EXHIBIT 10.74
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of the
31st day of December, 1997, by and between Foundation Health Systems, Inc., a
Delaware corporation ("Parent") and Xxxxxx X. Xxxx (the "Executive").
WHEREAS, Parent and PHS have entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of May 8, 1997, pursuant to which, among
other things, a wholly owned subsidiary of Parent will be merged with and into
Physicians Health Services, Inc. ("PHS") as of the "Effective Time," as defined
in the Merger Agreement (such transaction, the "Merger");
WHEREAS, the Executive is currently serving as President and Co-Chief
Executive Officer of PHS and the Board of Directors of Parent (the "Board")
desires to secure the continued employment of the Executive in accordance
herewith;
WHEREAS, PHS is party with the Executive to an employment agreement,
effective as of October 29, 1996, and a conditional employment agreement,
effective as of March 13, 1995 (such agreements, collectively, the "Prior
Agreements");
WHEREAS, Parent desires to employ the Executive, and the Executive desires
to be employed by Parent, on the terms and conditions herein set forth and in
lieu of the terms and conditions of the Prior Agreements; and
WHEREAS, the parties desire to enter into this Agreement effective as of
the Effective Time, setting forth the terms and conditions for the employment
relationship of the Executive with Parent and PHS;
NOW, THEREFORE, in consideration of the mutual premises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. OPERATION OF AGREEMENT; EMPLOYMENT AND TERM
(a) This Agreement shall be effective and binding immediately upon
its execution by all parties hereto, but anything in this Agreement to the
contrary notwithstanding, this Agreement shall not be operative
unless and until the Effective Time occurs. Upon the occurrence of the
Effective Time, without further action, this Agreement shall become immediately
operative.
(b) EMPLOYMENT. Parent agrees to employ the Executive, and the
Executive agrees to be employed by Parent, in accordance with the terms and
provisions of this Agreement.
(c) TERM. The term of this Agreement (the "Term") shall commence on
the date (the "Effective Date") on which the Effective Time occurs and shall
continue until December 31, 2000 (such period, the "Initial Term"); PROVIDED,
HOWEVER, that, commencing on January 1, 2001 and each successive January 1
thereafter, the Initial Term shall automatically be extended for one (1)
additional year unless, not later than July 1 of the preceding year, either
party shall have given notice (i) of nonrenewal of the Term or (ii) that such
party wishes to renegotiate the terms of this Agreement.
2. DUTIES AND POWERS OF EXECUTIVE.
(a) POSITION AND DUTIES. For the period during which the Executive
provides services to Parent under this Agreement (the "Employment Period"), the
Executive shall be responsible for and manage the tri-state (New York,
Connecticut and New Jersey) operations of Parent. The Executive in this
capacity agrees to use his best efforts during the Employment Period to protect,
encourage and promote the interests of Parent and to perform such other duties
consistent with his position that may be reasonably assigned to him by the
President or Chief Executive Officer of Parent and/or by the Board. During the
Employment Period, and excluding any periods of vacation and sick leave to which
the Executive is entitled, the Executive shall devote substantially all of his
attention and time during normal business hours to the business and affairs of
the Company and shall use his reasonable best efforts to carry out his duties
and responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to serve on corporate, industry,
civic or charitable boards or committees, as long as such activities do not
materially interfere with the performance of his duties and responsibilities
with Parent in accordance with this Agreement.
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(b) LOCATION. The Executive's services shall be performed primarily
at Xxx Xxx Xxxx Xxxxxxxx, Xxxxxxx, Xxxxxxxxxxx, 00000 (the "Principal Place of
Employment"), or in such other place as such offices are relocated. Throughout
the Employment Period, the Executive shall be provided with appropriate office
space and secretarial services commensurate with his title and position.
3. COMPENSATION. The Executive shall receive the following compensation
for his services hereunder to the Company:
(a) SALARY. During the Employment Period, the Executive's annual
base salary ("Base Salary") shall be $320,000, payable in accordance with
Parent's general payroll practices as in effect from time to time.
(a) CASH-BASED INCENTIVE COMPENSATION.
(i) GENERAL. During the Employment Period, the Executive shall
be eligible to participate in Parent's short-term and long-term incentive
compensation plans, including equity-based compensation plans, on a basis no
less favorable than that of other similarly situated executives of Parent. The
Executive hereby acknowledges that the Compensation and Stock Option Committee
of the Board (the "Committee") has sole discretion to determine the amount of
annual cash bonus or other incentives that may be earned by the Executive under
Parent's Annual Management Bonus Plan (as adopted by the Committee on June 6,
1997) or any other such plan in which the Executive may participate during the
Employment Period; however, Parent hereby agrees to recommend to the Committee
that the Executive's annual cash bonus for that annual period of the Term
commencing on January 1, 1998, will be targeted to 70% of his Base Salary if
performance goals are met, and that such percentage of Base Salary may be
increased if and to the extent that performance goals for such plan year are
exceeded. If he is deemed to be one of Parent's five highest-paid executive
officers for any given year during the Employment Period, the Executive shall
participate in Parent's Performance-Based Annual Bonus Plan as adopted by
Parent's stockholders in 1997 (or any successor plan thereto), in lieu of the
Annual Management Bonus Plan (or any successor plan thereto).
