EXHIBIT 10.3
Jay M. Gellert
AMENDED AND
RESTATED
EMPLOYMENT
AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (this “Agreement”) is made and entered into
as of February 23, 2007 (the “Effective Date”) and
amended and restated as of December 3, 2008, by and between
Health Net, Inc., a Delaware corporation (the
“Company”), with its principal place of business
located at 21650 Oxnard Street, Woodland Hills, California 91367,
and Jay M. Gellert (“Executive”).
RECITALS
WHEREAS, the Company desires to
continue Executive’s employment in the capacity as President
and Chief Executive Officer; and
WHEREAS, the Company and Executive
desire to amend and restate the Agreement to satisfy the
requirements of Section 409A of the Internal Revenue Code of
1986, as amended and the Treasury Regulations and Internal Revenue
Service guidance thereunder (“Section 409A”);
and
WHEREAS, this Agreement is intended
to amend and restate in its entirety the Letter Agreement, dated
August 22, 1997, the Letter Agreement dated March 2,
2000, the Agreement dated January 1, 2001, the Letter
Agreement dated October 13, 2002, and the Agreement dated
February 23, 2007 by and between Executive and the Company,
relating to Executive’s employment with the Company
(collectively, the “Prior Employment
Agreement”).
NOW, THEREFORE, in consideration of
the following covenants, conditions and promises contained herein,
and other good and valuable consideration, the Company and
Executive hereby agree as follows:
1. Duties and Salary
.
A. Duties . Executive’s
title is President and Chief Executive Officer, but may be changed
at the discretion of the Board of Directors of the Company (the
“Board”) to a title that reflects a similarly situated
senior executive position. Executive shall report directly to the
Board, but Executive’s reporting relationship may be changed
from time to time at the discretion of the Board. Executive’s
duties and responsibilities are to provide executive leadership and
management of the Company, but the Board reserves the right to
assign Executive other duties as needed and to change
Executive’s duties from time to time on reasonable notice,
based on Executive’s skills and the needs of the
Company.
B. Salary . Executive will be
paid an annual base salary of $1,200,000, which salary will be paid
on a pro-rated bi-weekly basis, less applicable withholdings
(“Base Salary”), covering all hours worked, but the
Board may change Executive’s compensation from
time-to-time.
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Pursuant to the charter of the Compensation
Committee of the Company’s Board of Directors (the
“Committee”), Executive’s Base Salary will be
reviewed annually. Any adjustment to Executive’s compensation
must be made with the approval of the Committee and with the
ratification of the independent directors of the Board.
C. Disclosure of Personal
Compensation Information . As an “executive
officer” of the Company (as such term is defined in the rules
and regulations of the Securities and Exchange Commission
(“SEC”)), information regarding Executive’s
employment arrangements with the Company, including, among other
things, the terms of this Agreement and any stock option agreement,
restricted stock agreement, restricted stock unit agreement and/or
severance agreement Executive enters into with the Company from
time to time (collectively, “Personal Compensation
Information”), may be disclosed in filings with the SEC, the
New York Stock Exchange (“NYSE”) and/or other
regulatory organizations upon the occurrence of certain triggering
events. Such triggering events include, but are not limited to, the
execution of this Agreement and any amendments thereto, changes in
Executive’s Base Salary, any annual incentive payment
(whether in the form of cash or equity) awarded to Executive (in
the past or after the date hereof), and the establishment of
performance goals under the Company’s incentive plans.
Executive’s execution of this Agreement will serve as
Executive’s acknowledgement that Executive’s Personal
Compensation Information may be publicly disclosed from time to
time in filings with the SEC, NYSE or otherwise as required by
applicable law.
2. Adjustments and Changes in
Employment Status . Executive understands that the Board may
make personnel decisions regarding Executive’s employment,
including, but not limited to, decisions regarding any salary
adjustment, transfer or disciplinary action, up to and including
termination, consistent with the needs of the business of the
Company.
