at the time of such solicitation, is a customer of

15

 

the Company, any Subsidiary or Affiliate, or which the Company, any Subsidiary
or Affiliate is undertaking reasonable steps to procure as a customer at the
time of or immediately preceding termination of employment; provided, however,
that this limitation shall only apply to any product or service which is in
competition with a product or service of the Company, any Subsidiary or
Affiliate;

         (c)  (i) While employed by the Company and for one year thereafter (to the
extent such restriction is not prohibited by law), unless the termination of
Executive’s employment occurs during the 24 month period following a Change in
Control, the Executive shall not, directly or indirectly, (x) engage in the
ownership of (except less than 1% of the outstanding capital stock of any
publicly traded company), (y) become an employee of or (z) act as a consultant
or contractor to, any Competitor (as defined below);

               (ii)  For 24 months following the termination of the Executive’s
employment with the Company, the Executive shall provide assistance to and shall
cooperate with the Company or a Subsidiary or Affiliate, upon its reasonable
request and without additional compensation, with respect to matters within the
scope of the Executive’s duties and responsibilities during employment, provided
that any reasonable out-of-pocket expenses incurred in connection with any
assistance Executive has been requested to provide under this provision for
items including, but not limited to transportation, meals, lodging and
telephone, shall be reimbursed by the Company. The Company agrees and
acknowledges that it shall, to the maximum extent possible under the then
prevailing circumstances, coordinate or cause a Subsidiary or Affiliate to
coordinate any such request with the Executive’s other commitments and
responsibilities to minimize the degree to which such request interferes with
such commitments and responsibilities.

         For purposes of Section 6.15(c)(i), a “COMPETITOR” is any company or
organization that develops, administers, operates, offers or solicits offers
regarding managed care, health, life, long-term care or disability coverages,
networks, insurance or plans to employers, employees or individuals; and does
not include any hospital, private medical practice or academic institution that
does not own a controlling or material interest in and does not operate
(directly or indirectly), and is not otherwise an affiliate of, a health
insurance company, a managed care company or a health benefit plan (including an
HMO, POS or PPO plan).

         (d)  Neither party will at any time (whether during or after termination of
Executive’s employment with the Company) knowingly make any statement, written
or oral, or take any other action relating to the other party that would
disparage or otherwise harm such party, its business or his reputation or, in
the case of the Company, the reputation of any of its officers and directors.

         SECTION 6.16. Material Inducement; Specific Performance.

         (a)  If any provision of Section 6.15 is determined by a court of competent
jurisdiction not to be enforceable in the manner set forth in this Agreement,
the Company and Executive agree that it is the intention of the parties that
such provision should be enforceable to the maximum extent possible under
applicable law and that such court shall reform such provision to make it
enforceable in accordance with the intent of the parties.

16

 

         (b)  Executive acknowledges that a material part of the inducement for the
Company to provide the salary and benefits evidenced hereby is Executive’s
covenants set forth in Section 6.15 and that the covenants and obligations of
Executive with respect to nondisclosure and nonsolicitation relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such covenants and obligations will cause the Company irreparable injury for
which adequate remedies are not available at law. Therefore, Executive agrees
that, if Executive shall materially breach any of those covenants following
termination of employment, the Company shall be entitled to an injunction,
restraining order or such other equitable relief restraining Executive from
committing any violation of the covenants and obligations contained in Section
6.15 and the Company shall have no further obligation to pay Executive any
benefits otherwise payable hereunder, other than any such breach which occurs
during the 24 month period following a Change in Control or following the
termination of Executive’s employment during such period. The remedies in the
preceding sentence are cumulative and are in addition to any other rights and
remedies the Company may have at law or in equity as an arbitrator (or court)
shall reasonably determine.

ARTICLE 7

DEFINITIONS

         SECTION 7. Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below.

         “Accounting Firm” has the meaning accorded such term in Section 4.01.

         “Accrued Benefits” has the meaning accorded such term in Section 3.03.

         “Accrued Compensation” has the meaning accorded such term in Section 3.03.

         “Affiliate” and “Associate” have the respective meanings accorded to such
terms in Rule 12b-2 under the Exchange Act as in effect on the Effective Date.

