EXHIBIT 10.9
STEVE TOUGH
AMENDED AND
RESTATED
EMPLOYMENT
AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (this “Agreement”) is made and entered into
as of February 17, 2009 (the “Effective Date”), 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 Steve Tough (“Executive”).
RECITALS
WHEREAS, the Company and Executive
are party to an Employment Agreement dated January 25, 2006,
as may be amended from time (the “Prior Agreement”);
and
WHEREAS, the Company and Executive
desire to amend and restate the Prior 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, Health Plans and Government Programs, 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 Jim Woys, Executive Vice President and
Chief Operating 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 leadership of the Company’s
California commercial health plan division, government and
specialty division, including Federal Services and MHN division, as
well as Medicare and Medicaid, 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 . Effective
February 28, 2009, Executive will be paid a base salary at the
annual rate 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. 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 ” with respect to Executive
shall mean a “separation from service,” as defined in
Treasury Regulation Section 1.409A-1(h).
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.
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. Beginning
in 2010, 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 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 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.
The Company will continue to provide
you and your dependents with health (medical, dental and vision)
insurance coverage for the remainder of your life, which coverage
shall be no less beneficial to you and your dependents than the
coverage provided Executive by Foundation Health Corporation
(“FHC”) immediately prior to the 1997 merger of FHC and
Health Systems International.
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 $2,500 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 Officer Incentive Plan (“EOIP”) in accordance
with the terms of the EOIP, which provides Executive with a target
opportunity to earn each plan year up to 80% of Executive’s
Base Salary as additional compensation according to the terms of
the EOIP. 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
EOIP.
E. 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”), the
Compensation Committee in the future may require Executive to own
shares of Common Stock of the Company having a certain value
multiplied by Executive’s Base Salary in effect from time to
time pursuant to this Agreement (the “Stock Ownership
Requirement”). If applicable, the number of shares of Common
Stock Executive would be required to own would 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.
If Executive is required to comply
with the Stock Ownership Requirement in the future, the Committee
expects that Executive would make reasonable progress toward
Executive’s Stock Ownership Requirement. Executive would be
notified on an annual basis of any changes in Executive’s
target amount under the Stock Ownership Requirement.
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 Termination 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
. If Executive’s employment is Terminated by the Company
without “Cause” (as defined in Section 9(C) below)
Executive will be entitled to receive, within thirty (30) days
following the Termination of Executive’s employment,
provided that Executive signs and delivers prior to the
expiration of such (30) day period, and does not revoke or
attempt to revoke, 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 twelve (12) 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 twelve
(12) months following the effective date of Executive’s
Termination, with premium payments paid by the Company on
Executive’s behalf, provided , that Executive properly
elects to continue those benefits under COBRA.
B. 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, then Executive shall not be eligible
to receive any payments or continuation of Benefits set forth in
this Section 9).
C. 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) 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 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” (as defined in the
Company’s 2006 Long-Term Incentive Plan, as amended from time
to time) 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.
D. 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 below), Executive (or
Executive’s beneficiaries or estate) shall be entitled to
receive, provided Executive (or Executive’s beneficiaries or
estate, as applicable) 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) continuation of Executive’s Benefits for
a period of twelve (12) months from the date of Termination,
and (ii) a lump sum payment equal to twelve
(12) Executive’s Base Salary in effect immediately prior
to the date of Executive’s Termination, to be paid within
thirty (30) days following Executive’s Termination of
employment. For purposes of this Agreement, a Termination for
“ Disability ” shall mean a Termination of
Executive’s employment due to Executive’s absence from
Executive’s duties with the Company on a full-time basis for
at least 180 consecutive days as a result of Executive’s
incapacity due to physical or mental illness.
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. Restrictive Covenants
.
A. Non-Competition .
Executive hereby agrees that, during (i) the six (6)-month
period following a Termination of Executive’s employment with
the Company that entitles Executive to receive severance benefits
under this Agreement or a written agreement with or policy of the
Company or (ii) the twelve (12)-month period following a
Termination of Executive’s employment with the Company that
does not entitle Executive to receive such severance benefits (the
period referred to in either clause (i) or (ii), the
“Restricted Period”), Executive shall not undertake any
employment or activity (including, but not limited to, consulting
services) with a Competitor (as defined below) in any geographic
area in which the Company or any of its affiliates operate (the
“Market Area”), where the loyal and complete
fulfillment of the duties of the competitive employment or activity
would call upon Executive to reveal, to make judgments on or
otherwise use or disclose any confidential business information or
trade secrets of the busines