(ii) 1997 BONUS. Parent and the Executive hereby agree that the
Executive's bonus in respect
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of the period ending on December 31, 1997, shall be determined in accordance
with the terms of PHS's existing bonus plan, which amount shall be subject to
the attainment of the goals set forth in such plan and which amount must be
fully budgeted and accrued for in the financial statements of PHS presented to
Parent pursuant to the terms of the Merger Agreement.
(iii) SIGNING BONUS. As soon as practicable, but in no event
later than five (5) business days following the Effective Time, Parent shall pay
to the Executive a lump sum in cash equal to $46,500 (net of applicable
withholding tax).
(iv) RETENTION BONUS. Parent shall pay to the Executive an
aggregate amount in cash equal to $500,000 (such aggregate amount, the
"Retention Bonus"), as follows: $250,000 (less applicable withholding tax) no
later than five (5) days following the first anniversary of the Effective Time;
and $250,000 (less applicable withholding tax) no later than five (5) days
following the second anniversary of the Effective Time. The Retention Bonus
shall become payable to the Executive only if he is employed hereunder upon such
anniversary dates; PROVIDED, HOWEVER, that any portion of the Retention Bonus
not yet paid to the Executive shall become immediately due and payable upon the
Executive's Date of Termination (as defined herein) in the event that such
termination of employment occurs prior to the second anniversary of the
Effective Time and is (A) by Parent for other than "Cause" or (B) by the
Executive for "Good Reason" (as each such term is defined herein).
(c) EQUITY-BASED INCENTIVE COMPENSATION.
(i) The Executive hereby acknowledges and agrees that he will
not be eligible for participation in any equity-based compensation or incentive
plans of parent until after the third anniversary of the Effective Time, and
except as provided in this Section 3(c)(i), the Executive is not entitled to be
granted any equity-based awards during the three (3) year period commencing upon
the Effective Time and ending upon the third anniversary thereof. In lieu of
participation in Parent's equity-based compensation plans until the third
anniversary of the Effective Time, Parent shall grant to the Executive, as of
the Effective Time, a nonqualified option (the "Special Option") under Parent's
1997 Stock Option Plan (the "Parent Option Plan") to purchase an aggregate of
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150,000 shares of the common stock (the "Common Stock") of Parent on the terms
and conditions set forth in the Option Agreement attached hereto as Exhibit A at
an exercise price equal to the Fair Market Value (as defined in the Parent
Option Plan) of the Common Stock as of the Effective Time.
(ii) Beginning on the third anniversary of the Effective Time,
for the remainder of the Employment Period, the Executive will be eligible to
participate in Parent's equity-based compensation plans on terms, if any, to be
determined by the Committee.
(d) OTHER BENEFITS. During the Employment Period, the Executive
shall be eligible to participate in savings, retirement, supplemental
retirement, welfare (including without limitation medical, dental,
hospitalization and life insurance, and short-term and long-term disability) and
fringe benefit plans, practices, policies and programs of Parent on a basis no
less favorable to the Executive than in effect with respect to similarly
situated executives of Parent. Except as provided in the Merger Agreement, the
Executive shall also be entitled to carry-over all accrued benefits, such as
vacation and sick days, that he would have received from his former employment
but for the fact of the termination of the Prior Agreements. During the
Employment Period, Parent shall make available to the Executive, at its cost and
expense, (i) a leased automobile on terms substantially similar to that in
effect with respect to similarly situated executives of Parent, which terms
shall include reasonable insurance and maintenance costs and (ii) membership at
two (2) private clubs in New York City, which memberships shall be used by the
Executive for the purposes of business entertainment on behalf of Parent.
4. EXPENSES. Parent shall reimburse the Executive for all reasonable
expenses, including expenses for first-class air travel, other travel and
entertainment and parking fees in New York City, properly incurred by him in the
performance of his duties hereunder in accordance with policies established from
time to time by the Board. Parent shall also pay all reasonable legal expenses
of the Executive, up to a maximum of $15,000, that are incurred in connection
with negotiating this Agreement.
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5. TERMINATION OF EMPLOYMENT.
