XXXXX X. XXXX
SEVERANCE PAYMENT AGREEMENT
This Severance Payment Agreement (this "Agreement") is entered into as
of March 31, 1997, between Health Systems International, Inc., a Delaware
corporation ("HSI") and Health Net, a California corporation (together with
HSI, the "Companies"), on the one hand, and Xxxxx X. Xxxx ("Employee"), on
the other hand.
WHEREAS, the Companies previously employed Employee as its Senior Vice
President, Human Resources and Administrative Services of Health Net and
currently employ Employee as the executive in charge of the Company's
developing "Customer Rewards Initiative" business (the "New Business"); and
WHEREAS, in consideration for past efforts of the Employee and to entice
Employee to continue to provide such efforts the Companies propose to make
the payments set forth in this Agreement in the event Employee's employment
with the Companies is terminated on the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement (the "Covered
Period") shall be the period commencing on the date hereof (the "Effective
Date") and ending on the date two (2) years after the Effective Date. Any
payments to be made pursuant to Section 3 hereof shall only be made if
Employee is terminated by the Companies without Cause or terminated by
Employee with Good Reason and if such termination occurs during the Covered
Period as provided in Section 5 hereof. Upon the expiration of the Covered
Period, Employee will have no further rights under this Agreement and will
only be entitled to receive such severance benefits, if any, that are
afforded to similarly situated employees of the Companies at such time.
2. DUTIES OF EMPLOYEE. Employee shall serve as the executive in charge
of the New Business (which title and capacity Employee acknowledges to be
correct and current as of the Effective Date by executing this Agreement
below). During the term of employment, Employee shall devote his entire
productive time, energies and abilities to the business of the Companies and
shall at all times loyally and conscientiously perform all the duties and
obligations required of him expressly or implicitly by the terms of this
Agreement.
3. TERMINATION OF EMPLOYMENT.
3.1 TERMINATION BY THE COMPANIES WITHOUT CAUSE. The Companies may
terminate Employee's employment without cause at any time. In the event that
the Companies do so at any time during the Covered Period, Employee shall be
entitled, as a severance allowance, to continuation of his
base salary ("Base Salary") and all medical, health, disability, life and
accident insurance maintained for Employee's benefit immediately prior to the
date of Employee's termination (collectively, "Salary and Benefits") for a
period equal to twenty-four (24) months from the date of termination. It is
understood and agreed that management of the Companies, in their discretion,
may provide a reasonable period of prior notice for any such termination in
order to facilitate an orderly transition of Employee's duties to his
successor.
3.2 TERMINATION BY THE COMPANIES FOR CAUSE. The Companies may
terminate Employee's employment for Cause at any time with or without notice.
In the event of such termination, Employee shall not be eligible to receive
any payments set forth in this Section 3. For purposes of this Agreement,
Cause shall include, without limitation, (a) an act of dishonesty causing
harm to the Companies, (b) the knowing disclosure of confidential information
relating to the Companies' business, (c) habitual drunkenness or narcotic
drug addiction, (d) conviction of a felony, (e) willful refusal to perform or
gross neglect of the duties assigned to Employee, (f) the willful breach of
any law that, directly or indirectly, affects the Companies or (g) breach of
the provisions of Section 8 of this Agreement.
3.3 VOLUNTARY TERMINATION BY EMPLOYEE WITHOUT GOOD REASON.
Notwithstanding anything to the contrary in this Agreement, whether express
or implied, Employee may at any time terminate his employment for any reason
by giving the Companies fourteen (14) days prior written notice of the
effective date of termination. In the event that Employee's employment with
the Companies is voluntarily terminated by Employee without Good Reason (as
defined below), Employee shall not be eligible to receive any payments set
forth in this Section 3.
