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Exhibit
10.1
JOSEPH C.
CAPEZZA
EMPLOYMENT
AGREEMENT
This EMPLOYMENT AGREEMENT
(this "Agreement") is made and entered into as of October 9,
2007, 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 Joseph C.
Capezza ("Executive").
RECITALS
WHEREAS, the Company desires
to employ Executive and Executive desires to render services to the
Company as an employee; and
WHEREAS, the Company and
Executive are entering into this Agreement to establish the terms
and conditions of the employment relationship.
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 November 1, 2007 (the
“Effective Date”) and Executive’s title will be
Executive Vice President & Chief Financial Officer.
Executive shall report directly to the President and Chief
Executive Officer of the Company. Executive’s duties and
responsibilities are to provide executive leadership,
infrastructure, processes and management of the Company’s
Finance 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 a base salary at
the annual rate of $550,000, 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 such 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 . Executive will receive an
engagement bonus in the amount of $350,000 payable within thirty
(30) days of the Effective Date. Executive must be actively
employed and on the Company payroll at the time the bonus is paid.
If Executive voluntarily Terminates (as defined below) employment
with the Company or if the Company Terminates (as defined below)
Executive’s employment for Cause within the first
twenty-four
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(24) months of employment, Executive
will be required to repay a prorated portion of the engagement
bonus to the Company based on the number of months Executive has
been employed by the Company as of the date of such
Termination.
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, 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 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; provided ,
however , that those decisions do not violate or alter any
of the terms of this Agreement.
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. Except as may be required of the
Executive by law, 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
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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.
4.
Drug Screening; Background Check; Physical Exam.
A.
Drug Screening . The Company reserves the right
to terminate Executive’s employment in the event Executive
does not pass the Company’s drug screening test for illegal
drugs.
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B.
Background Check . The Company reserves the right
to terminate Executive’s employment in the event the
background check conducted by the Company on Executive is not
satisfactory to the Company in the Company’s sole discretion.
The Company shall notify Executive of the results of the background
check within five (5) business days of the receipt of the
same.
C.
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.
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
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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;
provided , that any such modifications, terminations and
amendments are directed at rights granted to a class of employees
generally and not directed to the Executive or any specific rights
granted to Executive in this Agreement.
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
80% 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. For 2007, Executive’s incentive
bonus will be guaranteed at $440,000 and shall be paid on or before
March 15, 2008.
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 rate. In the
event Executive is Terminated without Cause by the Company within
the first twenty-four (24) months of employment and Executive
is unable to secure new employment with a relocation benefit within
thirty (30) days of the date of such Termination, the Company
shall provide Executive relocation services in an amount not to
exceed $80,000 (the “Move-Back Benefit”). Executive
acknowledges and agrees that any amounts paid to Executive as part
of the Move Back Benefit shall be imputed income to the Executive
and Executive shall be solely responsible for any income taxes
resulting there from.
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 Effective Date,
Executive will be granted 40,000 restricted stock units of the
Company’s Common Stock (the “RSUs”), which will
vest and become non-forfeitable in accordance with the terms of the
restricted stock unit
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agreement to be entered into between the
Company and Executive on the Effective Date. 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 restricted
stock unit agreement executed in connection with such
grant.
In addition, as of the
Effective Date, Executive will be granted 40,000 performance shares
(the “Performance Shares”) which will vest and become
non-forfeitable in accordance with the terms of the performance
share agreement to be entered into between the Company and
Executive on the Effective Date. The Performance Shares 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 performance
share 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. Executive acknowledges and agrees that
Executive will not be eligible for an annual equity grant in
2008.
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 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 $550,000 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 36,392 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 1B of this Agreement. Any
shares of Company Common Stock that Executive owns, and any
restricted 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.
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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) 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. The Company acknowledges and agrees that, following the
Termination of Executive’s employment for any reason,
Executive shall continue to be entitled to receive any vested
benefit Executive has accrued pursuant to the Company’s
401(k) Plan and shall be entitled to all post-termination rights
and benefits available to Executive under applicable law relating
to the 401(k) Plan and any other benefit plan in which Executive
participated pre-Termination. This Agreement constitutes a final
and fully binding integrated agreement with respect to the at-will
nature of the employment relationship.
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 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 (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 an additional 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
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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.;
(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 (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 an additional 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
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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, ex
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