3. Protection of Proprietary and
Confidential Information . Executive agrees that
Executive’s employment creates a relationship of confidence
and trust with the Company with respect to Proprietary and
Confidential Information (as defined below) of the Company learned
by Executive during Executive’s employment.
A. Executive agrees not to directly
or indirectly use or disclose any of the Proprietary and
Confidential Information of the Company or any of its affiliates at
any time except in connection with the services Executive provides
to such entities. “ Proprietary and Confidential
Information ” shall mean trade secrets, confidential
knowledge, data or any other proprietary or confidential
information of the Company or any of its affiliates, or of any
customers, members, employees or directors of any of such entities,
but shall not include any information that (i) was publicly
known and made generally available in the public domain prior to
the time of disclosure to Executive by the Company or
(ii) becomes publicly known and made generally available after
disclosure to Executive by the Company other than as a result of a
disclosure by Executive in violation of this Agreement. By way of
illustration but not limitation, “Proprietary and
Confidential Information” includes: (i) trade secrets,
documents, memoranda, reports, files, correspondence, lists and
other written and graphic records affecting or relating to any such
entity’s business; (ii) confidential marketing
information including without limitation marketing strategies,
customer and client names and requirements, services, prices,
margins and costs; (iii) confidential financial information;
(iv) personnel information (including without limitation
employee compensation); and (v) other confidential business
information.
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B. Executive further agrees that at
all times during Executive’s employment and thereafter,
Executive will keep in confidence and trust all Proprietary and
Confidential Information, and that Executive will not use or
disclose any Proprietary and Confidential Information or anything
related to such information without the written consent of the
Company, except as may be necessary in the ordinary course of
performing Executive’s duties to the Company.
C. All Company property, including,
but not limited to, Proprietary and Confidential Information,
documents, data, records, apparatus, equipment and other physical
property, whether or not pertaining to Proprietary and Confidential
Information, provided to Executive by the Company or any of its
affiliates or produced by Executive or others in connection with
Executive’s providing services to the Company or any of its
affiliates shall be and remain the sole property of the Company or
its affiliates (as the case may be) and shall be returned promptly
to such appropriate entity as and when requested by such entity.
Executive shall return and deliver all such property upon
termination of Executive’s employment, and Executive may not
take any such property or any reproduction of such property upon
such termination.
D. Executive recognizes that the
Company and its affiliates have received and in the future will
receive information from third parties which is private,
proprietary or confidential information subject to a duty on such
entity’s part to maintain the confidentiality of such
information and to use it only for certain limited purposes.
Executive agrees that during Executive’s employment, and
thereafter, Executive owes such entities and such third parties a
duty to hold all such private, proprietary or confidential
information received from third parties in the strictest confidence
and not to disclose it, except as necessary in carrying out
Executive’s work for such entities consistent with such
entities’ agreements with such third parties, and not to use
it for the benefit of anyone other than for such entities or such
third parties consistent with such entities’ agreements with
such third parties.
E. Executive’s obligations
under this Section 3 shall continue after the termination of
Executive’s employment and any breach of this Section 3
shall be a material breach of this Agreement.
4. Physical Exam . Executive
will be required, on an annual basis, to undergo a physical
examination and to send evidence that Executive has undergone such
exam (but in no case the results of such exam) to the Senior Vice
President of Organizational Effectiveness. The Company shall
reimburse Executive for any out-of-pocket expenses relating to the
physical examination that are not otherwise covered by
Executive’s health insurance plan.
5. Representations and Warranties
of Executive .
A. No Violation; No Conflicts
. Executive represents and warrants to the Company that the
entering into of this Agreement and Executive’s performance
of Executive’s duties hereunder, will not violate any
agreements with, or trade secrets of, any other person or entity.