3.4 VOLUNTARY TERMINATION BY EMPLOYEE WITH GOOD REASON.
Notwithstanding the preceding Section 3.3, in the event that Employee's
employment with the Companies is voluntarily terminated during the Covered
Period by Employee with Good Reason within twelve (12) months after a Change
of Control of HSI, Employee shall nevertheless be entitled, as a severance
allowance, to continuation of his Salary and Benefits for a period of
twenty-four (24) months from the date of termination. For purposes of this
Agreement, Good Reason shall mean any of the following which occurs
subsequent to the Effective Date:
(i) a reduction in the scope of Employee's position, duties,
responsibilities or of Employee's status with the Companies, or any
removal of Employee from or any failure to reelect Employee to any of
the positions referred to in Section 1 hereof, except in connection
with the termination of his employment for disability, normal retirement
or Cause or by Employee voluntarily other than for Good Reason;
(ii) a reduction by the Companies in Employee's Base Salary as in
effect immediately prior to any such reduction without Employee's
consent, or the Companies' failure to increase (within twelve (12) months
of Employee's last increase in Base Salary) Employee's Base Salary by
an amount which at least equals, on a percentage basis, 90% of the
average percentage increase (determined without regard to Employee) in
base salary for all senior executive employees of the Companies
effected in the preceding twelve (12) months; or
(iii) a requirement that Employee travel on the Companies' business
to an extent
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materially greater than Employee's normal business travel obligations,
or a relocation of Employee to a location more than twenty-five (25)
miles from Employee's residence at the date of such proposed relocation.
For purposes of this Agreement, Change of Control shall mean any of the
following which occurs subsequent to the Effective Date:
(a) 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 HSI, any employee benefit plan
sponsored by HSI or any of its subsidiaries, the Chairman of the Board
of HSI on the Effective Date or The California Wellness Foundation), is
or becomes the beneficial owner (as such term is defined in Rule 13d-3
under the Exchange Act) of securities of HSI representing twenty percent
(20%) or more of the combined voting power of the outstanding securities
of HSI 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 HSI's securities) (the "Securities");
(b) As a result of a tender offer, merger, sale of assets or other
major transaction, the persons who are directors of HSI immediately prior
to such transaction cease to constitute a majority of the Board of
Directors of HSI (or any successor corporations) immediately after such
transaction;
(c) HSI is merged or consolidated with any other person, firm,
corporation or other entity and, as a result, the shareholders of HSI,
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;
(d) A tender offer or exchange offer is made and consummated for
the ownership of twenty percent (20%) or more of the outstanding
Securities of HSI;
(e) HSI transfers substantially all its assets to another person,
firm, corporation or other entity that is not a wholly-owned subsidiary
of HSI; or
(f) HSI enters into a management agreement with another person,
firm, corporation or other entity that is not a wholly-owned subsidiary
of HSI and such management agreement extends hiring and firing authority
over Employee to an individual or organization other than HSI.
3.5 DEATH OR DISABILITY. Upon Employee's death during his
employment with the Companies, the estate or beneficiaries of the Employee
shall be entitled to receive the continuation of Employee's Salary and
Benefits for a period equal to twenty-four (24) months from the date of
Employee's death. If during his employment with the Companies Employee
becomes incapacitated due to physical or mental illness and is unable to
perform his duties and responsibilities hereunder, applying the standards set
forth in his disability insurance policy, and such disability continues for
more than three months or for periods aggregating more than three months in
any twelve-month period, this Agreement
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may be terminated by the Companies in its discretion at any time thereafter
during the continuance of such disability.
4. STOCK OPTION EXTENSION. All 34,000 stock options (at $27.875 and
$35.25 per share) currently held by Employee under HSI's Second Amended and
Restated 1991 Stock Option Plan (the "Plan") and outstanding as of the
Effective Date have previously become fully vested and exercisable. Such
options shall remain exercisable for a period of one (1) year from Employee's
employment termination date provided such termination is by the Companies
without Cause or by the Employee for Good Reason and such termination takes
place during the Covered Period.
5. OUTPLACEMENT SERVICES. Upon Employee's termination of employment by
the Company without Cause or by Employee with Good Reason, the Companies
shall provide Employee with appropriate "Executive Outplacement Services" to
assist Employee in obtaining new employment, provided that the scope and
extent of such services shall be reasonably commensurate with what the
Companies provide similarly situated executives.
