EXHIBIT 10.4
JAMES E. WOYS
AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (this “Agreement”) is made and entered into
as of November 30, 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 James E. Woys (“Executive”).
RECITALS
WHEREAS, the Company and Executive
are party to an Amended and Restated Employment Agreement, dated
January 24, 2007 (the “Prior Agreement”);
and
WHEREAS, the Company and Executive
desire to amend and restate the Prior Agreement to conform it to
the requirements of Section 409A of the Code and the Treasury
Regulation and Internal Revenue Service guidance
thereunder.
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 Executive Vice President and Chief Operating Officer, but
may be changed at the discretion of the Company to a title that
reflects a similarly situated senior executive position. Executive
shall report directly to Jay Gellert, President and Chief Executive
Officer of the Company, but Executive’s reporting
relationship may be changed from time to time at the discretion of
the Company. Executive’s duties and responsibilities include
executive leadership of claims, customer service, information
technology, health care analytics and pharmacy, and oversight of
the Federal Services and MHN business units, but the Company
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 a base salary at the annual rate of $700,000, which salary
will be paid on a pro-rated bi-weekly basis, less applicable
withholdings (“Base Salary”), covering all hours
worked. Generally, Executive’s Base Salary will be reviewed
annually, but the Company reserves the right to change
Executive’s compensation from time-to-time. Executive will
not be eligible for a merit increase in 2008. Pursuant to the
charter of the Compensation Committee of the Company’s Board
of Directors (the “Committee”), any adjustment to
Executive’s compensation must be made with the approval of
the Committee and, in the event that Executive constitutes one of
the top two (2) highest paid executive officers of the
Company, with the ratification of the Company’s Board of
Directors.
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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,
performance share 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 Company
reserves the right to make personnel decisions regarding
Executive’s employment, including, but not limited to,
decisions regarding any promotion, salary adjustment, transfer or
disciplinary action, up to and including Termination (as defined
below), consistent with the needs of the business of the
Company.
For purposes
of this Agreement, the capitalized terms “ Termination
” and “ Terminate ,” shall mean
Executive’s Separation from Service (as defined below) from
the Company. A “ Separation from Service ” shall
have the meaning ascribed to such term in Treasury Regulations
promulgated under Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), from time to time and
other publications of the Internal Revenue Service published in the
Internal Revenue Bulletin from time to time.
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
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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.
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
shall 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
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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 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 Company’s Senior
Vice President of Organizational Effectiveness 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 shall be 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
(“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 (“SERP”). Executive is 100%
vested in the SERP based on his current tenure with the Company.
This benefit is designed to provide participants 50% of their base
and cash bonus compensation calculated as an average from their
last five years of employment with the Company. This SERP benefit
is then reduced by Executive’s social security and 401(k)
benefits. 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 will be covered by workers’ compensation insurance
and state disability insurance, as required by state
law.
C. Financial Counseling
Allowance . Executive will be entitled to be reimbursed up to
the amount of $5,000 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. Car Allowance . Executive
will be entitled to a car allowance of $1,000 per month.
E. Corporate Housing . From
January 1, 2008 through June 30, 2008, in lieu of hotel
accommodations, the Company will provide Executive with a furnished
corporate
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apartment in Woodland Hills, CA. All expenses
associated with such corporate housing 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.
F. Incentive Bonus .
Executive will be 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 100% of Executive’s
Base Salary as additional compensation according to the terms of
the EIP. 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
EIP.
G. Relocation Benefits .
Executive’s relocation will be covered under the
Company’s Relocation Policy currently in effect. All
relocation expenses not deductible under IRS regulations, except
the miscellaneous spending allowance, will be “grossed
up” for income tax purposes at the supplemental federal tax
rate and applicable state tax liability.
H. 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.
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.
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 three times (3x) 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 $700,000 and a stock price of $45.34, 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 46,316 shares (“Target
Amount”). The Target Amount is subject to change from time to
time based on (1) changes in the average 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 1(B) of this Agreement. Any
shares of Company Common Stock that Executive owns, and any
restricted
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stock units, shares of restricted stock or
performance shares 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,
unvested performance shares and shares of Common Stock gifted to
others do not count toward the Target Amount. Under the Executive
Stock Ownership Policy, Executive will have until four years from
the Effective Date to comply with the Stock Ownership
Requirement.
The Committee expects that Executive
will make reasonable progress toward Executive’s Stock
Ownership Requirement. Executive will be notified on an annual
basis of any changes in Executive’s Target Amount.
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” (as defined below). 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)
shall be paid (in each case to the extent not theretofore paid)
within thirty (30) days following Executive’s date of
Termination (or such shorter period that may be required by
applicable law): (a) Executive’s annual Base Salary
through such date, (b) accrued but unused PTO,
(c) reimbursable expenses incurred by Executive prior to the
Termination date and (d) amounts under any other compensatory
plan, arrangement or program payment to which Executive may then 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” (as
defined in Section 9(D) below) 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, within thirty (30) days following the Termination of
Executive’s employment, provided that Executive signs,
prior to the expiration of such (30) day period, a Separation
Agreement, Waiver and Release of Claims substantially in the form
attached hereto as Exhibit A , which is incorporated into
this Agreement by reference, (i) a lump sum cash payment equal
to twenty-four months of Executive’s Base Salary in effect
immediately prior to the date of Executive’s Termination, and
(ii) the continuation of Executive’s medical, dental and
vision benefits (as maintained for Executive’s benefit
immediately prior to the date of Executive’s Termination)
(the “Benefits”) for Executive and Executive’s
dependents for a period of six months following the effective date
of Executive’s Termination, and (iii) the continuation,
under COBRA, of Executive’s Benefits for Executive and
Executive’s dependents for a period of eighteen months, with
premium payments paid by the Company on Executive’s behalf,
provided , that Executive properly elects to continue those
benefits under COBRA.