Executive further represents and warrants that Executive does not
have any relationship or commitment to any other person or entity
that might be in conflict with Executive’s obligations to the
Company under this Agreement, including but not limited to outside
employment, sales broker relationships, investments or business
activities. Executive understands and agrees that
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while employed by the Company Executive is
expected to refrain from engaging in any outside activities that
might be in conflict with the business interests of the Company. In
addition, Executive represents and warrants to the Company that
Executive has not shared with or disclosed to, and will not share
with or disclose to, the Company any proprietary or confidential
information of Executive’s previous employers or any other
third party.
B. Legal Proceedings .
Executive represents and warrants to the Company that Executive has
not been arrested, indicted, convicted or otherwise involved in any
criminal or civil action or legal matter that could affect
Executive’s ability to perform Executive’s duties
hereunder or that may have a negative impact on the Company, its
reputation or its operations. Executive agrees, to the extent
permitted by applicable law, to notify the Board immediately in the
event that Executive becomes party to any criminal or civil action
or other legal matter in the future that could have an affect on
the foregoing representation.
6. Executive Benefits
.
A. Employee Benefit Programs
. Executive is eligible to participate in the Company’s
various employee benefit programs and plans in place from time to
time as long as Executive remains employed by the Company and
Executive meets the applicable participation requirements. These
benefit programs and plans include paid time off, which shall not
be less than 22 days per calendar year (“PTO”),
holidays, group medical, dental, vision, term life, and short and
long term disability insurance and participation in the Company's
401(k) plan, tuition reimbursement plan, deferred compensation plan
and Supplemental Executive Retirement Plan. The Company or its
subsidiaries or affiliates may modify, terminate or amend any
benefit or plan in its discretion, retroactively or prospectively,
subject only to applicable law.
B. Required Insurance .
Executive is covered by workers’ compensation insurance and
state disability insurance, as required by state law.
C. Financial Counseling
Allowance . Executive is entitled to be reimbursed up to the
amount of $5,000 (net of taxes) per year for documented costs
incurred for personal financial counseling services provided to
Executive, including tax preparation, as long as Executive remains
employed by the Company.
D. Incentive Bonus .
Executive is eligible to participate in the Health Net, Inc.
Executive Incentive Plan (“EIP”) in accordance with the
terms of the EIP, which provides Executive with a target
opportunity to earn each plan year up to 125% of Executive’s
Base Salary as additional compensation according to the terms of
the actual EIP documents. The bonus payment will range from 0% to
200% of target depending upon the actual results achieved, and
specific, individually tailored measures will be established by the
Company that must be achieved by Executive in order for Executive
to be eligible to receive bonus payments for a given plan year. It
is understood that the Committee and the Company will award bonus
amounts, if any, as it deems appropriate consistent with the
guidelines of the EIP.
E. Housing/Relocation . The
Company will provide Executive, at its expense, with housing,
including the use of utilities, in Woodland Hills, California, at a
reasonable monthly cost. Weekend trips to Executive’s
residence in San Francisco will be at the Company’s expense.
Any modification to the housing provided Executive in Woodland
Hills, California,
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must be approved in advance by the Committee. In
addition, the Committee may review and modify such housing
arrangements in its sole discretion from time to time. Executive
may, at Executive’s option, decide to relocate to Southern
California. Should Executive decide to relocate, the Company will
provide Executive with certain benefits to assist Executive in
relocating to Woodland Hills, including: (i) payment for all
packing, shipping and unloading of all Executive’s reasonable
household items upon Executive’s move and up to 60 days
storage of such items; and (ii) assistance with the sale of
Executive’s current home to include payment of up to a 7%
real estate commission, and assistance in the purchase of a new
home to include payment of up to two points with respect to
financing of such home and Federal and state tax gross-ups on the
above items, as allowed by law.
F. Expenses . Subject to and
in accordance with the Company's written policies for business and
travel expenses, Executive will receive reimbursement for all
business travel and other out-of-pocket expenses reasonably
incurred by Executive in the performance of Executive’s
duties pursuant to this Agreement.
G. Company Car . The Company
will provide Executive with the use of an automobile, the type and
cost of which must be approved by the Committee. All expenses
associated with Executive’s personal use of such automobile
will be deemed to be imputed income to Executive and will be
“grossed-up” for income tax purposes at the applicable
federal and state income tax level.