(a) DEATH. The Employment Period shall be terminated automatically
by Parent upon the Executive's death during such period, in which case the
Executive shall be entitled to the payment and benefits set forth in Section
6(d) of this Agreement.
(b) BY PARENT FOR CAUSE. Parent may terminate the Executive's
employment hereunder for Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(d) of this Agreement.
For purposes of this Agreement, "Cause" includes, without
limitation, acts of dishonesty, insubordination, incompetence or moral
turpitude, conviction of a felony which is materially and demonstrably
injurious to the Company, habitual drunkenness, narcotic drug addiction, or
other material misconduct of any kind. Poor performance of the Company shall
not, in and of itself, be considered "Cause." In the event that the
Executive receives a Notice of Termination for Cause in accordance with
Sections 5(f) and 10(b) hereof which indicates that the Executive has acted
(or failed to act) in a manner constituting insubordination, incompetence or
other material misconduct, the Executive shall have the opportunity, during a
fourteen (14) day period beginning on the date of receipt of such Notice, to
cure such act or failure to act. Further, actions taken at the direction of
the Board, or actions based on the recommendations of Parent's legal counsel
or qualified outside advisors shall be presumed to be taken in good faith and
for the best interest of the Company.
(c) BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate
his employment hereunder for Good Reason, unless Parent shall have previously
delivered to the Executive written notice that Cause exists (except that such
notice shall not be required in the case of a termination resulting from the
Executive's conviction of the type of felony set forth in Section 5(b) above),
in which case the Executive shall be entitled to the payments and benefits set
forth in Section 6(a) or 6(b) of this Agreement, as applicable. For purposes of
this Agreement, "Good Reason" shall mean (i) a reduction in the Executive's
reporting duties, such that he no longer reports directly to the President of
Parent; (ii) a material reduction by Parent in the Execu-
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tive's annual base salary as in effect on the date hereof (except for
across-the-board salary reductions similarly affecting all senior executives
of Parent); (iii) the relocation of the Executive's Principal Place of
Employment to a location more than 50 miles from the Executive's Principal
Place of Employment (except for required travel on Parent's or PHS's
business); or (iv) the failure by Parent to pay to the Executive any portion
of the Executive's compensation (except pursuant to an across-the-board
compensation deferral similarly affecting all senior executives of Parent)
within five (5) business days of the date such compensation is due. In order
for any termination for Good Reason to be effective, the Executive shall have
delivered to Parent written notice of the act or failure to act giving rise
to such termination for Good Reason within thirty (30) days following the
first occurrence of such event or condition, and Parent shall have been given
ten (10) business days from the receipt of such written notice to cure such
act or failure to act.
(d) BY PARENT OTHER THAN FOR CAUSE OR DEATH. Notwithstanding any
other provision of this Agreement, Parent may terminate the Executive's
employment other than for Cause or death, in which case the Executive shall be
entitled to the payments and benefits set forth under Section 6(a) or 6(b) of
this Agreement, as applicable.
(e) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. Notwithstanding any
other provision of this Agreement, the Executive may terminate his employment
other than for Good Reason, in which case the Executive shall be entitled to the
payments and benefits set forth under Section 6(d) of this Agreement.
(f) NOTICE OF TERMINATION. Any termination by Parent or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 10(b) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (g) of this Section 5) is other than the
date of receipt of such
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notice, specifies the termination date (which date shall be not more than thirty
(30) days after the giving of such notice).
The failure by the Executive or Parent to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing the Executive's
rights hereunder.
(g) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be, (ii) if the Executive's employment hereunder is
terminated by Parent other than on account of death, or by the Executive other
than for Good Reason, the date on which Notice of Termination is delivered and
(iii) if the Executive's employment is terminated by reason of death, the date
of death.
6. OBLIGATIONS OF PARENT UPON TERMINATION.
(a) TERMINATION DURING FIRST TWO YEARS OF TERM BY THE EXECUTIVE FOR
GOOD REASON OR BY PARENT OTHER THAN FOR CAUSE. If, during the first two (2)
years of the Term, the Executive shall terminate his employment for Good Reason
or Parent shall terminate the Executive's employment for any reason other than
Cause or death, the Executive shall be entitled to the following benefits:
(i) Parent shall pay to the Executive all vested benefits to
which the Executive is entitled under the terms of the employee benefit plans
in which the Executive is a participant as of the Date of Termination and a
lump sum amount in cash equal to the sum of (A) the Executive's Base Salary
through the Date of Termination to the extent not theretofore paid, (B) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay and (C) any other
amounts due the Executive as of the Date of Termination, in each case to the
extent not theretofore paid (hereinafter referred to as the "Accrued
Obligation"). The amounts specified in this Section 6(a)(i) shall be paid
within thirty (30) days after the Date of Termination; and
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(ii) in lieu of any severance benefit otherwise payable to the
Executive,
(A) Parent shall pay to the Executive, within five (5) days
following the Date of Termination, a lump sum amount in cash equal to
the product of (x) the Executive's Base Salary as in effect as of the
Date of Termination and (y) (I) if such termination is by the
Executive under Section 5(c)(i) hereof, the number two (2) or (II) if
such termination is by the Executive under clause (ii), (iii) or (iv)
of paragraph 5(c) hereof (or by Parent other than for Cause or death),
the number 2.99; and
(B) for a period of one (1) year following the Date of
Termination, Parent shall continue to provide the Executive and his
dependents with medical (including hospital, surgical, and major
medical) insurance coverage as in effect as of the Date of
Termination; PROVIDED, HOWEVER, that Parent's obligation to provide
benefits under this Section 5(a)(ii)(B) shall be reduced to the extent
similar benefits are provided by a subsequent employer.
