|
Exhibit 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is made and entered into as of October 4, 2006
(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 Karin D. Mayhew ("Executive").
RECITALS
WHEREAS, the Company desires to continue Executive’s
employment as Senior Vice President, Organization Effectiveness;
and
WHEREAS, the Company and Executive are entering into this
Agreement to establish the terms and conditions of the employment
relationship; and
WHEREAS, this Agreement is intended to amend and restate in its
entirety the Offer Letter Agreement, dated January 22, 1999,
the Severance Payment Agreement dated April 1, 1999 and the
Agreement dated January 1, 2001 by and between Executive and
the Company relating to Executive’s employment with the
Company (collectively, 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 Senior Vice
President, Organization Effectiveness, 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 are to provide
executive leadership and management of the corporate organization
effectiveness functions, 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 $412,500, 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.
- 1 -
-
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 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 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
- 2 -
-
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 Debbie Colia, Vice President, OE
Consulting Services. 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
- 3 -
-
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 General Counsel 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"). Under the SERP
Executive is entitled to vest and accrue a retirement benefit of up
to 50% of Executive’s Base Salary plus incentive
compensation. This SERP benefit is offset with other retirement
benefits provided by the Company to Executive and with 50% of
Executive’s Social Security benefits. Executive has received
credit for one additional year of service under the SERP upon
Executive’s completion of five years of service with the
Company. 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 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 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.
- 4 -
-
E. Car Allowance . Executive is entitled
to a car allowance of $1,000 per month.
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.
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 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 $412,500 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 10,495
("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 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.
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) 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
- 5 -
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" (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 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, vision,
disability, life and accident 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 twenty-four
(24) months following the effective date of Executive’s
termination.
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:
- 6 -
-
-
-
(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 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 thirty-six (36) months following
Executive’s date of termination, 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, subsequent to the effective date of a Change in Control as
defined above:
-
-
(i) A demotion or a substantial reduction in the scope of
Executive’s position, duties, responsibilities or status with
the Company, or any removal of Executive from or any failure to
reelect Executive to any of the positions (or functional equivalent
of such positions) referred to in the introductory paragraphs
hereof, 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 reduction by the Company in Executive’s Base Salary
or a material reduction in the benefits or perquisites available to
Executive 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
- 7 -
-
-
-
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 13 of
this Agreement.
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 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 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
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 12 months from the date of termination and (ii) a
lump sum payment equal to one times (1x) 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.
- 8 -
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 o
|