H. Miscellaneous . Executive
is entitled to a (i) Company provided cell phone and the
Company will pay for Executive’s usage of such phone
(ii) fax machine to be installed in Executive’s home and
(iii) reimbursement of the cost of the annual physical exam as
set forth in Section 4 above.
7. Equity Grants .
A. Future Equity Grants . Any
future equity grants made to Executive will be granted under one of
the Company’s Long-Term Incentive Plans, and will be subject
to the terms of such plan and of the agreement executed in
connection with such grant. Any future equity grants to Executive
will be made at the discretion of the Committee and with the
approval of the independent directors of the Board.
B. Company Stock Ownership
Requirement . In accordance with the Executive Officer Stock
Ownership Policy adopted by the Board of Directors of the Company
(the “Executive Stock Ownership Policy”), Executive is
required to own shares of Common Stock of the Company having a
value of five times (5x) Executive’s Base Salary in
effect from time to time pursuant to this Agreement (the
“Stock Ownership Requirement”). The number of shares of
Common Stock Executive is required to own will be calculated based
on the average NYSE closing price per share of the Company's Common
Stock (as adjusted for stock splits and similar changes to the
Common Stock) for the most recently completed fiscal year of the
Company.
Using Executive’s current
salary of $1,200,000 and a stock price of $45.3450, which is the
average closing price per share of the Company’s Common Stock
as of December 31, 2006, Executive’s current stock
ownership requirement is 132,319 (“Target Amount”). The
Target Amount is subject to change from time to time based on
(1) changes in the average
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closing sales price of the Company’s
Common Stock on an annual basis and (2) any changes in
Executive’s Base Salary made pursuant to and in accordance
with Section 1B of this Agreement. Any shares of Company
Common Stock that Executive owns, and any restricted stock units or
shares of restricted stock of the Company that Executive owns and
have vested count toward the Target Amount. Stock options, unvested
restricted stock units, unvested shares of restricted stock and
shares of Common Stock gifted to others do not count toward the
Target Amount.
Executive will be notified on an
annual basis of any changes in Executive’s Target
Amount.
C. Stock Plan Amendments . In
accordance with the Agreement dated January 1, 2001 between
Executive and the Company, Executive previously consented, pursuant
to Section 14 of the Company’s Second Amended and
Restated 1991 Stock Option Plan (the “1991 Plan”),
Section 6.2 of the Company’s 1997 Stock Option Plan, as
amended (the “1997 Plan”) and Section 6.2 of the
Company’s 1998 Stock Option Plan, as amended (the “1998
Plan,” and together with the 1991 Plan and the 1997 Plan, the
“Plans”), that the Plans, as amended by the amendments
to the Accelerated Provisions of the Plans set forth on Exhibit
A attached hereto, shall govern and apply to all of
Executive’s outstanding options under the Plans, regardless
of the date such options were granted. To the extent the option
agreements for Executive’s outstanding options under the
Plans state anything to the contrary, Executive and the Company
have agreed that such option agreement(s) are amended to be
consistent with the foregoing sentence.
8. Term of Employment .
Executive’s employment with the Company is at the mutual
consent of Executive and the Company. Nothing in this Agreement is
intended to guarantee Executive’s continuing employment with
the Company or employment for any specific length of time.
Accordingly, either Executive or the Company may terminate the
employment relationship at any time, with or without advance notice
and with or without cause. Upon termination of Executive’s
employment for any reason, in addition to any other payments that
may be payable to Executive hereunder, Executive (or
Executive’s beneficiaries or estate) will be paid (in each
case to the extent not theretofore paid) within thirty
(30) days following Executive’s date of termination,
except as provided in Section 9 below, (or such shorter period
that may be required by applicable law): (a) Executive’s
annual Base Salary through the date of termination, (b) any
compensation previously deferred by Executive (together with any
interest and earnings therein), (c) accrued but unused PTO,
(d) reimbursable expenses incurred by Executive prior to the
termination date and (e) amounts under any other compensatory
plan, arrangement or program payment to which Executive may be
entitled. This Agreement constitutes a final and fully binding
integrated agreement with respect to the at-will nature of the
employment relationship.