(b) TERMINATION DURING REMAINDER OF TERM BY THE EXECUTIVE FOR GOOD
REASON OR BY PARENT OTHER THAN FOR CAUSE OR DEATH. During the period commencing
on the second anniversary of the Effective Time and continuing until the end of
the Term (as such Term may be extended), if the Executive shall terminate his
employment for Good Reason or Parent shall terminate the Executive's employment
for any reason other than Cause or death, the Executive shall be entitled to the
following benefits:
(i) Parent shall pay to the Executive a lump sum amount in cash
equal to the Accrued Obligation; and
(ii) in lieu of any severance benefit otherwise payable to the
Executive,
(A) Parent shall pay the Executive a lump sum amount in
cash, within five (5) days following the Date of Termination, equal to
the product of (x) the Executive's Base salary as in
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effect as of the Date of Termination and (y) the number one and
one-half (1.5); and
(B) for a period of one (1) year following the Date of
Termination, Parent shall continue to provide the Executive and his
dependents with medical (including hospital, surgical, and major
medical) insurance coverage as in effect as of the Date of
Termination; PROVIDED, HOWEVER, that Parent's obligation to provide
benefits under this Section 5(b)(ii)(B) shall be reduced to the extent
similar benefits are provided by a subsequent employer.
(c) NON-RENEWAL OF TERM. In the event that either party gives
notice that it will not renew or extend the Term (as such Term may be extended),
Parent shall, within five (5) business days following the expiration of the
Term, pay the Executive a lump sum amount in cash equal to (i) the Accrued
Obligation and (ii) the product of (A) the Executive's Base Salary as in effect
as of the date of the expiration of the Term and (B) the number one and one-half
(1.5).
(d) TERMINATION FOR OTHER REASON. If the Executive's employment
shall be terminated by Parent for Cause or death, or by the Executive other than
for Good Reason, Parent shall have no further obligations to the Executive under
this Agreement other than the obligation to pay the Executive the Accrued
Obligation.
(e) GROSS-UP IN CONNECTION WITH THE MERGER. If any of the
payments or benefits received or to be received by the Executive in connection
with the Merger (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with PHS or Parent (such payments or benefits,
excluding the Gross-Up Payment (as defined below), being hereinafter referred to
as the "PHS Total Payments") will be subject to the excise tax (the "Excise
Tax") imposed pursuant to section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), Parent shall pay to the Executive an additional amount, in
cash (the "Gross-Up Payment"), such that the net amount retained by the
Executive, after deduction of any Excise Tax on the PHS Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon any
Gross-Up Payment, shall be equal to the Total Payments.
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For purposes of determining whether any of any PHS Total Payments will
be subject to the Excise Tax and the amount of such Excise Tax, (i) all of
the PHS Total Payments shall be treated as "parachute payments" (within the
meaning of section 280G(b)(2) of the Code unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive, paid for by
Parent and selected by the accounting firm which is Parent's independent
auditor (the "Auditor"), such payments or benefits (in whole or in part) do
not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code)
in excess of the "Base Amount," as defined in section 280G(b)(3) of the Code,
allocable to such reasonable compensation, or are otherwise not subject to
the Excise Tax, and (iii) the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Auditor in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed
to pay federal income tax at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination
(or if there is no Date of Termination, then the date on which the Gross-Up
Payment is calculated for purposes of this Section 6(e), net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
In the event that the Excise Tax is finally determined to be less than the
amount taken into account hereunder in calculating the Gross-Up Payment, the
Executive shall repay to Parent, within five (5) business days following the
time that the amount of such reduction in the Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up Payment
being repaid by the Executive), plus
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interest on the amount of such repayment at the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), Parent shall make an
additional Gross-Up Payment in cash in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of such
excess is finally determined. The Executive and Parent shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax with
respect to the PHS Total Payments.
