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EXHIBIT 10.1
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
April 3, 2000, by and between PACIFICARE HEALTH SYSTEMS, INC., a Delaware
corporation (the "Company"), with its principal place of business located at
0000 Xxxx Xxxxxx Xxxxx, Xxxxx Xxx, Xxxxxxxxxx 00000 and Xxxxxxxx Xxxxxx
("Executive"), residing at 0 Xxxxx Xxxxx, Xxxxxxx Xxxxx, XX 00000.
RECITALS
WHEREAS, the Company desires to continue Executive's employment in the
capacity of President and CEO, Health Plans.
WHEREAS, the Company and Executive are entering into this Agreement to
establish new 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. EMPLOYMENT
1.1 Executive's General Duties. The Company employs Executive and Executive
serves the Company in the capacity of President and CEO, Health Plans, having
such usual and customary duties and authority as an officer of similar capacity
in a corporation of comparable size, holdings, and business as that of the
Company.
Executive shall do and perform all services, acts, or things necessary or
advisable to manage and conduct the business of the Company and shall preside
over such other areas of corporate activity as specified from time to time by
the Board of Directors of the Company. During the term of this Agreement,
Executive shall perform such additional or different duties, and accept the
election or appointment to such other offices or positions as are mutually
agreed upon by Executive and the Company.
1.2 Devotion of Executive. During the term of this Agreement, Executive
shall devote his entire productive time, ability, and attention to the business
of the Company. Executive shall use Executive's best efforts, skills, and
abilities to promote the general welfare and interests of the Company and to
preserve, maintain, and xxxxxx the Company's business and business relationships
with all persons and entities associated therewith, including, without
limitation, employer groups, medical service providers, shareholders,
affiliates, officers, employees, and banks and other financial institutions. The
Company shall give Executive a reasonable opportunity to perform Executive's
duties and shall neither expect Executive to devote more time,
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nor assign more duties or functions to Executive, than are customary and
reasonable for a person in Executive's position.
2. TERM AND TERMINATION
2.1 Term. The term of Executive's employment under this Agreement shall
continue unless terminated as provided in Section 2.2.
2.2 Termination. This Agreement shall be terminated upon the occurrence of
any one of the following events:
a. The death of the Executive.
b. Executive becomes incapacitated or disabled, which incapacity or
disability prevents Executive from fully performing his duties to the
Company for a period in excess of 90 days and, after such 90-day period,
the Company and a physician, duly licensed and qualified in the specialty
of Executive's incapacity, decide in their reasonable judgments, that such
incapacity will be of such continued duration as to prevent Executive from
resuming the rendition of services to the Company for at least an
additional six-month period. For purposes of this Agreement, Executive
shall be deemed permanently disabled, and this Agreement terminated upon
the date Executive receives written notice from the Company that such
determination has been made.
c. Executive habitually neglects his duties to the Company or engages
in gross misconduct during the term of this Agreement. For the purposes of
this Agreement, "gross misconduct" shall mean Executive's misappropriation
of funds; securities fraud; xxxxxxx xxxxxxx; unauthorized possession of
corporate property; the sale, distribution, possession or use of a
controlled substance; or conviction of any criminal offense (whether or not
such criminal offense is committed in connection with Executive's duties
hereunder or in the course of his employment with the Company). In such
event, Executive's termination shall be effective immediately upon receipt
of written notice from the Company.
d. Either party hereto may terminate this Agreement, with or without
cause, upon 45 days prior written notice to the other party. Except for the
circumstances described in Section 2.2(c) above, Executive's termination
shall be effective 45 days after receipt of such written notice.
Notwithstanding anything to the contrary in this Agreement, receipt of the
written notice provided in this Section 2.2(d) shall deemed to have
occurred two days from the date of the notice.
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3. COMPENSATION DURING THE TERM OF THIS AGREEMENT
3.1 Base Salary. As long as Executive satisfactorily performs all of his
obligations under this Agreement, the Company shall pay Executive an annual base
salary, as determined by the Compensation Committee of the Board of Directors,
payable in equal installments on the Company's regular payroll dates. As of this
date, Executive's annual base salary has been set at $600,000.96 (six hundred
thousand dollars and ninety-six cents). On an annual basis, the Company's
Compensation Committee shall review Executive's salary, but shall be under no
obligation to increase Executive's salary. Executive authorizes the Company to
take such deductions and withholdings from his salary as are required by law,
directed by Executive, or as reasonably directed by the Company for its
employees, which deductions shall include, without limitation, withholding for
federal and state income taxes and social security.