9. Termination of
Employment/Severance Pay .
A. Termination Without Cause Not
Following Change in Control . If Executive’s employment
is terminated by the Company without Cause at any time that is not
within two (2) years after a “Change in Control”
(as defined below) of Health Net, Inc., Executive will be entitled
to receive, beginning at the end of the first month following the
termination of Executive’s employment, provided Executive
signs a Separation Agreement, Waiver and Release of Claims
substantially in the form attached hereto as Exhibit B, which is
incorporated into this Agreement by reference, a lump sum cash
payment equal to $6,000,000.
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For purposes of this Agreement,
“ Change in Control ” is defined as any of the
following which occurs subsequent to the effective date of
Executive’s employment:
(i) A 51% change in beneficial
ownership as a result of a single transaction of all capital stock
of Health Net, Inc.;
(ii) A change in the majority of
outside directors of the Health Net, Inc. Board of Directors over
two years, which is unapproved by a majority of Health Net,
Inc.’s current Board of Directors;
(iii) The sale of substantially all
of Health Net, Inc.’s assets to an unrelated third party;
or
(iv) The liquidation or dissolution
of Health Net, Inc.
B. Termination Without Cause or
For Good Reason Following Change in Control . If at any time
within two (2) years after a Change in Control of Health Net,
Inc. Executive’s employment is terminated by the Company
without cause or Executive terminates Executive’s employment
for “Good Reason” (as defined below) (by giving the
Company at least fourteen (14) days prior written notice of
the effective date of termination), then Executive will be entitled
to receive, beginning at the end of the first month following the
termination of Executive’s employment, provided Executive
signs a Separation Agreement, Waiver and Release of Claims
substantially in the form attached hereto as Exhibit B, which is
incorporated into this Agreement by reference, (i) a lump sum
payment equal to $6,000,000, and (ii) Executive’s
options that vested prior to the date of Executive’s
termination will continue to remain exercisable for the shorter of,
(x) a period of two years following Executive’s date of
termination, or (y) the options’ general termination
date as set forth in the applicable agreement evidencing the award
of such options.
For purposes of this Agreement, the
term “ Good Reason ” means any of the following
which occurs, without Executive’s consent, within two
(2) years following the effective date of a Change in Control
as defined above:
(i) A material reduction in the
scope of Executive’s duties, responsibilities, salary or
status with the Company; or
(ii) A relocation of
Executive’s office outside of California;
provided , however , that Executive must provide
notice to the Company of the existence of the condition described
in Section 9(B)(i) or (ii) within ninety (90) days
of the initial existence of the condition, upon the notice of which
the Company has thirty (30) days during which it may remedy
the condition, in accordance with Treasury Regulation
Section 1.409A-1(n)(2)(ii).
C. Voluntary Termination .
Notwithstanding anything to the contrary in this Agreement, whether
express or implied, Executive may at any time terminate
Executive’s employment for any reason by giving the Company
fourteen (14) days prior written notice of the
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effective date of termination. In the event that
Executive voluntarily terminates employment with the Company
(except for Good Reason within two (2) years after a Change in
Control of Health Net, Inc.), then Executive shall not be eligible
to receive any payments or continuation of Benefits set forth in
this Section 9).
10. Withholding . All
payments required to be made by the Company hereunder to Executive
or Executive’s estate or beneficiaries shall be subject to
the withholding of such amounts relating to taxes as the Company
may reasonably determine should be withheld pursuant to any
applicable law or regulation.
11. Potential Tax Consequences
for “Parachute” Payments .