7. FULL SETTLEMENT; NO MITIGATION. Except as provided in Sections
6(a)(ii)(B) and 6(b)(ii)(B) hereof, Parent's obligation to make the payments
provided for in this Agreement and otherwise to perform their obligations
hereunder shall not be subject to any set-off, counterclaim, recoupment, defense
or other claim, right or action which Parent may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts (including amounts for
damages for breach) payable to the Executive under any of the provisions of this
Agreement.
8. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) During the Employment Period and at all times thereafter, the
Executive shall not, without the prior written consent of the Board, disclose or
use for any purpose (except in the course of his employment under this Agreement
and in furtherance of the business of the Company) confidential information,
proprietary data and customer lists of Parent or PHS, except as required by
applicable law or legal process; provided, however, that "confidential
information, proprietary data and customer lists" shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by the
Employee) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
Parent. The Executive
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agrees to deliver to Parent at the termination of his employment all memoranda,
notes, plans, records, lists, reports and other documents (and copies thereof)
relating to the business of Parent and PHS which he may then possess or have
under his control.
(b) (i) During the Employment Period, the Executive shall not engage
in "Competition" with Parent. For purposes of this Agreement, Competition by
the Executive shall mean the Executive's engaging in, or otherwise directly or
indirectly being employed by or acting as a consultant or lender to, or being a
director, officer, employee, principal, agent, stockholder, member, owner or
partner of, or permitting his name to be used in connection with the activities
of any other business or organization anywhere in the United States which
competes, directly or indirectly, with the business of Parent as the same shall
be constituted at any time during or following the Term (and any extensions
thereof).
(ii) For the twelve (12) month period following the Employment
Period, the Executive shall not engage in Competition (as defined above and
modified herein for purposes of this subsection (b)(ii) only), with Parent in
(a) any locality or region of the United States, and (b) any substantive area,
for which the Executive had responsibility during the Employment Period;
PROVIDED, that it shall not be a violation of this sub-paragraph for the
Executive to become the registered or beneficial owner of up to two percent (2%)
of any class of the capital stock of a competing corporation registered under
the Securities Exchange Act of 1934, as amended, provided that the Executive
does not actively participate in the business of such corporation until such
time as this covenant expires.
(iii) For the twelve (12) month period following the termination
of this Agreement for any reason, the Executive agrees that he will not,
directly or indirectly, for his benefit or for the benefit of any other person,
firm or entity, do any of the following:
(A) solicit from any customer doing business with Parent as
of such termination, business of the same or of a similar nature to the
business of Parent with such customer;
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(B) solicit from any known potential customer of Parent
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer or proposal by Parent, or of
substantial preparation with a view to making such a bid, proposal or
offer, within six (6) months prior to such termination;
(C) solicit the employment or services of, or hire, any
person who was known to be employed by or was a known consultant to Parent
upon the termination of this Agreement, or within six (6) months prior
thereto; or
(D) otherwise knowingly interfere with the business or
accounts of Parent.
9. SUCCESSORS.
(a) ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the
Executive and, without the prior written consent of Parent, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon Parent, and their respective successors and
assigns.
(c) ASSUMPTION. Parent shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets thereof to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Parent, as the case may be, would be required to perform this Agreement if no
such succession had taken place. As used in this Agreement, Parent shall mean
Parent, as hereinbefore defined and any successor to its businesses and/or
assets as aforesaid that assumes and agrees to perform this Agreement by
operation of law, or otherwise.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of
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New York, without reference to its principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and shall have no force
or effect. This Agreement may not be amended, modified, repealed, waived,
extended or discharged except by an agreement in writing signed by the party
against whom enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought.
(b) NOTICES. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return-receipt requested, postage prepaid,
addressed, in the case of Parent, to Parent's headquarters and, in the case of
the Executive, to the address on the signature page of this Agreement or, in
either case, to such other address as any party shall have subsequently
furnished to the other parties in writing. Notice and communications shall be
effective when actually received by the addressee.
(c) ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration.
The parties shall utilize the services of the American Arbitration
Association ("AAA"). Pursuant to its standard procedures, the AAA shall
appoint one neutral arbitrator from its panel of arbitrators, unless the
parties mutually agree that a panel of three (3) arbitrators be appointed,
which will make decisions by a majority vote. The arbitrator or arbitrators
shall have the power to award all appropriate relief as if the claims heard
in this proceeding had been brought in a state court of general jurisdiction
over the specific claim in question. The arbitration hearing shall be
conducted in New York, New York or another location agreed to by the parties
in accordance with the rules of the AAA then in effect. A Judgment may be
entered on the arbitrator's or arbitrators' award in any court having
jurisdiction.