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) Any person (as such term is
defined under Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), corporation
or other entity (other than Health Net, Inc. or any of its
subsidiaries, or any employee benefit plan sponsored by Health Net,
Inc. or any of its subsidiaries) is or becomes the beneficial owner
(as such term is defined in Rule 13d-3 under the Exchange Act) of
securities of Health Net, Inc. representing twenty percent
(20%) or more of the combined voting power of the outstanding
securities of Health Net, Inc. which ordinarily (and apart from
rights accruing under special circumstances) have the right to vote
in the election of directors (calculated as provided in paragraph
(d) of such Rule 13d-3 in the case of rights to acquire Health
Net, Inc.’s securities) (the
“Securities”);
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(ii) As a result of a tender offer,
merger, sale of assets or other major transaction, the persons who
are directors of Health Net, Inc. immediately prior to such
transaction cease to constitute a majority of the Board of
Directors of Health Net, Inc. (or any successor corporations)
immediately after such transaction;
(iii) Health Net, Inc. is merged or
consolidated with any other person, firm, corporation or other
entity and, as a result, the shareholders of Health Net, Inc., as
determined immediately before such transaction, own less than
eighty percent (80%) of the outstanding Securities of the
surviving or resulting entity immediately after such
transaction:
(iv) A tender offer or exchange
offer is made and consummated for the ownership of twenty percent
(20%) or more of the outstanding Securities of Health Net,
Inc.;
(v) Health Net, Inc. transfers
substantially all of its assets to another person, firm,
corporation or other entity that is not a wholly-owned subsidiary
of Health Net, Inc.; or
(vi) Health Net, Inc. enters into a
management agreement with another person, firm, corporation or
other entity that is not a wholly-owned subsidiary of Health Net,
Inc. and such management agreement extends hiring and firing
authority over Executive to an individual or organization other
than 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, within thirty (30) days following the Termination
of Executive’s employment, provided that Executive
signs, prior to the expiration of such thirty (30) day period,
a Separation Agreement, Waiver and Release of Claims substantially
in the form attached hereto as Exhibit A , which is
incorporated into this Agreement by reference, (i) a lump sum
payment equal to thirty-six months of Executive’s Base Salary
in effect immediately prior to the date of Executive’s
Termination, and (ii) the continuation of Executive’s
Benefits for eighteen months following Executive’s date of
Termination, and (iii) and after expiration of such eighteen
months Benefits continuation period, the continuation, under COBRA,
of Benefits for Executive and
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Executive’s dependents for a period of
eighteen months following the effective date of Executive’s
Termination with premium payments made by the Company on
Executive’s behalf, provided , that Executive properly
elects to continue those benefits under COBRA, and provided
, further , that in the event the Company requests, in
writing, prior to such voluntary Termination by Executive for Good
Reason that Executive continue in the employ of the Company for a
period of time up to 90 days following such Change in Control, then
Executive shall forfeit such severance allowance if Executive
voluntarily leaves the employ of the Company prior to the
expiration of such period of time.
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 substantial reduction in the
scope of Executive’s authority, duties or responsibilities
with the Company, except in connection with the Termination of
Executive’s employment for Disability (as defined below),
normal retirement or Cause or by Executive voluntarily other than
for Good Reason;
(ii) A material reduction by the
Company in Executive’s base compensation (i.e.,
Executive’s Base Salary and/or annual target bonus) as in
effect immediately prior to any such reduction;
(iii) A relocation of Executive to a
work location more than fifty (50) miles from
Executive’s work location immediately prior to such proposed
relocation; provided that such proposed relocation results in a
materially greater commute for Executive based on Executive’s
residence immediately prior to such relocation; or
(iv) The failure of the Company to
obtain an assumption agreement from any successor contemplated
under Section 12 of this Agreement;
provided , however , that Executive must provide
notice to the Company of the existence of the condition described
above 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 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).
D. Termination by the Company for
Cause. The Company may Terminate Executive’s employment
for Cause at any time with or without advance notice. In the event
of such Termination, Executive will not be eligible to receive any
of the payments set forth in Section 9(A) or 9(B) above. For
purposes of this Agreement, a Termination for “ Cause
” is defined as: (i) an act of dishonesty causing harm
to the Company or any of its affiliates, (ii) the material
breach of either the Company’s Code of Business Conduct and
Ethics (the “Code of
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Conduct”) or any policy or procedure
developed and published by the Company regarding compliance or
ethics related to the Code of Conduct, (iii) habitual
drunkenness or narcotic drug addiction, (iv) conviction of a
felony or a misdemeanor involving moral turpitude, (v) willful
refusal to perform or gross neglect of the duties assigned to
Executive, (vi) the willful breach of any law that, directly
or indirectly, affects the Company or any of its affiliates,
(vii) a material breach by Executive following a Change in
Control of those duties and responsibilities of Executive that do
not differ in any material respect from Executive’s duties
and responsibilities during the 90-day period immediately prior to
such Change in Control (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and
deliberate on Executive’s part, which is committed in bad
faith or without reasonable belief that such breach is in the best
interests of the Company or any of its affiliates and which is not
remedied in a reasonable period of time after receipt of written
notice from the Company specifying such breach, or
(viii) breach of Executive’s obligations hereunder (or
under any Company policy) to protect the proprietary and
confidential information of the Company or any of its
affiliates.
E. Termination Due to Death or
Disability . In the event that Executive’s employment is
Terminated at any time due to Executive’s death or
“Disability” (as defined