3.2 Benefits. Executive shall be entitled to fully participate in all of
the employee benefit plans and programs available to other high-level executives
of the Company, including, without limitation, health, dental, and life
insurance benefits for Executive and Executive's dependents, pension and profit
sharing programs, and vacation and sick leave benefits. However, the terms of
this Agreement shall not restrict the Company's right to change, amend, modify,
or terminate any existing benefit plan or program, or to change any insurance
company or modify any insurance policy adopted incident to such existing benefit
plan and program.
3.3 Automobile Allowance. The Company shall provide Executive with a
$750.00 (seven hundred and fifty dollars) per month automobile allowance. The
Company shall furnish Executive with a cellular telephone. Executive shall
provide and maintain automobile insurance for Executive's car including
collision, comprehensive liability, personal and property damage, and uninsured
and underinsured motorist coverage in amounts customarily obtained to cover such
contingencies in the State of California. Executive shall provide proof of such
coverage to the Company upon the Company's request.
3.4 Reimbursement of Expenses. The Company shall pay for or reimburse
Executive for all reasonable travel, entertainment, and other business expenses
incurred or paid for by Executive in connection with the performance of his
services under this Agreement. The Company shall not be obligated to make any
such reimbursement unless Executive presents corresponding expense statements or
vouchers and such other supporting information as the Company may from time to
time reasonably request. The Company reserves the right to place subsequent
limitations or restrictions on business expenses to be incurred or reimbursed.
3.5 Annual Incentive Plan. Executive shall be entitled to participate fully
in the Company's 1996 Management Incentive Compensation Plan, as amended (the
"MICP"), and as may be further amended, modified, or replaced, from time to
time, in accordance with the terms and conditions set forth herein and therein.
3.6 Stock Option Plans. Executive shall be entitled to participate in the
applicable Stock Option Plans for Officers and Key Employees of PacifiCare
Health Systems, Inc., as
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amended, and as may be further amended modified or replaced, from time to time,
in accordance with the terms and conditions set forth herein and therein.
3.7 Insurance. During the term of this Agreement, the Company shall insure
Executive under its general liability insurance for all conduct committed in
good faith while acting in the capacity of President and CEO, Health Plans, of
the Company or in any other capacity to which Executive may be appointed or
elected.
3.8 Savings and Profit Sharing Plan. As part of the compensation for
services rendered under this Agreement, Executive shall be entitled to
participate in the Amended and Restated PacifiCare Health Systems, Inc. Savings
and Profit-Sharing Plan, and the trust agreement implemented pursuant thereto,
adopted as of July 1999, as amended, and as may be further amended, modified, or
replaced, from time to time in accordance with the terms and conditions set
forth therein.
3.9 Non-Qualified Deferred Compensation Plans. Executive shall be entitled
to participate in any non-qualified deferred compensation plan established by
the Company, including, without limitation, the Company's Statutory Restoration
Plan, Deferred Compensation Plan, and such other plans as may be applicable, as
such plans may be amended, modified or replaced, from time to time, in
accordance with the terms set forth herein and therein.
3.10 Premium Priced Options Cash Consideration. Upon a Change of Control
(as defined herein), the options (the "Premium Priced Options") granted under
the Amended 1997 Premium Priced Stock Option Plan, Executive will receive, if
the "Adjusted Change of Control Consideration" (as defined below) is equal to,
or in excess of the exercise price of any of the Premium Priced Options, an
amount in cash equal to the excess of the Adjusted Change of Control
Consideration, over the exercise price of each Premium Priced Option, adjusted
to reflect any excise taxation incurred by Executive resulting from such
payment. No additional compensation will be paid to Executive if the per share
consideration for a Change of Control transaction is equal to or greater than
$115.00. As used in this Section 3.10, the term "Adjusted Change of Control
Consideration" means and refers to the per share consideration to be received by
each holder of the Company's Common Stock upon consummation of a transaction
effecting a Change of Control times one hundred and ten percent (110%).
4. COMPENSATION FOLLOWING TERMINATION
4.1 Death. In the event that this Agreement is terminated by reason of
Executive's death, Executive's estate or legal representative shall be entitled
to receive the following:
a. Payment of benefits under the life insurance policy purchased by the
Company on Executive's behalf, in the amount of $1,125,000;
b. Payments of benefits under the MICP set forth in Section 3.5 in
accordance with the terms of the MICP plan document;
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c. Payment of any other bonus amounts or benefits to which Executive
may be entitled under any of the Company's benefit plans; and
d. Executive's legal representative shall be permitted to exercise any
vested and unexercised options granted under the 1996 Stock Option Plan and
any other existing stock option plans of the Company (collectively, the
"Stock Option Plans") in accordance with their terms for a period of one
year following Executive's death.