(d) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(e) TAXES. Parent may withhold from any amounts due and payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
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(f) NO WAIVER. Any party's failure to insist upon strict compliance
with any provision hereof or the failure to assert any right such party may have
hereunder shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(g) ENTIRE AGREEMENT; SURVIVAL. This Agreement entered into as of
the date hereof among Parent and the Executive and contains the entire agreement
of the Executive and Parent or their respective predecessors or subsidiaries
with respect to the subject matter of the Agreement, and all promises,
representations, understandings, arrangements and prior agreements, including
without limitation the Prior Agreements, are superseded by this Agreement. Any
provision hereof which by its terms applies in whole or part after a termination
of the Executive's employment hereunder shall survive such termination.
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IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant
to due authorization from its Board, the Company has caused this Agreement to be
executed, as of the day and year first above written.
FOUNDATION HEALTH SYSTEMS, INC.
By: /s/ SIGNATURE
-----------------------------
Name:
Title:
XXXXXX X. XXXX
/s/ Xxxxxx X. Xxxx
-------------------------------
Address: 00 Xxxxxxxx Xxxx
Xxxxxx, XX 00000
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EXHIBIT A
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE FOUNDATION HEALTH SYSTEMS, INC.
1997 STOCK OPTION PLAN
Agreement made as of ______, 1998 (the "Grant Date"), between Foundation
Health Systems, Inc., a Delaware corporation (the "Company") and Xxxxxx X. Xxxx,
an employee of the Company or a Subsidiary of the Company (the "Optionee").
Pursuant to the Foundation Health Systems, Inc. 1997 Stock Option Plan (the
"Plan"), the Compensation and Stock Option Committee of the Board of Directors
of the Company (the "Committee") has determined that the Optionee is to be
granted, on the terms and conditions set forth herein, a nonqualified stock
option (the "Option") to purchase shares of Class A Common Stock of the Company,
par value $.001 per share (the "Common Stock"), and hereby grants such Option.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Plan.
1. NUMBER OF SHARES AND OPTION PRICE. The Option is to purchase
150,000 shares of Common Stock (the "Option Shares") at a price of $[____] (the
"Option Price"), which is equal to the fair market value of the Option Shares as
of the Grant Date.
2. EXERCISE OF OPTION. Subject to the accelerated vesting
provisions contained in Sections 3(f) and (g) below, the Option shall become
exercisable in cumulative installments on the dates (the "Vesting Dates") one
year after the Grant Date to the extent of 33-1/3% of the Option Shares covered
by the Option, and on each subsequent anniversary of the Grant Date to the
extent of an additional 33-1/3% of the Option Shares covered by the Option,
until the Option has become exercisable as to all of the Option Shares. The
Option may be exercised only to purchase whole shares, and in no case may a
fraction of a share be purchased.
3. TERM OF OPTION AND TERMINATION OF EMPLOYMENT.
(a) GENERAL TERM. The term of the Option and this Option
Agreement shall commence on the date hereof. The right of the Optionee to
exercise the Option with respect to any Option Shares, to purchase any
such Option Shares and all other rights of the Optionee with respect to any
such Option Shares shall terminate on the tenth anniversary of the Grant
Date, unless the Option has been earlier terminated as provided either in
paragraphs (b) through (h) below or under the Plan.
(b) DEATH OF OPTIONEE. If the Optionee shall die prior to the
exercise of the Option, then:
(i) if the Optionee dies while employed by an Employer (as
defined in the Plan), then the Option (subject to clause (v) below)
may be exercised by the legatee(s) or personal representative of the
Optionee at any time within one year after the Optionee's death;
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(ii) if the Optionee's employment with the Employer was
terminated due to a Disability (as defined in the Plan) and the
optionee dies within one year after termination of employment, then
the Option (subject to clause (v) below) may be exercised by the
legatee(s) or personal representative of the Optionee any time
during the remainder of the period during which the Optionee would
have been able to exercise the Option pursuant to subsection (c)
below had the Optionee not died;
(iii) if the Optionee retires pursuant to any retirement
plan of the Employer or in the absence of any such plan, pursuant to
the Committee's discretionary determination that such termination of
employment shall be treated as retirement for purposes of the Plan and
this Option Agreement, and the Optionee dies during the period after
retirement when the Option was still exercisable by the Optionee, then
the Option (subject to clause (v) below) may be exercised by the
legatee(s) or personal representative of the Optionee at any time
during the remainder of the period during which the Optionee would
have been able to exercise the Option pursuant to subsection (d) below
had the Optionee not died;
(iv) if the Optionee dies within three months after
termination of employment by the Employer without Cause, as determined
pursuant to Subsection 3(f), and clauses (ii) and (iii) above are not
applicable, then the Option (subject to clause (v) below) may be
exercised by the legatee(s) or personal representative of the Optionee
at any time within one year after the Optionee's death; and
(v) the exercise of the Option after the termination of
employment of the Optionee for any reason (including, but not limited
to, termination by reason of death of the Optionee) is subject to the
original expiration date of the Option.