         “Agreement” has the meaning accorded such term in the introductory
paragraph of this Agreement.

         “Appraiser” has the meaning accorded such form in Section 4.01.

         “Awards” has the meaning accorded such term in Section 3.02.

         “Base Salary” has the meaning accorded such term in Section 2.01.

         “Basic Bonus Amount” has the meaning accorded such term in Section 3.03.

         “Basic Option” has the meaning accorded such term in Section 2.03.

17

 

         “Beneficial Ownership.” A Person shall be deemed the “Beneficial Owner”
of, and shall be deemed to “beneficially own,” securities pursuant to Rule 13d-3
under the Exchange Act as in effect on the Effective Date.

         “Board” means, the Board of Directors of Aetna Inc. (a Pennsylvania
corporation).

         “Cause” means the occurrence of any one or more of the following:

         (a)  Executive’s willful and continued failure substantially to perform the
duties of his position (other than as a result of incapacity due to physical or
mental illness) which failure is not remedied within fifteen business days of
written notice from the Company;

         (b)  Executive’s gross negligence or willful malfeasance in the performance
of Executive’s duties hereunder; or

         (c)  Executive’s commission of an act constituting fraud, embezzlement, or
any other act constituting a felony.

         For purposes of this definition, no act or failure to act shall be deemed
“willful” unless effected by Executive not in good faith and without reasonable
belief that such action or failure to act was lawful and in the best interests
of the Company.

         “Change in Control” means, and shall be deemed to have occurred upon any
occurrence of any of the following events:

         (a)  When any “person” as defined in Section 3(a)(9) of the Exchange Act
and as used in Section 13(d) and 14(d) thereof, including a “group” as defined
in Section 13(d) of the Exchange Act but excluding the Company and any
Subsidiary thereof and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act, as amended from time to time), of securities
of the Company representing 20 percent or more of the combined voting power of
the Company’s then outstanding securities;

         (b)  When, during any period of 24 consecutive months the individuals who,
at the beginning of such period, constitute the Board (the “Incumbent
Directors”) cease for any reason other than death to constitute at least
majority thereof, provided that a Director who was not a Director at the
beginning of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such Director was elected
by, or on the recommendation of or with the approval of, at least two-thirds of
the Directors who then qualified as Incumbent Directors either actually (because
they were directors at the beginning of such 24-month period) or by prior
operation of this paragraph (b); or

         (c)  The occurrence of a transaction requiring stockholder approval for the
acquisition of the Company by an entity other than the Company or a Subsidiary
through purchase of assets, or by merger, or otherwise (including any such
transaction that would otherwise require stockholder approval but for the fact
that the Company is a debtor in a

18

 

bankruptcy proceeding and such shareholder approval is not required pursuant to
applicable bankruptcy law).

         Notwithstanding the foregoing, in no event shall a “Change in Control” be
deemed to have occurred (i) as a result of the formation of a Holding Company,
or (ii) with respect to Executive, if Executive is part of a “group,” within the
meaning of Section 13(d)(3) of the Exchange Act as in effect on the Effective
Date, which consummates the Change in Control transaction. In addition, for
purposes of the definition of “Change in Control” a Person engaged in business
as an underwriter of securities shall not be deemed to be the “Beneficial Owner”
of, or to “beneficially own,” any securities acquired through such Person’s
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.

         “Code” means the Internal Revenue Code of 1986, as amended.

         “Committee” has the meaning accorded such term in Section 2.01.

         “Company” means, Aetna Inc. (a Pennsylvania corporation) which is the
renamed successor to Aetna U.S. Healthcare Inc.

         “Continuation Period” has the meaning accorded to such term in Section
3.03.

         “Disability” means Long-Term Disability, as such term is defined in the
Disability Plan.

         “Disability Plan” means the long-term disability plan (or any successor
disability and/or survivorship plan adopted by the Company) in which Executive
participates, as in effect immediately prior to the relevant event (subject to
changes in coverage levels applicable to all employees generally covered by such
Plan).

         “Effective Date” has the meaning accorded such term in Section 1.01.

         “Employment Term” has the meaning accorded such term in Section 1.02.

         “Exchange Act” means the Securities Exchange Act of 1934, as amended.

         “Excise Tax” has the meaning accorded such term in Section 4.01.