4.2 Disability. In the event that Executive is terminated because of
incapacity or disability, the Company shall provide Executive with the
following:
a. Payment of benefits under the disability insurance policy maintained
by the Company on Executive's behalf, if any;
b. Payment of benefits under the MICP set forth in Section 3.5 in
accordance with the terms of the MICP plan document;
c. The right to exercise any vested and unexercised options under the
Stock Option Plans in accordance with the terms stated therein;
d. Payment of the automobile allowance as provided under Section 3.3
for a period of 24 months following the effective date of such termination;
and
e. Payment of any other bonus amounts or benefits to which Executive
may be entitled under any of the Company's benefit plans.
4.3 Neglect, Misconduct or Voluntary Termination. In the event this
Agreement is terminated because of Executive's habitual neglect or gross
misconduct pursuant to Section 2.2(c) or because of Executive's voluntary
termination, the Company shall be relieved from any and all further or future
obligations to compensate Executive; provided, however, that Executive shall be
able to exercise any vested and unexercised awards under the Stock Option Plans
in accordance with the terms set forth therein.
4.4 Discharge. In the event that the Company terminates Executive under
circumstances other than a Change-of-Control (as defined herein) and for any
reason other than Executive's incapacity or disability or neglect/misconduct as
described in Sections 2.2(b) and 2.2(c), respectively, or voluntary termination
then Executive shall be entitled to the following compensation:
a. An amount equal to three times of Executive's then current annual
salary under Section 3.1, which shall not be less than the amount of base
salary as of the date of this Agreement;
b. An amount equal to three times Executive's average MICP bonus. If
Executive has been employed by the Company for more than one, but less than
two years,
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then the MICP bonus severance payment shall equal the average of the
Executive's MICP award for the prior year and the target for Executive for
the current year. Whenever the average MICP bonus is determined by
utilizing prior years' performance, it shall be based upon the current
year's weighting. If Executive has been employed by the Company for less
than one year, Executive will not receive any bonus severance payment;
c. Continued vesting of his options under the Stock Option Plans in
accordance with their terms for a period of one year from the effective
date of such termination, and the ability to exercise any vested and
unexercised options under the Stock Option Plans in accordance with their
terms within two years of the effective date of such termination;
d. Continuation of Executive' and his/her dependents' medical, dental
and vision benefits for a period of 36 months following the effective date
of such termination;
e. An amount equal to 36 months of Executive's automobile allowance;
f. Any other bonus amounts or benefits to which the Executive may be
entitled under any of the Company's benefit plans;
g. The Company shall provide to Executive outplacement services to
Executive to assist Executive in securing a position comparable to the one
from which Executive was terminated. The Company shall be obligated to
provide those outplacement services which are customarily provided by
companies of similar size and holdings as those of the Company to
executives with comparable responsibility and longevity as Executive and
for reasonable cost as approved by the Company. The Company's provision of
such outplacement services shall not limit, restrict, or reduce, in any
manner, any and all other compensation to which Executive is entitled
hereunder;
h. Executive shall receive, or have paid, the amounts of severance
compensation provided in clauses (a), (b), (d) and (e) above in 36 equal
monthly installments over a period of 36 months. Payments will be made
either in biweekly installments on the Company's regular paydays or as
currently being paid to Executive;
i. Notwithstanding the foregoing, in the event Executive engages in
employment, whether as an employee, consultant or contractor with a
competitor of the Company during the 36 month period in which Executive's
salary continues pursuant to this Section 4.4, the severance compensation
available to Executive under this Section 4.4 shall be reduced by the
amount of any and all gross earnings Executive earns while engaged in
employment with any such competitor or competitors. For the purposes of
this Section 4.4, a "competitor of the Company" shall include, without
limitation, managed care organizations, including a health maintenance
organization, competitive medical plan, preferred provider organization,
provider sponsored organization ("PSO"), or health or life insurance
company which owns a managed care organization, plan or program. Executive
agrees to provide immediate notice to Company upon receipt of any gross
earnings received by Executive from a competitor of Company. Quarterly,
Executive shall provide the
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Company a certificate certifying as to his/her employment status and if
employed, the name and business of his/her current employer;
j. If Executive is rehired by Company, payments of severance
compensation provided for in this Section 4.4 shall cease; and
k. If Executive dies while receiving the salary continuation benefit as
provided in this Section 4.4, Executive's estate will receive a lump sum
payment of the remaining salary continuation benefit.
5. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT AS A RESULT OF A CHANGE OF
CONTROL
5.1 Termination of Employment or Resignation for Good Cause
a. Executive's Rights. In the event that, during the term of this
Agreement, the Company undergoes a Change of Control, (as that term is
defined below) and if within 24 months after the consummation of such
change either (1) Executive is involuntarily terminated, except as provided
in Section 5.1(b), or (2) Executive voluntarily terminates his employment
for "good cause" as defined in Section 5.1(d), then Executive shall be
entitled to the following compensation:
1. A lump sum payment consisting of: (i) an amount equal to Three
times Executive's then annual salary; (ii) an amount equal to three
times Executive's average MICP bonus award for the last two years;
(iii) a prorated bonus based on target opportunity for the year in
which the Change-of-Control occurs; (iv) an amount equal to the
equivalent of the cost of 36 months of COBRA benefits; and (v) an
amount equal to 36 months of Executive's automobile allowance. If
Executive has been employed for more than one, but less than two years,
then the amount attributable to the MICP bonus portion set forth in
clause (ii) above shall equal the average of Executive's MICP bonus for
the prior year and the target for Executive for the current year. If
Executive has been employed for less than one year, Executive shall
receive an amount equal to three times target bonus for the current
year.
2. The right to exercise any and all unexercised stock options
granted under the Stock Option Plans in accordance with their terms, as
if all such unexercised stock options were fully vested, within one
year of the effective date of such termination;
3. A payment to executive to compensate for any excise penalty or
other associated taxes resulting from severance payments exceeding the
cap imposed by Internal Revenue Code Section 280(G);
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4. The Company shall provide to Executive the outplacement services
described in Section 4.4(g);
5. The cash compensation related to the Premium Priced Options
described in Section 3.10; and
6. Any other bonus amounts or benefits to which Executive may be
entitled under any of the Company's benefit plans.
b. Limitation of Benefits. In the event that Executive is terminated
within 24 months after a Change of Control of the Company, and such
termination results from either Executive's death, incapacity or disability
or habitual neglect or gross misconduct, then, notwithstanding anything in
this Section 5 to the contrary, Executive shall receive only that
compensation, if any, to which he is entitled to under Sections 4.1, 4.2
and 4.3, respectively.
c. Change of Control. As used in this Section 5, the term "Change of
Control" means and refers to:
1. Any merger, consolidation, or sale of the Company such that any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) acquires beneficial ownership, within the meaning of
Rule 13d-3 of the Exchange Act, of 20 percent or more of the voting
common stock of the Company;
2. Any transaction in which the Company sells substantially all of
its material assets;
3. A dissolution or liquidation of the Company;
4. The Company becomes a non-publicly held company; or
5. Any change in the composition of the Company's Board of Directors
during an 18-month period such that the individuals who at the
beginning of such 18-month period were directors of the Company shall
cease for any reason (other than death, disability or retirement) to
constitute a majority of the Board of Directors of the Company.
d. Good Cause. As used in this Agreement "good cause" for Executive to
terminate his employment shall be deemed to exist if Executive voluntarily
terminates his employment within 24 months of a Change of Control for any
of the following reasons:
1. Without Executive's express prior written consent, Executive is
assigned duties materially inconsistent with Executive's position,
duties,
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responsibilities, or status with the Company which substantially
varies from that which existed immediately prior to such change of
ownership or control;
2. Without Executive's express prior written consent, Executive
experiences a change in his reporting level, titles, or business
location (or more than 50 miles from his current business location or
residence whichever is closer to the new business location) which
substantially varies from that which existed immediately prior to the
Change of Control; except that if Executive is not located at the
Company's corporate headquarters in California, a relocation to the
Company's corporate headquarters in California shall not be deemed a
substantial variation, unless Executive's reporting level or title is
also substantially varied.
3. Without Executive's express prior written consent, Executive is
removed from any position held immediately prior to the change of
ownership or control, or if Executive fails to obtain reelection to any
position held immediately prior to the change of ownership or control,
which removal or failure to reelect is not directly related to
Executive's incapacity or disability, habitual neglect, gross
misconduct or death;
4. Without Executive's express prior written consent, Executive
experiences a reduction in salary of more than 10 percent below that
which existed immediately prior to the change of ownership or control.
5. Without Executive's express prior written consent, Executive
experiences an elimination or reduction of any employee benefit,
business expense reimbursement or allotment, incentive bonus program,
or any other manner or form of compensation available to Executive
immediately prior to the Change of Control and such change is not
otherwise applied to others in the Company with Executive's position or
title;
6. The Company fails to obtain from any successor, before the
succession takes place, a written commitment obligating the successor
to perform this Agreement in accordance with all of its terms and
conditions; or
7. The Company or any successor thereto purports to terminate
Executive pursuant to Section 4.4 without first giving Executive prior
written notice thereof that specifies the facts and circumstances, in
reasonable detail, serving as the basis for Executive's termination.