(c) DISABILITY. If the Optionee's employment with the Employer
shall terminate prior to the exercise of the Option as a result of a
Disability, then the Option (subject to clause (b)(v) above) may be
exercised by the Optionee (or his or her personal representative) at any
time within one year after the Optionee's termination of employment.
(d) RETIREMENT. If the Optionee's employment with the Employer
shall terminate prior to the exercise of the Option as a result of
retirement pursuant to any retirement plan of the Employer or in the
absence of any such plan, pursuant to the Committee's discretionary
determination that such termination of employment shall be treated as
retirement for purposes of the Plan and this Option Agreement, then the
Option (subject to clause (b)(v) above) may be exercised at any time within
one year after the Optionee's termination of employment.
(e) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Optionee's
employment with the Employer shall be terminated by the Employer prior to
the exercise of the Option for Cause (as defined in the Plan) then the
Option shall immediately terminate.
(f) TERMINATION BY THE EMPLOYER WITHOUT CAUSE. If prior to the
exercise of the Option, the Optionee's employment with the Employer shall
be terminated by the Employer without Cause (as defined in the Plan), then
the Option shall become immediately exercisable in
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full and (subject to clause (b)(v) above) may be exercised at any time
within three months after the Optionee's termination of employment.
(g) TERMINATION BY THE OPTIONEE FOR GOOD REASON. If prior to
the exercise of the Option, the Optionee's employment with the Employer
shall be terminated by the Optionee for Good Reason pursuant to clause
(ii), (iii) or (iv) of Section 5(c) of the Optionee's employment agreement
with the Employer, dated as of December 31, 1997 (the "Employment
Agreement"), the Option shall become immediately exercisable in full and
(subject to clause (b)(v) above) may be exercised at any time within three
months after the Optionee's termination of employment. The accelerated
vesting provided for in the immediately preceding sentence shall be of no
force and effect and the Option shall be subject to the terms of paragraph
(h) below if the Optionee's employment with the Employer shall be
terminated by the Optionee for Good Reason pursuant to clause (i) of
Section 5(c) of the Employment Agreement.
(h) TERMINATION FOR OTHER REASON. If prior to the exercise of
the Option, the Optionee's employment with the Employer shall be terminated
for any reason other than as set forth in paragraphs (b) through (g) above,
then the Option (subject to clause (b)(v) above) held by the Optionee may
be exercised at any time within one month after the Optionee's termination
of employment.
(i) EMPLOYMENT/ASSOCIATION WITH COMPANY COMPETITOR. If within
six months after any termination of the Optionee's employment with an
Employer, the Optionee undertakes any employment or activity with a
Competitor (defined below) in the geographical area in which the Optionee
performed services for the Employer (the "Market Area"), where the loyal
and complete fulfilment of the duties of the competitive employment or
activity would call upon the Optionee to reveal, to make judgments on or
otherwise use any confidential business information or trade secrets of the
business of the Company or any Subsidiary to which the Optionee had access
during his employment with the Employer, then:
(A) the Option shall immediately terminate; and
(B) the Optionee shall promptly pay to the Company an
amount of cash equal to the Gain Realized (as defined
below) on any Option Shares acquired during the
Restricted Period (as defined below).
For the purposes of this clause (i), "Restricted Period" shall refer to the
period of time commencing ninety days prior to such termination of the
Optionee's employment and ending six months after such termination; "Gain
Realized" shall equal the difference between (i) the Option Price
applicable to the Option Shares and (ii) the greater of the Fair Market
Value (as defined in the Plan) of the Option Shares (x) on the date of
acquisition of such Option Shares or (y) on the date such competitive
activity with a Competitor was commenced by the Optionee; and "Competitor"
shall refer to any health maintenance organization, health care management
company, physician group, insurance company or similar entity that provides
managed health care or related services similar to those provided by the
Company or any Subsidiary. It is hereby further agreed that if any court
of competent jurisdiction shall determine that the restrictions imposed in
this clause (h) are unreasonable (including, but not limited to, the
definition of Market Area or Competitor or the time period during which
this provision is applicable), the parties hereto
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hereby agree to any restrictions that such court would find to be
reasonable under the circumstances.
4. NOTICES. Any notice required or permitted under the Plan shall
be deemed given when delivered personally, or when deposited in a United States
Post Office, postage prepaid, addressed, as appropriate, to the Optionee either
at the last known address set forth in the records of the Company or such other
address as the Optionee may designate in writing to the Company.
5. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to
enforce at any time any provision of this Option Agreement or the Plan shall in
no way be construed to be a waiver of such provision or of any other provision
hereof.
6. INCORPORATION OF PLAN; ENTIRE AGREEMENT. The Plan is hereby
incorporated by reference and made a part hereof, and the Option and this Option
Agreement are subject to all terms and conditions of the Plan. This Option
Agreement and the Plan, taken together, constitutes the entire agreement between
the parties relating to or effecting the Option, and no promises, terms,
conditions or obligations other than those contained in this Option Agreement or
the Plan shall be valid or binding. Any prior agreements, statements or
promises, either oral or written, made by any party or agent of any party
relating to or effecting the Option that are not contained in the Option
Agreement or the Plan are of no force or effect.
7. RIGHTS OF A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any Option Shares unless and until certificates for
shares of Common Stock are issued to the Optionee.
8. CHANGE OF CONTROL. Section 6.8 of the Plan provides for the
acceleration of exercisability of Options in the event of a Change in
Control, as such term is defined in the Plan. The Optionee hereby
acknowledges that the Committee retains the right to determine whether the
acceleration of exercisability provided for in said Section 6.8 shall have
occurred with respect to the Option (notwithstanding the provisions of such
Section 6.8) in those instances (unless otherwise determined by the Board) in
which (A) the holders of the Common Stock immediately prior to an Approved
Transaction or Control Purchase (as defined in the Plan) own more than 50% of
the voting common stock of the surviving corporation immediately after such
Approved Transaction or Control Purchase, (B) the holders of all classes of
common stock of the Company immediately prior to an Approved Transaction or
Control Purchase own more than 50% of the total equity of the surviving
corporation immediately after such Approved Transaction or Control Purchase,
(C) the Approved Transaction or Control Purchase does not result in a Board
Change and (D) the Approved Transaction or Control Purchase does not result
in a substantial change in the executive officers of the Company.
9. RIGHTS TO TERMINATE EMPLOYMENT. Nothing in the Plan or in
this Agreement shall confer upon the Optionee the right to continue in the
employment of an Employer or affect any right which an Employer may have to
terminate the employment of the Optionee. The Optionee specifically
acknowledges that the Employer intends to review Optionee's performance from
time to time, and that the Company and/or the Employer has the right to
terminate Optionee's employment at any time, including a time in close
proximity to a Vesting Date, for any reason, with or without cause.
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10. AMENDMENT. The Board may terminate or amend the Plan at any
time, provided, however, that the termination or any modification or amendment
to the Plan shall not, without the consent of the Optionee, affect the rights of
the Optionee under this Agreement.
11. COMPLIANCE WITH APPLICABLE LAW. The Option is subject to the
condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action,
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
12. DECISIONS OF BOARD OF DIRECTORS. The Board of Directors or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination
or other action made or taken by the Board of Directors or the Committee
regarding the Plan or this Agreement shall be final, binding and conclusive.
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IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the date and year set forth above.
FOUNDATION HEALTH SYSTEMS, INC.
By:___________________________
Name: Xxx X. Xxxxxxx
Title: President and Chief Operating Officer
THE UNDERSIGNED OPTIONEE HEREBY EXPRESSLY ACKNOWLEDGES
AND AGREES THAT (I) HE/SHE IS AN EMPLOYEE AT WILL AND
MAY BE TERMINATED BY THE EMPLOYER AT ANY TIME, WITH OR
WITHOUT CAUSE, (II) THE OPTION MAY NOT BE EXERCISED
WITH RESPECT TO ANY OPTION SHARES THAT ARE NOT OR DO
NOT BECOME VESTED IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT ON THE DATE OF ANY SUCH TERMINATION AND (III)
THE OPTION MAY BE EXERCISED WITH RESPECT TO OPTION
SHARES THAT ARE OR MAY BECOME VESTED ON THE DATE OF ANY
SUCH TERMINATION ONLY TO THE EXTENT EXPRESSLY PROVIDED
IN THIS AGREEMENT.
IN ADDITION, THE UNDERSIGNED OPTIONEE HEREBY
ACKNOWLEDGES THAT THIS OPTION GRANT IS MEANT TO BE A
THREE-YEAR "MEGA-GRANT" AND THAT HE WILL THEREFORE NOT
BE CONSIDERED FOR ANY FUTURE OPTION, S.A.R. OR
RESTRICTED STOCK GRANTS UNTIL THREE YEARS AFTER THE
GRANT DATE.
The undersigned hereby accepts and agrees to all the
terms and provisions of the foregoing Option Agreement
and to all the terms and provisions of the Foundation
Health Systems, Inc. 1997 Stock Option Plan
incorporated by reference herein.
___________________Optionee
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