         “Executive” has the meaning accorded such term in the introductory
paragraph of this Agreement.

         “Final Determination” has the meaning accorded such term in Section 4.03.

         “Good Reason” means, without Executive’s express written consent, the
occurrence of any one or more of the following:

19

 

               (a)  A reduction by the Company of Executive’s Base Salary or total
annual target cash compensation from the level in effect immediately prior
thereto, except in the event of a ratable reduction affecting all senior
officers of the Company; or

               (b)  A change, required by the Company, in Executive’s reporting
relationship which results in Executive no longer reporting directly to the
Company’s Chief Executive Officer, provided such change occurs on or prior to
September 30, 2003; or

               (c)  Any failure of a successor of the Company to assume and agree to
perform the Company’s entire obligations under this Agreement, as required by
Section 5.01 herein, provided that such successor has received at least ten (10)
days written notice from the Company or the Executive of the requirements of
Section 5.01; or

               (d)  For the 24-month period following a Change in Control, requiring
the Executive to be based at a location in excess of 75 miles from Executive’s
principal job location immediately prior thereto, except for required travel on
Company business to the extent consistent with Executive’s business travel
obligations immediately prior thereto.

         Notwithstanding the foregoing, other than during the 24 months following a
Change in Control, the Company will have the opportunity to remedy any act
constituting Good Reason provided such remedy occurs within 15 days of notice to
the Company that such event has occurred.

         “Gross-Up Payment” has the meaning accorded such term in Section 4.02.

         “Health Care Business” has the meaning accorded such term in the second
whereas clause.

         “Holding Company” means an entity that becomes a holding company for the
Company or its businesses as a part of any reorganization, merger, consolidation
or other transaction, provided that the outstanding shares of common stock of
such entity and the combined voting power of the then outstanding voting
securities of such entity entitled to vote generally in the election of
directors is, immediately after such reorganization, merger, consolidation or
other transaction, beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the voting stock outstanding immediately prior to such
reorganization, merger, consolidation or other transaction in substantially the
same proportions as their ownership, immediately prior to such reorganization,
merger, consolidation or other transaction, of such outstanding voting stock.

         “Initial Determination” has the meaning accorded such term in Section
4.01.

         “Medical Plans” means the medical care plans (or any successor medical
plans adopted by the Company) in which Executive participates, as in effect
immediately prior to the relevant event (subject to changes in coverage levels
generally applicable to senior executives covered by such Plans).

         “Payment Cap” has the meaning accorded such term in Section 4.01.

20

 

         “Payment Period” has the meaning accorded such term in Section 3.04.

         “Payments” has the meaning accorded such term in Section 4.01.

         “Person” means an individual, corporation, partnership, association, trust
or any other entity or organization.

         “Pro-Rata Bonus Amount” has the meaning accorded such term in Section
3.03.

         “Public Company” means the Company, having become an independent publicly
traded corporation with a class of equity securities registered under Section 12
of the Exchange Act.

         “Qualifying Event” has the meaning accorded such term in Section 3.01.

         “Redetermined Excise Tax” has the meaning accorded such term in Section
4.03.

         “Redetermined Payments” has the meaning accorded such term in Section
4.03.

         “Redetermined Payment Cap” has the meaning accorded such term in Section
4.03.

         “Remaining Period” has the meaning accorded such term in Section 3.05

         “Retention Amount” has the meaning accorded such term in Section 2.02.

         “Separation Benefits” has the meaning accorded such term in Section 3.04.

         “Severance Benefits” has the meaning accorded such term in Section 3.03.

         “Sign-On Option” has the meaning accorded such term in Section 2.03.

         “Subsidiary” of any Person means any other Person of which securities or
other ownership interests having voting power to elect a majority of the board
of directors or other Persons performing similar functions are at the time
directly or indirectly owned by such Person.

         “Supplemental Gross-up Payment” has the meaning accorded such term in
Section 4.04.

21

 

         IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement, to be effective as of the day and year first written above.

	 	 	 
	EXECUTIVE	 	
AETNA INC.
	 
	/s/ David B. Kelso

David B. Kelso	 	
By:    /s/ John W. Rowe

John W. Rowe, M.D.

Title: President and CEO

22

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