6. WITHHOLDING. All payments required to be made by the Companies
hereunder to Employee or his estate or beneficiaries shall be subject to the
withholding of such amounts relating to taxes as the Companies may reasonably
determine should be withheld pursuant to any applicable law or regulation.
7. TAX CONSEQUENCES. The Companies shall have no obligation to any
person entitled to the benefits of this Agreement with respect to any tax
obligation any such person may incur as a result of or attributed to this
Agreement or arising from any payments made or to be made hereunder. Nothing
contained herein shall be construed as a warranty or representation of any
kind by the Companies to Employee with respect to the tax consequences of his
participation in this Agreement.
8. CONFIDENTIALITY. Employee acknowledges and agrees that, during the
period of his employment by the Companies, he has and will continue to have
access to and become acquainted with various trade secrets, including but not
limited to, various procedures, practices, information regarding the
organization and operation of the Companies, confidential customer
information, marketing methods, compilations of information and records that
are owned by the Companies and that are regularly used in the operation of
its business. The parties stipulate that such items of information are
important material and confidential trade secrets and affect the successful
conduct of the Companies' business and its goodwill, and that any breach of
this Section 8 shall be a material breach of this Agreement. All documents,
memoranda, reports, files, correspondence, lists and other written and
graphic records affecting or relating to the Companies' business that
Employee may prepare, use, observe, possess or control shall be and remain
the Companies' sole property. Employee shall not disclose any of these trade
secrets, directly or indirectly, or use them in any way, either during the
term of his Employment or at any time thereafter, except as required in the
course of his employment by the Companies or as otherwise authorized in
writing by the Companies. In the event of the termination of Employee's
employment with the Companies, Employee shall deliver promptly to the
Companies all written or graphic records containing such trade secrets or
confidential information of the Companies.
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9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes any and all other agreements,
whether oral or written (including but not limited to that certain
Severance/Retention Payment Agreement dated May 1, 1995 (the "Prior Severance
Agreement")), between the parties hereto with respect to the subject matter
hereof. Each part to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or written, have been made by any
party or anyone acting on behalf of any party that are not embodied herein,
and that no other agreement, statement or promise not contained in this
Agreement shall be valid or binding. Upon execution of this Agreement, the
Prior Severance Agreement shall be terminated and have no further force or
effect.
9.2 RIGHT TO TERMINATE EMPLOYMENT. It is hereby agreed that the
relationship between the Companies and Employee is merely an "at-will"
employment relationship and that nothing in this Agreement shall confer upon
Employee the right to continue in the employment of the Companies or affect
any right which the Companies have to terminate the employment of Employee.
9.3 AMENDMENTS. This Agreement may not be amended or terminated
other than by a written instrument signed by the party against whom
enforcement of such amendment or termination is sought. No amendments to this
Agreement or interpretations hereof or any waivers or modifications of any of
the provisions hereof may be made on behalf of the Companies without the
approval of the Board of Directors or the Compensation and Stock Option
Committee of HSI.
9.4 WAIVER. No waiver of any default under this Agreement shall
constitute or operate as a waiver of any subsequent default, and no delay,
failure or omission in exercising or enforcing any right, privilege or option
hereunder shall constitute a waiver, abandonment or relinquishment thereof.
No waiver of any provision hereof by either party hereto shall be deemed to
have been made unless or until such waiver shall have been reduced to writing
and signed by the party making such waiver. Failure by either party to
enforce any of the terms, covenants or conditions of this Agreement for any
length of time or from time to time shall not be deemed to waive or decrease
the rights of such party to insist thereafter upon strict performance by the
other party.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTH SYSTEMS INTERNATIONAL, INC.
By: /s/ Xxx X. Xxxxxxx
------------------------------------
Name: Xxx X. Xxxxxxx
Title: President and Chief Executive
Officer
HEALTH NET
By: /s/ Xxxxxx X. Xxxxxxx, M.D.
------------------------------------
Name: Xxxxxx X. Xxxxxxx, M.D.
Title: President and Chief Executive
Officer
/s/ Xxxxx X. Xxxx
---------------------------------------
Employee: Xxxxx X. Xxxx
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