A. Tax Gross-Up .
Notwithstanding any other provisions of this Agreement, in the
event that (i) any payment or distribution by the Company to
or for Executive’s benefit (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control or
any person affiliated with the Company or such person) (all such
payments and distributions, including the severance payments and
benefits provided for in Section 9 hereof (the
“Severance Payments”), being hereinafter called
(“Total Payments”) would be subject (in whole or part)
to the excise tax imposed under Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”), or any
successor provision enacted under the Code or any interest or
penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the “Excise
Tax”) and (ii) the amount of such Total Payments subject
to such Excise Tax exceeds $50,000, then the Company shall pay to
Executive an additional cash payment (the “Tax
Gross-Up”) so that after receipt of such Tax Gross-Up, the
payment of any additional federal, state and local income taxes on
such Tax Gross-Up amount and the payment of any Excise Taxes,
Executive shall receive such net amount of Total Payments equal to
the amount that Executive would have received if no Excise Tax was
due. If the amount of Total Payments subject to the Excise Tax does
not exceed $50,000, then the Tax-Gross-Up shall not be paid and the
Severance Payments shall be reduced (if necessary, to zero) to the
extent necessary so that no portion of the Total Payments is
subject to the Excise Tax.
B. Accounting Firm
Determination . All determinations required to be made under
this Section 11, including whether and when a Tax Gross-Up is
required and the amount of such Tax Gross-Up and the assumptions to
be utilized in arriving at such determination, shall be made by the
public accounting firm that, immediately prior to the Change in
Control, was the Company’s independent auditor (the
“Accounting Firm”) which shall provide detailed
supporting calculations both to the Company and Executive within
fifteen (15) business days of the receipt of notice from
Executive that Executive has received Total Payments, or such
earlier time as is requested by the Company. All fees and expenses
of the Accounting Firm shall be borne solely by the Company. Any
Tax Gross-Up, as determined pursuant to this Section 11, shall
be paid by the Company to Executive within five (5) days of
the receipt of the Accounting Firm’s determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, then the Accounting Firm shall furnish to Executive a
written opinion that failure to report the Excise Tax on
Executive’s applicable federal income tax return would not
result in the imposition of any tax assessment or a negligence or
similar penalty. As a result of any uncertainty in the application
of Section 4999 of the Code at the time of the determination
by the
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Accounting Firm hereunder, it is possible that
Tax Gross-Up which will not have been made by the Company should
have been made (“Underpayment”), or that amount of the
Tax Gross-Up will exceed the amount required under
Section 11(A) (“Overpayment”). In the event that
the Accounting Firm shall determine that an Underpayment or
Overpayment has occurred, either Executive or the Company, as
applicable, shall promptly reimburse the other for the amount of
such Underpayment or Overpayment that has occurred.
C. Notifications . Executive
shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by
the Company of the Tax Gross-Up. Such notification shall be given
as soon as practicable but no later than ten (10) business
days after Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive and the Company
shall each reasonably cooperate with the other in connection with
any administrative or judicial proceedings concerning the existence
or amount of liability for Excise Tax with respect to Total
Payments.
D. Payment Calculator . At
the time that payments are made under this Section 11, the
Company shall provide Executive with a written statement setting
forth the manner in which such payments were calculated and the
basis for such calculations including, without limitation, any
opinions or other advice the Company has received from tax counsel,
the Accounting Firm or other advisors or consultants (and any such
opinions or advice which are in writing shall be attached to the
statement).
12. Restrictive Covenants
.
A. Non-Competition .
Executive hereby agrees that, during the twelve (12)-month period
following a termination of Executive’s employment with the
Company that entitles Executive to receive severance benefits under
this Agreement (the “Restricted Period”), Executive
shall not undertake any employment or activity with a Competitor
(as defined below) in any geographic area in which the Company or
any of its affiliates operate (the “Market Area”),
which employment or activity could call upon Executive to reveal,
to make judgments on or otherwise use any confidential business
information or trade secrets of the business of the Company or any
of its affiliates to which Executive had access during
Executive’s employment with the Company. For p
