EXHIBIT 10.7
LINDA V. TIANO
AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (this “Agreement”) is made and entered into
as of December 27, 2006 (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 Linda V. Tiano (“Executive”).
RECITALS
WHEREAS, the Company and Executive
are party to an Employment Agreement dated December 27, 2006
(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 Internal Revenue Code
of 1986, as amended, and the Treasury Regulations 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
employment with the Company shall commence on February 1, 2007
and Executive’s title will be Senior Vice President, General
Counsel & Secretary, but may be changed at the discretion
of the Company to a title that reflects a similarly 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 are to provide executive leadership,
infrastructure, processes and management of the Company’s
legal organization, 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 an annual base salary of $500,000, 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. 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.
C. Engagement Bonus . In
addition, you will receive an engagement bonus in the amount of
$200,000 payable within thirty (30) days of your effective
date of employment. You must be actively employed and on the
Company payroll at the time the bonus is paid. If you voluntarily
terminate your employment with the Company or the Company
terminates your employment for cause within the first twenty-four
(24) months of employment, you will be required to repay a
prorated portion of the engagement bonus to the Company based on
the number of months employed by the Company.
D. 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 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, 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. 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
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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.
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. Drug Screening; Background
Check; Physical Exam .
A. Drug Screening . The
Company reserves the right to terminate Executive in the event
Executive does not pass the Company’s drug screening
test.
B. Background Check . The
Company reserves the right to terminate Executive in the event the
background check conducted by the Company on Executive is not
satisfactory to the Company in the Company’s sole
discretion.
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C. 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. Immigration Documentation
. Executive’s employment is contingent on Executive’s
ability to prove Executive’s identity and authorization to
work in the United States for the Company. Executive must comply
with the Immigration and Naturalization Service’s employment
verification requirements.
6. 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 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.
7. 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 and deferred compensation 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.
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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. 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 70% 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. 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.
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.
8. Equity Grants .
A. Initial Equity Grant . As
of Executive’s first date of employment, Executive will be
granted a non-qualified stock option (the “Stock
Option”) to purchase 50,000 shares of Common Stock of the
Company (the “Common Stock”) which will vest and become
exercisable at the rate of one-fourth of the shares on each, first
through fourth, anniversary of the grant. All Stock Options granted
to Executive will be granted under one of the Company’s
Long-Term Incentive Plans and will be subject to the terms and
conditions set forth in such plan and the agreement executed in
connection with such grant.
In addition, as of Executive’s
first date of employment, Executive will be granted 25,000
restricted stock units of the Company’s Common Stock (the
“RSUs”) which will vest and become non-forfeitable at
the rate of one-half of the shares covered on the third and fourth
anniversary of the grant. The RSUs granted to Executive will be
granted under one of the Company’s Long-Term Incentive Plans
in accordance with and subject to the terms and conditions set
forth in such plan and the agreement executed in connection with
such grant.
B. 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.
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C. 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 one times (1x) 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 $500,000 and a stock price of $39.3033, which is the
average closing price per share of the Company’s Common Stock
as of December 31, 2005, Executive’s current stock
ownership requirement is 12,722 (“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 1A 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. 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.
9. 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)
will 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 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.
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10. 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 10(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 Executive signs 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 (24) 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
(6) 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 (18) 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”);
(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.;
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(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 Executive signs 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 (36) 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 (18) months following Executive’s
date of termination, and (iii) and after expiration of such
eighteen (18) months Benefits continuation period, the
continuation, under COBRA, of Benefits for Executive and
Executive’s dependents for a period of eighteen
(18) 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;
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(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 14 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 10).
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 10(A) or 10(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 knowing
unauthorized disclosure of confidential information relating to the
business of the Company or any of its affiliates,
(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 re