5.2 Resignation for Other Than Good Cause After a Change of Control. In the
event that the Company undergoes a Change-of-Control and Executive remains with
the Company for 12 months following the effective date of the Change-of-Control,
Executive will be given a 30-day "window period" in which to elect to
voluntarily terminate Executive's employment for reasons other than good cause.
Should Executive choose to terminate Executive's employment within the 30-day
"window period," then Executive shall be entitled to the following compensation:
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a. One-half the lump sum payment referred to in Section 5.1(a)(1).
b. The right to exercise all vested and unexercised stock options
granted under the Stock Option Plans in accordance with their terms within
one year of the effective date of such termination.
c. Outplacement services as defined in Section 4.4(g).
6. NOTICES
All notices or other communications required or permitted to be made hereunder
shall be given in writing and sent by either personal delivery, overnight
delivery, or United States registered or certified mail, return receipt
requested, all of which shall be properly addressed with postal or delivery
charges prepaid, to the parties at their respective addresses set forth below,
or to such other addresses as either party may designate to the other in
accordance with this Section 5:
If to the Company: PacifiCare Health Systems, Inc.
0000 Xxxx Xxxxxx Xxxxx
Xxxxx Xxx, Xxxxxxxxxx 00000
Attn: President and
Chief Executive Officer
If to Executive: Xxxxxxxx Xxxxxx
0 Xxxxx Xxxxx
Xxxxxxx Xxxxx, XX
00000
All notices sent by personal delivery shall be deemed given when actually
received. All notices sent by overnight delivery shall be deemed received on the
next business day. All other notices sent via United States mail shall be deemed
received no later than two business days after mailing. Any notice given by any
method not expressly authorized herein, shall nevertheless be effective if
actually received, and shall be deemed given upon actual receipt.
7. GENERAL PROVISIONS
7.1 Severance Agreement. Any payments of compensation made pursuant to
Sections 4 and 5, except for the cash compensation related to the Premium Priced
Options set forth in Section 3.10, are contingent on Executive executing the
Company's standard severance agreement, including a general release of the
Company, its owners, partners, stockholders, directors, officers, employees,
independent contractors, agents, attorneys, representatives, predecessors,
successors and assigns, parents, subsidiaries, affiliated entities and related
entities.
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7.2 Assignability. This Agreement shall inure to the benefit of, and shall
be binding upon the heirs, executors, administrators, successors, and legal
representatives of Executive and shall inure to the benefit of, and be binding
upon the Company and its successors and assigns. Executive shall not assign,
delegate, subdelegate, transfer, pledge, encumber, hypothecate, or otherwise
dispose of this Agreement, or any rights, obligations, or duties hereunder, and
any such attempted delegation or disposition shall be null and void and without
any force or effect; provided, however, that nothing contained herein shall
prevent Executive from designating beneficiaries for insurance, death or
retirement benefits.
7.3 Entire Agreement. This Agreement is a fully integrated document and
contains any and all promises, covenants, and agreements between the parties
hereto with respect to Executive's employment. This Agreement supersedes any and
all other, prior or contemporaneous, discussions, negotiations, representations,
warranties, covenants, conditions, and agreements, whether written or oral,
between the parties hereto. Except as expressed herein, the parties have not
exchanged any other representations, warranties, inducements, promises, or
agreements respecting Executive's employment with the Company.
7.4 Severability. In the event any one or more of the provisions of this
Agreement shall be rendered by a court of competent jurisdiction to be invalid,
illegal, or unenforceable, in any respect, such invalidity, illegality, or
unenforceability shall not affect or impair the remainder of this Agreement
which shall remain in full force and effect and enforced accordingly, unless a
party demonstrates by a preponderance of the evidence that the invalidated
provision was an essential economic term of this Agreement.
7.5 Amendment. This Agreement shall not be changed, amended, or modified,
nor shall any performance or condition hereunder be waived, in whole or in part,
except by written instrument signed by the party against whom enforcement or
waiver is sought. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other or
subsequent breach of the same or any other term or condition of this Agreement.
7.6 Governing Law. This Agreement shall be governed by, enforced under, and
construed in accordance with the laws of the State of California.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
The Company: PACIFICARE HEALTH SYSTEMS, INC.,
a Delaware corporation
/s/ XXXX X. XXXXX
--------------------------------
By: Xxxx X. Xxxxx
Title: President and
Chief Executive Officer
/s/ XXXXXXXX XXXXXX
Executive: --------------------------------
Xxxxxxxx Xxxxxx
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